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What is the purpose of cryptocurrency?
Cryptocurrencies are digital financial assets that are designed with the purpose of acting as a medium of exchange using the science of cryptography to secure transactions, create global currencies, eliminate government control and exchange rate issues, and control the creation of additional units of the currency.
Cryptocurrencies were introduced as a disruptive financial technology (fintech), which would make global transactions easier, faster, and more secure, putting control directly in the hands of the concerned parties. This could also eliminate banks and money transfer services.
The digital currencies claim to make storing, spending, and transferring “digital money” secure, super-fast, and unaffected by any fees, exchange rates, or governmental regulations.
The purpose of cryptocurrency and its underlying technology, however, is not limited to financial institutions, currencies, and transactions. Securitizing data, identity protection, creation of a decentralized economy, and storing personal data securely are a few of the initial purposes for which the blockchain technology was brought to life.
Although the uses of the blockchain technology behind cryptocurrencies is multifold, blockchain identity use cases are what is gaining the most traction from technology aficionados and enthusiasts worldwide.
Blockchain technology now can be used to identify applications in areas such as digital identities, passports, e-residency, birth certificates, wedding certificates, and other IDs.
Is blockchain technology really secure?
A blockchain is a series of blocks that records data in hash functions with timestamps so that the data cannot be changed or tampered with. As data cannot be overwritten, data manipulation is extremely impractical, thus securing data and eliminating centralized points that cybercriminals often target.
Furthermore, private analysts say that the Pentagon believes the Blockchain Technology could be used as a Cybersecurity shield. In an article by The Washington Times, analysts deem that using blockchain, the technological backbone of bitcoin, could dramatically improve security across the U.S. military, preventing mega hacks, tampering, and cyber-hijackings of vehicles, aircraft, or satellites.
According to Dan Boylan of The Washington Times, the key to blockchain’s security is that any changes made to the database are immediately sent to all users to create a secure, established record. With copies of the data in all users’ hands, the overall database remains safe even if some users are hacked.
This tamper-proof, decentralized feature has made blockchain increasingly popular beyond its original function supporting bitcoin digital transactions. Many cutting-edge finance firms, for instance, have used blockchain to expedite processes and cut costs without compromising security.
Though blockchain has several advantages over other systems, there are still a few challenges in terms of compliance, regulations, and enforcement that will need to be addressed.
For example, regulatory issues demand clarity over jurisdictions and how to comply with KYC (Know Your Customer) and AML (Anti-Money Laundering) laws. But progressively increasing demand and acceptance by corporations would help overcome these challenges sooner than predicted.
Uses of Blockchain Technology Security
Discussions revolving around blockchain technology have claimed that the technology can be used to initiate major changes in the security industry as a whole.
It is often argued that the technology is not only effective in driving digital currency exchange, but also to strengthen existing security solutions and address security concerns globally.
Blockchain technology hopes to address multiple challenges associated with digital transactions such as double spending, data security, cross border transactions, chargebacks, frauds, and currency reproductions. Employing blockchain shrinks the costs associated with online transactions, all while concurrently increasing legitimacy and security.
Some of the proposed global security uses of blockchain technology are:
- The protection of sensitive records and authentication of the identity of a user, especially in the banking sector:Data manipulation can be spotted with the help of blockchain technology enabling banks to go beyond asymmetric encryption and caching in public keys. The deployment of blockchain enables authentication of users and devices without password protection. The decentralization of the network helps in generating consensus between different parties for verification through blockchain-based SSL certificates. The distributed and decentralized nature of the network that verifies the integrity of the transactions and associated account balances makes a successful attack mathematically impossible.
- Enhancing structural security ofIoT devices:Certain block-less distributed ledgers are additionally enhancing structural security of IoT devices. Devices in such network settings can recognize and interact with each other in a peer-to-peer manner, without the need for a third-party authority. Accompanied with two-factor authentication, this offers unprecedented security to the network structure and makes it impossible to forge digital security certificates.
- Securing internal communications:Internal communications are often prone to data leaks and cyber espionage. End-to-end encryption fails to cover the metadata, which can lead to leakage of sensitive information. In blockchain-based systems, the metadata used for communications is scattered in the distributed ledger and cannot be collected at one centralized point.
- Making passwords obsolete:With REMME’s blockchain, businesses can authenticate users and devices without the need for a password. This eliminates the human factor from the authentication process, therefore preventing it from becoming a potential attack vector.
- Privacy and security of digital chats:Messenger services today encompass a large amount of Internet usage across the globe, especially with apps such as Facebook Messenger, Viber, WeChat, Alipay and WhatsApp already being used for payments and to engage users through chatbots. With the count of a billion-plus users with these apps, there is an inherent danger of social engineering, hacks, and other security vulnerabilities. Obsidian uses the blockchain-decentralized network, which cannot be censored or controlled by any single source. In addition, communications meta-data is scattered throughout the distributed ledger, reducing the risk of surveillance through such digital fingerprints. Users need not link to their email addresses or telephone numbers, thereby increasing privacy.
Apart from these uses, according to Venture Beat, blockchains can increase security on three fronts:
- Prevention of identity theft
- Protection against data tampering
- Protection of critical infrastructure
The New World of Smart Contracts
By eliminating human error, facilitating automatic detection of fraud, and creating a virtual impenetrable fence around data, identities, and transactions, blockchain technology has laid the foundation for a future of smart contracts.
Smart contracts (also known as digital contracts) help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman.
These self-executing contracts are treaties with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network.
Smart contracts can come into play in industries ranging from health care (digital identity) to politics (digital voting), from automobiles to real estate, and from management (smart contracts) to legal affairs (decentralized notaries).
Blockchain technology uses are not limited to corporates and financial industries. Coindesk has listed out the uses around security issues in various other industries.
Blockchain has emerged as one of the most disruptive technologies and has curtailed the prevailing security issues revolving around financial transactions.
As other practical implementations for the technology are being discovered, blockchains are emerging as top contenders for resolving an array of cybersecurity challenges and delivering end-to-end security to global institutions.
More to Learn
Every new invention or innovation has its associated concerns related to security and mass adoption. Cryptocurrency as an evolving development in the fintech industry has its own set of security and legal concerns.
However, as more and more people and companies across industries are adopting cryptocurrencies, more security shields are being created and deeper investigations into every cryptocurrency’s uses and benefits are being carried out.
Mass adoption is leading to tighter boundaries and implementation of higher security protection revolving around blockchain technology.
Cryptocurrency is a growing mega-trend, which is being recognized worldwide and is being adopted for daily transactions. That’s why Business Insider Intelligence has delved further into this virtual revolution and has put together The Blockchain in Banking Report.
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