Blockchain and AI: A Powerful Combination for Fraud Detection
Blockchain and artificial intelligence are two of the most promising and disruptive technologies of our time. Blockchain provides a secure and transparent means for storing and distributing data; while AI enables us to efficiently process vast quantities of information. It recognizes patterns and deviations that would otherwise go unnoticed by humans. These technologies are being used in various industries to enhance efficiency, transparency, and security. When combined, blockchain and AI technology can be a powerful tool for fraud detection and prevention.
The blockchain AI global market is anticipated to reach a whopping USD 2.8 billion in 2032. From USD 285.7 million in 2021, it is expected to flourish at a 22.9% CAGR from 2022–2032. The major reason for the growth is adoption of AI-based blockchain platforms among SMEs.
How AI And Blockchain Work Together?
You must be thinking how AI and blockchain work together? While initially, they might look dissimilar, Blockchain and AI can actually work together to create innovative new applications. It’s the best combination to take advantage of what each technology has to offer. Blockchain technology uses a network of computers to maintain a shared database that is resistant to hacking and fraud. AI, on the other hand, learns from data and uses that knowledge to make accurate predictions or decisions. Decentralized and intelligent applications are possible by using a blockchain network for deploying AI algorithms, and these apps have the potential to automate different industrial processes (finance or healthcare) thus minimizing human errors while also cutting costs.
The Problem of Fraud
Fraud is a significant problem for businesses and individuals alike. According to a recent report by the Association of Certified Fraud Examiners, organizations lose an estimated 5% of their revenue to fraud each year. This is a staggering amount, and one that can have a serious impact on a company’s reputation and operations. Fortunately, blockchain and AI can help organizations detect and prevent fraud before it becomes a major issue.
How Blockchain and AI Can Help?
Blockchain helps businesses create a tamper-proof record of all their transactions; it ensures that any fraudulent activity is immediately detected and recorded. Also, it can enable businesses to track the movement of assets and identify any suspicious activity in real-time.
AI is useful in quickly identifying any questionable undertaking and taking action before it becomes a major issue. As we know, machine learning algorithms can be trained on historical data, which again helps in identifying patterns that may indicate fraud, such as unusual transaction amounts, locations, or behavior. These algorithms can then be used to continuously monitor transactions in real-time, flagging any suspicious activity for further investigation.
Here are some of the blockchain and ai use cases in which these technologies can be used together to fight fraud:
Real-Time Fraud Detection
The combined use of AI and blockchain technology has made real-time fraud prevention possible, utilizing blockchain to generate a tamper-resistant record of all transactions coupled with the use of AI for instantaneous data analysis can enable businesses to promptly detect and forestall fraud. The Swedish-based online payment processing firm, Payson has developed an AI-based fraud detection system that prevents false deals. The system applies a combination of supervised and unsupervised learning methodologies to analyze transaction data for identifying customer behavior patterns including payment patterns in real-time, and by utilizing AI and blockchain technology together, it creates another level for providing both security and transparency. As a result, Payson has been able to reduce the number of fraudulent transactions on their platform, protecting both their customers and their business.
Risk Assessment
Risk assessment is important for businesses as it helps organizations identify and manage potential risks. Let’s take a real-life use case of how the combination of blockchain and AI is used for risk assessment is the system developed by Chainalysis, a blockchain analysis company. The system examines transactional data on the blockchain to look for illicit activity such as money laundering or terrorist financing. AI and machine learning algorithms are capable of detecting specific patterns and they go through large amounts of transactional data in a very short amount of time. With the help of AI, the system can give immediate perception about possible dangers. The utilization of Chainalysis’ risk assessment tool is trusted by a number of entities for complying with regulations that include detecting money laundering activities (AML), and following the correct customer identification processes via the Know Your Customer (KYC) regulation. To perform AML compliance reviews of their customers many cryptocurrency exchanges have turned towards Chainalysis whereas the law enforcement authorities prefer using it for investigating illicit actions on the blockchain.
Anti-Money Laundering (AML) Compliance
The financial industry is one of the most heavily regulated industries in the world. Banks are required to comply with strict AML regulations to prevent money laundering and other financial crimes. The combined use of Blockchain and AI technology in banking operations provides significant improvements for meeting AML compliance efforts, resulting in the creation of a more transparent and secure network for financial transactions. For example, HSBC is using Blockchain and AI to automate its AML compliance process. The bank has developed a system that uses AI to analyze transaction patterns and detect fraudulent activities.Record keeping of all transactions is done through Blockchain which toughens the process for fraudsters to cover their tracks.
Supply Chain Management
Major industries that have to deal with supply chain fraud are pharmaceuticals, electronics, and luxury goods. The integration of Blockchain and AI helps in creating a more secure and transparent supply chain that is less vulnerable to fraud. For instance, IBM is using AI and Blockchain to improve supply chain management in the food industry. It has developed a system that uses AI to analyze data from sensors and other sources to track food products from farm to store. Blockchain has made it possible to create a tamper-proof record of all transactions, making it more difficult for fraudsters to introduce counterfeit products into the supply chain.
Identity Verification
Identity fraud is a headache for many industries, including banking, healthcare, and insurance. Blockchain AI and IoT can help companies create a more secure and reliable system for identity verification that is less vulnerable to fraud. Let’s take a use case- Civic is using AI and Blockchain to improve identity verification for its customers. The company has developed a system that uses AI to analyze government-issued documents and other sources of data; it helps in the verification process and makes it faster as well as secure.
Civic also uses blockchain to create a tamper-proof record of all identity verification transactions, making it almost impossible for fraudsters to create fake identities.
Insurance Claims Processing
Insurance industry is in deep water when it comes to insurance fraud. Billions of dollars are lost each year due to fraudulent claims. With the integration of AI and Blockchain, insurance companies can improve their claims processing system by creating a more transparent and secure network for claims processing. For example, MetLife is using AI and Blockchain to improve its claims processing system. The company has developed a system that uses AI to analyze claims data and detect patterns of fraud. Again, blockchain is used to store the data and keep it tamper-proof making it difficult for fraudsters to submit fraudulent claims.
Final Words
In conclusion, the integration of AI and Blockchain can provide a powerful tool for preventing and detecting fraud in various industries. There are many blockchain and ai projects coming up, which will make it even more easy to detect fraud. These technologies create a more secure and transparent network for transactions and data, and significantly reduce the risk of fraud and ensure that customers’ information and assets are protected.
