How Blockchain enables applicationfor Security Blockchain as discussed is the distributed ledger technology underlyingthe operates of Bitcoins. It leverages the global peer network to delivertransparent integrity of value exchanged between parties. It holds a muchhigher value in terms of technology and its related advantages as compared tothe currency it supports. Blockchain’s value is also derived from the apparentplatform of security. As we progress with the development andapplication of blockchains, it’s important to make sure that the initialconditions we’re setting up are abreast with credible security in the internetweb. One of the most widely publicizedcryptocurrency which functions on the concept of blockchains is Bitcoins. Theyear 2017 has been a roller coaster ride for bitcoin markets.
It crossed thethreshold of $1000 early this year and in the past month it has soared to ahigh of $17000 and on some markets, it has hit a high of $18000 as well.Consider a scenario of making purchases using Bitcoins, for example you buy amuffler and cap worth $25 using Bitcoin and in a weeks’ time the value ofBitcoin surges tenfold, it would appear that the purchase was worth $250.Rather it would be beneficial to treat the bitcoin currency as a holding assetin hopes of asset appreciation in the future and reap bigger bonuses. Based onthis it is essential to raise the question about what is valuable in Bitcoins.The most conclusive answer would be blockchains and related security featureswhich add value to it. To have a better understanding of theblockchain technology consider the following network: When the sender hosts the transaction into thenetwork, it is termed as a block which is then broadcasted to a network ofcomputers participating which are called nodes. The network of nodes validatesthe transaction and the sender’s status using algorithms and state thetransaction cryptocurrency, contract, records etc.
Once verified, thetransaction is combined with other transactions to create a new block of datafor the ledger. The new block is then added to an existing blockchain in waythat is permanent and unalterable. The process of validation from multiple endpoints and transparency of data is an invaluable form of security whichprovides added value to the blockchains innovation. Additionally, thepermanency of information serves as an added advantage to the security feature.The storage of information is of crucial importance even though it representshistorical data. if we want to steala bitcoin, we’d have to rewrite a coin’s or asset’s entire history on theblockchain in broad daylight because the blockchain is a distributed ledgerrepresenting a network consensus of every transaction that has ever occurred.This would not deliver success for invaders with malicious intent. Among allthe cryptocurrencies, Bitcoin since its inception in 2009 is the most tried andtested platform in the market, which has withstood cyber-attacks for more than7 years.
The inherent Blockchain infrastructure provides a further level indata accessibility, given that data is accessible through any of the nodes inthe network, even in the event of attack which aims disrupting some of thenodes. Datatransparency and integrity is s the prime reason that blockchain is the mostsuitable technology for peer-to-peer networks as it solves the principalproblem created by disintermediation. The technology affirms loss of intermediariesand guarantees that counterparties are who they claim to be, sellers own theasset they want to sell, and that buyers are good for the money.
The fact thateverybody can see the past transactions, and that therefore everybody canreconstruct who had what at each point in time, creates trust. For example, inthe United States roughly 30% of insurance applications against secured titlesare found to be faulty. It takes the insurance companies to verify title ofunderlying asset anywhere between 4-12 working days. Only when the title isdetermined to be clear, the insurance company issues a policy against thesecurity of the title. If the property records were stored on blockchain, itwould reduce the processing time significantly as data from the incipience willbe available on the blockchain platform.
From experience, we know that centraldatabases can be hacked as in the case of banks but with a distributeddatabase, the same information is kept at many different locations. To haveunauthorized access to the data stored, one must hack the distributed ledger atvarious locations simultaneously which would be a difficult feat to accomplish.In tandem, the French government approved trading of unlisted securities usingblockchain digital ledgers. It allows the Fintech companies and banks to set upblockchain platforms where unlisted securities can be traded instantaneously ina cheaper, safer and transparent environment. With Blockchain technology eachtransaction is uniquely encoded via cryptography which is validated by otherparticipants in the blockchain, any attempt to alter, remove or fabricate datawould be detected by others and corrected immediately.
Maintainingmultiple records of a single transaction would appear to be cumbersome and lessefficient than maintaining data in a single centralized database. In real worldapplication, multiple parties involved in a transaction maintain databasesregarding the same transaction, the only difference being that the data pertainingto the same transaction is often in conflict. This arises due to human errorand requires rectification which is time consuming and costly affair betweenorganizations. Therefore, implementing a distributed database system likeblockchains can help eliminate the need for manual reconciliation throughtransparency. Thesecurity aspects of blockchains has potential to revolutionize the bankingindustry especially considering the anti-money laundering complianceprocedures. By setting up blockchain platforms, it allows secure codificationof account details which provides transparency of payment transactions andreduce false rates associated with it. It would also result in smooth auditprocedures and reduce the cumbersome compliance procedures the banks aresubjected to.
