There’s no question that cryptocurrency and blockchain have revolutionized the landscape of finance in a lot of ways. Crypto coins and blockchain technologies are responsible for many innovative solutions, such as eliminating the need for intermediaries when sending value directly from one party to another and increasing the efficiency and transparency of internal processes—both of which have disrupted the way traditional financial systems do things.
With the emergence of crypto and blockchain tech, there’s sure to be a fundamental shift in the way financial transactions are conducted, recorded, and secured. Blockchain solutions like BSV blockchain for enterprise-grade applications may also contribute towards the greater fight against financial fraud. Here’s a guide on what role the technology will play in combating phishers, hackers, fraudsters, and other bad actors in the near future:
Decentralization Will Lower the Risk of Fraud
Traditional financial systems often rely on centralized authorities like banks, regulatory agencies, and governments to facilitate transactions and provide people with funding. However, if any of these authorities fail to implement robust security measures—both online and offline—they’re putting themselves at risk of failure and potential manipulation and may even expose their clients’ information to fraudsters.
Cryptocurrencies and blockchains, however, operate on a network of distributed nodes that don’t require central control. Transactions made through decentralized currencies are also documented on an unchangeable and publicly shared database, which relieves people of the need to provide their private information during transactions. This lowers the potential for fraud as a result.
What’s more, this decentralization makes it difficult for fraudsters to compromise the entire system when attempting their nefarious acts. If a single node is compromised, the discrepancy will be contained in that one node. That means that other nodes in the chain can continue to maintain the integrity of the blockchain since they won’t be affected by the anomaly.
The Immutability of Digital Currencies Makes Them Difficult to Manipulate
Blockchain technology is immutable, which means that the data that exists in the blockchain is permanent and can’t be altered. Once a transaction is recorded on the chain, it becomes nearly impossible to change or delete.
As such, blockchains offer reliable and tamper-resistant records of financial activities, giving people greater peace of mind about the movement of their assets. Even if fraudsters successfully manipulate a node, the anomaly in the chain is easily identifiable. That’s because the integrity of the original transaction is preserved, making unauthorized modifications or false documentations stick out like a sore thumb.
Crypto and Blockchain Offer Heightened Accountability and Transparency Over Assets
Since digital currencies are decentralized, every transaction made in a string of nodes is recorded on a public ledger that can be seen by participants. This makes the data in cryptocurrencies and blockchains more transparent—and more difficult for fraudsters to manipulate or conceal transactions without detection.
The use of a public ledger also fosters trust in the crypto or blockchain community, making every participant accountable for their actions. Moreover, participants use cryptographic identifiers and timestamps when making transactions, both of which add a layer of traceability to the blockchain and enable effective monitoring and identification of any suspicious activity.
Crypto and Blockchain Technologies Enhance Auditing Capabilities
With every transaction recorded in the chain, auditors can review complete transaction histories with confidence. Since digital currencies use a network of nodes to permanently store their data, auditors will have an easier time tracking and auditing financial activities without the fear of past transactions being altered or erased. This gives them the reassurance that the transactions of their clients, past and present, won’t be easily manipulated by fraudsters.
Crypto and Blockchain Technologies Utilize Cryptographic Security Measures to Prevent Fraud
Participants in a crypto- or blockchain-driven network use public key cryptography to complete transactions. This method uses an encryption scheme that operates with two keys—a public and a private key—to authorize and authenticate transactions. Each participant has their own unique public and private key, which they use to receive funds and sign transactions respectively. Public keys can be published, while private keys are kept secret. This way, specific data can only be accessed when the right public and private key combination is used.
Through cryptographic security, participants can ensure that their transactions in the chain are authentic. It also gives them the confidence to continue using digital currencies since they can protect their sensitive data from being intercepted or accessed by unauthorized individuals.
Blockchain-Driven Smart Contracts Can Minimize Risk and the Potential for Human Error
Smart contracts, or self-executing agreements based on blockchain technology, are contracts that contain predefined rules and conditions that are automatically enforced upon fulfillment. These facilitate secure and transparent financial transactions by eliminating the need for intermediaries and manual verification processes.
As a result of their automated nature, smart contracts can minimize the potential for human error and manipulation for the tasks within their scope, thereby reducing the risk of fraudulent activities while also cutting intermediary costs.
Even though cryptocurrency and blockchain are relatively new concepts in the realms of finance and related fields like anti-money laundering (AML), their potential in the fight against financial fraud can’t be ignored. These technologies can offer participants a greater sense of security not only over their finances, but their personal information as well. Their presence may have challenged traditional financial systems, but some of the disruptions may be for good—and are definitely worth looking into when it comes to fighting against financial crime.