A significant portion of funds lost to corruption is through fraudulent invoices. Fictitious invoices often result in exporters and importers paying more or the wrong party getting paid. If you are new to Bitcoin, you can now buy bitcoin through Google Pay. Poor financial visibility within a company’s internal processes is one of those critical causes for this type of risk, which blockchain-based solutions may mitigate.
Finance professionals must have all the information available when discussing this topic and how it may affect their industry. Understanding the different types of blockchain and intelligent contracts alongside bitcoin and the associated benefits and risks will help finance professionals identify areas of concern.
The blockchain is a system that includes all transactions in a permanent, digital record accessible by all participants in the system. You can compare this to a ledger book containing all financial transactions between two parties. The critical difference between these two methods is that a ledger does not need consensus from the other participants to be updated; once one or both parties have finished making the change, it becomes permanent and cannot be deleted or changed. Next, let’s discuss how blockchain and bitcoin can be anti-corruption tools.
Crowdsourced investments, crowdfunding and venture capitalism, enable investment in a company before the company begins generating revenue. As a result, they may be forced to accept smaller returns on their investment than average.
The blockchain can help mitigate this by providing a safe and anonymous way to receive funds from investors. In addition, accounting records are fully transparent with no room for manipulation. Anyone accessing the blockchain can see how much money has been invested in a project before it has begun generating revenue, thus reducing corruption.
Verification and Accountability:
Currently, digital identification systems in many countries are not secure and are based on passwords only. A blockchain-powered digital ID system could include biometric authentication and a central registry. In the traditional finance industry, companies must maintain financial records for auditors to ensure that company funds are being used for the intended purposes.
In addition, these records have to be accessible to anyone in the company who may need them. It includes workers directly affected by corruption, e.g., workers whose employers may have overpaid. However, if a third party causes a breach, they may not be able to access their records because the company has moved on.
A blockchain-powered digital ID system can allow employees to access their records and mitigate fraud.
A public ledger is essential to the functioning a blockchain-powered digital ID system with the capability to verify its authenticity, so users cannot compromise the integrity of all records. It is one of the reasons that finance professionals are starting to look towards blockchain technology as a solution for their industry.
The most significant benefit is that blockchain technologies can anonymously verify transactions and prove that they were made without room for error or manipulation. The same goes for smart contracts; these are custom-built applications that execute automatically after certain conditions to improve efficiency and reduce costs.
People can use smart contracts to verify transaction records and user identity and expose fraudulent activities. Companies can also use them to improve efficiency and reduce costs, and authorities can automate financial transactions on blockchain networks.
For some industries, the need for increased privacy might outweigh the benefits of transparency and efficiency of a blockchain-powered digital ID system. However, access to accurate records is vital for industries that rely on sensitive information, such as healthcare, finance and government institutions.
Anonymity is essential in these cases because the data cannot be accessed by specific parties or third parties who want to manipulate it. Companies can use the blockchain to provide privacy by ensuring that specific parties or third parties cannot access records. In addition, it removes threats to personal data and sensitive information that may have been misinterpreted.
A use case in healthcare is possible if all the concerned parties are authenticated and a history of their interactions is available on the blockchain. For example, a healthcare company could create an application that uses the blockchain to store past interactions with pharmacies and other healthcare services, thus reducing fraud and decreasing human error. For example, it may be easier for patients to receive medication from a pharmacy they have dealt with personally.
Harnessing the blockchain’s potential:
While the blockchain is a potential solution to corruption, blockchain and bitcoin are both in their infancy. Popularized as a technology that people can use virtual currencies such as bitcoin and ether, the blockchain is not currently used for anything beyond its intended purpose.
Using smart contracts paired with the blockchain could help streamline the process of business dealings. However, the inability to use intelligent contracts in real-life situations costs large companies millions of dollars in lost revenue yearly. For example, when dealing with multiple parties in a supply chain, an exporter may send a fully loaded container to their importer only to discover that they have fallen victim to fraud.