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MINI PROJECT REPORT-II
ON
BLOCK
CHAIN ON
FINANCIAL
SERVICES
TOWARDS PARTIAL FULLFILMENT OF MASTERS
OF
BUSINESS ADMINISTRAT...
DECLARATION
I, ____________________ hereby declare that the
Mini Project Report on BLOCKCHAIN ON FINANCIAL
SERVICES submit...
CERTIFICATE
This is to certify that Mr. AMAN SHARMA Roll
no.2107140700005, a student of MBA II SEM in Kanpur Institute
of ...
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aman sharma mini project.pdf

  1. 1. MINI PROJECT REPORT-II ON BLOCK CHAIN ON FINANCIAL SERVICES TOWARDS PARTIAL FULLFILMENT OF MASTERS OF BUSINESS ADMINISTRATION (MBA) II SEMESTER ROLL NO. 2107140700005 UNDER GUIDENCE OF SUBMITTED BY Mr. RAVI GUPTA AMAN SHARMA
  2. 2. DECLARATION I, ____________________ hereby declare that the Mini Project Report on BLOCKCHAIN ON FINANCIAL SERVICES submitted towards MBA certificate is my original work and this report has not formed the basis for award of any other degree, associate ship, and fellowship or any similar title to the best of my knowledge. PLACE:- UNNAO SIGNATURE OF STUDENT
  3. 3. CERTIFICATE This is to certify that Mr. AMAN SHARMA Roll no.2107140700005, a student of MBA II SEM in Kanpur Institute of Management Studies, has carried out the Mini Project work presented in this report “BLOCKCHAIN ON FINANCIAL SERVICES”for the award of Master of Business Administration from Dr. A.P.J. Abdul Kalam Technical University, Lucknow for the academic batch 2021-23 under my guidance. Mr. RAVI GUPTA
  4. 4. ACKNOWLEDGEMENT I would like to take this opportunity to express my profound gratitude and deep regard to my faculty guide RAVI GUPTA for his exemplary guidance, valuable feedback and constant encouragement throughout the duration of the project. His valuable suggestions were of immense help throughout my project work. His positive criticism kept me working to make this project in a much better way. Working under him was an extremely knowledgeable experience for me. THANK YOU AMAN SHARMA
  5. 5. TABLE OF CONTENT 1 Preface 2 Introduction 3 Current state of cyber security 4 Problem Identification 5 Global Network Vulnerable 6 Policy Maker’s 7 Approaches for Addressing the cyber security resource gab 8 Traditional financial system vs. Decentralized financial system 9 Common Block chain application in finance 10 Blockchain technology challenging vulnerabilities 11 Blockchain Benefits 12 Recommended Solution 13 Reason to buy blockchain in financial sector 14 SWOT Analysis 15 Technology Implementation 16 Digitization of financial Instrument 17 Conclusion 18 Bibliography
  6. 6. PREFACE We may be at the dawn of a new revolution. This revolution started with a new fringe economy on the Internet, an alternative currency called Bitcoin that was issued and backed not by a central authority, but by automated consensus among networked users. Its true uniqueness, however, lay in the fact that it did not require the users to trust each other. Through algorithmic self- policing, any malicious attempt to defraud the system would be rejected. In a precise and technical definition, Bitcoin is digital cash that is transacted via the Internet in a decentralized trustless system using a public ledger called the blockchain. It is a new form of money that combines BitTorrent peer-to-peer file sharing with public key cryptography. Since its launch in 2009, Bitcoin has spawned a group of imitators—alternative currencies using the same general approach but with different optimizations and tweaks. More important, blockchain technology could become the seamless embedded economic layer the Web has never had, serving as the technological underlay for payments, decentralized exchange, token earning and spending, digital asset invocation and transfer, and smart contract issuance and execution.
