Cryptocurrencies are on the increase, with at least 100 active, suitably valuated cryptocurrencies being used as tender. However, as some cryptocurrencies have discovered, they are not completely infallible, writes SAURABH KUMAR, CEO of In2IT Tech.
The benefit of Bitcoin, and other virtual digital cryptocurrencies, lies in their anonymity, and with blockchain-based technologies, they are typically thought to be incredibly secure as well. However, as some cryptocurrencies have discovered, they are not completely infallible – and this is doing some damage to the blockchain’s reputation.
What makes the blockchain so secure?
“Normal” transactions, using traditional currency, require a verification process between two parties, typically institutions such as banks or the Reserve Bank. Blockchain based transactions are no different, however the verification process is decentralised and spread across multiple verification points, or nodes. No single party controls any or all aspects of the transaction and verification takes place based on consensus.
Due to the sheer number of nodes that need to verify and approve a transaction, it is incredibly difficult to hack, breach or otherwise intercept a transaction on the blockchain. This has resulted in financial institutions across the globe exploring the blockchain’s potential in other applications.
So why the concern?
Recent hacks that have led to losses of millions of dollars’ worth of cryptocurrency, have stirred up uncertainty within businesses who are exploring the blockchain for trading requirements as well as other areas of business.
In May 2016, the DAO (Decentralised Autonomous Organisation) was launched, and hacked. This project uses cryptocurrency platform Ethereum to crowd fund a decentralised venture capital fund. $70 million dollars in Ether (Ethereum currency) was stolen. At the end of July 2016, Bitfinex, a cryptocurrency exchange, experienced a serious breach resulting in the theft of 120 000 bitcoins. Also in July 2016, Steemit, a blockchain-based blogging platform, was hacked. This hack resulted in the loss of approximately $85 000 in cryptocurrency. Other cryptocurrency platforms to fall victim to hacks include Krypton and Shift, two Ethereum-based blockchains.
While hacking, or otherwise breaching and intercepting, the blockchain is incredibly difficult, these examples show us that it is not impermeable. Companies need to bear in mind that cryptocurrency – successfully implemented in the blockchain – is still a relatively new technology and, as with any less-than-fully-mature technology, its flaws are yet to be fully realised.
That doesn’t mean that the technology should be discarded or that blockchain investments should be abandoned. Indeed, it is only through continued exploration and ongoing use that one will discover the weaknesses in the blockchain’s armour – and make it stronger than ever.
Addressing the flaws, as they stand
One of the inherent flaws of cryptocurrency lies not with the transactional phase, which takes place on the blockchain, but with its storage. The actual transaction is incredibly secure but, once the transaction has occurred, the parties need to store their cryptocurrency. In a world where everything is connected and touches the Web, storage systems for cryptocurrencies are no different – and are, therefore, accessible by determined cybercriminals. Many large organisations are addressing this by revisiting a siloed approach to storage, using cold storage that is completely cut off from the Internet
Broad-level security on either side is also a concern. Again, while the actual transaction may be secure, the end points might not be. It is possible to intercept the transfer or receipt of cryptocurrencies at either end of the transaction, so trust between parties remains of paramount importance. To respond to this, businesses are looking at private blockchains and not public ones. Private blockchains require a more interpersonal level of transaction and all nodes are known, and pre-approved prior to transacting.
Finally, because the technology resides on underlying networks, the networking design needs to be well thought out and planned with security as top-of-mind. Security must form part of the initial architecture, catering for all manner of current and potential threats so as to minimise any risk of breach through touchpoints on the network.
The future of the blockchain
There are exciting times ahead, for both the future of cryptocurrencies and the blockchain. The world consists of a series of transactions and exchanges, and the blockchain can be applied to virtually every single use case, with careful planning and consideration.
With care and foresight – and an in depth knowledge of the current security landscape of the blockchain – businesses can leverage this technology in a safe, secure and successful fashion, enabling a world of possibilities.