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Using Blockchain Technology to Boost Cyber Security
Although blockchain is not immune to hacking, its decentralized nature provides it with a stronger line of security. A hacker or criminal would need control of more than 50% of all machines in a distributed ledger to change it (it’s unlikely, but it’s possible—more on that later).
In addition, the most widely used blockchains, such as Bitcoin and Ethereum, are public, meaning that developers can easily review the code. That’s a big improvement over, say, the software that most banks use to process debit and credit card transactions.
When a consumer uses a debit or credit card, it’s virtually impossible to determine whether the payment will go through or not. With blockchain technology, you can see what’s going on. All of this is completely auditable.
Speeding up transactions
Blockchain technology could also help banks speed up transactions. Because all the data in a block is into the data in previous blocks, it can be useful to verify the legitimacy of any change.
Paying with cryptocurrency, for example, would take seconds instead of days. The transaction would happen automatically by the smart contract, a computer protocol that executes the terms of the contract when certain conditions are met. Contrast that with the time it takes to send money overseas, often around three days. With blockchain technology, you can do this in milliseconds.
Although banks are into using blockchain technology to improve their services, they are cautious about taking part in projects run by other financial institutions. That’s because they fear being locked out of future innovations. That has been a major barrier to adoption.
Using Blockchain Technology to Boost Cyber Security: Adoption Barriers
Although blockchain technology could help financial institutions save billions of dollars in infrastructure spending and become better capitalized, it will likely be years before its wide adoption.
1. Open Source
Another hurdle for adoption is that most blockchain platforms are open source, which means that anyone can use them. This openness could allow organizations to avoid using the technology unless they have the blockchain platform’s source code. That’s because they could develop their customized platform.
It’s not easy to change that mindset. Blockchain technology was developed to be decentralized, meaning that the platform should not have a central point of failure. It would be difficult to convince banks to give up their central authority.
2. Regulatory concerns
The regulatory environment is also a barrier. Banks are still subject to regulations, so they must consider whether blockchain platforms comply with regulations, including privacy regulations.
Blockchain platforms are so new that the regulators are still trying to determine how they fit into the regulatory framework. After sorting out, banks will be more comfortable with blockchain technology.
3. Costs and scalability
Finally, blockchain technology needs to overcome some scalability issues. Because all data must be distributed across all nodes in a network, blockchains have limitations in scalability. This means that they can only handle so many transactions per second (TPS).
To make matters worse, every node must process every transaction; there is no way to prioritize transactions based on their value or other factors (although some companies are attempting to do this).
If blockchain technology is going to go mainstream it needs to address these issues. Until then, financial institutions will continue using private blockchains while looking for ways to use public blockchains without giving up control of their platforms.
