How unit 4 is examined
This unit applies permissioned blockchains to finance and identity; the marks sit in cross border payments, KYC and supply chain financing, and the other five topics are unasked but short.
Cross border payments
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Definition. <mark>A cross border payment moves money between parties in different countries, traditionally through a chain of correspondent banks over SWIFT, whereas blockchain settles it directly on a shared ledger.</mark>
Key points.
- Traditional payments pass through the sender's bank, correspondent and intermediary banks and the receiver's bank, each adding a fee and a delay.
- SWIFT only carries messages; the money still settles through nostro/vostro accounts, so settlement takes 2-5 days.
- Blockchain gives peer-to-peer transfer with one shared ledger, so settlement is near real time, all day, including holidays.
- Removing intermediaries cuts fees, and every party sees the same tamper-proof record.
| Basis | Traditional (SWIFT) | Blockchain |
|---|---|---|
| Route | Many intermediary banks | Direct peer-to-peer |
| Speed | 2-5 working days, banking hours | Minutes or seconds, 24x7 |
| Cost | High: fees at each hop plus FX spread | Low: no intermediaries |
| Settlement | Separate messaging and settlement | Transfer and settlement together |
| Security | Trusted banks, separate ledgers, reconciliation errors | Cryptographic signatures, immutable shared ledger |
| Transparency | Sender cannot track payment | End-to-end traceable, easier fraud detection |
Answer frame. Open with the definition; draw the table above with speed, cost, security first; close with "blockchain is faster, cheaper and more transparent."
Asked: [7 marks] (May 2024) How do traditional cross-border payment methods differ from blockchain-based methods in terms of speed, cost and security?
Know Your Customer (KYC)
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Definition. <mark>KYC is the regulatory process by which a financial institution verifies a customer's identity and risk profile before and during the business relationship.</mark>
Key points.
- KYC is legally required by regulators (RBI in India), so a bank without it cannot open accounts.
- It supports anti-money-laundering (AML) by making it hard to hide criminal money under false identities.
- It prevents fraud and identity theft by verifying documents such as Aadhaar and PAN, and it helps assess customer risk.
- Traditionally each bank repeats KYC, which is slow, costly and duplicated.
- On blockchain, verified KYC is stored once, shared with permission across banks, and updates are visible to all, cutting cost and time.
Answer frame. Open with the definition and regulation; develop AML, fraud, identity, then the blockchain sharing; close with "KYC keeps the financial system safe, and blockchain makes it reusable."
Asked: [7 marks] (May 2022) Why Know Your Customer (KYC) is important in financial area?
Food Security
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Definition. <mark>Blockchain food security means tracing food from farm to consumer on a shared ledger so its origin and safety can be proved.</mark>
Key points.
- Each step (farm, processor, transport, retailer) records data on the ledger, giving full traceability.
- When contamination is found, the source batch is located in seconds instead of days, so recalls are targeted.
- Sensor and IoT data such as temperature is stored immutably, which discourages fraud and mislabelling.
Mortgage over Block chain
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Definition. <mark>A blockchain mortgage records property title, borrower data and loan terms on a shared ledger, with a smart contract automating the process.</mark>
Key points.
- Banks, land registry, valuer and insurer share one record, so repeated document checks are avoided.
- Smart contracts release funds and schedule repayments automatically when conditions are met.
- An immutable title history reduces fraud and disputes, and processing time falls from weeks to days.
Block chain enabled Trade
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Definition. <mark>Blockchain enabled trade digitises trade documents and payment terms on a shared ledger among buyer, seller, banks, shippers and customs.</mark>
Key points.
- Paper documents such as the letter of credit and bill of lading become digital records that all parties see at once.
- Smart contracts pay the seller automatically when shipment conditions are verified.
- Shared trusted data lowers fraud, delay and cost of trade finance.
We Trade - Trade Finance Network
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Definition. <mark>We.Trade is a blockchain trade finance platform, built on Hyperledger Fabric by a consortium of European banks, that lets companies trade with bank-backed payment guarantees.</mark>
Key points.
- A buyer and seller agree a trade on the platform, and their banks act as nodes in a permissioned network.
- The bank of the buyer gives a payment undertaking, which is a guarantee to pay the seller if the terms are met.
- Smart contracts track the trade steps, so it is faster and cheaper than paper letters of credit.
- Data is shared only with parties involved, keeping trade details private.
Supply Chain Financing
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Definition. <mark>Supply chain financing gives suppliers early payment against invoices, and blockchain smart contracts automate it on shared, verified records.</mark>
Key points.
- Smart contract bugs cannot be fixed easily because deployed code is immutable, so an error can lock or lose funds.
- Oracle dependency: contracts rely on outside data (delivery, price) and wrong or manipulated feeds trigger wrong payments.
- Interoperability: partners use different blockchains and legacy systems that do not integrate easily.
- Privacy and scalability: sharing data with all partners can expose trade secrets, and throughput may be low for large volumes.
- Legal enforceability is unclear, as courts may not recognise code as a contract, and upgrading contracts needs agreement of all parties.
Answer frame. Open with a definition of smart contracts in supply chain; list technical issues, then supply chain issues, then legal and upgrade; close with "these need audits, trusted oracles and legal frameworks."
Asked: [7 marks] (May 2022) Identify potential issues that companies face with smart contracts in the supply chain.
Identity on Block chain
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Definition. <mark>Identity on blockchain, or self-sovereign identity, lets a person own and control digital credentials, proved with cryptographic keys instead of a central authority.</mark>
Key points.
- The user holds a private key, and only a hash or proof of the credential is put on the ledger.
- A verifier checks the issuer's signature without contacting the issuer, and the user shares only needed attributes.
- It removes central databases that can be breached and lets one identity be reused across services.
Last-minute revision
- Cross border: SWIFT gives messages, not settlement; takes 2-5 days.
- Blockchain payment: peer-to-peer, near real time, 24x7, lower fees.
- KYC: identity verification required by regulators, supports AML and fraud prevention.
- Blockchain KYC: verify once, share with permission across banks.
- Food security: farm-to-consumer traceability, fast targeted recalls.
- Mortgage: shared title record plus smart contract for payments.
- Trade: digital letter of credit and bill of lading, automatic payment.
- We.Trade: Hyperledger Fabric, European banks, bank payment undertaking.
- SCF issues: bugs, immutability, oracles, interoperability, privacy, scalability, legal.
- Identity: self-sovereign, private key, verify without issuer.
Memory hooks
- SWIFT = "Slow Wire, Intermediaries, Fees, Time".
- KYC uses "AFI": AML, Fraud, Identity.
- SCF issues: "BIO-IPS-L": Bugs, Immutability, Oracle, Interoperability, Privacy, Scalability, Legal.
- We.Trade = Fabric plus banks plus guarantee.
- Food: "Farm to Fork trace".
Coverage checklist
- Cross border payments: May 2024 comparison of traditional and blockchain payments.
- Know Your Customer (KYC): May 2022 importance of KYC.
- Food Security: definition and key points, no past question.
- Mortgage over Block chain: definition and key points, no past question.
- Block chain enabled Trade: definition and key points, no past question.
- We Trade - Trade Finance Network: definition and key points, no past question.
- Supply Chain Financing: May 2022 smart contract issues in supply chain.
- Identity on Block chain: definition and key points, no past question.