  7. 7. 1. INTRODUCTION : Digital financial services (DFS) hold great promise as a means to enable financial inclusion and thus help improve people’s lives. However, cybercrime has become a key concern in developing and emerging countries’ financial markets and is threatening to hinder global advances in building more inclusive financial sectors. Over recent years, financial markets in Sub-Saharan Africa, the East Asia and Pacific region, Latin America and South Asia have been affected by a rapid increase in the number of cyber incidents and data breaches – and particularly affected are those markets with higher volumes of DFS transactions. While markets in Asia are recording the highest use rates of mobile banking and digital payment applications, they are also experiencing the highest volume of cyberattacks on financial institutions. In 2016, financial institutions in Bangladesh, Indonesia, Japan, the Philippines, Taiwan and Viet Nam were targeted in a series of attacks. In Sub-Saharan Africa and Latin America, cybercrime is also on the rise, with cyber-criminal communities in these two regions growing faster than anywhere else. One explanation for these trends may be the fact that DFS transactions are often carried out using insecure devices and over transmission lines that were not designed to protect the security of financial transactions, which leaves DFS systems and providers more vulnerable. Furthermore, with developed economies building up their defences against cyberattacks, cyber criminals seem to be shifting
  8. 8. their attention to easier targets in emerging DFS markets and exploiting their vulnerabilities. Falling victim to a scam or experiencing system access errors can result in financial and psychological harm and will most certainly affect a customer’s confidence and trust in the financial service. A significant cause of customer dissatisfaction with DFS provider services is unplanned system outages. Research on the attitudes and behaviours of low-income mobile money users shows that inability to transact due to network or service downtime was rated as one of the greatest annoyances and resulted in irresponsible behaviours that put the users at risk of being defrauded. The negative experiences prove to deter DFS consumers from using mobile money services more frequently and significantly decreased the level of trust in providers and the financial system altogether. Poor people are particularly vulnerable to fraud and system access errors that can result from a cyber incident. They are often less aware and educated about social engineering attacks, they are more likely to use devices and channels that are not designed to offer the security needed for a financial transaction and, most importantly, they can least afford to lose money. Another problem is that in developing countries customers are often liable for losses associated with a cyber incident, or they bear the burden of proving that they were the victim. In 2016 the International Telecommunication Union (ITU) and CGAP surveyed 5,220 mobile money users from
  9. 9. Ghana, the Philippines and Tanzania. Fraudulent or scam SMSs had been received by 83% of the Philippine respondents, 56% of the Ghanaian respondents and 27% of the Tanzanian respondents. In both the Philippines and Tanzania, 17% of the mobile money users interviewed reported having lost money to a fraud or a scam, while 12% of the Ghanaian respondents made the same admission. Because trust and confidence in financial service providers (FSPs) and payment systems are key ingredients for sustained financial inclusion, cyber incidents and their associated losses can hinder efforts to expand access to financial services. 2. The current state of cyber security in developing countries financial markets FSPs and their customers, as well as financial sector regulators and supervisors, face challenges in adjusting their behaviours, processes and policies to appropriately address the growing risk of cybercrime and technological failures. To better understand the prevalence and causes of these challenges, in 2018 CGAP conducted a survey of FSPs, DFS providers, financial systems operators, policymakers and data security experts from subSaharan Africa. The research showed that policymakers are aware of the issue. They are working to develop regulatory frameworks and build their own in-house capacity so that they can not only effectively guide and supervise the sector but also protect their own data and systems. FSPs tend to become more sensitive to the risk of cybercrime only after they have themselves been
  10. 10. targeted. Smaller FSPs tend not to prioritise cyber risks over other risks as the likelihood of an attack is still considered small. Broadly speaking, mobile money operators are more prepared and better equipped to handle cyber risks, especially those operators that are run by international mobile network operators (MNOs), which already adhere to the international security standards set by the telecommunications sector. The good news is that there is a growing interest among providers and policymakers to mitigate the sector’s exposure to cyber risks. However, these groups lack access to specialised and affordable cyber security support services, and they struggle to source information on cyber threats and good practices that is timely and accessible for people without an IT degree. The lack of cyber security resources is also manifested in local labour markets, where specialised and experienced IT and data security professionals are in high demand and are expensive to hire. The global talent gap in this area is even more pronounced in developing countries, especially in Africa. Representatives from both the public and private sectors would welcome more public-private dialogue and collaboration to address cyber security risks effectively and comprehensively, for example with joint efforts on consumer education.
  11. 11. 3. PROBLEM IDENTIFICATION The financial services industry, in developed as well as developing and emerging economies, has recognised the growing risks of cybercrime. In recent years, the industry has developed standards and guidance for FSPs to help them better protect their networks and their customers. The introduction of multi-factor authentication and chip cards has significantly reduced the theft of consumer credentials, and new tools like machine learning and artificial intelligence are enhancing the industry’s fraud detection and resolution processes. More and more FSPs are investing in cyber defences and resilience. While cyber defences and good online practices are being adopted in developed countries and by large multinational FSPs, medium- sized and smaller FSPs, and particularly those operating in developing countries, remain underprepared. A review of over 700 organisations from across Africa found that the banking sector lost USD 1.05 trillion as a result of cyberattacks in 2017.
  12. 12. The review reported that 75% of organisations were not employing security testing techniques, 60% of organisations were not keeping up to date with cyber security trends and attacks, and 75% of the vulnerabilities identified within organisations involved missing patches and software package updates. Indeed, the review states that “Africa’s savings and credit cooperative organizations, financial cooperatives and microfinance institutions are the most vulnerable due to weak system safeguards and protections” Another study highlights the increase in attacks on mobile banking systems. In Africa, cybercrime in mobile transactions in 2017 cost the sector USD 140 million, which includes losses from SIM swaps, social-engineering and insider fraud. The vulnerabilities are present on both the provider’s and the user’s side. Mobile money users frequently fall victim to social engineering attacks due to insufficient awareness and higher levels of credulity. Also, many mobile money applications lack basic security controls such as data encryption, making it easy for criminals to intercept transactions or eavesdrop . CGAP identified that a consumer’s financial information can be intercepted at many stages of a mobile money transaction, meaning there are at least five possible types of attack: (i) eavesdropping by external hackers; (ii) eavesdropping via fake network base stations; (iii) exploitation of roaming technology; (iv) insider eavesdropping; and (v) other threats from malefactors operating inside MNOs and DFS providers. Other DFS systems have vulnerabilities too. Point-of-sale (POS) devices, for example, which enable digital payment and other types of transactions, have been compromised by malware. Due to the decentralised nature of POS systems, which are located in manifold individual retail outlets, attacks are
  13. 13. hard to detect and remedy. In developing countries in particular, POS devices and systems are found to be insufficiently well monitored and protected. Small and medium-sized financial institutions, particularly those in emerging markets, can serve as easy entry points for criminals to access the global financial system. In several cases, criminals have exploited the connections between financial institutions by breaching small banks in order to rob large ones or by taking advantage of less equipped and protected institutions in developing markets in order to gain entry to global banking systems. Frameworks are therefore needed that look beyond individual institutions and take an ecosystem approach to risk assessment and management. So far, there is very little guidance available for assessing vulnerabilities, risks and threats across the (digital) financial services ecosystem.
