The ways in which organizations securely transact currency, contracts, legal and health records, and a host of other common exchanges are about to be disrupted. According to a Juniper Research survey of 400 executives, managers, and tech staff, almost 60% of large corporations are considering using the Blockchain distributed ledger to process secure transactions. Companies like Walmart, IBM, Microsoft, Alibaba, Nasdaq, etc. have invested heavily in integrating Blockchain technology and cryptocurrency into their FinTech and supply chain platforms. So how does Blockchain work? Why are organizations around the globe embracing Blockchain and cryptocurrency despite the fact that certain countries have banned or limited the technologies? How will Blockchain change the way payments move between individuals, organizations, and financial organizations? Perhaps most importantly, how do you secure cryptocurrencies and Blockchain transactions?
How Blockchain Works
Blockchain is a distributed ledger originally designed to manage cryptocurrencies – such as Bitcoin, Litecoin, and Etherium — but can be extended to manage any type of virtual transaction. A person or application initiates a transaction –which could consist of supply chain contracts, cryptocurrency exchanges, or healthcare records – and the transaction is submitted to nodes (endpoints) in the Blockchain network through Point-to-Point encryption (P2Pe). The nodes record and approve the transaction through an algorithm. Once the transaction is verified, it forms a block of data in the chain, which cannot be deleted or altered, so the transaction is permanent. The digital transaction also resides in every computer running the distributed ledger. This processing of the transaction is referred to as mining. It enforces a chronological order in the block chain, protects the neutrality of the network, and enables different computers to agree on the state of the Blockchain.
Blockchain Provides Visibility into Cross-Border Supply Chains
Alibaba is slated to adopt Blockchain and cryptocurrency for cross-border supply chain despite the fact that China outright banned initial coin offerings. The initial goal of using Blockchain will be to track data on 30,000 goods from 50 countries through E-Mall’s mobile app. This will give Alibaba unparalleled insight into their supply chain as well as production and operations management. The power of Blockchain lies not just in cryptocurrencies, but the ability to track and verify supply chains, speed up payments, and secure a public record of all transactions.
L.L. Bean Latest Retailer to Implement Blockchain
“Digital, quantifiable data about how customers are actually using a product — we’ve never had that data before,” Chad Leeder, an innovation specialist at L.L. Bean, told WSJ. This is one of the many reasons why retailers around the globe will embrace the technology. NFC (Near Field Communications) devices in stores collect the customer and purchasing data and store it in a private Blockchain controlled by L.L. Bean. Storing product and customer data in a Blockchain can provide unique insights into buyer behavior. The goal is to utilize this real-time “Big Data” to constantly evaluate if retail products are providing their intended value to the customer. This level of insight for real-time analysis gives retailers the ability to determine product viability. Does the item bring the intended value to a customer? Will this item have a long-term or short-term shelf life? Analysis of Blockchain data will certainly aid in answering these questions.
Caveat: No Standards in Blockchain Implementations – Yet
Every Blockchain/cryptocurrency implementation is based on Bitcoin’s original architecture. However, it is important to understand that the business use cases for the Bitcoin architecture may not fit every organization. Like any implementation of an information architecture, the execution of it is where vulnerabilities arise. With public Blockchain (permissionless), any individual or application can read and write transactions, as opposed to a private Blockchain (permissioned) where access has to be granted. The public Blockchain of Bitcoin has taken center stage from a security aspect due to the nefarious parties who are buying and selling illegal goods and services, which is why so many countries and organizations have been fearful of cryptocurrency adoption. There is certainly a need for taming the proverbial “Wild West” of Blockchain by standardizing architectures, regulations, and deployment methodologies to aid in the reliability and scalability of the platform.
Risks of Blockchain
Blockchain has inherent risks that your organization will have to evaluate when deploying the platform. Peer-to-Peer, Business-to-Business, and Business-to-Peer transactions will be subject to remediation, due to the instantaneous nature of sending and receiving money, smart contracts, personal information, or any other sensitive data set. Smart contracts are encoded with valuable business and personal data that cybercriminals love. Just like any other data set that presents risk to your organization, the focus has to be on securing the data set first and foremost to not put your organization at a higher level of risk. This starts with understanding where sensitive data enters/exits your environment, where the data lives in your environment, and how you are securing that data. Implementing a Blockchain-based platform requires a risk management strategy, strong organizational oversight, and a controls framework to truly maximize the benefits of the platform.
Securing Tokens in the Blockchain
It is still so early in the Blockchain lifecycle that organizations are weighing different security technologies to secure their Blockchain applications. That being said, every Blockchain platform utilizes “tokens” AKA coins. Tokens can represent money, contracts, or any sensitive data set. The tokens are not universal, so they are not usable across every Blockchain platform. The chronology and veracity of Blockchain transactions are secured with cryptographic methods such as tokenization, encryption, and hashing. Determining which technology to use to secure sensitive data should very much depend on the use case and your appetite for risk, which should be minimal. Like any data security platform, the focus must always remain on the flexibility and efficacy of a solution to not impede business processes, while providing the maximum level of protection for sensitive data sets. Blockchain is in its infancy, so developing security standards and controls for your sensitive data now, will help you build a safe and scalable Blockchain-based solution to minimize your risk while enabling new lines of scalable business.