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Blockchain

What Risks Cryptocurrency Holds to Financial Institutions and the Regulatory Landscape?

Cryptocurrency is a digital currency that’s intended to be used in buying or selling goods and services. Cryptocurrency comes in multiple forms, and it can disrupt the financial institution. As the utilization of cryptocurrency increases, so do the risks to the financial industry. The risks may include fraud losses and regulatory compliance. Fortunately, the Anti-Money Laundering act of 2020 (AMLA 2020) requires the Bank Secrecy Act to be implemented throughout the crypto industry. As crypto exchanges are being used for the sale and purchase of goods and services, the crypto businesses are now considered Money Service Businesses (MSBs). As crypto exchanges are being considered as MSBs, it states that crypto exchanges have to follow:

  • The travel rule
  • All the BSA Regulations including CDD, SARs, CTRs

How regulators will implement these regulations will be the next step moving forward. Several methods can be applied to the financial services industry to make sure that compliance is followed as per the regulatory directions.

Crypto’s Risks to Financial Service Industry

There isn’t any way to bring change in the industry without a significant amount of risk. The reason behind the huge amount of risk in the crypto industry can be credited to the widespread adoption of poor AML, KYC, and other fraud prevention methods. The reasons for this are multiple:

  • Enhanced Due Diligence (EDD) isn’t required on crypto exchanges or ATMs at this time. 
  • Regulators have to build new regulatory guidelines within the AMLA 2020 that requires crypto exchanges to operate as MSBs, although crypto exchanges don’t fit perfectly into the current framework. Additionally, crypto exchanges/ATMs being categorized as MSBs allow anonymous transactions of up to $1,000. Unless these customers exceed the $1,000 limit, then the only information required is limited to a phone number or email address. 
  • Crypto exchanges don’t fit into the definitions of MSB because they’re more like a financial institution in the way they operate.
  • Financial compliance professionals and crypto ATMs/exchanges have limited knowledge of each other. Crypto operators aren’t incentivized to monitor and report AML and fraud policies, that’s the primary reason why the need for compliance is weak in the industry. 
  • Lack of FinCEN enforcement of crypto exchanges.

It’s not only in the U.S, but illegal crypto exchanges are operational throughout the globe.

Risks to Crypto Consumers

Consumers face the most risk when it comes to the crypto industry. Crypto is a volatile industry and it exists in a non-regulated 24-hour financial market and is uninsured by any authority. Trending schemes and scams in the crypto industry are:

  • Money laundering through crypto exchanges
  • Romance scams 
  • Fake investment scams
  • Crypto for human trafficking, organ trafficking, and adult services
  • Crypto for art and antiquities money laundering 
  • Fake crypto exchanges
  • Crypto pump and dump
  • Blackmailing scams
  • Ransomware

What to Do to Eliminate Risks?

To prevent money laundering using crypto exchanges and ATMs, as well as to assist law enforcement, there are multiple detections and compliance strategies that can be used to reduce the risk from the crypto industry.

The first step to reducing risk from the crypto industry is to thoroughly screen your customers, and authenticate whether they are who they claim to be. Regulatory bodies have to pay extra attention to sanction lists, PEP lists, and high-risk countries. Complete due diligence should also be done on all clients that are onboarded to the institution. Complete due diligence also includes:

  1. Conduction through KYC/KYC checks
  2. Collecting beneficial ownership information for businesses (including parent and intermediary companies)
  3. Conducting risk analysis on politically exposed people
  4. Monitoring transactional activities
  5. Adverse media screening

All these tactics from onboarding to investigations can significantly improve the potential risk in your organization allowing you to improve compliance and reduce fraud losses. One of the major issues with the crypto industry is the lack of education in the regulatory industry. To reduce the risk of fraud, educating the crypto exchanges and businesses is essential in eliminating the risk of fraud. Investing in technologies like online document verification software and online KYC verification software is vital to reduce the risk of fraud and screen customers thoroughly.

As of right now, crypto regulations are not perfect, but changes in future regulations will help in the betterment of the industry. There are currently crypto compliance working groups that are being formed to fight fraud in the crypto industry.

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Blockchain

What is Blockchain? How does it Work in Favor of Business?

Blockchain for business is invaluable for entities that transact with each other. The distributed ledger technology allows participants to access the same information at any time to improve efficiency, build trust and remove friction. Blockchain also allows businesses to rapidly scale and perform various tasks across industries. Blockchain for small business offer four main benefits:

  • Consensus: Shared decentralized ledgers are updated only after the transaction is validated by all involved participants. 
  • Replication: Once a block (a block of information) is created, it is automatically created across all the ledgers for all participants in that channel. Every involved party in a business can access and share a “trusted reality” of the transactions.
  • Immutability: More blocks can be added to the chain but it is impossible to remove a block, so every transaction can be recorded permanently which increases trust among the stakeholders.
  • Security: Only trusted and authorized parties are allowed to create blocks and access the information and data stored in them. This makes blockchain technology incredibly secure.

How to Implement Blockchain for Business?

Blockchain has left the crypto market and it has gone mainstream. Industries around the world are using blockchain to transform their business operations. Blockchain provides a sense of trust, reliability, and efficiency that wasn’t possible earlier on. With the use of blockchain, businesses can reinvent the supply chain, food distribution, financial services, government data management, retail services and so much more. The benefits of blockchain in business are seemingly endless, the only limitation is implementation.

Innovative Applications of Blockchain for Businesses

Widespread blockchain use for business will change the way your business runs its day-to-day operations. Here are the most common uses of blockchain technology for business:

1. Smart Contracts

The release of the Ethereum project reinvented the word “smart contract.” The project is “a decentralized platform that runs smart contracts, applications that run exactly as programmed without any possibility of downtime, fraud or third-party interference.”