  14. 14. 4. Global Networks Vulnerable The truth is that the all global networks especially those that deal with money transfers are a primary target for cyber criminals who have reached new heights of technical sophistication and are more organised than ever before. These criminals now boast access to vast resources, even patronage of rogue governments and plenty of motivation to perpetrate multi-million dollar frauds. To compound the problem banking industry veterans also point to a culture at banks of keeping things quiet in case of breaches or thefts if they can help it. They should be sharing information and undertaking investigations in a spirit of openness and cooperation so that the points of vulnerability are identified and corrected. The Bangladesh heist was the work of confident criminals who knew their way about the system, avoiding the strongest defences and targeting the weakest links in the international payments network. 5. Policymaker’s capacity constraints inhibit understanding and effective regulation and supervision of cyber security Cyber criminals are not just targeting consumers and providers; central banks and financial sector agencies can also be the target of attacks. Regulators and supervisors collect and handle confidential and sensitive information about the sector that can be of interest to criminals or may be enough of an asset for criminals
  15. 15. to hold them hostage. One example is Bangladesh’s central bank, which fell victim to a cyber heist in 2016 . In addition, regulators and supervisors are becoming aware of the need to develop regulatory frameworks, industry guidance and supervisory processes to ensure that the financial sector is implementing the necessary processes and systems to prevent, detect and effectively manage cyberattacks. Regulators, whose aim is to ensure the stability of the financial sector, are being called upon to develop appropriate regulatory frameworks to respond to the challenges that financial institutions and their customers face and to strengthen cyber resilience. At present, law enforcement agencies in developing and emerging countries are struggling to keep up with changes in technology, a situation that is allowing a cybercrime-based economy to flourish. Software that enables encrypted communication and virtual private networks (VPN)41, on the one hand, can protect activists and dissidents from oppressive regimes but, on the other, has allowed cyber criminals to hide from law enforcement. Encryption makes it more challenging for law enforcement agencies to identify malicious web traffic and track the communications of criminal groups. At the same time, criminals have developed skills and tools to thwart investigators. Law enforcement agencies have long struggled with a lack of resources (i.e., funding, skills, equipment and training) to combat cybercrime, but that is only one of the challenges they face. It is even more difficult to pursue transnational criminals.
  16. 16. In many developing countries, legislation addressing cybercrime is inadequate, punishments are insufficient, and the legal expertise required to prosecute cybercrimes is in short supply. There are also significant procedural hurdles, including issues of jurisdiction, challenges in maintaining standards of evidence, and the difficulty of explaining complex digital crimes to juries. Criminals are frequently left to operate with impunity for several reasons; for example, absence of adequate evidencesharing and extradition treaties between countries and lack of capacity to investigate cybercrimes, identify or locate offenders, or take culprits into custody.
  17. 17. 6. Approaches for Addressing the cyber security resource gap A few governments invest in building public cyber security support structures for the financial sector In developing markets, the cyber security efforts led by governments or public agencies often do not target the private sector as customers. Due to limited capacity and resources, national cyber security initiatives tend to focus on serving public agencies and critical infrastructure - the most important assets for market stability and integrity. Yet, even
  18. 18. for serving their own agencies and market infrastructure, capacity and resources are often insufficient to effectively train and educate public agency staff, recruit technical experts and provide the support that regulators and supervisors need. Common national support structures are computer emergency response teams (CERTs) or national computer security incident response teams (CSIRTs) that assist when an IT or data system has been attacked. In Africa, more and more governments are setting up such structures, with a few already up and running. However, the CERTs and CSIRTs often lack capacity and struggle to keep up with the rapid changes occurring in the cyber threat landscape, which, in turn, impacts on the advice and support they can provide to industry. Only a handful of countries have CERTs that specialise in responding to financial sector threats and incidents. It is usually the case that the range of services provided by these teams is very limited, services are not available 24/7 and seldom include an emergency response line. Important service gaps include security operations centres, industry-wide and regional threat information sharing, policy advisory services, financial-sector-specific advisory services, and educational programs for businesses and individuals.
