Innovations in blockchain technology have already begun to change the way the global economy works. Blockchain not only allows for the creation of new digital currencies but also vastly improves the future of consumer protection.
In this article, we feature four major consumer benefits created by the development and adoption of blockchain.
1. Preventing identity fraud and data misuse
Identity fraud and data privacy continue to be major problems for consumers. In some instances, identity fraud is difficult to detect. In the US alone, 16.7 million people were victims of identity fraud in 2017, marking an all-time high.
For consumers who aren’t able to prevent such fraud, the long-term effects can be very devastating. Identity fraud creates barriers to economic opportunities. For instance, buyers who have bad credit scores generally have much fewer (or even zero) options for receiving loans, purchasing home mortgages, and other big-ticket items that require good credit scores.
Additionally, recent events like the Cambridge Analytica - Facebook data misuse scandal present many concerns to online privacy. In centralised social media platforms that are reliant upon the selling of data for profit, it can be difficult to stop data misuse. While unfortunate for the 50 million Facebook users affected by this scandal, it has made it apparent that the social media platforms of the future should consider user data privacy and ownership a major priority.
In both cases, consumers have a general mistrust for traditional institutions and their technologies. Blockchain technology is poised to be a part of the solution by helping mitigate or even eliminate concerns over both identity fraud and data misuse. While Cambridge Analytica and other technology companies of the past have been restrictive in what information consumers can access and keep private, blockchain companies like SingleSource allow consumers to have full control over their own data. Consumers have the ability to decide which companies can and can’t view their risk scores and other relevant data.
By providing consumers with better data privacy control options and greater overall transparency, blockchain technology gives more power to consumers to make their own decisions. In essence, it makes sure that institutions are more compliant with data privacy laws but also helps consumers understand which factors determine their dynamic risk scores. In turn, consumers have the ability to proactively ensure the possibility of better economic opportunities for themselves by making financially-responsible choices (when using the appropriate applications).
2. The end of lengthy "pending" transactions and "double spend" fraud
In traditional banking systems, it can sometimes take days or weeks to clear payments. The waiting time to change the status of any given exchange of money from “pending” to “complete” via fiat currency can be excruciatingly slow.
In the US, money is typically transferred from one bank account to another via the ACH system, which is run by the Federal Reserve. Similarly, in Europe, money typically goes through the SWIFT system. While banks have historically been relatively good at preventing fraud in lengthy transaction approval processes, there is an increasing demand from consumers for faster payment completions.
In a world where communication is practically instantaneous, the sending and receiving of funds via traditional banks hasn’t quite caught up to speed. To make banking faster, some banks have begun to implement same-day ACH payments. However, this increase in transfer speed comes at a cost. For banks, same-day ACH presents a major security issue as it is predicted that quicker approvals account for 50% to 100% increases in banking fraud.
When using blockchain, however, the process of verifying the accuracy of payments is much simpler and quicker. Potential fraud issues like “double spend” are much easier to prevent in the first place through blockchain’s security measures. Additionally, payments via blockchain can be completed instantaneously in many cases. According to a report published by Deloitte in 2016, blockchain networks could rival ACH’s 23 billion annual transactions by 2025.
3. Decentralised databases: fewer hacks, better data security
The utilisation of centralised databases is one of the biggest causes of modern hacks to date. For example, the Equifax hack led to the stealing of sensitive information like tax IDs and driver's license details of 145.5 million people. In this case, the hack wasn’t due to user behaviour (i.e. a phishing attack). Instead, it was caused by a coordinated attack on the company’s databases.
Blockchain aims to vastly improve data security through the development of decentralised database technologies. Essentially, user data won’t be stored on one main server. Instead, it will be distributed across a network of servers, making the possibility of a hack far less likely. Even in a situation where a decentralised database is successfully hacked, the amount of sensitive data exposed would be very minimal when compared to an attack on a centralised database as seen in the Equifax hack.
While you might have heard recent news about cryptocurrency exchange hacks on exchanges like Coincheck or Coinrail, every major cryptocurrency exchange hack of this kind to date involved a centralised cryptocurrency exchange. There are already quite a few decentralised exchanges (and blockchain projects) emerging that will provide much better solutions for both the security of cryptocurrency funds as well as any other relevant user data.
Even though adoption of decentralised databases is still quite low as of June 2018, it is expected that this promising technology will continue to improve and become more accessible for a greater number of companies. For consumers and users of websites where sensitive data is submitted, decentralised databases will significantly reduce the risk of major issues like identity fraud.
4. Smart contracts: solving disputes, empowering compliance
Using traditional contracts can sometimes make it very difficult to solve disputes. For instance, in e-commerce, “friendly fraud” is a common practice. In some cases, sellers on popular platforms purposefully send the wrong items or send counterfeit items to buyers. Even worse, sellers oftentimes refuse to accept returns on these items.
Consequently, this type of fraud leaves the consumer with very few reconciliation options. Even if a dispute is eventually solved by a third-party (i.e. an e-commerce platform), the customer almost always faces the high probability of some financial loss and a bad user experience.
In the new world of smart contracts, it is much easier to verify and automate the execution of contracts. For example, a supply chain company can use blockchain-based RFID tags and other technologies to add transparency to supply chain logistics, by verifying that products are authentic and safely reach the end consumer in a timely manner.
In essence, smart contracts prevent fraud by removing the necessity for “trust” between two parties. Instead of having to go through the lengthy and expensive process of hiring a third-party to investigate potential friendly fraud or other contract violations, the conditions of a smart contract are set via unbiased computer code. For consumers, using smart contracts to verify data accuracy and settle potential financial disputes is much cheaper and far less time-consuming than traditional resolution dispute options.
As demonstrated in the examples listed above, blockchain technology not only has the potential to improve financial transaction processes but can also keep user data safe from many of today’s largest sources of fraud.
Hopefully this article has provided you with a good understanding of some of the important ways that blockchain can improve the future of consumer protection. In the years to come, blockchain aims to achieve an even greater number of tangible, real-world results that benefit consumers as well as the global economy as a whole.
Ready to find out more about how a platform like SingleSource can provide users with more data security, and organisations with better fraud prevention capabilities? Download the free white paper for more.