These relationships between different industries involve banks, tech companies, vendors and suppliers, customers, and regional and national governments. This complexity makes the finance industry a prime target for corruption. Blockchain could be the answer to securing this trillion-dollar industry because it makes back-office processes more transparent and easier to oversee. Click here to find out more about bitcoin trading.
Blockchain allows organizations to establish trust in each other by creating an immutable chain of data transactions visible to all parties involved. As a result, people can catch illegal transactions early on before they become a major problem threatening the company’s stability or existence.
Properties of blockchain relevant for anticorruption:
A single immutable and verifiable record of transactions. Transactions are also visible to all parties, which creates transparency and trust.
Considerations for government and private sector:
Blockchain technology offers a powerful tool for banks, financial institutions, and payment networks to prevent money laundering through peer-to-peer payments. Companies can also use this technology to fight corruption and other criminal activity. These transactions are secured through public key encryption instead of traditional payment methods such as bank or wire transfers. As a result, blockchain can be an effective solution for stopping corrupt practices in the finance industry.
The advantages of this technology are numerous. Transactions are transparent and verifiable; funds cannot be stolen or embezzled. People cannot defraud a bank (no more “robbing Peter to pay Paul”), the anonymity in transactions is a thing of the past: Know-your-customer (KYC) and anti-money laundering regulations can be easily implemented using blockchain’s public ledger.
Audit trails can be automatically generated, decreasing the time it takes to track down fraudulent activity. Further, many countries have expressed interest in integrating blockchain into their national systems to combat corruption.
Trust in people and trust in code:
Blockchain technology offers new possibilities to improve the relationships between people and companies. For example, users can track bank transactions in real time, or a company can track its suppliers, customers, and employees. Blockchain creates transparency by creating visible logs of all transactions. This visibility creates trust among all parties involved. The ability of blockchain to uncover fraudulent activity is a powerful tool for making sure that everyone plays by the rules.
Trust in gatekeepers:
Trust in gatekeepers is the most critical aspect of the finance industry. Due to the enormous size of this industry and its interconnected nature, corruption can quickly occur within a company’s network or at a national or international level. Banks are trusted to keep funds safe and manage transactions reasonably. When banks are involved in corrupt behaviour, it threatens the entire financial system.
Blockchain technology offers an unprecedented opportunity for an organization to be represented by one central ledger visible to all players in the ecosystem: financial institutions, peer-to-peer payment platforms such as Bitcoin, banks, regulators, customers and suppliers. This data can reduce risk and fraud by making transactions visible immediately across borders and industries.
Transparency vs Privacy:
The most common use of blockchain technology is in payments. This technology is especially well-suited to reduce money laundering and fraud. Blockchain can help detect the movement of money across borders and track payments between multiple banks and third parties in real time. This transparency helps prevent corrupt practices such as money laundering, bribery and tax evasion. If a government has a problem with corruption, blockchain is an influential tool people can use to curb it.
As with any new technology, some challenges need to be addressed before industries on a large scale can implement blockchain. Challenges include cybersecurity concerns, bureaucracy, privacy issues and access to the technology by people who need it most, such as the financially underprivileged. Tech workers and developers are also needed to support blockchain developments.
There has been a significant amount of research into the ways in which blockchain and cryptocurrency can address blockchain-based anticorruption efforts. Research has shown that multiple governments and private and public institutions can work together through virtual currencies, proofs-of-concept, and practical implementations to establish a blockchain system for fighting corruption.
Research published in March 2017 showed that setting up a distributed ledger system on which participants across the world have their computer nodes signed onto the same chain of transactions can make fraud more difficult because it becomes more difficult for hackers to change or patch data records.
Distributed or re-centralized power?
Centralized ledgers are easier to implement and manage because they do not rely on multiple nodes or systems, so they offer more consistency. They are better equipped to handle more significant amounts of data and transactions, giving them a competitive advantage over other blockchain models.
Decentralized ledgers, on the other hand, offer anonymity and privacy, which can be helpful for organizations that want to keep their data confidential (research indicates that some businesses would rather not reveal their inner workings). A key factor influencing this decision is whether governments and corporations have the political will to use blockchain technology to fight corruption.