  19. 19. Financial sector providers and associations are leading collaborative efforts to enhance their cyber resilience In most developed countries, and several emerging and developing countries, private sector players are teaming up to share threat information and jointly combat financial fraud and cybercrime. In many cases banking associations have taken the lead in formalising exchange of cyber threats. Sometimes, only a few actors will agree to collaborate and set up a partnership, with other parties then joining over time. Partnerships come in different forms and they are not always limited to financial sector actors; they have also included firms from the IT, telecommunications and intelligence sectors. More recently, there has also been a sharp increase in the number of cyber security and financial security companies (so called ‘FinSec’ companies), often of a smaller size, that see a niche market in providing cyber security products and services to FSPs and fintech companies. Another development is the increase in cyber insurance products, especially among large multinational insurance companies.
  20. 20. Multi-country approaches can help overcome the resource gap through economies of scale and scope Two key challenges arise when working to make cyber security support services available in developing countries. First, these countries have a limited number of cyber secusecurity experts,particularly experts that understand cyber threats in the DFS context. Second, there is a likelihood that the economies of some developing countries may not generate enough in-country demand to fully support the business of an affordable cyber security resource centre. Therefore, an effective solution to the cyber security resource gap may be the creation of regional cyber security resource centres that can harness a region’s available expertise and create a critical mass by serving the demands of multiple countries. These regional centres can be specialised for financial services sectors and their related sectors, can serve both the public and the private sectors, and can act as an impartial platform for public-private collaboration and exchange, including the
  21. 21. sharing of threat information. Due to their multi-country set- up, regional centres will be able to facilitate crossborder exchange, operate early warning systems, and share regional trends, threats and good practices with other regions and global platforms. Another advantage of the regional centres is the possibility of linking them with cyber security resource centres in more developed economies, which can provide backup support, expertise and tools that may not be available at the regional level. For example, a regional cyber security centre in West Africa could escalate severe incidents to a cyber support hub in Europe. Indeed, a number of actors in Europe and Africa are already working to design and develop such regional cyber security resource centres.
  22. 22. ✓ P2P NETWORK Peer to peer network, commonly known as P2P is a decentralized network communications model that consists of a group of devices (nodes) that collectively store and share files where each node acts as an individual peer. In this network, P2P communication is done without any central administration or server, which means all nodes have equal power and perform the same tasks.
  23. 23. P2P architecture is suitable for various use cases and can be categorized into structured, unstructured, and hybrid peer-topeer networks. The unstructured peer-to-peer networks are formed by nodes randomly from connection to each other, but they are inefficient than structured ones. In structured peer-topeer systems, the nodes are organized, and every node can efficiently search the network for the desired data. Hybrid models are actually a combination of P2P and client-server models, and when compared to the structured and unstructured P2P systems, these networks tend to present improved overall performance. COMMUNICATION Existing communication protocols in security networks are highly centralized. While this naively makes the controls easier to physically secure, external actors require fewer resources to disrupt the system. We present a solution to this problem using a proof-of-work-based blockchain implementation built on Multichain. We construct a test bed network containing two types of data input: visual images and microwave sensor information. These data types are ubiquitous in perimeter intrusion detection security systems and allow a realistic representation of a real- world network architecture. The cameras in this system use an object detection algorithm to find important targets in the scene. The raw data from the camera and the outputs from the detection algorithm are then placed in a transaction on the distributed
  24. 24. ledger. Similarly, microwave data is used to detect relevant events and are placed in a transaction. VALIDATION A Blockchain Validator is someone who is responsible for verifying transactions within a blockchain. In the Bitcoin Blockchain, any participant can be a blockchain validator by running a full-node. However, the primary incentive to run a full node is that it increases security. Unfortunately, since this is an intangible incentive, it is not enough to prompt someone to run a full node. As such, Blockchain Validators comprise primarily of miners and mining pools that run full nodes. It’s important to note that “validation” and “consensus” aren’t the same thing. A Blockchain Validator performs validation by verifying that transactions are legal (not malicious, double spends etc). However, Consensus involves determining the ordering of events in the blockchain – and coming to agreement on that order. VERIFICATION Blockchains are made of blocks of code joined together and is essentially a process based on consensus between transacting parties. The blockchain network has many nodes of such continuous blockchains. It functions as a ledger which is decentralized. Whenever a new block is introduced, the transaction gets a digital signature fingerprint which cannot be altered and consists of hashtag functions of the previous block
  25. 25. with an output that is unique. If the output is changed and not verified the transaction becomes invalid and unverified. This means that all network nodes should receive the exact same output on executing the hash. If the change is acceptable by this test, the transaction is verified. Blockchains provide security, immutable records, and verification as the prime features. The different blocks are held together by connecting hashtags, and each and every block holds the hash code of the preceding block got from the values generated when the new block is introduced. Every initialized transaction has the connecting nodes verify the following • Transaction history is immaterial, and the balance of the wallet address of the sender is checked. • Receiver address is also verified.
