0:00 Introduction
Not only our country but the whole world is troubled by the increasing trends of financial fraud. When records were kept manually, there was a different kind of risk. Frauds and errors were different at the manual level. There was some hope with the advent of computers, but new types of frauds started coming to the fore.
On hearing names like Vijay Mallya, Neerav Modi, Mehul Choksi, the big fraud figures pass in front of our eyes, in fact, they are only a few %age. There are hundreds of such names. In the annual report of RBI 2019-20, it has been told that a sudden growth of two and a half times have been noted in banking frauds. If we look at the amount wise, it has reached rupees 1.85 lakh crore.
01:53 What is Blockchain technology?
“A blockchain is a shared and secure digital ledger that allows each component, or block, within a transaction to be tracked and approved by everyone who is a party to the transaction.”
Blockchain is such a digital record in which every member approves every block, can track, but cannot temper/alter or delete it, that is, everyone has access to the record, yet it is completely secure.
03:31 How Blockchain Works?
Private Key cryptography
Distributed network with a shared ledger
An incentive to service the network’s transactions, record-keeping, and security
06:07 How does Blockchain help fight fraud?
In Blockchain, digital data gets connected in a chain in the form of a block. It stores data cryptographically and chronologically with the help of many complex algorithms. No member can change the old record, if any new block is added, it will come only at the endpoint of the chain. All the members will get the information about the joining of the new block. All these are the features of blockchain, with the help of which we can get control over financial frauds.
06:41 DISTRIBUTED NETWORK
In whatever technologies are currently being used in the finance industry, fraudsters either manipulate the data, insert corrupt or fake data, delete any part of the data. Due to bulky data or sometimes due to compensatory errors, it becomes impossible to trace the fraud. Even if sometimes it comes into the light, it comes after a very long time. This is the reason for all the big banking frauds.
07:28 IMMUTABILITY
Once the record is registered in the Blockchain, then it cannot be changed. Even before registering as a block, the consent of all the members is required on the transaction, which is called consensus. Only after getting the consensus, the transaction gets a timestamp and it becomes a block. After that, if anyone wants to make any correction, then a new transaction will have to be recorded.
08:12 BLOCKCHAIN CAN BE PERMISSIBLE
In business, a lot of information is sensitive. Giving its access in the hands of everyone can be risky. Also, blockchain is the right option to reduce the risk of an outsider, like system hacking. You can install a private blockchain in the company and can only give access to the transaction to anyone whom you want to.
08:38 Smart Contract
Smart contracts are defined as “user-defined programs that specify rules-governing transactions”. If transactions are made in the blockchain by encoding smart contracts in business rules and accounting processes, then frauds can be controlled.
09:15 Why Banks are not quick at switching to Blockchain
Many banks have tested the blockchain by using it for some small operations like cross-border remittances, trade finance, and shorter settlement processes. Till now no major change is visible in core banking.
10:19 Conclusion
We can definitely get the benefit of the features of Blockchain in many industries. Most Revolutionary changes are needed in the financial sector. This revolution can be started with the use of Blockchain.
It may be that confidence cannot be built on its use in core banking functions yet. Some more R&D is needed, some more advancement is needed, yet there are many such operations where it can be used immediately. By doing this the purpose of testing will also continue to be solved and awareness and confidence will also come in the public.
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