Southwestern University of Finance and Economics professors in China believe that Blockchain technology can be used to save companies billions of dollars in losses resulting from the creation of fraudulent electronic files and unauthorized alteration of information.
China-based Southwestern University of Finance and Economics professors Jun Dai and Yunsen Wang believe Blockchain technology can be used to save companies billions of dollars in losses resulting from the creation of fraudulent electronic files and unauthorized alteration of information.
Potential money-saver for companies
Over the past few years, companies in various industries including healthcare, insurance and finance have reported billion dollar losses due to unforeseen cyber attacks and security breaches. In fact, according to the 2016 Report to the Nations on Occupational Fraud and Abuse published by the Association of Certified Fraud Examiners (ACFE), fraudulent activities led to the loss of more than $6.3 billion for companies.
Dai and Wang noted that companies have struggled in the past to deal with sophisticated cyberattacks and security breaches due to insecure encryption methods and security measures. Companies failed to secure tamper-proof databases and ledgers to secure sensitive information on.
In the research paper entitled “Blockchain: An Emerging Solution for Fraud Prevention,” the two professors from the Southwestern University of Finance and Economics stated that Bitcoin’s underlying technology, Blockchain, can also be used as the base infrastructure for an accounting information system which companies can utilize to secure data within a transparent, efficient and immutable ecosystem.
Decentralization is key
The key to avoiding a single point of failure is decentralization, explained Wang. Cointelegraph previously shared that it is virtually impossible for hackers to alter data stored in Bitcoin blocks such as transactions as in order to do that, hackers will need to gain all of the network’s hash power and double spend transactions.
Even then, it is not possible to re-do or alter transactions that are already settled or broadcasted to the public Blockchain.
The paper reads:
“To avoid a single point of failure, the transaction verification process is controlled by all the computers, rather than managed centrally. The computers jointly supervise system operation and prevent the information in the ledger from being tampered with. Because of this feature, Blockchain can effectively prevent one or several individuals in collusion from overriding controls, or illicitly changing or deleting official accounting records.”
Blockchain & smart contracts
The research paper further emphasized the importance of decentralization for the security of the network. Instead of investigating into the potential of private Blockchains that are being studied by banks and financial institutions, which have been widely criticized by experts and developers for their poor security, the two professors noted that it is crucial for every party in the network to verify and approve the settlement and processing of data. That way, the network can remain immutable and provide a transparent record of transactions and data.
The Bitcoin Blockchain was specifically developed to operate as a digital currency network. Some companies including RSK Labs are developing platforms such as Rootstock that may allow applications to deploy smart contracts on top of the bitcoin protocol. However, at this stage, utilizing smart contracts to automate the transfer of data and to handle large-scale data sets can be better facilitated by the Ethereum network.
As Blockchain sector matures, the paper noted that the use of smart contracts in preventing fraud and cyber attacks will be investigated more extensively.
“Smart contracts encoded with accounting and business rules could also provide efficient controls of business processes in order to prevent fraud. Smart contracts can be embedded with advanced access control criteria that allow only authorized users to create transactions”.