  26. 26. CONFIRMATION Confirmations are one of the most important aspects in evaluating both the legitimacy and the security of a given Blockchain, as a blockchain that requires more confirmations and can produce more confirmations in a given time interval is considered more secure and reliable than others. Blockchain Confirmations allow users to know that their transactions over blockchain networks have been secured. When a transaction is made on a Blockchain Network–for instance, when you send a few coins to your friend’s digital wallet address– that transaction must be recorded on that blockchain’s digital immutable public ledger. The digital immutable public ledger is a sequence consisting of digital blocks attached to each other, ordered down to the millisecond in a chronological chain, thereby known as a “Blockchain”. After being placed on the blockchain, each transaction must be validated through a process called consensus. Consensus validation is performed by miners on the network using a Proof of Work scheme that rewards miners new coins in exchange for securing and validating transactions, as long as their new blocks are approved by the other miners on the system through participant consensus a Blockchain Confirmation is a number of times another block or transaction is placed chronologically after your transaction’s block. For example, if your transaction is placed on one block, it is very likely that a new block will be appended to your block soon after as more transactions are
  27. 27. made on the network. If a malevolent agent on the network wishes to reverse or corrupt a transaction, not only will they have to get through that block’s security by decrypting its encrypted data, but they will also have to decrypt all of the other data on the blocks ahead of this block since the blocks are all linked together in a chain. Blockchain Confirmations therefore work as a measure of security, since for every block that is added after your transaction, your transaction is much less likely to be reversed and is therefore more secure.
  28. 28. A A S d 7. TRADITIONAL FINANCIAL SY TEM VS. DECENTR LIZED FINANCIAL SYSTEM ❖TRADITION L FINANCIAL SYSTEM The traditional financial systems work on trust An honest and secure as you may think and expect. its not as Traditional, classical or most of the current financial systems are setup on trust. Trust that organisations that are regulated will follow regulatory guidance on their processes. Trust that
  29. 29. when you engage with them or buy a financial product from them, it will serve the purpose it is intended to. Trust that when you trade against a financial institution, as you would do when they take the counter party position to a derivatives trade, they will fulfil the obligation and give you the money they owe you. Trust that they will not misuse your information to their advantage and deal with you fairly. How well deserved do you think is this trust, that is placed in the system by the people? So what exactly would be a solution to this Two things: self-sovereignty and immutable transparency These are the two things that the new blockchain and cryptocurrency-based revolution can deliver to you. Let's explore one concept at a time. Self-sovereignty:- Self-sovereignty implies that you are in total control of all things related to you and that you do not rely on anyone else for anything that you may need. Self-sovereignty in financial terms means you are in full control of your money, what happens with your money, how you invest it or just hold it and no one else can have access to your money without your explicit permission. Today this is extremely easy to achieve if you hold your "money" in cryptocurrencies, digital assets, stablecoins or even tokenized securities. No need for a bank. You carry it on you or put it in a
  30. 30. safe place for when you need it. It’s your call. It’s your privilege and responsibility. Immutable transparency:- Well today there are a myriad of options to invest your cryptocurrencies and stable-coins in decentralized platforms that let you earn an interest on your holdings, or borrow against, or put it up for creating pooled funds that are further used to provide liquidity to other financial functions such as mortgages or financial products, or participate in decentralized "defi" derivatives, etc. At the center of every traditional financial system are money and its consequential trade. The primary goal of an economic system is the exchange of goods and services through trade. A financial system comprises financial institutions such as banks, tradable assets such as money, and financial services such as stock brokerage. The traditional financial industry has evolved from handing gold, silver, and paper currencies to trying out digital transfers from credit and debit cards. In all this time, one thing has remained constant, its rigid centralization system for handling money. This need for intermediaries is not only costing us a good penny but has also proven to be a lengthy process to deal with. Needless to say, we need to keep an eye on emerging technologies, like blockchain, to discover more effective ways to manage our finances. Technology continues to evolve and
  31. 31. develop new management systems to fix the previous system’s weaknesses. Therefore, it’s imperative to look into the discoveries and not wait for a decade to pass before we make a move. DECENTRALIZED FINANCIAL SYSTEM Decentralized finance (DeFi) is an emerging industry that promises to revolutionize the traditional finance sector. The need for an open, transparent, and secure financial system is the key driver behind the decentralized finance vs. traditional finance debate, so it does not come as a surprise that decentralized finance is slowly emerging as an alternative to today’s financial system. Decentralized finance, which is a block chain-based concept, has the potential to disrupt traditional finance because of its ability to be a financial tool that is outside of government and regulatory control. The creation of completely decentralized and independent financial systems has since continued to gather pace amidst growing calls for data and privacy security. At its simplest, decentralized finance is an open financial sector that runs on software built on top of a public block chain. It involves the building of financial products and servic s on top of a blockchain with the aim of promoting or enhancing the development of an o pen financial system. DeFi seeks to revolutionize the financial sector by acting as an alternative to centr ally-governed institutions, such as banks, that
  32. 32. have historically acted as financial intermediaries.DeFi leverages a set of progressive, agile tools to give control to users. The fact that the new trend offers extra fun ctionality in addition to reducing operational risks makes it an ideal replacement to the c urrent financial system. Moreover, having a large number of nodes provides a high guarantee against hacking and increases network security. Indeed, to hack the Blockchain and take control of the validation or modification into a block (and the transactions associated with it), it is necessary to hold 51% of the computing power contained in the Blockchain’s blocks. Thus, the more decentralized the Blockchain is, the more nodes and computing power there are, which mechanically reduces the possibility of attack to 51% and at the same time increases the security of the Blockchain.