‘Smart Contracts’ are automated computer programs that can carry out the terms of any contract. What makes it even better is that these contracts will be unbreakable. Top companies like Slock, which is an Ethereum-enabled internet-of-things platform, leverage this application to allow customers to rent bicycles where they can unlock a smart lock after both parties agree to the terms of the contract. This is one of the best uses of blockchain for business.

2. Cloud Storage

Cloud storage is another brilliant application of blockchain for small businesses. One of the most innovative brands in the market named Storj claimed that “Simply using excess hard drive space, users could store the traditional cloud 300 times over.” 

The average cost of blockchain regarding cloud storage is more than $20 billion. By integrating blockchain into cloud storage, significantly reduces the cost of storing data for companies and personal users. If that’s not one of the best benefits of blockchain in business then what is?

3. Faster, Cheaper Payments

Blockchain started with Bitcoin, also it shouldn’t come as a surprise that Bitcoin and other cryptocurrencies can be used to initiate faster payments. Making crypto payments on the blockchain is beneficial when you have international or remote workers. Blockchain allows you to pay the salary of your employees in less than an hour without outrageous transaction fees associated with banking systems.

Paying employees by using cryptocurrency may help you save money in numerous ways. Plus, with blockchain, you can keep track of your transactions and payments. This way, you won’t ever overpay on your taxes or underpay. If you’re wondering how to implement blockchain in business, then you should try to move in this direction.

4. Improved Marketing Campaigns

Good marketing is crucial for your business, but the number of businesses that are competing in the space makes it harder for your business to stand out from the crowd. Businesses are usually familiar with using social media, billboards, and other forms of marketing. Blockchain may make your marketing efforts more effective. 

Blockchain can be used by marketers to keep track of client information and consumer behavior. Using this data, skilled marketers can build robust marketing campaigns that provide better ROI. Additionally, blockchain allows marketers to verify that the traffic they’re getting is real people. 

5. Fraud Mitigation

Banks, financial institutions, and other businesses can use blockchain technology for businesses to identify with whom they are working. Blockchain facilitates reliable ID Management to prevent fraud. If customer information is stored on a blockchain network, it mitigates the risk of identity theft, money laundering, financial fraud, and so on.

Any information placed on the blockchain can’t be changed, it allows people to take control of their data. Once a customer’s identity verification has been completed, other parties can use the data to confirm if they are working with a real person and not an identity thief.

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Blockchain

Blockchain Technology, and how does it work?

You must have heard about “blockchains” in the context of Bitcoin, Ethereum, and other cryptocurrencies. You probably must have also seen how many people have been raving about this technology. But why, what exactly is so special about this technology? Its link with cryptocurrencies has also led to many people believing that blockchain is Bitcoin. So they think that they’re getting excited about cryptocurrency. But nope, blockchain is a technology that is used in the implementation of these cryptocurrencies.

So, if you’re a newbie to this amazing new technology, read ahead and know about blockchain and its development process better.

What is blockchain technology?

Blockchain technology, also called Distributed Ledger Technology (DLT), is a decentralized digital ledger. It is a system of recording information so that it is difficult, if not impossible, to change, hack or cheat the system.

Primarily, it is a digital ledger of transactions distributed across the entire network on computer systems on the blockchain. Each block in the chain holds information on the transactions. Every time there’s a new transaction, it is recorded on the ledger of every participant. So, it is a decentralized database that is managed by the participants and hence the name, distributed ledger system.

This technology has three main ideas: unalterable history of transactions, transparency in use, and cryptographic signature. An analogy to understand this technology better is Google Docs. Suppose you create a document and share it with your friends. Here, the document is distributed and not copied and transferred. So, this way, you’ve created a decentralized distribution chain where everyone is accessing the document simultaneously.

There’s no waiting for a person to finish making changes so that others could start. All the modifications in the document are recorded in real-time, so all the changes are transparent. Blockchain is, of course, more complex, but the analogy explains the three main ideas of the technology.

Key Elements of a Blockchain:

  • Distributed ledger technology: All the blockchain participants have access to the distributed ledger and its records. The transactions are recorded only once with the shared ledger, so there are no efforts wasted in duplication.
  • Immutable records: once a transaction is recorded, no participant can make any changes in the ledger. Even in the case of an erroneous trade, a reverse transaction is made, and both are recorded.
  • Smart contracts: A set of rules are auto-implemented for speedy transactions.

How does blockchain technology work?

  • Each transaction is recorded as a “Block”:

A transaction implies a movement of a tangible (product) or intangible (intellectual) asset. So the block holds all the transaction data and answers everything- who, what, when, where, amount, and even the condition (temperature).

  • Each and every block is connected to the block before and after it

The blocks form a chain of data as the ownership of the asset changes. The blocks are securely linked together & record the exact time and sequence of transactions. There’s no scope for any alteration or any new block inserted between two linked blocks.

  • Transactions are chained together: blockchain

Each new block strengthens and verifies the previous block and hence, the entire blockchain. So, the blockchain shows its key strength, immutability, and brings forth a trustworthy ledger.

What are the types of consensus protocols?

Consensus protocols are used to validate transactions in a blockchain. A few are mentioned as follows:

  • Proof of Work (PoW): it is the original consensus algorithm in the blockchain network. It is used for a transaction’s confirmation and creation of a new block to the chain.
  • Proof of stake (PoS): it is used to reach distributed consensus and validate transactions. There are several other forms of Proof of Stake protocols like Delegated PoS, which improves the speed of block creation and leased PoS, which consumes less energy. 
  • Proof of elapsed time (PoET): this algorithm works on permissioned blockchain, and you need permission to access the chain. It covers transparency with a specific technique and assures secure login.
  • Byzantine Fault Tolerance (BFT): as per this algorithm, two nodes in a network can securely interact knowing that they display the same data. There are several other forms of BFT, like Practical BFT, Delegated BFT, simplified BFT and Asynchronous BFT.

