Could Blockchain Outshine Bank Authorities To Mine the Diamond Thief?

Blockchain Diamond theif

When it comes to the latest bank fraud involving Nirav Modi and PNB no stone had been left unturned. Right from Banks to Bollywood, Nirav Modi’s sparkle blended everyone. But the fraud was crystal clear to reflect the flaws in banking systems. Last year it was Winsome Diamonds, this year it is Nirav Modi! Looks like diamonds do need a stronger chain, after all, to string them together.

Something stronger than the SWIFT and the CBS system?Maybe an unbiased, unregulated, decentralized technology like Blockchain could do the work.

The blockchain is a distributed database available on multiple computers at the same time. It keeps on growing when new sets of recordings are added to it. This new recording is called as a block which contains a timestamp and link to the previous block forming a chain. This entire database isn’t managed by anyone and the records remain forever. New blocks are added to the ledger irreversibly eliminating the risk of data manipulation. This way no single party can control the system and it is transparent for everyone to view it.

Sounds complicated, right? But here’s how much difference blockchain can make:

1. For starters blockchain would ensure transparent and unchangeable transactions:

This means all of Nirav Modi’s shenanigans that were carried out by his PNB friend Shetty would be available for every other bank on the blockchain to track. And no one, not employees like Shetty would be able to delete/alter or edit them.

2. Secondly, the need for multiple software to track banking transactions would get eliminated:

The PNB bank fraud could have been avoided had the SWIFT system been linked with the internal systems that are audited. Currently, the SWIFT ledger runs independently of the payment mechanism ledger. But with blockchain, all these intermediaries can be eliminated and be having a single ledger would become possible. This would record all transactions on a real-time basis.

3. Thirdly with Blockchain the fake LoU’s could have easily been avoided:

Smart contracts that form a part of blockchain make it possible to digitally verify and enforce a contract. So if the smart contract would have identified that the loans advanced to Nirav Modi in the Nostro accounts weren’t repaid it would have rejected the issue of further LoU’s.

4. Fourthly all the information would not blind the concerned parties:

Since the blockchain network is available for anyone who has access to it all auditors and stakeholders even RBI can see what’s going on. They would be able to catch the fraud at the beginning itself and make the concerned accountable for their actions.


Diamond Industry5. If CBS and blockchain are integrated the lending banks would be able to see the creditworthiness of the client rejecting their loans:

In Nirav Modi’s case, banks like Allahabad and Axis bank lent Modi loans based on LoU’s. If blockchain was involved then the loans wouldn’t be advanced only in the first place. This is because wilful defaulters would easily be picked up by blockchain and made available for banks to check the creditworthiness of an individual or organization.

Lastly, Blockchain can make it possible to detect patterns over time:

Blockchain can rectify our banking system which needs desperate reviewing. With this tech, it is also possible to train machine learning algorithms to identify fraudulent patterns. Forging documents would also become a thing of the past because blockchains enable cryptography which is very secure and runs on digital signatures.

Blockchain might not be the best system to protect the fraud. But it’s the closest to detect, prevent and protect such a fraud from repeating. (Otherwise don’t you think everyone’s number one investment would be bitcoins?)

Currently, blockchain is still developing and our government is keen on bringing it to the country. Blockchain has many uses one of which is its uses in banks. A few banks in India ICICI Bank, South Indian Bank of India, State Bank of India have already started using blockchain. According to ET, last month that more than a dozen Indian insurers have jointly begun the country’s first blockchain project to help in improving business and agent track records while flagging fraudulent transactions

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