Blockchain Would End Banking Fraud — Here’s How

ICO Services
Sep 3, 2018 · 5 min read

Blockchain technology is taking the world by storm, infiltrating virtually every industry with a wealth of benefits that protect both companies and consumers. In this article, we’re going to focus on how blockchain is changing the banking industry forever, especially in terms of ending banking fraud. We’ll also take a look at Belize and how blockchain could be the only way to save consumer trust in one of the world’s most renowned offshore jurisdictions.

First, let’s discuss exactly what blockchain is.

What is Blockchain Technology, anyway?

We’ll try to discuss blockchain in the most tech-friendly-possible way. If you’re interested in a more technical but beginner-friendly discussion, this resource may interests you.

To start off, did you know that blockchain is a dictionary word? It’s defined as “a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly.” In other words, any parties involved in a transaction can see what’s going on within it from a public record, that can be traced merely because it’s recorded, and nobody can update the record.

Since the invention of blockchain in 2008, it’s had an impressive 0% fail rate. Since all of the data on the network is public, there’s an amazing level of transparency.

So, how can that work? In blockchain, there are packets of information called blocks, and these records are linked together in chronological order. Since all of the information in blockchain is stored neatly, there is no need for central bookkeeping. This way of storing information means more transparency for all involved parties. Along the blockchain, there are computers called nodes attached to the network. These nodes automatically download complete copies of the blockchain.

Overall, the benefits of the blockchain are tremendous. A single person cannot control the information stored there since the information is downloaded to all the nodes.

Blockchain was developed in tandem with Bitcoin, but over the years, companies in nearly every industry have found an application for blockchain technology; this includes the banking sector.

How Does Blockchain Affect Banking?

Blockchain is already being used in the banking industry because it so seamlessly and naturally solves many of the problems banks face. For example, data is safely stored and transmitted. A transparent network structure means that there can be less fraud and money laundering.

Using a decentralized platform offers many benefits, including lowered cost. Banks typically have to outsource third parties to carry out certain operations, but with blockchain, there’s no need for the mediators. At the end of the day, banks can pass along those money savings to their customers, and that means happy customers.

As it stands, banking and finance is the largest market using blockchain with a 30% share.

When it comes to specific areas of banking that can implement blockchain, certain loans, payments, trade finance, and clearing and settlement all fall into the realm of blockchain.

To put into practice, who will benefit from this technology in the banking sector? Let’s take one of the most recent ‘mishaps’ in the banking sector: A banking scandal in Belize, which essentially disrupts the whole banking sector of the jurisdiction.

What Happened to Banking in Belize?

Now, let’s take a closer look at Belize. While the jurisdiction is still one of the most popular destinations for setting up an offshore company, it has seen a massive loss of consumer trust in the banking sector over the past few years. Despite the numerous regulatory and tax advantages of banking in Belize, consumer trust is at an all-time low. How could this be?

Well, a bank called Choice Bank is at the center of an ongoing case that’s made consumers think twice before banking in Belize.

At the end of last year, Choice Bank was the most significant international bank in Belize with more than $238 million in assets. A few months ago, the bank announced a “temporary liquidity constrained position.” Account holders are still waiting to be repaid, and many of them have proposed to the Supreme Court Registry that the bank must be closed down.

Not only that, but the rumors involve many clients from the adult entertainment industry, fraud, and money laundering.

Consumers are reeling. Those not affected want out, and those who are affected wait to see if they’ll get their money back.

This is just one example of what can happen. A single event can cause a complete banking downturn.

Blockchain Might be The Final Straw for Belizean Banking Sector

It takes time to build consumer trust, and when trust is shattered — in the case of Belize — it takes even longer to grow trust again. The adoption of blockchain technology — and the socialization of how it can offer transparency which clients are looking for — might be the best option for Belizean banks in their quest for regaining trust.

In blockchain, money laundering and other forms of fraud aren’t a possibility thanks to the level of transparency offered. Consumers can have trust in the banks because they know what’s going on, and banks have confidence in their consumers for the same reason.

So, what does blockchain can offer banks and their clients?

1. Transaction monitoring, 24/7

For a start, blockchain offers real-time monitoring of transactions. Transactions timeline is traceable, so how a transaction happened, who did it, when he/she did it, and where it happened are recorded in the blockchain. This enforces accountability across the board. There is no way to hide the identity of a person or company — or bury it in the paperwork, as we know it.

2. No need for third-party authorization

There are no more loopholes in the transaction authorization process. Everyone involved in the transaction is the one that is approving the transaction. This practically eliminates the need for third-party authorization.

3. Paperless

Documents — i.e., receipts, transaction approvals, proof of purchases, etc. — are stored in the blockchain. All stakeholders of a bank — including clients — can access the documents. So, in the event of illicit fund transfers, chargebacks, data mismatch, double purchases, and other questionable financial activities and mishaps, the needed information can be accessed quickly.

Takeaway

Now that consumers are privy to the downside of traditional banking and they’re becoming familiar with the benefits of the blockchain, they’ll be more receptive to such a change. Blockchain could eliminate most fraud in banking, revolutionize the way banking is done, and forever save banking from high costs, illegal activities, and a wealth of problems that are holding financial institutions and their customers back.

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