Additionally, secure distributed databases of client informationshared between institutions could help reduce duplicative efforts in customeronboarding. In early 2017, Blockchains was tested in India with seven majorbanks as participants. An analysis of data over nine months has concluded thatit has helped in reducing fraudulent account manipulations and duplicatecustomer onboarding. Byeliminating security hindering factors like human errors and automatic frauddetection, Blockchain technology has allowed to create a virtual impenetrableboundary around data, identities and other sensitive information whichfacilitates the execution of digital contracts in a transparent, conflict-free way while avoidingthe services of a middleman.
For example, cryptocurrencies like REMME’sblockchain, allow businesses to authenticate users and devices without the needfor a password, Obsidian usesthe blockchain-decentralized network and ensures the privacy and security of chats etc. Every invention comes with its associatedconcerns related to security and mass adoption. Cryptocurrency as an evolvingdevelopment in the fintech industry has its own set of security and legalconcerns as well. Oneof the concerns is that when transaction or personal data are publishedglobally without encryption it may lead to identity theft or privacy issueswhich would further fuel regulatory and legal problems. The solution might beto store data only in an encrypted form in a blockchain which is accessibleusing a digital key. If suppose one loses the key or worse it is published, allthe data will be made public and cannot be altered due to the blockchain securityfeature.
Another issue faced bythe blockchain technology is the 51% attack. In case more than half of the computers working as nodesin a network were to lie, the lie will become the truth. Consider, an organization orindividual holding 51% of the hash power, the attacker has the power to reversetransactions he hosted, prevent transactions from gaining confirmations, andprevent other miners from mining. As a solution, bitcoin mining pools are monitored closely toensure no individual or organisation unknowingly gains such network influence. Lastly, the most notable security issue inemploying Blockchain systems is the regulatory reforms to be put into place.
Across the globe, cryptocurrencies and impending regulation have been ofconcern to the governments. Many are of the view that allowing cryptocurrency for legal transactions and usewould result in loss of economic power and a shift towards decentralizedeconomies globally. Some countries which have allowed use of Blockchaintechnology have had the system under heavy scrutiny whereas on the other handthere are some countries which have gone to the extent of banning the use ofsuch technology as they consider it disruptive.
In the United States, the Federal Government has not yetexercised it constitutional power to regulate Blockchain technology related cryptocurrencies.The individual states have therefore taken it into their own authority to implementlaws and regulations regarding the same. The state of New York enacted alegislation recognizing blockchain and was the first state in USA to regulatevirtual currency companies.
In 2017, at leasteight U.S. States have worked on bills accepting or promotingthe use of Bitcoin and blockchain technology, while a couple of them havealready passed them into law. The most notable have been in the states ofArizona which recognized and regulates digital contracts and Chicago where thereal estate records have been stored in blockchains and are regulated by thestate. Bitcoin is also set to be giventhe same financialsafeguards as traditional assets. The U.S. Commodity FuturesTrading Commission has approved a cryptocurrency trading platform which is thefirst federally regulated digital currency options exchange andclearinghouse in the U.
S. Even though there have been efforts fromauthorities on regulations, it seems to be inefficient in a way that thefutures market is being regulated but the actual underlying asset is completelyunregulated. It paves the way for cyber security issues which could provecatastrophic and irreversible in nature considering the blockchain technology.In the EuropeanUnion, Blockchain technology has been welcomed with open arms. They haveencouraged to test the uses and impacts and regulatory reforms while providing entrepreneursconfidence that their “approved” applications will be more trusted bytheir target markets. Most remarkably, Switzerland hasbecome one of the main European hubs for cryptocurrency and blockchaindevelopment led by the Crypto Valley Association, a Swiss non-profit blockchainand cryptographic technology ecosystem.
In the realm of Finance industry and particularly trading,perhaps the most important matter of concern would be a public or privateblockchain. The sole distinction between public and private blockchain isrelated to who can participate in the network, execute the authentication and maintain the shared ledger.In a public blockchain network anyone can join andparticipate which is a major drawback, the openness of a public blockchainimplies little to no privacy for transactions andonly supports a weak notion of security.
On the other hand, a privateblockchain network is exactly the opposite of a public blockchain.Businesses who set up a private blockchain,will generally set up a permissioned network. Whichrestricts who can participate in the network and in what transactions.Participants need to obtain an invitation to join the network. Existingparticipants could decide future entrants; a regulatory authority could issuelicenses for participation; or a consortium could make the decisions instead.
Once an entity has joined the network, it will play a role in maintaining theblockchain in a decentralized manner.