What are the applications of blockchain technology?

Applications of a blockchain are as follows:

  • Smart Contracts: it is a code that is auto-executed when specific conditions are met during a transaction.
  • Sharing economy: you can directly engage in a transaction without the involvement of a third party (e.g., banks).
  • Supply chain audits: you can easily cross-check the claims made by the companies about their products. With the help of distributed ledgers, you can easily & quickly trace the products within the supply chain in real-time.
  • Intellectual property protection: with the help of smart contracts, you can protect copyrights & automate content sales. Thereby protecting your intellectual property.

What are the types of blockchain platforms?

Many types of blockchain platforms are available, each satisfying a particular development need. Some of the major blockchain platforms are:

  • Ethereum: open-source blockchain platform on which you can run smart contracts on a custom blockchain.
  • EOS: with EOS, you can design vertical & horizontal scaling of decentralized apps (DApps).
  • Stellar: it is an open-source distributed payment ledger that allows you to connect with payment systems.

What value does blockchain add to your platform?

  • More Transparency: the history of transactions is always transparent with blockchain. It is a distributed ledger, and all the members share the same updates in a ledger. The consensus on the network validates all the updates. Thereby, the data is secure & accurate.
  • Enhanced Traceability: you can easily track and manage your supply chain.
  • Increased Speed: the current processes are paper-based and time-consuming as they involve third parties & duplication of efforts. All these problems are eliminated with blockchain, and processes pick up speed. 
  • Reduced Costs: with blockchains, third-party involvement is eliminated. You also don’t have to engage in making documentation or checking them before transactions. And that results in cost elimination.

What is the blockchain development process?


You can refer to a custom software development company that can help you through the development process. The blockchain development process involves 9 stages:

  • Goal identification

Make a problem statement listing all the issues you wish to resolve with your proposed solution. The solution should be beneficial and improve your business. Analyze whether you should switch to blockchain technology or make a new application from scratch.

  • Select the right blockchain platform

Once you’re sure you need a blockchain solution, you need to select the right blockchain platform. The chosen platform should meet your business requirements. The choice should be driven by the problems you want to resolve, like consensus mechanisms.

  • Brainstorming ideas

The next step involves drafting business requirements and brainstorming ideas. Decide which technology components should be added as on-chain or off-chain entities on the proposed blockchain system. Create a roadmap to build the project in time. Create DFDs, conceptual workflows, and other documents to create your blockchain application.

You should decide on the language you’re going to use to develop the frontend, backend, and servers as well. For example, you can choose angular development or React Js web development services for the frontend.

  • Proof of concept

With proof-of-concept, you decide the practical applications and viability of a project. You can do that by either developing a prototype or via theoretical buildup. In the theoretical build-up, you theoretically make up different use cases to understand the feasibility of the application and explain the project’s scope and parameters.

  • Visual & technical designs

This step involves designing the look & feel of your application and making technical designs to understand the application’s technology architecture. So, you’ll create a user interface for each component of your application. You will also design APIs to integrate the UI to run an application in the back-end.

  • Development

At this stage, the actual development of your application will start. The developer needs to stick to the decided design and blueprint of the application.

The development of blockchain technology is a challenging task which is why it takes a lot of time to build it. Since blockchains are immutable ledgers, it is almost impossible to correct any corrupted data. Even to deliver a fix, you need to coordinate with all the parties in the blockchain.

So this step needs to be executed with extreme care.

  • Testing

At this stage, you’ll test whether the developed application does exactly what it is expected to do—nothing more and nothing less. Testing blockchain applications is similar to testing normal applications with a few more metrics added. For example:

  • Chain size: longer chain implies more data in it, and that implies more space requirement in the datastore. We need to determine how much space a blockchain can take after a period of time.
  • Throughput: what is the number of transactions per second (TPS). A high TPS is good, but that also means a more network load and the inability of every node to catch up.
  • Security & cryptography: code needs to be checked regularly to ensure its flawless.
  • Data integrity: all the data on the blockchain should be consistent.
  • Data propagation: distribution of data from one node to another without disruption.

Multiple software testing methods can be employed, like manual and automation testing. 

  • Deployment

The deployment phase refers to deploying the final developed blockchain application to the customer.

  • Maintenance

The maintenance stage involves providing training, customer support, and launching updates.

Blockchain technology offers a myriad of benefits, it is secure, reliable, speeds up business transaction processes, and so much more. The idea of incorporating blockchain technology in your business is appealing and indeed good. But you should know that it takes a lot of time to build an application and for everyone to warm up with it. Building blockchain software is an extensive process, and so you need to clearly define your requirements and then start with the process.

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Blockchain

How Cryptocurrencies are Disrupting Money Transfers?

Using traditional methods for money transfers can be monotonous and slow. Sending or receiving money using regular bank services can take 3-5 business days. Innovative technologies such as digital wallets, third-party payment apps can transfer money faster. New banking infrastructure is disrupting the current financial landscape to improve the financial lives of millions all over the globe. The rise of cryptocurrencies has had a similar impact on the financial industry.

What are Cryptocurrencies?

In simple words, a cryptocurrency is a digital or virtual currency that’s secured by cryptography. Cryptography makes sure that the currency can’t be counterfeited or spent twice. Almost all cryptocurrencies are decentralized networks powered by blockchain technology, a distributed ledger protected by several networks of computers. One of the reasons behind the popularity of cryptocurrencies is that they aren’t issued by a central or regulated entity like banks and other financial institutions. This lack of centralization protects them from manipulation and government interference. 

