Ada Xiao, CSO of global privacy-preserving computing network PlatON, discusses the role of blockchain within the finance industry and investigate how much value the developing technology has to offer.
Earlier this summer, one of the United States’ top ten financial institutions suffered from a major data breach, exposing the personal information of almost 106 million customers and applicants in North America.
However, consumer trust has not waned – in fact, according to a PWC survey, 42% of customers trust banks more than any other commercial industry.
As institutions spend billions of dollars on their cybersecurity budgets each year, many have come to look to cutting-edge innovations in order to bolster legacy technological infrastructures.
As an immutable, transparent ledger, blockchain has fast emerged as a suitable alternative, offering greater cost-efficiency, security, and automation.
Yet, despite the purported benefits of decentralisation and open platforms in areas of security and accountability, financial giants have often opted for a balance of legacy systems and disruptive models.
Though largely heralded for its emphasis on transparency and the accountability that follows in turn, the realities of implementation have gestured toward an inconvenient truth: transparency simply isn’t for everyone.
Putting a price on privacy
Today’s economy now functions as a network of cross-border transactions and inter-bank relations, no longer bound by the limitations of physical geography. In such a time, the ability to easily share data is essential.
However, amid the rise of disparate privacy compliance frameworks around the world as well as an emphasis on data localisation policies, upholding data sovereignty is now paramount.
With banks responsible for handling personal identifiable information (PII) and transaction data, the ability to share this securely across counterparties and other entities is needed.
As a result of the simultaneous emphasis on collaboration as much as data protection, resulting enterprise blockchain solutions in the sector often look to implement stringent privacy-preserving enhancements such as zero-knowledge proofs (ZKPs), as evidenced by JPMorgan’s concerted use of the cryptographic technique in its in-house platform, Quorum.
Meanwhile, EY’s Nightfall has looked to implement advance ZKPs in order to allow for private transactions on a public blockchain.
Legacy cryptographic techniques such as homomorphic encryption, garbled circuit, and multi-party computation (MPC) come to form a potent cocktail of protections that ensure that data is encrypted at its source and never leaves local storage, preserving its provenance.
A computation that cannot be reverse-engineered that reveals the needed information is then shared to the party requesting access to the data. The immediate benefits here are clear for an industry prone to both internal and external data breaches.
Such advancements allow for greater opportunities in collaborative data sharing between institutions and individuals.
As the global financial sector continues to mature, bilateral collaboration will only prove to be even more insufficient for complex organizations.
With cryptographic algorithms, multiple financial institutions will be able to collaborate simultaneously for services such as credit reporting, know-your-customer (KYC) procedures, background checks, and many more, with even greater efficiency.
Beyond this, the necessary assurances of data integrity give rise to monetisation opportunities.
Such cryptographic algorithms make the repetitive usage of data possible, while better pricing the value of their data by the invisible hand of free market forces. This creates a new stream of income for financial institutions––all without compromising personal privacy.
Tried and tested
There is perhaps no other industry that has met the blockchain space with more scepticism than the financial services sector. After all, the very conception of cryptocurrency was underscored by a frustration in our modern-day financial system.
From JPMorgan CEO Jamie Dimon’s scathing remarks about bitcoin to the widespread criticism cast towards Facebook’s entrance into the space by financial regulators and institutional bodies all over the world, doubt has continued to fester.
Over time, however, in recognising the need to differentiate cryptocurrencies from their underlying technology, financial institutions gradually appear to be moving in a different direction, acknowledging the potential of blockchain as an innovation in its own right.
While its implementation in finance may seem far from what the industry anticipated, where we are is certainly a start.
As the technology continues to mature over time, rallying cries for disruption and decentralisation may no longer need to go hand-in-hand.
Instead, in going back to what has been tried and tested, the introduction of advanced cryptographic algorithms across privacy-oriented projects can give blockchain the breathing room it needs to flourish in the sector.
With transparency no longer the sole value proposition at play, blockchain seemingly has more to offer.