Blockchain technology is hard to ignore as practically everybody’s talking about it. That’s understandable because it’s predicted to disrupt the value flows that underpin business transactions and economies as well as create new business models. It has enormous power to solve business problems. But is a blockchain “distributed ledger” secure?
Blockchain is still in its infancy, so company leaders are naturally concerned about whether it can be manipulated. Organizations worldwide are seeking to take advantage of the new opportunities and disruptive power of blockchain — organizations that understand the magnitude of potential security issues. It has been rigorously tested in pilots and at scale by many governments, institutions and companies that have found the technology is incredibly secure.
Here are some of the most notable entities that have examined blockchain and are now moving to adopt it.
Global banks and financial institutions. Everest Group’s market research finds more than 60 global banks and financial institutions are researching, experimenting or working on blockchain-enabled applications and use cases.
- UK’s central bank. The Bank of England conducted a proof of concept (POC) to identify blockchain’s real potential from hype. The bank has since confirmed that an upcoming version of its main interbank payments system will be compatible for settlements in blockchain-distributed ledgers.
- Qatar’s commercial bank. Qatar’s Commercial Bank, together with regional partner banks in Egypt, India, Oman, Turkey and UAE, completed a blockchain pilot for processing international transfers. The pilot confirmed increased transactional security as well as accuracy. Commercial Bank is now looking to extend the network to banks in other countries. It also will conduct the second phase of the project, shifting the focus to legal and trade documents.
- Chinese financial institution. The People’s Bank of China conducted a trial of blockchain technology for digital currency transactions. After investing significant resources testing the technology, the bank announced its support for blockchain.
Governments. Government entities in the U.S. and around the world have also been evaluating blockchain’s security and benefits.
- State of Arizona. Last month, the state passed a bill granting legal status to blockchain smart contracts. The bill states that “A record or contract that is secured through blockchain technology is considered to be in an electronic form and to be an electronic record.”
- State of Nevada. Similarly, Nevada is creating a legal basis for blockchain and smart contracts. A Senate bill proposed two months ago says that no entity shall impose requirements inhibiting the use of blockchain and smart contracts.
- State of Delaware. The state’s government has been evaluating blockchain smart contracts for settling stock transactions. Delaware’s blockchain trials are viewed as relevant to overhauling systems in Wall Street institutions.
- Ukraine. Ukraine has announced it will deploy a blockchain to track the sale of state assets. The country’s central bank also announced it plans to create a blockchain-based currency.
- Dubai. Having finished its security and accuracy testing of blockchain in the areas of health records, land title transfers, business registration, tourist engagement and shipping, Dubai’s Global Blockchain Council is awarding millions of dollars in venture capital to companies interested in accelerating blockchain. Dubai also plans to have its city government be the first blockchain-powered government in the world.
- Canadian proof of concept. Peer Ledger (a Canadian blockchain company), SAFE-BioPharma Association (which manages the global SAFE-BioPharma digital identity management standard) and Synchronoss (a provider of standards-based digital identities) jointly conducted a proof of concept to test the security of digital identities engaged in a blockchain distributed ledger transaction. The POC proved that entities in the blockchain can extend SAFE-BioPharma-compliant credentials to the blockchain, and when needed, de-anonymize blockchain identities to trusted identities.
Supply chains. EY has been testing blockchain for supply chain management. Their finding? Blockchain breaks down “islands of information” among entities in a supply chain without compromising security and privacy. Private blockchains accommodate shared information and private information together in a shared governance model.
Bitcoin. One of the most secure examples of blockchain is bitcoin. It’s a well-publicized fact that some exchanges for buying and selling bitcoin currency have had security issues. But blockchain — the underlying technology for all digital currencies — has never been manipulated to date.
What makes blockchain secure?
Cryptography secures the records in a blockchain transaction, and each transaction is tied (in the chain) to previous transactions or records. In addition, the transaction records are distributed among and viewable by all participants of a blockchain distributed ledger. An attempt to tamper with the data would require that the hacker also change all the previous records in the blockchain.
Moreover, blockchain transactions are validated by algorithms on the nodes (computers in the network of participants in the distributed ledger). A single entity cannot create a transaction. Finally, blockchains provide transparency, giving each participant the ability to monitor the transactions at any time.
Participants can opt to set up a private or public blockchain. A private blockchain limits the number of participants that are verified and trusted.
Quite frankly, aside from someone cracking the cryptology, blockchain is one of the most secure digital capabilities available.
As happens with adoption of any new technology, some organizations are more willing to experiment with small projects and deal with the calculated risks as they evaluate the potential benefits. These early adopters often become market leaders, so it’s worth monitoring the results of these leading-edge organizations’ evaluations of blockchain.