  33. 33. To demonstrate the great advantage of decentralization over centralization in terms of security, let us start with the study of a centralized database: when a large group of data is stored on a central server, a hacker who accesses to the server can collect a large number of data at a time. This would have disastrous consequences, both for consumers who would see their confidential data revealed to everyone, and for the company who control this server in terms of image. Example: If a bank’s server is hacked, thousands of customers can be victims of identity theft and fraud. As a result, institutions that use centralized servers to protect large amounts of valuable data can spend huge amounts of money to ensure their security. However, in a Blockchain-based network, more than half of the computing power should be held to control the validation of future blocks. Indeed, the main Blockchains (namely the Bitcoin and Ethereum Blockchains) are very decentralized because they have a very large number of nodes and a great computing power, which makingn them totally impermeable to attack attempts by 51%. The risk of piracy is close to zero, which at the same time increases user confidence.
  34. 34. 8. What Are Some Common Blockchain Applications in Finance? It’s easy to see how blockchain’s properties make it ideal for financial applications. Blockchain facilitates safe, easy transactions, and builds trust between trading partners. It can even be used to quickly identify individuals through digital IDs. Banks and other financial institutions are already using blockchain to optimize their services, cut back on fraud and reduce fees for customers. Here are five blockchain financial services use cases gaining traction in the industry: 1. Cross-border transactions : Transferring money across borders has traditionally been slow and expensive, since systems typically pass through multiple banks on the way to the payment’s final destination. When used for cross-border
  35. 35. transactions, blockchain can make the process faster, more accurate, and less expensive. 2. Trade finance platforms : Trade finance is another blockchain application in finance to watch. Many banks are using blockchain trade finance platforms to create smart contracts between participants, increasing efficiency and transparency, and opening up new revenue opportunities. 3. Clearing and settlements : The accurate recording capabilities of blockchain may one day make current clearing and settlement procedures redundant, resulting in faster transactions and reduced costs for financial institutions. 4. Digital identity verification : Blockchain is enabling banks and other financial institutions to identify individuals using blockchain-enabled IDs. When customer identifying information is secured using blockchain, banks can increase public trust while protecting against fraud and speeding up the verification process significantly. 5. Credit reporting : Credit reports dramatically impact customers’ financial lives. Blockchain-based credit reporting is more secure than traditional server-based reporting, as demonstrated by recent data breaches. Blockchain may also enable companies to take non-traditional factors into account when calculating credit scores.
  36. 36. 9. Blockchain Technology Challenging Vulnerabilities The high level of security offered by a distributed ledger system offers benefits to establishing a secure data network. Business offering services in consumer products and services adopt blockchain technology to secure record consumer’s data. As Blockchain is one of the major technological breakthroughs of this century, it is allowing to remain competitive without requiring the trust of anyone third party. The technology is evolving new opportunities to disrupt business services and solutions for consumers. In the future, this technology will emerge with evolving global services in various sectors as the front-runner. Offers Encryption and Validation Blockchain technology is proficient enough to manage everything so that data has not been altered i n any way. Blockchain is encrypted by nature that makes it possible to provide proper validation. Apart from that business model can save a cr yptographic
  37. 37. signature of a data or huge form of data on a Bloc kchain. This would allow users to remain to ensure that the data is safe. Blockchain is used in distributed storage soft ware where huge data is broke n down into chunks. This is available in encrypted data across a network in a way that means all data is secure. Unfeasible to Attack Talking about blockchain it is unfeasibly hard to hack or attack. Blockchain is decentralized, encrypted, and cross-checked
  38. 38. which m allows the data to ain strongly backed. As re blockc loaded with nodes and to hack most of the nodes co it is impossible. Being one of distributed ledger technology h ain is fully ncurrently it’s most fundamental attributes are data immutable. It offers a whole new level of succeeding security where any action or transaction cannot be altered or counterfeit. This technology valid every transaction to get the confirmation by multiple nodes on the networ k. 10. BLOCKCHAIN BENEFITS (1) Reduced intermediation costs:- Since blockchains enable impartial transaction execution without a designated intermediary, they can achieve major reductions in intermediation costs and faster execution of transactions. Taking advantage of this feature enables cheaper and faster international remittances, and small-value transactions (micropayments) that
  39. 39. would not be worth the commission costs when using conventional methods. (2) Greater transaction impartiality and efficiency:- Blockchains leave the transaction details as an unfalsifiable record, improving transaction reliability. Blockchains can also be used with technologies called smart contracts and multisig to enable contract procedures involving multiple stakeholders to be processed impartially according to the transaction status. Smart contracts record the execution conditions in the transaction details, and multisig adds multiple electronic signatures to the transaction details. This feature enables more impartial and efficient processing of trade finance and syndicate loan operations that are conventionally done manually on the basis of contract documents. (3) Improved transaction transparency:- Since unfalsifiable transaction records are shared openly, this leads to the prevention of improper transactions and the improvement of market transparency. In addition, using blockchains as an information-sharing platform among a company's multiple sites, group companies, or industry bodies, leads to the speeding up of information-sharing and the prevention of discrepancies. Taking advantage of this feature enables the reduction of audit costs, the monitoring of improper transactions, and the rapid sharing of know your customer (KYC),
  40. 40. anti-money laundering (AML), and customer identification program (CIP) information. 11. Recommended solution for the challenges faced by the finance industry The finance industry has been facing many challenges for a very long time. The incredible advancements in technology have led to solving numerous problems, but some new technologies have created new issues in the process. There are multiple fintech solutions available today, making it very confusing for financial service providers to decide which solution will suit
  41. 41. them best. Hence, they look for an all-in-one solution that can help solve all of the major challenges being faced. Blockchain in financial services is highly promising and can solve significant challenges faced by the industry. ❖Security and Transparency Financial services all across the globe are still centralized and multi-layered. Financial data is mostly stored in centralized databases, and it has to go through multiple intermediaries such as the front office, back office, etc. There is a severe lack of transparency in the system, with the safety of the data being solely dependent on the intermediaries and database security.