Cryptocurrencies are frameworks that allow users to make faster and extremely secure payments online that are denominated in terms of “tokens”. The first-ever blockchain-based crypto was Bitcoin, which is still one of the biggest cryptos in the market currently. 

Cryptocurrencies can enhance digital payments without the need to have an intermediary like a bank or credit card company. Payments made by cryptocurrencies are more secure than payments made by banks and financial institutions. 

Cryptocurrency apps and platforms provide the user with virtual currencies and users can send these currencies to whosoever they wish to. Fund transfers are completed with minimal processing fees, thus allowing users to avoid the huge amounts charged by banks and other financial institutions for wire transfers. 

While they sound great in theory, the semi-anonymous nature of cryptocurrencies makes them a hub for illegal activities such as money laundering and tax evasion. But one of the primary reasons behind crypto’s popularity is the anonymity offered, ensuring privacy and security. Some cryptocurrency platforms offer better security and protection than others. 

Bitcoin, for instance, is an incredibly poor choice for conducting illegal activities as the Bitcoin analysis department has helped authorities in prosecuting criminals.

Blockchain and Banking: Role of Decentralized Currency in Financial Services

Blockchain technology allows untrusted parties to come together without using a middleman. By offering a ledger that belongs to no one, blockchain technology has the capability of providing unique technologies. Use cases that don’t require a high degree of decentralization can benefit by leveraging ‘distributed ledger technology (DLT).” Businesses can establish better customer monitoring by using data sharing and collaboration methods. 

Blockchain technology can disrupt the banking industry massively by providing better key banking technologies such as:

  • Payments: By using cryptocurrency for payments, customers can experience faster and better digital payments with low fees. 
  • Securities: By tokenizing the traditional securities such as stocks, bonds, and alternative assets and placing them on public blockchains.
  • Loans and Credit: By eliminating the need for intermediaries from the loans and credit industry, blockchain technology can make it possible to provide better lending options and lower interest rates. 

Customer KYC and Fraud Prevention: By collecting and storing customer information on decentralized channels, banks and other financial institutions can make it easier to verify customer information during onboarding. This can even enhance the level of security in sharing information between financial institutions.

Beyond the Hype: Cryptocurrencies and Blockchain Technologies

While it’s true that cryptocurrencies and blockchain have the capability of disrupting financial institutions, these disruptions don’t happen overnight. The cryptocurrency industry has a long way to go before becoming a streamlined service that can be used in enhancing the workflow of the financial industry. 

It may be possible for cryptocurrencies and blockchain to shift the tides of a few key services provided by banks, but this will require significant improvement in the current landscape. The future remains unclear to what degree the banks will embrace these technologies. One thing remains clear though, cryptocurrencies will have a huge impact on how the digital payment framework runs in the financial industry. 

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Blockchain

Blockchain for Fraud Prevention: How Blockchain Works?

Blockchain technology has been around for a long time, and it is still growing. A lot of people wonder how does blockchain secure data and how blockchain works. Regardless of all its benefits, there are a lot of mixed feelings towards blockchain technology. It doesn’t matter how mixed the reviews of the technology are, the role of blockchain against fraud and the role in the global economic landscape is great. 

The growth of blockchain first came into the limelight with the rise of Bitcoin. If you’re not into cryptocurrency, you should know about the blockchain for fraud prevention. 

How Blockchain Works?

At first glance, blockchain looks complicated, but the core concept of how blockchain works is really simple. A blockchain is a type of database, to completely understand what is blockchain technology, you need to understand what is a database. 

A database is a collection of information that’s stored on a computer system. Any information that’s stored on a database is stored in a table-type manner for easier searching and filtering of data. Now you may wonder, what is the difference between a spreadsheet and a database. 

The major difference between a spreadsheet and a database is that a spreadsheet is made for a single person or a small group of people. These people can store and access limited information. In comparison to that, a database is designed to store much larger amounts of information, that can be quickly accessed, filtered, and changed quickly by any number of users at the same time. 

Huge databases achieve this functionality by using data on servers that are built on powerful computers. While a spreadsheet database can be accessed by several people, it is often owned by businesses. Now that you understand what is a database, we can move on to “how does blockchain secure data”.

How Does Blockchain Secure Data?

One of the major differences between a typical database and a blockchain is the way the data is structured. A blockchain collects information together in groups that are known as blocks, these blocks hold a set of information. Blocks have a specific amount in which information can be stored, when the storage is filled, they are chained to the previously connected blocks, all of which form a chain of data, which is known as the blockchain. 

So the question remains, how does blockchain secure data? Major blockchain features and benefits account for the issues of security and trust in multiple ways. First, new blocks are always stored linearly and chronologically. The new information is always added to the “end” of the blockchain. 

After a new block has been ended to the back of the blockchain, it is almost impossible to go back and alter the contents of the block unless it is the major consensus to do so. The reason it is considered secure is that it each block contains its own hash, alongside the hash of the block before. A hash code is built using a mathematical function that turns information into a string of numbers and letters. This is how blockchain works in banking and other financial transactions like bitcoins.

Types of Identity Thefts

Another common type of online fraud is identity theft, the growing rate of identity theft is alarming. Most people aren’t even aware that their identity has been stolen after the damage has been done. Now that we know how does blockchain secures data, we can discuss how blockchain prevents identity theft. Here are the most common types of identity thefts. 

1. Driver’s License Identity Theft

Anyone that has access to your driving license can make use of your sensitive information and commit fraudulent activities. They can open credit card accounts or use the stolen identity theft if caught for reckless driving. 

