16 Jan 2018, 09:02 — 4 min read
Let’s accept for a moment that blockchain is the biggest Fintech phenomenon in the last three decades. When it comes to adoption of blockchain in banking and financial institutions, cost/benefit is the top most hurdle, and surprisingly security and simplicity are the bottom two. But a recent event of bitcoin theft by a cyber-hacker has sent a chilling message to the industry that fraud and data prevention is moving up on top 10 hurdles for adoption of blockchain phenomenon.
The cyber security hurdles to prevent blockchain as reality has three integrated pillars to manage and effectively engage in future Innovations: Technology, Cooperation, and Policy. The technology pillar allows building of a safer system with innovation while cooperation and policy need a community thinking among peer institutions and participating actors to create one security gate by collaboration and standardised policy.
The large and mid-sized financial institutions are continuing to spend a significant portion of their IT spend on cyber security, more than four times of overall IT spend. According to cyber security ventures in the Q3’16 report, worldwide spend on cyber security products and service is expected to be $1 trillion over a five-year period from 2017-21. Apparently, the projection is not considering the shift of financial transactions from the current state to fully functional blockchain based business by 2025.
Blockchain’s cryptography is secure, but hackers are more creative and innovative than the Fintech innovators. Identity and authentication coupled with a collaborative governance model to create industry standard set of entitlement in shared and distributed network environment is a way to go. It will protect data assets from hackers infiltrating the transparent financial system. The protection of data (customer data), regulatory compliance (KYC, AML), and reducing incidence breaches (insider threats, phishing) on blockchain are the three primary challenges offering new opportunities. Fintech innovators can divert the attention of protecting the assets to by people, process, and technology innovation. Financial institutions are depending on old technology and operational systems to deliver demanding business cases such as client on-boarding, efficient payment processing between two entities, etc.
A large number of security threats are driven by the vulnerability in underline systems that cannot be remediated anytime soon. The best option is to create a unique identity-single gate entry model to uniquely identify a user by a single point authentication for all participating users and parties. In current shape, large financial institutions are exploring the option to move into the cloud for all critical assets and let the cloud owner keep fraud infiltrators outside the perimeter until their luck runs out with an incident of infiltration.
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By Geet Jalota