  42. 42. Even if the databases have maximum protection, there are still very high chances of data breaches and servers’ hacking. The lack of transparency in the system fosters security threats as nobody can know what is happening until things go wrong or data gets breached. Though understandably, everyone does not want their financial records to be transparent, having a certain degree of transparency in the system is beneficial and essential for both financial service providers and their clients. Solution:- With blockchain in financial services, transparency and security can be ensured simultaneously. Immutability: As blockchain is immutable, no data can be altered. It ensures that all data is secure, authentic and correct.
  43. 43. Privacy:There are two security keys – a public key and a private key. The public key is available to all users in the network. The private key, however, is only shared between the stakeholders of the transaction. Hence, the transaction will be visible to all users in the network with the public key’s help, whereas the stakeholders’ and transaction details will only be visible to those who have the private key. It ensures that transparency is maintained in the system while securing the confidential financial information of the stakeholders.
  44. 44. Zero-Knowledge Proof Technology: Several blockchain networks support the zeroknowledge proof technology as a privacy solution for their blockchains. It allows verification of the financial data without disclosure. Reduced Costs Given that the financial sector is mostly centralized, it invests a lot of money in: purchasing central databases bookkeeping maintenance of databases labor costs security of databases intermediaries’ commissions
  45. 45. value transfer systems These costs are recurring, which means money has to be invested in them at regular time intervals. All these additional costs make the system more expensive without the guarantee that data breaches won’t occur. Solution:- With blockchain in finance, many costs can be reduced.According to a study,DLT can reduce the cost of financial services infrastructure up to USD 15 Billion – USD 20 Billion per annum by 2022. Blockchain technology is a
  46. 46. formof DLT, which can help increase transparency and reduce costs while ensuring security. Financial service providers like banks can also implement smart contracts in systems to reduce the costs of: their • intermediaries • value transfers bookkeeping.
  47. 47. 12. Reason to buy Blockchain in Banking and Financial Services Market Report 1. Breakdown of the sales data at the country level, with sales, revenue and market share for key countries in the world, from 2014 to 2014. 2. The Blockchain in Banking and Financial Services competitive situation, sales, revenue, and global market share of top manufacturers are analyzed emphatically by landscape contrast. 3. Describe Blockchain in Banking and Financial Services distributors, customers, research findings and conclusion, appendix, and data source. 4. The details of the competitive landscape outlined in this report are likely to provide an analysis of the prominent industry vendors, their growth profiles, strategies, and tactics, etc., that would help investors in decision-making. 5. To project the size of Blockchain in Banking and Financial Services submarkets, with respect to key regions (along with their respective key countries). 6. To strategically profile the key players and comprehensively analyze their growth strategies. 7. Focuses on the key global players, to define, d scribee and
  48. 48. analyze the value, market share, market competition landscape, SWOT analysis and development plans in the next few years. 13. SWOT ANALYSIS OF BLOCKCHAIN IN FINANCE
  49. 49. 14. TECHNOLOGY IMPLEMENTATION Money transfers:- Transferring money to other countries presents many problems and challenges for consumers and financial institutions. People send billions of dollars internationally each year, and the process is usually expensive, laborious, and error prone. Blockchain can change all that. Many major banks have adopted international payments with blockchain technology, which saves time and money. Consumers can also use blockchain money transfers to complete electronic transfers with mobile devices, avoiding the cumbersome process of visiting a money transfer facility, standing in line, and paying fees for a transaction. Inexpensive, direct payments:- Most funds move through financial institutions, such as banks or credit card processing centres. Each of these steps adds a layer of complexity, along with fees that can become costly. The benefits of blockchain-based transfers for merchants include: • Reduced fees: When customers pay with a credit card, merchants pay processing fees that cut into profit. Blockchain payments reduce or eliminate fees by streamlining the transfer process.