2. E-Commerce Fraud

Online identity theft is basically cybercriminals stealing your information like payment details and credentials. Using this information, these criminals can make all kinds of unauthorized transactions. All these transactions will end up hurting your bank balance. This is one of the most common types of identity theft. 

3. Mail Identity Theft

Your mailbox can be vulnerable to all kinds of cyberattacks. One out of 3 identity theft is done via email. Your mailbox contains all kinds of sensitive information including bank information, several login details, or insurance data. This crucial information can be used for all kinds of fraudulent information. 

4. Social Security Number Theft

The social security number is provided to a citizen from the time of their birth. The nine-digit number contains information like financial records, including bank details and a person’s earnings. Now imagine someone gets hold of your social security number, they can use the information for all kinds of purposes. 

If they can use your financial information, they can fill in fake account opening forms or even withdraw money from a person’s account using social security number. More than that, attackers can use your social security number to gain a tax refund. Social security number theft is another common type of identity theft.

5. Synthetic Identity Theft

Synthetic identity theft is a tricky type of identity theft. It is where an attacker mixes stolen information with fake details to create a new fake identity for committing a crime. This newly made identity can then be used to execute all kinds of fraudulent practices. 

How Blockchain Prevent Identity Theft?

Identity theft is a part of online fraud, and it is growing at an alarming pace. A lot of people nowadays are aware of data breaches, but not many are aware that identity theft occurs every two seconds around the globe. In this perilous time, the need for securing one’s identity is crucial, and the way to do that is by safeguarding your documents. Now that you know about types of identity theft, here’s how blockchain prevents identity theft

The blockchain against fraud technology has been taken into consideration since the rise of cybersecurity. The incredible technology holds brilliant potential for securing sensitive data from malicious activities. 

Since blockchain contains digital assets including documents that are secured via powerful cryptographic keys. This is one of the primary reasons why it is harder for attackers to manipulate information stored in the blockchain. The data is stored on multiple computers on a blockchain network, so if someone wants to access crucial information, they will have to gain access on all computers which is almost impossible in all cases. Even if the hackers happen to gain access to data, any change they make to the data will be highlighted in the information. This is what blockchain unique and suitable to secure data. Now you know how blockchain prevents identity theft. 

Storing any identity information on a blockchain will help both government and the public to prevent identity theft. This is how blockchain works, and the blockchain features and benefits are slowly causing it to come into mainstream adoption. 

While blockchain is still a growing technology, it has countless possibilities for securing data. As the current measures for identity information storage are being attacked and breached, the use of blockchain for fraud prevention is at an all-time high. 

Blockchain Features And Benefits

1. Blockchain Is Distributed

A blockchain is a type of distributed digital ledger which contains transaction data that is hosted on a peer-to-peer network. There is no centralized administrator so there’s no one point of failure that can be accessed for information breach. Instead of a single point, the management and authorization are spread all over the network. 

2. Blockchain Is Unyielding

Another blockchain feature and benefit is that any transaction or information recorded on the blockchain is unchangeable as the information can’t be deleted or changed. While you can create a new transaction to change the state of any asset, the new information will just be added to the chain. 

3. Blockchain can be Permissioned

Businesses of all kinds tend to deal with a lot of confidential data and they can’t have just about anyone access the vital information. So they have to find some way to make sure that outsiders can’t access their data. This is where permissions come into play. You should know that not all blockchain is permissioned. This is why permission networks can be a great solution for fraud prevention because they can restrict who can access the data. 

How DIRO Makes Use of Blockchain For Document Verification?

Till now we have discussed, how does blockchain secure data, how blockchain work, the types of identity theft, and how blockchain prevent identity theft. A major part of all the information and the data breach are documented, most of the online frauds are conducted by using fake or tempered documents. 

A person who steals an identity can open a new bank account and use that bank account for many fraudulent activities. That’s where the innovative technology for document verification by DIRO comes in. It verifies any online original information on the web with automatic user consent and impersonation checks. You can verify any bank statements, proof of address, student certificates and so much more. 

Once DIRO verifies a piece of information, it provides a trusted certificate that ensures a document is original. This original document can then be shared in the form of a PDF. DIRO provides the digital document with a unique hash, which then is placed on a blockchain. use this information to verify the documents that are already on the blockchain. 

So banks, financial institutions, and others can drop this PDF into DIRO’s verification engine, which verifies the information against the blockchain. DIRO’s original documents are much more secure to share as the information can’t be tampered with by attackers or anyone else. Organizations can use DIRO’s software to minimize online fraud. 

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Blockchain

Crypto Regulations 2021: How Digital Currency Providers Can Stay Compliant?

Since cryptocurrency and blockchain technology has become mainstream, a lot of industry patterns have changed. Bitcoin’s sudden success in 2019 became the reason for the development of more than 2,000 cryptocurrencies. There is mixed opinion about the trail of digital funds, most governments are hesitant about the use of cryptocurrencies. Digital assets (cryptocurrencies) offer anonymity, so cryptocurrencies can be used for money laundering, terrorist funding, and so on. As the market value and popularity of crypto are growing, investors worldwide are seeing it as a good investment option. Regulations surrounding the crypto industry are also growing at an exponential rate, if some challenges are met with strict regulations, cryptocurrencies can change the current flow of the banking industry. 

The U.S government has taken stern measures in ensuring cryptocurrency regulations. Individual states in the U.S and the EU can impose their regulatory laws regarding crypto. The U.S government has shown a positive approach towards cryptocurrencies and blockchain technology. In 2019, the SEC launched a platform where brokers can trade Bitcoin, Ethereum, Bitcoin Cash, Ripple coin, and so on. 

