Cryptocurrencies, as digital means of payment, were introduced in 2010 and soon after made global headlines for being almost untraceable and even irreversible. Today, they are hailed as a ‘new’ virtual currency, sparking predictions about their future use and acceptability in transnational transactions. Irrespective of the forecasts, the cutting edge technology underlying the currencies—known as blockchain—is here to stay. Blockchain technology has emerged to be crucial for cryptocurrencies to become accountable, resourceful and economical in monetary exchanges.
Security implications of blockchain
Blockchain is a distributed public ledger recording transactions or events that have taken place, validated by users at regular intervals. A blockchain network consists of a large number of nodes that store blocks of data and also verify their integrity. Each time a transaction is carried out, it is automatically stored in a block, which is then added to the previously existing block on every node in the network, thereby creating a chain of data on each node. That said, these blocks are only added to all the nodes if at least 51% of these nodes verify their integrity.
The use of cryptocurrencies and the core blockchain has opened up a large spectrum of applications where this technology can be leveraged. The technology can enable decentralization, reduction in operational costs and savings in data storage, thereby adding value to numerous industries such as banking, e-commerce, real estate and public sector services. As the data would be stored in a decentralized manner, the potential risk around a single point of failure—such as, compromised data, disruption of business and loss of reputation—could be mitigated. This means that if a single node is somehow compromised, the others would remain unaffected. In addition to this, the other nodes help identify and highlight suspicious behaviour at the nodes that may have been compromised. This can be advantageous in early detection of dubious activities.
Privacy concerns
Over time, there has been a rise in the number of web-based applications and services that request personal information to uniquely identify users. Currently, social media platforms are one of the largest handlers of such information, typically possessing details such as: name, date of birth, family details, location, photos, interests and place of employment. In addition to data, these apps are also privy to—some even try to gain access to—your other social media platforms. This implies additional access to personal and possibly even sensitive user data. These websites could become easy targets for hackers, leading to leakage of confidential user data. Such information in the hands of sophisticated cybercriminals could become hazardous for individuals as well as organizations. The attackers could use it to bypass authentication processes and compromise accounts by answering security questions or even guess passwords, based on the user information retrieved. This means, users could potentially get locked out of their own accounts.
Further, many users keep a common password across multiple websites, which would result in a cascading impact if one such website is hacked.
Disruption quotient
Using blockchain technology in the scenarios mentioned earlier can help remediate issues by running them as ‘distributed apps’ (Dapps). The blocks of data can be stored in an encrypted format in each node, distributed all over the network, making it difficult for the attacker to locate it while maintaining the sanctity of user data.
Another benefit arising from a blockchain environment is that users are the owners of their personal information and can decide what information needs to be shared and with whom. Users can also decide the extent of privacy they wish to maintain, which mitigates the risk of data compromise. Decrease in cost of computing hardware and internet bandwidth over the years has made it possible for distributed platforms, such as blockchain, to become a reality. Miners or individuals that provide computing power are also rewarded by the system itself, by generating bitcoins, which makes this system a self-powered one.
Today, blockchain technology has been implemented in virtual monetary transactions to overcome limitations presented when dealing with third parties and across geographies. With this technology, the need to provide confidential personal information for monetary transactions may not really be required. With greater adoption and varied deployment in different business requirements, the blockchain phenomenon could potentially change the way businesses operate around the world.
Imagine a world where a seller need not pay commission or transaction fee to an e-commerce portal for hosting the product, or a cab driver need not pay part of his earnings to the platform. Blockchain may very well create a parallel ecosystem of online services that are running over a distributed platform by eliminating middlemen or commissions.
There are already businesses running on blockchain platform that are competing with existing dominant global entities that presently control the central system on which their businesses operate.
Due to the advantages associated with blockchain technology, its applications are far-reaching and are already being implemented by various businesses in e-commerce, digital music and video stores, governance and administration. It is time for businesses to evaluate their offerings around this de-centralized architecture before their traditional ‘centralized’ approach gets disrupted.
Amit Jaju is executive director, fraud investigation and dispute services, EY India.