Despite the fact that we are in 2019, both banks and banking applications do not have the appropriate means of protection against viruses and attacks. Their systems are often perforated, leaving room for malicious actors to exploit these security gaps. And hackers seem to be constantly evolving their attacks.
Hackers are undoubtedly a constant problem for financial institutions. But they are not the only one. For example, SWIFT, which holds the dominant position in the global processing of transactions via messages, can cause problems for a bank. SWIFT is in urgent need of automation, given that the volumes of transactions it processes are enormous. This will require a major overhaul and inevitably, large investments. SWIFT customers will of course bear the cost of this change and are likely to look for less expensive alternatives. Another problem is that SWIFT is slow and cannot process transactions in real time. In addition, cyber attacks on the SWIFT network are not at all rare.
The solution to the above problems, therefore, seems to be new technologies, such as blockchain. According to Hu Yoshida, CTO of Hitachi Data Systems, blockchain technology can save billions for banks if they stop using slow and expensive centralized payment systems.
How blockchain addresses current security challenges
First, blockchain eliminates the need for intermediaries. In addition, transaction speeds are significantly increased. As things stand now, this process takes several days, while blockchain can manage it in real time.
Also very important is the fact that the encryption methods offered by blockchain such as "digital signature" and "hashing" significantly reduce the risk of breach.
The digital signature method guarantees the authenticity of an electronic document or transaction in digital communication. It uses encryption techniques to prove authenticity and immutability of documentation. It is impossible to forge.
Hashing, on the other hand, produces a value or values from a string of text using a mathematical function. A formula creates the hash, which helps protect against tampering. When a user sends a secure message (or transaction), a hash is created that is encrypted and sent along. The receiver decrypts the hash and the message. Another hash is then created from the message. If the two hashes are identical, then a secure transmission has taken place. This process therefore ensures that a transaction has not been altered by an unauthorized person.
As for other security technologies such as SSL (Secure Sockets Layer) and 2FA (Two Factor Authentication), although widely used, they have their vulnerabilities, which makes them slow and outdated.
The SSL cryptographic protocol may be one of the most established and widely used, but in recent years serious vulnerabilities have been identified. As a result, trust in SSL has declined.
2FA also requires users to share sensitive information (phone number, card details, billing address, etc.) with banks/retailers/merchants, which can put their data at risk.
Blockchain also offers tangible improvements for AML (anti-money laundering) and KYC (know-your-client). The process of verifying each new client by financial institutions is difficult and extremely time-consuming. However, blockchain offers the following advantage: all changes to the data are immediately distributed to all participants in the network. It also provides records of compliance of individual client actions with regulatory requirements. Another option to use blockchain is to develop a system for managing personal data. This will reduce KYC and AML processes to a simple automated verification. SWIFT has already taken the first step in this direction. It was announced that its own KYC registry, which includes data from 1,000+ banks, will be available to trusted partners and clients in the future.
In conclusion, blockchain technology will not replace SWIFT, AML/KYC or SSL, as many claim, but it will offer very significant upgrades and offer unique opportunities for the evolution of existing systems.
