Blockchain Security Questioned Amid Cyber Attacks
The global financial industry is in turmoil. In an endeavour to gain protection against cyber security attacks, the financial services sector began to adopt the blockchain technology.
However, given the current series of cybersecurity attacks, fintech companies are worried about the vulnerability of the blockchain technology. In the technology, transactions are verified electronically through a network of computers and the need for maintaining a central ledger system does not exist. The technology was initially introduced to undermine the bitcoin currency with fintech companies like R3 and Ripple showing an active interest in adopting it.
In the recent months, DAO and Bitfinex were attacked by cyber criminals. In August 2016, the Hong-Kong based digital currency exchange site, Bitfinex, lost $65 million in a cybersecurity attack. DAO is a crowdsourced venture capital fund whether people could initiate investments using another digital currency called Ether. However, they lost $50 million to cyber criminals in May last year.
Experts like Fred Ehrsam, the co-founder of Coinbase, opined that the blockchain technology would become secure with time.
Talking to Financial Times, he said: “I think at the beginning you will have people who screw up with it. It is true of any modern technology; people have to get used to it”.
During the time when the blockchain technology was being deployed at a large scale, the Financial Stability Oversight Council, which is a group of regulators based in the USA, had given its opinion that unless the systems are not deployed, flaws within the system will not become clear.
However, companies like DAO and Bitfinex are bearing the result of flawed blockchain technology security.
Since the cryptocurrencies rely on new programming code, it is practically impossible to predict its flaws unless there is a series of flaws, with experts analyzing and examining it.
Commenting on the incidents, the CTO of San Francisco based Ripple, Stefan Thomas, said that “there is no history of how to write secure code. It is not surprising that it would be easy to miss typical problems”.
The problem of storing cryptocurrencies looms ahead of us. While some prefer encrypted packets, others prefer a digital bank. The recommended practice is to avoid Internet-based “hot wallets” and prefer offline servers which are difficult to hack without server access.
Post the incident with Bitfinex; they moved their funds to offline services and Coinbase Bitcoins are kept in “cold storage” 98% of the time.
One must further contend with the fact that the blockchain technology is public in nature. Does this hinder or build security? The opinions are divisive – with experts preferring the public nature of the technology to test and examine the system swiftly.
To improve blockchain security, IBM is in the process of creating a blockchain technology with added security where every transaction is watched and tracked, says the Senior Vice President of IBM Research, Arvind Krishna.
Fintech companies like Ripple are working to develop secured blockchain networks, and R3 is building a blockchain distributed ledger where each transaction will be verified through keys on the network.
On a futuristic note, the blockchain technology has a positive potential for a transparent transaction system; however, it is forever more necessary to improve the current security measure to keep the cyber criminals at bay.