Cybersecurity Threats: How Blockchain Technology Offers Assurances

At a time when cybersecurity threats seem larger than life, perhaps the real reason blockchain technology evolved in human history is to proffer lasting solutions to a menace on a global scale.

As a network of decentralized and distributed data (ledger), users can leverage blockchain to share the ownership and management of the network through computer nodes.

Also, being a database, blockchain stores information in a digital format.

Understanding Blockchain and the Mechanism Behind It

According to techtarget.com, blockchain is a record-keeping technology designed to make it impossible to hack the system or forge the data stored on it, thereby making it secure and immutable.

Being a type of distributed ledger technology (DLT), it is a digital system for recording transactions and related data in multiple places at the same time.

Each computer in a blockchain network maintains a copy of the ledger to prevent a single point of failure, and all copies are updated and validated simultaneously.

Blockchain is also considered a type of database but differs substantially from conventional databases in how it stores and manages information.

Instead of storing data in rows, columns, tables, and files as traditional databases do, blockchain stores data in blocks that are digitally chained together. In addition, a blockchain is a decentralized database managed by computers belonging to a peer-to-peer network instead of a central computer like in traditional databases.

The cryptocurrency Bitcoin, launched in 2009, was the first popular application to successfully use blockchain.

This is why the blockchain has been most often associated with Bitcoin and alternatives such as Dogecoin and Bitcoin Cash.

An Evaluation of Basic Blockchain Security

Based on the picture above, blockchain technology produces a structure of data with inherent security qualities.

Being based on the principles of cryptography, decentralization, and consensus means blockchain can engender and ensure trust in transactions.

In most blockchains or distributed ledger technologies (DLT), the data is structured into blocks and each block contains a transaction or bundle of transactions.

Each new block connects to all the blocks before it in a cryptographic chain in such a way that it's nearly impossible to tamper with.

All transactions within the blocks are validated and agreed upon by a consensus mechanism, ensuring that each transaction is true and correct.

Blockchain technology enables decentralization through the participation of members across a distributed network.

There is no single point of failure and a single user cannot change the record of transactions. However, blockchain technologies differ in some critical security aspects.

Blockchain's Security Options from a Practitioner's Viewpoint

Recently, based on the perceived robustness of blockchain, the Head, Risk and Compliance, eTranzact International Plc, Edward Onyenweaku, recommended blockchain technology as a necessary tool for improving transparency and reducing money laundering in the financial system space.

Onyenweaku made the call during a panel session tagged, ‘the Growing Threat of Money Laundering in the Financial Sector – Know Your Customer (KYC) and Anti-Money Laundering (AML) as a Disabler’ at the 2023 series of AfricaNXT conference in Lagos. 

Onyenweaku said blockchain adoption would increase the level of trust, security, transparency, traceability, and security of shared data.

He added that blockchain automates the process of fraud detection with the help of built-in algorithms.

According to him, transactions are continuously monitored as alerts of any suspicious activities are created.

“This enables financial institutions to stop such transactions, which might lead to money laundering in real time.

Blockchain plays a good role here because of its real-time algorithm.

“Blockchain maintains a complete history of past transactions within the network, which means that the user can track the data with full transparency.

“It also supports compliance automation by providing clean, accessible, real-time data, instead of asking people and third parties information on reviewers and auditors can verify transactions on blockchain records instantly, without contacting intermediaries,” he stated.

Onyenweaku decried the impact of money laundering in the financial sector, saying it erodes profits due to sanctions by the regulators while increasing low confidence in the market. 

He listed other consequences, including loss of financial institutional reputation, credibility, revenue, and investors’ confidence.