As the digitization of financial transactions becomes ever more mainstream, with Bitcoin’s core technology blockchain leading the way, the rapid adaptation raises security concerns at the same time its enhanced efficiency is being exploited. A recent Greenwich Associates survey highlights the conundrum but also points to solutions.
Greenwich Associates survey shows movement to create common industry standard
In a survey of financial services executives using distributed ledger technology that operates behind blockchain, 61% support the method at a time when industry executives are voicing a need for technical consistency.
“Consistency and security across all technical platforms in financial services is a challenge that the industry must overcome,” Gabriele Columbro, Executive Director at the Symphony Software Foundation told ValueWalk.
That attitude coalesces with Greenwich Associates study, which notes an all-encompassing goal for blockchain that is “ambitious,” according to the report. That goal is “to completely rebuild the technology infrastructure that enables markets to function, from issuance to trading to settlement,” wrote report author Richard Johnson, Greenwich’s Vice President in the Firm’s Market Structure and Technology practice.
In an age of highly interconnected markets, obtaining consensus on anything can be a challenge. But blockchain’s speed to settlement – transactions took 10 minutes to settle on a peer-to-peer basis – and its related cost savings are a key motivator. The cost savings could increase with widespread adoption, as the more financial services companies that integrate the technology into their trade work-flows the more significant the cost savings.
Encouraging a single consistent platform for development is being done not only through a financial incentive, but on a code-sharing basis as well.
“To increase adoption, speed development and foster community, many blockchain technology companies are deciding to distribute their software as open source,” Johnson wrote. “In turn, these companies are exploring new approaches and technologies to cyber-secure this new technology.”
It is that last issue, security, where attention is being focused, particularly when open source technology is involved.
Blockchain and distributed ledger address security concerns
The concept of open source software – sharing computer code and allowing others to create their own adaptations to it – gained popularity in the mid-1990s when the Linux computer systems were released.
Proponents of open-source concept point to quicker, lower-cost software development due to core applications and processes already being created and tested, leading to a less “buggy” and troublesome application development process. Detractors, however, make a powerful case in that such systems can be more vulnerable to malicious users and computer hackers, and how the code is used by other developers is out of the control of the programmers who originally created it.
To address concerns, financial services focused open-source foundations such as Hyperledger or the Symphony Software Foundation are proliferating with the goal to provide trusted governance for mission-critical open source endeavors and address concerns.
The Greenwich survey notes the concern. 85% are concerned or very concerned that the permissioned networks and centralized identity management systems are creating a big target for hackers. 46% are concerned or very concerned that damaging computer viruses or bugs could be introduced into the system.
To address these security concerns, developers are taking a multi-pronged approach.
A hardware security module (HSM), a system that secures and manages digital keys and provides strong authentication and encryption, is one potential solution. The report noted HSMs allow for the generation, storage and management of secure cryptographic keys and are currently used in retail banking and in payment transactions. 58% percent of study participants said HSMs are an essential part of addressing security concerns.
There is also multi-signature technology that was being used, and the concept of releasing some applications open source, but keeping private key security applications is also being addressed.
“As with all types of technology, there are risks that need to be addressed,” Johnson wrote. “While blockchain/DLT itself is a revolutionary technology, many of the development processes and supporting technologies have been around for years. So while this new technology may generate high levels of concern and uncertainty, many of the tools required to bring it to market have already been tried and tested in financial services.”