A Privacy-Aware Blockchain Ecosystem for Scalable and Reliable Fraud Prevention

Abstract

The growing complexity of financial fraud, including identity theft, synthetic identity creation, account takeover, payment manipulation and money laundering has revealed basic constraints of the traditional fraud prevention architecture. The operational simplicity offered by centralized systems based on rules creates single points of failure, introduces systemic vulnerabilities to privacy and does not scale elastically with the volume of transactions. Moreover, the natural conflict between effectiveness in fraud prevention and the natural privacy of customers has also not been resolved yet because, in many cases, an effective detection is possible only with invasive data collection and centralized behavioral profiling. In order to overcome these challenges, the current paper is the proposal of a Privacy-Aware Blockchain Ecosystem to Scalable and Reliable Fraud Prevention, (PABE-SRFP), a novel framework, which includes zero-knowledge proof systems, decentralized identity management, elastic sharding, and Byzantine fault-tolerant consensus, into a single blockchain architecture. The ecosystem will make sure that fraud detection will be made on cryptographically blinded data without revealing sensitive customer information but retaining the ability to detect fraud. Scalability is done by adaptive sharding which dynamically divides the workloads on fraud detection across clusters of nodes. The reliability is provided by redundant consent validation, and self-healing ledger synchronization. Experimental validation shows that under attack conditions, systems based on conventional centralized and blockchain-based fraud prevention systems significantly outperform systems based on blockchain-based fraud prevention systems. The model embraces the applicability in multi-sector in banking, e-commerce, payment processing, insurance, and cryptocurrency exchanges. Finally, PABE-SRFP provides a privacy-preserving, scalable and reliable privacy-sensitive digital financial ecosystem base of next-generation fraud prevention.