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Security Measures for Bitcoin and Blockchain

Bitcoin and Blockchain

Bitcoin and blockchain are on the rise as cryptocurrencies are becoming increasingly popular around the world. As financial institutions are rushing to file patents and implement blockchain technology, other companies are focusing on bitcoin and blockchain security measures so that large companies feel more secure using this innovative technology. Bitcoin and blockchain’s main criticism is the lack of security. Financial technology startups and financial institutions are collaborating around the world to make the use of bitcoin and blockchain technology more secure, efficient and user friendly.

Nets, an electronic payment provider based in Copenhagen, Denmark, works with 240 banks and is now collaborating with the software developer Chainalysis “to help banks validate bitcoin transactions and comply with regulations” (Reuters (2017) “Nets Partners with Blockchain Analysis Firm to Fight Dirty Bitcoins” New York Times). Chainalysis determines the “risk of doing business” with customers using blockchain and exchanging bitcoins. The software company can detect suspicious behavior and can    locate the source of the bitcoin funds being traded. Chainalysis works with legal and investigatory authorities such as Europol. Their technology is important to regulate illicit activity such as money laundering.

The main concern large companies and financial institutions have is that bitcoin previously fueled the dark web, such as through Silk Road. This online platform permitted anonymous users to sell illicit drugs, weapons, and forged documents using bitcoin as the currency. The collaboration of Nets and Chainalysis will facilitate financial institutions when preventing customers using cryptocurrencies for money-laundering or any other illicit activity. The issue of customers using cryptocurrencies in traditional financial institutions is that the banks need to be able to trace where the funds originatedin order to comply with legislation and anti-money laundering regulations. Therefore, banks need to tackle the risks for the growing financial technology industry. Chainaylsis CEO Michael Gronager says that “[w]e can make risk assessments and analyze block chain activities … And banks are interested in being able to risk-score customers, so they do not end up being used for money laundering.”

The partnership of Nets and Chainalysis has been beneficial to the Nordic market as it provides financial institutions with the tools necessary to combat any illicit activity when using bitcoin. The head of Fraud & Dispute Services at Nets, Katy Rintala, asserts that “banks have held back on facilitating Bitcoin payments because they didn’t have the tool we are now able to offer them.” Now, blockchain technology essentially traces bitcoin transactions and Nets with Chainalysis can create greater security measures to protect financial institutions and their customers using bitcoin.

In the U.S., the technology company Chain Inc. is working with Thales Group, an international security company, in order to create a secure platform for companies to use blockchain technology. The concern for companies and financial institutions is that blockchain technology is not completely secure. Chain “partners with organizations to build, deploy, and operate blockchain networks that enable breakthrough financial products and services.” As they believe bitcoin and blockchain are the future for all our financial assets, their main priority is securing the existing technology.

These two companies have created hardware security modules (HSM) which the companies have said are “highly secure processors designed to safeguard passwords and ‘digital keys’ – to make it more attractive for large companies to adopt blockchain”. What companies are Chain Inc. and Thales Group targeting? Large companies such as Khosla Ventures, RRE Ventures, Capital One, Citigroup, Fiserv, Nasdaq, Orange and Visa, who have already invested $40 million in Chain. This new technology, the combination of Thales’ HSMs and Chain’s technology to “operate blockchain networks”, enables these large companies to securely store data on the blockchain. Since blockchain is not centralized, the users control the database using cryptographic keys. These keys essentially secure the users financial assets. What Chain’s technology does is provide a further layer of high-grade security and privacy for large companies who hold sensitive and confidential information.  Chain’s mission is to make blockchain technology so secure for leading companies that the future of our assets will all be digitalized. This trend of financial technology start-ups collaborating with large companies and financial institutions illustrates the growing potential for cryptocurrencies in our economy. Once security measures have been ironed out, bitcoin and blockchain technology will become even more popular amongst these companies.

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