Despite the trust in digital currency, the U.S Government has some concerns regarding the protection of the users. Some of the major concerns regarding crypto are:

  • Crypto-asset funds provide users with a huge level of anonymity. This level of anonymity works in the favor of fraudsters, money launderers, and those who fund terrorist organizations. 
  • Digital currency transactions are irreversible. If the funds are transferred to a fraudster or a scammer, there’s no way to get the money back.

National Defense Authorization Act (NDAA) 

Even though there are some concerns, the government knows that there has to be some level of compromise for compliance. Last year, the congress passed the National Defense Authorization Act (NDAA) for the fiscal year 2021. The act is for tackling terrorism and preventing fraud. Some rules enlisted in the act will affect the ownership and usage of crypto-asset funds, ownership, and usage of crypto and other blockchain platforms: 

  • FinCEN is to collect information and create a database of cryptocurrency companies. Organizations that own, operate, or transact using Cryptocurrencies will have to register with FinCEN to keep operating.
  • The cryptocurrency regulations are not just for the big operations. Even smaller companies are required to provide UBO information.
  • The NDAA act prohibits falsifying, concealing, misrepresenting, or attempting to hide and falsify information.
  • Whistleblowers can get up to 30% of the money in cases where the penalties are more than $100,000. Although the information should be about BSA/AML/CFT regulation violations.
  • Cryptocurrency companies have to report cases of suspicious activities using digital assets.
  • FinCEN (Financial Crimes Enforcement Network) has the authority to punish the firms that don’t comply with current cryptocurrency regulations. The penalties will be based on the violation of the rules.

Additional Cryptocurrency Regulations that Firms Have to Follow

The latest NDAA act can be considered just a start for the regulation of cryptocurrencies. Some rules regarding regulation and ownership of crypto assets can be amended.

  • Provision of information on transactions of more than $3,000. This information can include the contact information of the customer, the type of crypto asset funds used, and the time of the transactions. The level of information is not just limited to the above-mentioned factors.
  • Banks and other money service businesses will have to report transactions that are of more than $10,000 to FinCEN. The time duration for reporting is within 15 days from the date of the transaction.

FinCEN also announced that they are planning to amend BSA’s Foreign Bank and Financial Account regulations. Individuals and entities that possess crypto for more than $10,000 will declare it as their asset. Reporting assets without including cryptocurrencies is a clear violation of FinCEN policies. Now that FinCEN can punish the organizations, the best step is to punish them.

How Can Companies Stay Compliant?

The list of laws that cryptocurrency firms have to follow seems endless and excessive. But Cryptocurrency regulations are focused on making sure that compliance standards are met across all providers. Some of the laws in the new act are against the fundamental principle of blockchain and crypto-assets. Blockchain and cryptocurrency provide users with the authority of deciding who has access to their data. But with the government asking for a database defeats the purpose.

There are other concerns regarding cryptocurrency regulations. One of the biggest questions is how does the government regulate platforms when the government can’t verify the information? According to a report, 46% of legislative decision-makers don’t like the automated authentication process of blockchain and cryptocurrencies. And a further 21% don’t trust automated authentication at all.

Digital currency providers are facing a huge issue, as they can’t decide whether to comply with the regulations or stick with the fundamentals of cryptocurrencies and blockchain? Here are the things that digital asset providers can do to stay compliant.

  • Stay up to date with the latest developments in the cryptocurrency regulations
  • Make it a priority to inform stakeholders of minor and major changes in cryptocurrency regulations.
  • Use the US dollar as a unit of conversion while providing reports of suspicious activities.
  • Implement strong user verification procedures and place restrictions that comply with the law. 
  • Report any suspicious cases as demanded by the law.

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Bank Blockchain

Top Use Cases of Blockchain Technology in the Banking Industry

Blockchain or DLT (distributed ledger technology) is an open ledger that keeps track of transactions between two parties permanently. A blockchain is made up of multiple individual blocks all tied up to each other in a specific order. All the involved parties can share the online ledger using a computer network without any middlemen or intermediaries. This leads to faster transaction processing. Improved transaction speed is just one of the many benefits blockchain technology has to offer for the banking industry. 

How Banking Can be Improved with Blockchain Technology?

The overall benefits of blockchain technology make it clear that banking should be the first industry to fully implement blockchain. Blockchain can improve almost every single aspect of the banking industry and make it more secure and transparent. 

Blockchain technology has global implications and it can make trade more seamless and efficient by eliminating the need for documentation relied processes. A public blockchain can be of great use as no single person owns it and every involved party can access the information. Just a decade ago, blockchain technology was associated with digital assets like Bitcoin or Ethereum. That has changed now, utilization of blockchain in banking can enhance a lot of aspects.

Use Cases of Blockchain Technology in Banking

  1. Faster Payments

As of now, sending money from one bank to another bank or sending money from one country to another is a huge hassle. By establishing a decentralized channel (cryptocurrencies) for payments, banks can use new technologies to facilitate faster payments. Wire transfers today cost $25-$50 based on the institution and the country you’re sending money to. The use of blockchain can reduce the time taken for payment processing and lower the cost incurred. 

By implementing blockchain, banks will be able to reduce the need for verification from third parties. Back in 2016, 90% of the European payments council believed that blockchain can change the banking industry in the next 10 years. 

  1. Clearance and Settlement Systems

Instead of using existing protocols like SWIFT, banks can use blockchain to settle the transactions directly and keep track of them more efficiently. 

Even the largest banks globally have to face tons of challenges while moving money around. Something as simple as bank transfer has to go through several intermediaries and meet with compliance regulations before finally reaching the destination. 

The centralized payment processing method “SWIFT” processes only payment orders. The money is passed using a series of middlemen. Each of these transactions costs money and takes up a lot of time. Blockchain can allow banks to keep track of all the transactions worldwide. Banks can eliminate the need for intermediaries and regulatory bodies to process and settle the transactions instantly. 

