How can we protect our digital identity from being accessed illegally? How can we ensure that there is a tracked report of every digital access made using our secure credentials? The answer lies in Blockchain and its application towards a fraud-free identity management system. Before we go into the advantages of Blockchain in securing our digital identity, let’s spare a few minutes on the backdrop.
Across borders, identity theft and fraud is one of the most troubling issues plaguing both regulatory authorities and companies. An estimated 5% loss of annual revenue is accounted to fraudulent events in a typical organization according to statistical data collected through studies. In 2016 alone, the US reported more than $6.3 billion was reported as cumulative loss suffered by private corporations because of fraud events that happened over the year in their organizations. A major mode of fraud that caused so much revenue loss was alteration of records and electronic files used to conceal the fraudulent activity. These records may either be illegally accessed and tampered by inside executives or they may be the victim of cyber-attacks due to vulnerable digital security measures deployed within the organization. Another mode of fraud is identity theft or gaining access to secure credentials of authorized personnel and impersonating their official privileges to manipulate files and records. This situation calls for the use of a highly immutable and auditable digital accounting system that prevents illegal modifications and tracks every activity done on electronic records to ascertain validity. However, this is not yet a reality.
Today, the number of organizations equipped with a proactive fraud detection and prevention mechanism for their electronic records is quite low. Take the case of financial institutions. A recent survey of banking institutions conducted by IBM Institute for Business discovered that only 16 percent of the survey respondents reported to have a fraud detection mechanism in place to detect fraudulent events in real time as and when an attempt is made. To some extent, biometric systems claim to subdue identity theft by securing individual credentials such as access control. But they are not reliable 100 % as there has been widespread hacking of biometric secure systems reported across the globe. Besides once an imposter is able to gain access to a biometric access control credentials like a fabricated fingerprint of the original person, then that security system is compromised for life since it is impossible for a human to alter their natural fingerprint patterns.
As such, there is always a need for a solid identity protection mechanism that is reliable and immutable at the same time. This is where Blockchains can be the real game-changer in digital identity protection and fraud prevention. Blockchains can create a secure and permission-based framework wherein identity information can be stored away in an auditable block and only authorized parties will have access to it and all authorized personnel would know who does what with the stored information. Such a network would ensure that no identity information is compromised and security is ensured.
Blockchain operates on a distributed ledger architecture and this allows fraud prevention systems to have multiple databases to work in tandem and perfectly synchronized with each other. One database containing a record of transactions from the past can act as a reference for everyone in the system but it will not provide transaction details to everyone. This database would serve only as a verification system and another one would store and update the access information of senders and receivers who are verified. Every time a transaction or record altering occurs, the credentials are verified first and then if it is approved, the history of the transaction is recorded. Real time assurance is provided courtesy of the permanent and immutable log of all transactions available to everyone in the network. So even if someone bypasses the initial credential verification stage, then there is no chance of them performing the transaction without setting off an alert for everyone in the network.
This facilitates the transparent exchange of accounting information amongst several stakeholders and allows all involved to have an active say in verifying and approving every transaction.
For consumers, this translates into
As for businesses and regulatory authorities, such a fraud prevention system based on blockchain would entail them to
Blockchains are essentially the best way to offer fraud-free identity management system and access control system for organizations and public services. Being immutable to fraud and capacity to be audited at any point transparently makes it an ideal case to offer decentralized services directly to end users without having an intermediator agency or verification unit in between.
Learn how you can use blockchain to create a fraud-proof information exchange system in your organization from our expert consultants.