We all know bitcoin as an edgy and anonymous cryptocurrency. It provokes strong opinions. Department of Justice officials reference it in connection with real-life crimes, just as made-up bad guys reference it in movies.
But the underlying ledger technology behind bitcoin — the blockchain — should lack such negative connotations due to its capability of tracking users’ activities in a rigorous way. While bitcoin is viewed as “secret currency,” the technology behind the cryptocurrency is immensely useful to financial services companies in preventing hacking.
The blockchain can paint a very accurate chain of events for traditional payment transactions, and ultimately, help spur a precipitous drop in fraud.
In a cryptocurrency transaction, you can’t know who the parties involved are. They’re anonymous. If anonymous party A disputes a transaction with anonymous party B, you can’t call them to verify details and reach a conclusion. There’s essentially no way to identify either party.
But the anonymity of the parties only amplifies the importance of keeping good records to ensure the integrity of transactions. In fact, the blockchain has anti-fraud benefits that can apply in a non-cryptocurrency environment.
Using blockchain simply as an anti-hacking device means lopping off the mysterious currency party and just focusing on the record-keeping benefits to keep track of transactions.
Once you forklift out the blockchain technology you have a financial transaction ledger that is extremely difficult to break or fool, providing details on everything that took place relative to a transaction or series of transactions, until your computer hard drive holding the ledger ran out of space.
And with the blockchain, everyone over a large number of computers has the same ledger, so no single person could fraudulently modify it without everyone else immediately knowing. This also means computers could sit and monitor the blockchain for suspicious activity without needing to know any personally identifiable information. And it’s fast enough that it could perhaps provide an accurate chain of events across multiple trusted institutions. It can catch in microseconds if something funny, like uncharacteristic account activity, raises suspicions.
Taking a cryptographic “fingerprint” of a transaction and adding it to a ledger that everyone across the enterprise has is both accurate and virtually impossible to hack. Not impossible, but so unlikely it would take, say, a thousand years and many rooms full of computers.
Once you create a transaction fingerprint for every transaction that takes place across the whole enterprise, everyone gets a copy automatically of the updated crypto-ledger. Any future transaction associated with the same money would reference the last fingerprint, and so on, forming a really strong chain of events.
Knowing a whole history of transactions with a very high degree of certainty reduces the temptation for nefarious deeds by bad actors. You would no longer have to trust people to make nonfraudulent transactions. They couldn’t commit fraud without everyone instantly knowing.
Cameron Camp is fintech researcher at ESET, a security software company.