  1. Buying and Selling Assets

By eliminating the middlemen and asset rights transfer, blockchain technology lowers the asset exchange fee. According to studies and reports, using blockchain for moving securities can help in saving more than $20 million annually in global trade process costs.

It is not easy to buy and sell digital assets like stocks as most of the process requires keeping track of which entity owns what. In the earlier days, the purchase and sale of assets were done with a complicated network of middlemen and exchanges. All these transactions revolved around paper documentation. 

Being able to do the same thing electronically is tough and most of the time, buyers and sellers have to rely on a third party to keep track of documentation. Blockchain technology can change the financial industry by keeping decentralized data of digital assets.

  1. Blockchain for Accounting and Auditing

Out of all the aspects of online banking, accounting is one section that has been especially slow to move towards digitization. To digitize the accounting process, a series of regulatory requirements involving data integrity and validity have to be met. Implementation of blockchain can bring drastic changes to the accounting and auditing sector as well. 

Industry experts believe that implication of blockchain technology can simplify compliance and smoothen the bookkeeping systems. Instead of maintaining separate records of transaction receipts, firms can add the information in a joint book. All the entries made will be decentralized and accessible by involved parties. 

Thus, the records will be more visible and secure. Blockchain technology will play the role of digital notary that verifies all the transactions. 

  1. Digital Identity Verification

Most banks, firms, and financial institutions still rely on antique, paper-based manual document verification for customer ID verification. A sluggish process that is full of friction forces customers to switch to another organization. With blockchain integration, both companies and customers will enjoy a faster, more secure, and efficient customer verification process. Blockchain will allow other organizations to reuse the customer data for customer verification for other services. 

Future of Blockchain In Banking

Banking industry experts believe that blockchain technology will improve some banking standards, but only if several conditions are met. To use blockchain to its full extent, banks need to build infrastructure that can support and operate a global network. A thorough implementation of blockchain is enough to bring huge changes in the banking industry.

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Blockchain

Legal Challenges of Blockchain Technology: What Are the Most Common Problems?

In all honesty, Blockchain technology is powerful, exciting, and has multiple uses. The first use case of blockchain was with cryptocurrency, other use cases range from online transactions to decentralized apps and common supply chain processes. As good as blockchain technology is, there are some legal challenges. 

Before institutions begin to utilize blockchain technology for their needs, they need to understand the legal challenges that blockchain has to overcome. Let’s dive a bit deeper into how blockchain works and what legal challenges of blockchain.

How does Blockchain Works?

Blockchain technology is a ledger, a decentralized ledger of information that is publicly owned. The information stored on the ledger can be shared and viewed by anyone. Once any information has been added to the ledger, it can’t be changed, that’s what makes blockchain so secure. That’s why blockchain is used in online document verification, online ID verification, and data management.

The immutability and the transparency of the blockchain make it extremely crucial for decentralization, privacy, security, and eliminating the need for ledgers. Cryptocurrency is supported by blockchain technology, as it offers a huge level of privacy and anonymity that centralized currency can’t compete with. But because of the uncertainty and lack of education around blockchain technology, not all the top institutions want to rely on it. Thus, causing numerous blockchain legal challenges.

Legal Challenges Faced by Blockchain

KYC and AML compliance regulators make sure that criminals don’t exploit blockchain and cryptocurrency for money laundering. The extreme level of privacy offered by blockchain-based cryptocurrency makes it easier for fraudsters to exchange money anonymously. This feature can be exploited by criminals who want to hide their fraudulent activities from governments and regulatory bodies. legal challenges of blockchain

This is one of the major reasons why a lot of countries don’t allow cryptocurrency transactions. Countries that do allow it is trying to make cryptocurrency transactions less private. Companies that offer blockchain services may be pressured to find a balance between privacy and anonymity. They also have to follow a strict level of regulations to reduce or eliminate the risk of crime. Some of the most common legal challenges of blockchain technology are:

1. Privacy Issues

The fight around blockchain privacy and the legality of this don’t seem to settle down anytime soon. As lawmakers are trying their best to prevent crime by removing the tools that can assist fraudsters in moving money from one place to another without being caught. While the cryptocurrency companies are pointing out that every individual has the right to privacy. The cryptocurrency community makes a fair point, but unfortunately, this also works in the favor of money launderers and other criminals. 

2. Regulatory Challenges

One of the biggest regulatory issues revolving around blockchain technologies is if the cryptocurrencies are considered securities, they’ll be bound by the SEC regulatory rules. That’s not an ideal situation for cryptocurrency companies as they will need to follow a wide range of legal obligations that they currently don’t.

The biggest example of this situation is Telegram. In 2019, they launched an ICO, which was shut down by the SEC because they claimed the tokens were sold unlawfully. In June 2020, Telegram finally settled with the SEC and had to return more than $1.2 Billion to investors. 

3. Federal Laws

When it comes to federal laws, a lot of organizations govern how cryptocurrency is regulated. These organizations include:

  • The Securities and Exchange Commission (SEC)
  • The Commodities and Futures Trading Commission (CFTC)
  • The Federal Trade Commission (FTC)
  • The Department of Treasury
  • Internal Revenue Service (IRS)
  • The Financial Crimes Enforcement Network (FinCEN)

Although, regardless of this spade of organizations, there’s very little federal lawmaking on this issue. State laws on the other hand are a completely different deal.

4. State Laws

While there aren’t a lot of federal laws regarding cryptocurrencies, there are a lot of state laws. There’s a big difference in how the technology is treated on a state level as opposed to a federal level. Some states have a favorable stance and others are much tougher. 

