The good, the bad and the blockchain: what this new technology means for cybersecurity
There tend to be two vocal camps when a new technology emerges. First you have the people who embrace it wholeheartedly, immediately recognizing and espousing the benefits of whatever innovation has burst onto the scene. They can’t start using it fast enough, and good luck getting them to shut up about it.
Then you have the people who see plenty of risk but little reward, the ones who got burned once by the Microsoft Zune and won’t be so quick to give up the status quo when it comes to the way things operate. And good luck getting them to shut up about it.
Most emerging technologies should probably be viewed from a vantage point somewhere between the two, and blockchain technology is no exception. This new method of conducting digital transactions is an exciting one indeed, but there are certainly reasons to exercise caution.
Cutting out the middleman
As touched on above, blockchain is an emerging technology used to conduct digital transactions. The number one thing to know about blockchain is that it is designed to cut out the middleman. So instead of sending someone money via a bank transfer, PayPal or Western Union, for example, blockchain enables anyone using it to send currency directly to the person they wish to send it to. No bank, no PayPal, no Western Union, no third-party intermediary at all. This makes transactions faster while eliminating fees, exchange rates and other rules and regulations.
This system creates what’s known as a decentralized database or distributed ledger. Instead of transactions and records of who owns what being kept by one centralized administrator (like a bank) a decentralized database has a network of replicated databases visible to anyone in the network. Blockchain networks can be fully public, or have restricted membership.
When a transaction occurs it is recorded and grouped with other transactions that have recently occurred. This grouping is referred to as a block. The block is cryptographically protected and then sent out to the network. Miners then work to validate the transactions by solving complex cryptographic puzzles. After this validation occurs, the successful miner receives an award, and the block is timestamped and added to the existing chain of transaction blocks in chronological order. There you have your blockchain.
Bitcoin and beyond
Blockchain is heavily associated with Bitcoin and other cryptocurrencies – currencies that are entirely digital and secured using cryptography. As of June, 2017 there was a total of $41 billion USD worth of Bitcoin in existence. Other popular cryptocurrencies include Litecoin, Ethereum, Zcash and Dash.
Blockchain came to exist the same time as Bitcoin, and in fact the technology was outlined in a white paper on Bitcoin authored by someone or someones using the pseudonym Satoshi Nakamoto. However, blockchain technology has applications that extend beyond cryptocurrency transactions, such as peer to peer contracts. Blockchain technology is also being considered for everything from data storage to digital identity recording to even voting.
With the potential ability to eliminate intermediaries in industries ranging from finance and insurance to academia, health care, real estate and the public sector, blockchain could very well prove to be the emerging technology that will have the biggest impact on the way the world works over the next few decades.
There is one tremendous cybersecurity advantage when it comes to blockchain, and it’s due to the decentralized nature of the technology. Successfully hacking an intermediary like a bank or insurance company could lead to major financial or data theft, one impacting hundreds of millions of customers. Because there is no centralized storage of money or data on the blockchain, this simply is not possible.
However, there are downfalls to the very nature of blockchain technology. A significant one is that because it’s unregulated and allows users to send and receive currency without any personally identifying information, cryptocurrencies have become the currencies of choice for the majority of cybercriminals. Cryptocurrency exchanges have become hubs of money laundering for everything from drug trafficking proceeds to ransomware profits to DDoS for hire services.
Speaking of exchanges, though blockchain technology is decentralized, cryptocurrency exchanges – where users buy and sell cryptocurrencies, with billions of dollars worth of cryptocurrencies being traded every day – do represent major targets for enterprising hackers. Amounts taken in exchange hacks regularly number in the millions and tens of millions. Hackers have also successfully targeted individual high-value ‘wallets’ or user accounts, stealing hundreds of thousands or even millions of dollars from individual users.
The major problem facing cryptocurrency users is that when their wallets are raided and cryptocurrencies stolen, or when exchanges are hacked or go under, there is little hope of ever getting it back. The money isn’t insured, and there is no governing body responsible for a user’s currency. As a startling example, when the world’s biggest Bitcoin exchange Mt. Gox collapsed and $460 million disappeared, the trustee overseeing the case found just $91 million in assets to distribute to creditors.
Taking it slow
Only time will tell if blockchain ends up becoming the highly disruptive, world-changing technology it’s touted as. There is honestly a good chance that it does. But while the technology is in its relative infancy, users and would-be users would be wise to exercise a good degree of caution. Financial trading is always a gamble, but it’s a bigger one when that trading goes unregulated and hackers have found a way to break in, no matter how secure this new technology is supposed to be.