Will Blockchain improve financial cybersecurity?

Financial cybersecurity has crawled into prominence ever since finance moved from pulp-notes to silicon chips. With all the convenience of digital banking and financial solutions, fintech also comes bundled with its set of disadvantages including compromise in security and other associated vulnerabilities.

The blockchain is looked at as an almost-panacea for the challenges that the world faces with financial security, or fintech to be concise. at this juncture, it is important to understand what a blockchain exactly is.

A blockchain is a distributed Ledger when blocks of information are chained together by cryptographic hashing. Any financial transactions append new blocks to the ledger and it still stays chained with the first block that initiated the transaction. The data inside the block is encrypted and is immutable. This would mean that only the users with the right access to them would be able to even view the data in the block. The incorruptibility and the security add a lot to the finance sector where these two qualities are of paramount importance. The blockchain is designed to protect the confidentiality and integrity concepts of the CIA triad.

Types of Blockchains

Public blockchains are implemented by Bitcoin, Ethereum and numerous other Technologies. All it requires is a right software to add blocks, validate transactions and view the records on the ledger.

Permissioned blockchains have a limitation on the number of users who are granted access. The authorization standards are quite rigorous and mandate that the legal name and the true identity of the user must be known. It would mean that this blockchain implementation can integrate traditional cybersecurity methods like access control list.

Both these blockchains have their own set of strength and weaknesses, but however, we are looking at the blockchain with respect to the finance domain.

The Big Names Involved

Recognizing the power of blockchain, a lot of global Giants in the finance sector like HSBC, CIBC, Deutsche Bank, Credit Suisse, UBS, State Street Global, Barclays, BNY Mellon, and NEX have collaborated in creating the utility settlement coin, commonly abbreviated as USC. The USC, as defined by the head of strategic development and fintech innovation at UBS, Hyder Jaffrey, is more of a crypto cash than a cryptocurrency. It is a mere representation of the existing currencies which would mean that an equivalent of a fiat currency is held by a client in this new form of crypto cash.

The most-known manifestation of the blockchain when it comes to currencies his, unfortunately, Bitcoin. Bitcoin is unregulated and operates outside the control of governments or any statutory body. The USC is perfectly positioned right above the traditional currency and below the Bitcoin, which brings in the values of real-time transfer of the Bitcoin without compromising on the real money characteristics issued by a central bank.

IBM’s Entry

In addition to the USC, HSBC, UniCredit, Societe Generale and a lot of other banks have also expressed interest in the smart contract designed by IBM, called the HyperLedger Fabric. The HyperLedger Fabric is a trade finance platform that will go through the IBM cloud. It is highly scalable and it would also make it easier for many other financial Institutions across the globe to take advantage of this platform. In addition to all of these, it is an open source Framework that gives room for a lot of developers to improve the security and functionality of this smart contract.

The Implications on Financial Security

Proper implementation of the blockchain could be the much-awaited answer that we all look forward to in terms of improving finsec. Microsoft has created a detailed study on the advantages and the risks of using the blockchain for financial transactions.

One of the greatest advantages, Microsoft observes, is the decentralized nature of the blockchain. This would mean that no specific centralized database can be targeted by hackers that might result in the entire system getting destabilized. the inherent operational resilience and there is no single point of failure is a boon brought about by the distributed network structure.

The transparency of the blockchain is another cybersecurity protection. This transparency introduces a challenge for the hackers to collect information and pass it in a camouflaged manner across the network or even place Malware without being noticed.

In all of this, let us not a completely rosy picture of what the blockchain can do. on the flip side, they are risks involved as well. all the risks involved in transacting over the blockchain come down to key management. It is to be understood that the information of the blockchain can only be accessed by a combination of public and private keys. While the public key must be retrievable, the private key cannot be! This would mean that any information in the blockchain that is secured by a private key is rendered useless if the private key is lost.

One of the solutions to this problem could be incorporating digital wallet providers which can serve for key management. However, this breaks the advantage of decentralization as all the keys are stored in a centralized place. The security of the private key is almost like a chicken and egg story of the blockchain.

In this world of technology or rather everything that grows proportionally, as much as the blockchain improves security, we can also expect newer threats to evolve that might break the basis of the security of the blockchain. Continuously educating oneself on what is happening in this fast-paced and nascent world of blockchain is important for us to be prepared for any such threats.

What Does the Future Hold?

From the extrapolation of trends, it might not be long before the blockchain becomes a mainstream technology for financial transactions because of the enhanced security it provides. The economies that have been open to embracing new technologies like the United States, Canada, and the United Kingdom may have their transactions going through USC. T

The banking application on our mobile that uses the secure socket layer might soon do away with those and use private keys for authenticating transactions. All these transactions might very well happen through HyperLedger Fabric. The best part about this transition is that the end customer might not be able to notice the differences in the way they interact with the back or the application but it is sure to put a lot of trouble for hackers and people with malicious intent.

It all comes down to the implementation of the blockchain with meticulous care and tremendous vigilance. As much as the blockchain is secure, any small flaw in the code or the contract might facilitate the entire system getting compromised.

The Services of Blockchain App Factory

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