Could Blockchain Stop PNB like frauds?

Voice&Data - - CONTENT - Mo­hua Sen­gupta (The author is EVP & Global Head of Ser­vices, 3i In­fotech Ltd)

Blockchain def­i­nitely has much higher se­cu­rity ca­pa­bil­ity built-in. The ba­sic con­cept un­der­ly­ing Blockchain, is Dis­trib­uted Ledger Tech­nol­ogy or DLT. So the mas­ter data is main­tained in ev­ery node of the dis­trib­uted ledger and hence there is no de­pen­dence on a sin­gle source of truth

Ever since the Punjab Na­tional Bank fraud case has come to light, many be­liev­ers of Blockchain have been say­ing that Blockchain could have stopped it. Blockchain will be­come per­va­sive, but could it have avoided this huge fraud that has shaken the In­dian bank­ing sys­tem?

Well it’s hard to re­spond in the af­fir­ma­tive know­ing that no tech­nol­ogy is smarter than the hu­man brain at its best. If the in­tent is wrong, loop­holes are found or made. Just as in this case.

What was the main rea­son be­hind this fraud? While there were mul­ti­ple, like mal-in­tent of ac­count hold­ers, cor­rupt em­ploy­ees, au­dit fail­ure, man­ual con­tracts etc, the key rea­son was un­in­te­grated ap­pli­ca­tions, i.e, the SWIFT gate­way was not in­te­grated with PNB’s Core Bank­ing Sys­tem.

So trans­fer­ring data from one to the other was a man­ual process! When money was lent by for­eign branches of other In­dian banks, based on the false LOU is­sued by PNB, no record was be­ing made in the banks CBS. Thus year af­ter year, the fraud re­mained un­der cover.

Could Blockchain have Solved it?

Well the an­swer is yes and no. Blockchain def­i­nitely has much higher se­cu­rity ca­pa­bil­ity built-in. The ba­sic con­cept un­der­ly­ing Blockchain, is Dis­trib­uted Ledger Tech­nol­ogy or DLT. So the mas­ter data is main­tained in ev­ery node of the dis­trib­uted ledger and hence there is no de­pen­dence on a sin­gle source of truth.

While to­day the banks CBS is the sin­gle source of truth for the bank, in a Dis­trib­uted Ledger frame­work, each node would con­tain the same truth. So tam­per­ing one node would not be pos­si­ble and would im­me­di­ately bring to light any kind of mal­prac­tice.

So tech­ni­cally speak­ing Blockchain tech­nol­ogy does have se­cu­rity mech­a­nisms to deal with th­ese frauds. How­ever, the suc­cess of this would de­pend on how dis­trib­uted the ledgers are and how big the chains are.

Any­time there is a gap or a break be­tween the chains, or two or more chains are not in­te­grated, de­mand­ing a hu­man in­ter­ven­tion, mis­takes or fraud are likely to hap­pen. So whether or not Blockchain tech­nol­ogy could have stopped the PNB fraud, would de­pend on how in­te­grated the Blockchain was.

So even in a Blockchain sce­nario if the bank and the SWIFT pay­ment gate­way were not con­nected by a sin­gle chain or two in­te­grated chains and had it re­quired a man­ual in­ter­ven­tion, the prob­lem couldn’t have been avoided in­spite of Blockchain tech­nol­ogy. So, Blockchain tech­nol­ogy alone, is not an an­swer to avoid­ing such prob­lem, in­ten­tional or not. The most crit­i­cal re­quire­ment is for all stake­hold­ers to be part of the Blockchain, with no break­age in the chain.

There are a few other nec­es­sary con­di­tions to the suc­cess of Blockchain as well: i) All man­ual con­tracts of to­day will have to be con­verted into smart con­tracts to run some au­to­mated checks on them, when­ever there is any trans­ac­tion in­volv­ing a con­tract. ii) Since the se­cu­rity will be so much de­pen­dent on the tech­nol­ogy it­self, tech­nol­ogy au­dits will have to be­come much more strin­gent and per­va­sive iii) Fi­nally in or­der for all stake­hold­ers, no mat­ter which in­dus­try they be­long to, need to come to­gether as part of the same or con­nected Blockchain, there needs to be com­mon pro­cesses and pro­to­cols ac­cepted and agreed on by reg­u­la­tors of all in­dus­tries. Hence, the reg­u­la­tors need to come to­gether to en­sure the same. So bot­tom line is no tech­nol­ogy can erad­i­cate fraud. Peo­ple are much smarter than com­put­ers, be­ing the in­ven­tors of all tech­nol­ogy. And peo­ple with mal- in­tent will be there. So while Blockchain has the tech­nol­ogy built-in to im­prove se­cu­rity, it is def­i­nitely not the an­swer to all fraud.

Blockchain def­i­nitely has much higher se­cu­rity ca­pa­bil­ity built-in. The ba­sic con­cept un­der­ly­ing Blockchain, is Dis­trib­uted Ledger Tech­nol­ogy or DLT. So the mas­ter data is main­tained in ev­ery node of the dis­trib­uted ledger and hence there is no de­pen­dence on a sin­gle source of truth

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