Wyoming is one such example of a crypto-friendly state. Just recently, Wyoming passed a law where cryptocurrencies are exempted from property taxation. Arizona and Georgia have also legalized Bitcoin as a type of payment method for taxes. State laws are one of the biggest blockchain legal challenges.

However, there are more than a dozen states that have issued warnings for investors regarding cryptocurrencies. New York is probably the biggest example of a state that’s highly restrictive with its crypto laws. 

5. Anti-Money Laundering and KYC 

One huge legal challenge for crypto and blockchain companies is following anti-money laundering laws. There are other laws that crypto companies and blockchain companies have to vary as well. American residents aren’t allowed to do business with foreign nationals who are on the blocked entities list.

And of course, companies that fail to follow the regulation laws can suffer from huge penalties. The new AML directive 5 included some laws regarding cryptocurrency that some cryptocurrency exchanges have to follow. 

How to Fix Blockchain Legal Issues?

Solving the legal challenges around blockchain and crypto isn’t easy at all. In upcoming years, a lot of changes will be made which will probably change the environment around crypto. Cryptocurrency exchange and blockchain companies are trying hard to find a way around the legal complications.

Categories
Blockchain

What is Blockchain Technology and How Blockchain Works?

Blockchain technology, also known as Distributed Ledger Technology (DLT), helps in maintaining the history of any digital asset immutable and transparent. The technology uses decentralization and cryptographic hashing to make the data unchangeable and transparent. While blockchain is widely popular in the cryptocurrency industry, other industries don’t know what is blockchain technology or how blockchain works?

A simple way to define blockchain technology is like Google Doc. Let’s say that you create a Google Doc and share it with a bunch of people, the document is distributed instead of transferred. This sharing of documents creates a decentralized distribution chain, which gives everyone access to the same information at the same time. Everyone can access the information and data at any given time, not a single person is in charge of changing and sharing the information. As all the involved parties can see the changes being made in real-time, transparency of data is ensured. If you’re wondering how does blockchain secure data, then you should know the technology follows certain protocols that make the data extremely secure. Using blockchain for fraud prevention is an idea that’s been thought over a lot in recent times. 

While blockchain technology is much more complicated than a simple Google Docs file, it does help in giving an idea to users how blockchain works in banking. Sooner or later, blockchain technology will be integrated into almost every industry.

How Does Blockchain Work?

The main purpose of having blockchain technology is to let people share data, share data in a secure and immutable way. Blockchain technology works on three fundamental principles including blocks, nodes, and miners. 

  1. Blocks

The term blockchain consists of two things, blocks, and chains. Every chain consists of several blocks and it contains 3 main elements:

  • The data in the block.
  • A 32-bit whole number called a nonce, the nonce is randomly generated whenever a new block is created, which then leads to the generation of a block header hash. 
  • The hash is a 256-bit number embedded into the nonce, it has to start with a number of zeroes. 

When a new chain is created, a nonce generates the cryptographic hash. The data in the block is signed and tied to the nonce and has unless it is mined. 

  1. Miners

Miners keep creating new blocks on the chains using a process called mining. In a blockchain every block contains its own nonce and hash, it also contains the hash of the previous block in the chain. Mining for new blocks isn’t easy, especially on large chains. Because the nonce is only 32 bits and the hash is 256, there are billions of combinations till the right combination is found. Whenever the miners find the right combination, a new block is created and added to the chain. 

Making changes to previous blocks in the chain requires re-mining, not just the block with the change but all of the blocks that come after. This is why it is highly complex to manipulate any data on the blockchain. This is how blockchain works in banking, and it is crucial for banks to employ the technology to ensure the safety of data. 

  1. Nodes

One of the most important concepts in blockchain technology is decentralization. Not a single computer or organization owns the chain which makes the information on it transparent. It is an online ledger via nodes that are connected to the chain. Nodes are any type of electronic device that keeps the copies of the blockchain and keeps the network under operating health. 

Combining publicly available information with a variety of checks and balances helps the blockchain maintain integrity and creates user trust among users.

The Rise of Blockchain’s Technology

Most people define blockchain technology as its use in cryptocurrencies. Cryptocurrencies are a type of online currency or online tokens such as Bitcoin, Ethereum, or Dogecoin that can be used to buy goods and services. Just like any digital type of cash, crypto can be used to buy anything from as small as a lunch to as big as a car. Cryptocurrency is not like cash, crypto uses blockchain to operate as a public ledger and as an enhanced security system, so all the online transactions are recorded and secured. 

As of right now, there are around 8,000 types of cryptocurrencies in the world and they have a market value of $1.6 trillion, with Bitcoin being the market leader. Cryptocurrencies are slowly becoming more popular over the years among investors. Here are some of the reason why investors are becoming more and more interested in cryptocurrencies:

  • Blockchain’s security makes the theft of data and information almost impossible as almost all cryptocurrencies have their own indisputable and identifiable number which is attached to one owner. 
  • Cryptocurrencies don’t operate under individualized currencies and central banks. With blockchain, crypto can be sent anywhere in the world without the need for currency exchange or without the interference of central banks. 
  • More and more firms are coming around to the idea of blockchain-based technologies. In February 2021, Tesla announced that they would invest 1.5 billion into Bitcoin and accept Bitcoin as payment of its cars.

How Blockchain Works In Banking?

Apart from cryptocurrency, blockchain technology can also be implied in other industries. Not a lot of people know how blockchain works in banking. Banks and financial institutions can store customer data on blockchain to make sure the confidential customer information stays secure. 

DIRO’s online document verification technology can verify documents instantly. Banks can use the technology and verify customer identity and improve the overall customer experience during remote customer onboarding. DIRO’s technology places verified customer documents on the blockchain to make the information secure and immutable.