Yotam Dar Discusses How Blockchain Can Prevent Cyber Scams and Fraud

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Yotam Dar, tech entrepreneur and blockchain security expert, offers his insights on how to weaponize blockchain against scammers and defrauders.

For many, blockchain equates to bitcoin or cryptocurrency in general. However, this technology goes way beyond digital money. It has applications in a wide variety of settings. It can be the underlying technology for secure data sharing, royalties tracking, supply chain and logistics monitoring, and even voting mechanisms.

Blockchain can also be a tool in preventing scams and fraud. This application is particularly important especially now when most activities are already being undertaken digitally and through the internet. There has to be a dependable way to authenticate items and ensure the veracity and uniqueness of transactions.

Blockchain provides a highly viable way to keep transactions fraud-free because of these three highlighted features: being distributed, immutability, and the possibility of being permissioned.

Sharing accountability with distribution

Blockchain entails the use of distributed ledgers that contain transaction data. There is no central authority or control. The data is shared across a peer-to-peer network which ensures the continual reconciliation of the new data being added as new transactions are recorded. With this kind of setup, it is not possible for a single user to change the information on the distributed ledgers to fabricate or change the details of a transaction.

As IBM’s Ross Mauri says, “there is no single point of failure.” Everyone who uses the system is involved in the management and authorization of transactions. As such, the possibility of someone instigating a fabricated, false, or corrupted transaction is close to nothing.

Scammers manage to succeed in their nefarious ways because they are able to conceal their traces as they deceive their victims into sending them money or as they get paid for a fraudulent product or service. This is not possible with a system that utilizes blockchain technology as its foundation. If there are changes introduced to a transaction, it will be recorded in the distributed ledger and everyone gets to know it. Nothing is concealable. The flow of transactions can be traced easily.

It would take the collusion of an overwhelming majority of the blockchain users to institute a change that does not follow the intention of the original system. When something like this happens, what happens is no longer a fraud but a forking, which can result in a drastic major change that would impact the entire system and demolish the trust in the system. It is very unlikely for the users to collude against their own interests, so they are very unlikely to do it unless the forking is warranted.

Constancy and predictability with immutability

Another key feature of blockchain is the immutability of transactions. This means that when a transaction is recorded, the data is added to the blockchain and will remain as is forever. There is no option to change it or even “correct” something that is perceived to be a mistake. After all, a transaction is verified by multiple users of the blockchain network who build consensus to determine whether or not a particular transaction is valid. Timestamps are added and cryptography is invoked before transaction data can be attached to a previous block in the chain.

This immutability makes it possible to depict the provenance of an asset. Assets and the transactions recorded in the blockchain are sure to be unique. Using the same asset to undertake a different transaction is not possible. Once an asset is already associated with a specific transaction, it cannot be used for another transaction or be in the possession of another owner.

In the case of bitcoin, for example, once a specific amount of someone’s bitcoin is associated with a purchase, the same exact transaction may no longer be used for another, and it is not possible to revert the transaction to use the amount elsewhere.

The same applies to digital assets or digital representations of actual physical assets–the most popular of which nowadays is the non-fungible token or NFT. The sale of music, movies, or other digital content can be made to go through the blockchain to make sure that buyers only purchase authentic copies. Smart contracts can be used to make sure that the audio or video files can only be played if payment has been made or other conditions are met.

In the case of physical products such as luxury goods, codes may be generated to make it possible to verify if a product is authentic and not counterfeited. These codes are specifically attached to certain items and may only be identified by tracking transactions in the blockchain.

The immutability attribute of blockchain technology essentially makes it impossible to lie about the origin and transfer of ownership of assets, thus preventing scammers from selling fake, counterfeit, pirated, or problematic products. It creates a sense of transparency not observable in conventional commerce.

Added blockchain security with permissioning

What is blockchain permissioning? It is the setting up of a permissioned blockchain, wherein there is a systematic way of controlling access and identity management to prevent just about anyone from accessing specific data identifiable to an organization. It is an added form of security for blockchain-based systems.

Permissioned blockchains are great at preventing scams and fraud because they add an access layer that regulates the participation and capacity of users. It requires users to be invited first, so not everyone can become a user and attempt to break the system as much as they like. It also makes it possible to set what specific capabilities a user can have.

One example of a permissioned blockchain is HyperLedger Fabric, which is hosted by the Linux Foundation. This flexible open source blockchain framework is designed for the development of apps and solutions with a modular architecture, making it possible to turn components such as membership services and consensus building to be instituted in a plug-and-play manner.

HyperLedger Fabric is already being used in a variety of settings including the Abu Dhabi government’s land registry, the financial exchange platform of Asian FinTech firm BondEvalue, Dubai’s supply chain “digital silk road,” and Africa’s first decentralized ID system. Insurance firm AAIS also uses HyperLedger Fabric to streamline regulatory reporting while retail giant Walmart harnesses this permissioned blockchain framework to deliver excellent supply chain transparency and traceability.

Ensuring reliable and secure transactions

Blockchain technology has already found many applications in different industries, and it continues to grow and improve. Its use as a scam and fraud prevention solution makes it even more compelling to consider using it, especially critical operations and activities that involve the storage and transfer of assets.

Fraud continues to be one of the biggest problems in modern society. It is only logical to address it with the help of a technology that has already proven its worth over the years while continuing to evolve and become more efficient and convenient for users.