Unless you’ve been hiding under a rock in the middle of the Australian outback for the last year, you’ve certainly heard about the sudden and meteoric rise of blockchain technology and the value of cryptocurrencies. It’s no secret that the power of the blockchain technical specifics has resulted in increasing consumer and enterprise confidence, and the financial world is starting to sit up and take notice. However, the reality is that, as blockchain and cryptocurrencies come out of the shadows, the need for greater levels of security and standardization will only increase.
The huge advantage of blockchain is the distributed ledger technology. Because distributed ledger moves security to a multi-point issue so that any transaction requires consent from all parties, it represents a particularly powerful tool for financial accountability and control. The financial world understands the profundity of this sort of consensual system, and its application to markets has made it a truly viable solution. Further, the obvious cost savings in not having to maintain a single, centralized, highly secure database is making bank executives sit up and take notice. And even more powerfully, as companies come online with this technology, the cost continues to be distributed, so that, in the final analysis, the cost could be continually reducing.
In order to move this process of adoption and implementation along, many companies that have developed blockchain systems are now sharing their software as open source. As the wider tech world begins to analyze the software, the cooperation produces new approaches for increased security within the existing software.
However, the open sourcing of software has its drawbacks as well. When source code is public, hackers have full access to all existing security measures within the code, and can spend an unlimited amount of time studying to find points of weakness within the code. Further, applications and add-ons that are designed to function around the software are not under the immediate control of the original coders, and can therefore contain bugs that are unknown to the wider market.
In order to address these concerns, blockchain coders have come up with a couple of potential security options to maintain control of their systems. The first is an HSM, or hardware security module, which uses encryption and robust authentication methodology. These systems are already in use among retail banks, and could be simply added to blockchain systems to increase security. Further, multiple signature tech could also be implemented to increase security, as well as keeping certain portions of security code out of the open source community to protect security. Regardless, the need for security in such financial systems is evident, and financial institutions understand that.
The benefits of blockchain technology are clear, and the coming embrace of this system by financial institutions is certainly just around the corner. As with all technology in the financial space, blockchain will require systemic vetting and increasing security. However, it’s helpful that the tools to secure blockchain are already well understood and managed. The future is looking bright for advocates and companies alike.