A degree of trust between parties is required in legal transactions. However, if an immutable record of data existed, we could eliminate this dependency on others. Blockchain technology aims to do just that by using a decentralised network. With no central authority, it is incredibly difficult to alter the data inside a ledger. A user would have to control over half of the platform to create a consensus. This fundamental principle leads to a secure system. As a result, certain industries are moving their processes over to this new technology, particularly those that require a greater degree of trust.
Combating Money Laundering
The global money laundering industry is thriving and is estimated to amount to up to $2 trillion per year. In 2012, HSBC Bank was fined $1.9 billion for violations of anti-money laundering regulations in Mexico. Two years later, the French bank BNP was charged $8.9 billion dollars for concealing over $190 billion in transactions for clients who were subject to US sanctions. Failing to adequately maintain anti-money laundering (“AML”) procedures can be an incredibly costly mistake. However, maintaining these procedures is expensive and time consuming. Know-Your-Customer (“KYC”) requests can often take up to fifty days to complete. Blockchain has the potential to reduce costs and delays in this field.
Regulators are seemingly resistant to new approaches to combat this epidemic, often encouraging banks to simply hire more manpower to meet AML requirements. However, it is evident that current risk management systems are not always able to track complex transaction trails, particularly where cross border transactions are analysed at a national level.
Due to the immutable nature of blockchain, it’s possible for investigators to trace a history of transactions more easily than with current processes. Algorithms would be able to identify patterns and analyse data to determine the risk of a specific transaction. Although it’s not impossible for a centralised system to do the same, an army of compliance staff would be necessary.
While blockchain technology won’t revolutionise the KYC process, it can enable financial entities and law enforcement to verify credentials in a timelier manner. KYC can be expanded to include a reputational score too. However, this approach cannot prevent fraud where fake or stolen credentials are used to open accounts.
A current obstacle for blockchain to overcome is persuading participants of its trustworthiness. Decentralised systems are essentially “trust-less” since there is no central authority, so decisions are driven through logic and consensus. This is a new and often unsettling ground for businesses to explore. A possible counter to this are distributed ledger technologies like Corda, which allow the company to control who can see certain information.
Blockchain technology can be used to monitor more than just financial transactions. The implications of blockchain technology for conveyancing are huge. Experts in the field claim that blockchain technology can reduce transaction times from the typical three months, down to three weeks. The process has the potential to remove a great deal of paperwork.
ClickToPurchase, a platform for buying and selling property online, completed the first online property transaction by blockchain. In one week, the platform saw a home go from initial marketing to a verified online exchange. Over one in three property sales fall through, and nearly 30% of that is from slow sales progression and conveyancing issues. With delays causing stress or even a collapse of the sale entirely, hastening this process is a vital development in the property market.
Registered properties with no significant charges or covenants are well-suited to a blockchain platform. However, a considerable amount of land in Ireland remains unregistered, and many properties have complicated titles and historic obligations. In those cases, expert legal advice is necessary and blockchain technology will not suffice.
Banking in the Modern Age
A recent use of blockchain is to establish trust in the banking sector. A collaboration between the Institute of Banking, various Irish banks, and Deloitte are developing a new financial services industry education platform, providing a single view of employee competency and talent frameworks. The platform is a first of its kind in Europe. Employees can access their digital wallet which contains their credentials. This will result in reduced costs and risk, while also meeting the Central Bank’s Minimum Competency Code and Fitness and Probity regimes. It has been built by Deloitte’s EMEA blockchain lab, a Dublin-based development hub that advises financial services clients on the application of blockchain solutions. The immutability of blockchain’s data is a key reason that the platform was chosen. It is inherently difficult to manipulate, thus keeping employee records secure.
The Right to Erasure under GDPR
Personal data in an immutable data trail is problematic when considered against the new requirements of the GDPR. Article 17 states that the controller of the data can be requested to erase an individual’s personal data. It’s often not practicable to erase data from a blockchain, since the various nodes would have to cooperate and re-build from before that data was added. Another method might be data redaction, where sensitive data is removed or replaced, but this poses challenges of its own. It is important to note that the right to erasure under Article 17 is not an absolute right and Article 17(1) (a) states that the data can be erased only in the situation where it is “no longer necessary in relation to the purposes for which they were collected or otherwise processed”.
The prospect of a Memory Optimised Flexible Blockchain might solve this issue. This is where data can effectively be removed from the blockchain, but if there is a dispute it can be verified via its hash. A practical example of this infrastructure would be if a homeowner wanted to verify that a break-in took place under a previous insurance policy, they could provide a private copy of the data with its associated hash. A legal authority could compare the hash with what is stored on the blockchain, thus validating the claim.
Blockchain is showing promise in many industries. As discussed in this article, blockchain has the potential to combat money laundering, streamline conveyancing practises and store employee credentials. Implementing blockchain technologies can provide an impartial, automated, and efficient intermediary. However, it does come with some caveats. Privacy is a growing concern in modern society, and it will take some clever engineering and compromise to meet the necessary standards. With everything considered, is society ready to trust this new technology?
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