  50. 50. • Eliminated insufficient funds: Consumers sometimes pay for goods or services with a bad cheque, which causes a loss and additional fees for merchants, as well as the possibility of a legal hassle to recover. Blockchain-based payments can give merchants the confidence of knowing that the transaction is good within a few seconds or minutes. The benefits of blockchain-based transfers for individuals include: • Fewer scams: Online scams are a concern for many individuals, but blockchain-based payments are quick and reversible. They’re also less expensive than using banking services, especially for pricey items. • Less time and money: The safest payment methods are cash, wire transfers, and cashier’s cheques, but cash is untraceable, wire transfers are time-consuming, and cashier’s cheques can be forged. With blockchain-based payments, all of these issues are removed for greater confidence. Transaction details:- Money transfers aren’t the only way blockchain can revolutionise banking. Blockchain is an excellent method of tracking transactions and ensuring accurate, secure information, such as:
  51. 51. • Title details: A distributed ledger is nearly impossible to alter, making it easier to track ownership. Transfers of ownership and liens can refer to the ledger to verify the information, so there’s more trust. • Smart contracts: Transactions can be costly, complex, and time-consuming, but blockchain offers an opportunity for automation. Smart contracts can track when a buyer pays and when the seller delivers, as well as address any problems that come up during the process. Automated systems also reduce human error and work 24/7. Financial inclusion:- Blockchain’s low costs give startups a chance to compete with major banks, promoting financial inclusion. Many people are looking for an alternative to banks because of restrictions like minimum balance requirements, low access, and banking fees. Blockchain can provide an alternative that uses digital identification and mobile devices, free from the hassle of traditional banking. Reduced fraud:- Blockchain stores information in a ledger with transaction information within each block, along with a unique hash that refers to the previous block. Every person within the network
  52. 52. receives a copy of the transactions as well. Because of these features, blockchain technology is resistant to distributed denial- of-service attacks, hackers, and other types of fraud. Without the threat of cyber attacks, the expense of conducting business is reduced, helping all parties involved save money and stress. Crypto currency:- Digital currencies are the new wave of assets that rely on blockchain. Though digital currency is already in use, blockchain companies are lowering the barrier of entry and providing a seamless exchange of the most popular cryptocurrencies as a banking alternative.
  53. 53. 15. Digitizatio The digitization of assets, smart contra benefits of blockchai of connectivity an m ents sing digital – takes the ented levels products, n of Financial Instru financial instruments – compri cts and programmable money n further by forging unpreced d programmability between holdings. These digitized instr
  54. 54. redefine the processes of commercial and financi al markets, creating a new paradigm where value is brought at every touch point. Digital financial ins benefits: truments offer the followin g business Authenticity and scarcity: Digitization ensures data integrity, and enables asset provenance and full transaction history in a single shared source of truth Programmable capabilities: Code that addresses governance, compliance, data privacy, identity (KYC/AML attributes), system incentives and features that manage stakeholder participation (for voting and other rights)— can be built into the assets themselves
  55. 55. Streamlined processes: Heightened automation increases overall operational efficiency. It enables real-time settlement, audit and reporting; and it reduces processing times, the potential for error and delay, and the number of steps and intermediaries required to achieve the same levels of confidence in traditional processes Economic benefits: Automated, more efficient processes trigger reduced infrastructure costs, operation costs, and transaction costs Market reactivity: Digital securities allow greater customization than standardized securities, and can be issued within shorter timeframes. Issuers can create bespoke digital financial instruments directly matched to investor demand.
  56. 56. CONCLUSION Banking services are moving to digital at an ever-faster rate and, in developing economies, are increasingly being used by low- income and low-literacy users. However, concurrent with this progress, sector actors are facing a growing risk from cyber criminals seeking to attack their systems and consumers. If the sector is to continue building and maintaining consumers’ trust and confidence in financial systems, it needs to build its defences and ability to respond and recover from potential attacks. Protecting the financial sector and securing global advances in financial inclusion not only depends on FSPs improving the security of their own systems, but also requires a system-wide approach to security. Governments and providers need to collaborate within their jurisdictions as well as with peers around the world to exchange intelligence and support each other in fighting cyber criminals. Actors with more capacity will need to provide their weaker peers with support, because doing so will provide benefits in terms of reciprocity and will help safeguard these actors’ own systems and the public’s confidence in the sector.
  57. 57. BIBLIOGRAPHY • Fin Tech evolution(2018): strategic value management issues in a fast changing industry. Strategic Change- Briefings in Entrepreneurial Finance 27(4):301–311 • Footprints on a Blockchain(2017): trading and information leakage in distributed ledgers. J Trading 12(3):5–13 • perspective - a comparative study of Citibank and ICBC. Financial Innovation 3(1):12 • Blockchains and smart contracts for the internet of things(2016):2292–2303 services(2016). J Corp Account Finance 27(5):53–57 • financial fraud in public sector services.(2017) Bus Inf Syst Eng 59(6):441–456 The transition from traditional banking to mobile internet finance(2017): an organizational innovation Cryptocurrencies and business ethics(2018). J Bus Ethics 152(1):1–14 Blockchain and its coming impact on financial A Blockchain-based approach towards overcoming Distributed ledger and Blockchain technology: framework and use cases.(2018) J Invest Manage
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