In a new report, Greenwich Associates has discussed security concerns of the financial institutions with regard to the blockchain technology and explained how blockchain security mechanisms work and the approaches of industry leaders working with this technology.
The report, Securing the Blockchain, is the next installment in a series of distributed ledger technology (DLT) focused research studies with 134 market participants working on blockchain technology globally. It assesses the current state of blockchain adoption across banks, brokers, asset managers, exchanges, and technology vendors while also capturing the opinion of the leading blockchain technology companies.
The recent security breach at Bitfinex in which it lost millions of dollars has once again brought the question on security of blockchain-based platforms to the forefront. The study revealed that transaction confidentiality and the security of private keys are the top concerns among banks.
“Private keys can be thought of as secret codes or passwords that prove ownership of digital assets. The recent hacking of the Bitfinex exchange has been attributed to lax security of these private keys,” says Richard Johnson, Vice President of Market Structure and Technology at Greenwich Associates and author of the report.
It further explains the competing consensus mechanisms – the algorithms that leverage cryptography to securely verify and record trades on the blockchain. The report stated that an awareness of the strengths and weaknesses of different approaches is critical to their deployment for capital markets applications.
“Proof-of-work consensus, as used in the bitcoin blockchain, is generally viewed as inappropriate for financial services because of its high energy use, low throughput and slow verification times,” said Johnson. “Although there remains uncertainty regarding the most appropriate consensus algorithm, our research concluded that the industry is currently leaning toward a method known as Practical Byzantine Fault Tolerance (PBFT).”
