Is digital currency secure? What is digital currency? What is blockchain? Should I be using blockchain for global business payments? How can I be sure they will be secure?
A Review of Traditional Business Wire Transfers
These are important questions. But before we dig in, let’s remind ourselves what a traditional business wire transfer looks like. It goes through a number of entities and processes before it’s complete. It goes from your bank to a domestic or international clearing house like SWIFT, through foreign currency exchange and finally to your recipient’s bank. (And the foreign currency exchange might happen at the beginning or the end of the process. You never know.) Every link in that chain is vulnerable to mistakes, failures—and hackers. Hackers put serious effort into getting into systems like these not because they want to mess with your records in particular—they want to mess with a lot of people’s records. They get into big bank, clearing house or FX entity data by discovering a single point of failure in the entire system. That’s what gives them access to the whole thing, including you, and every other customer doing business with them.
When the inevitable mistake, failure (or hack) happens while you’ve got an international business wire transfer in process, it’s difficult and cumbersome to find out what exactly, how and where it happened. No one single link in the chain has ownership over the whole process.
Blockchain in a Nutshell
So how does this compare with blockchain technology, which can be used to send business wire transfers while bypassing the banks and clearinghouses altogether? Simply put, blockchain allows users to own and trade types of currency digitally—company shares, game tokens, dollars and of course, bitcoins—without the need for a central party to secure the ledger. That might sound like there’s no security if no central party secures the ledger, but the opposite is actually the case.
The simple fact is that engaging in the act of digital trade creates the ledger. The transaction and the record of the transaction—the “block”—happen at the same time. A blockchain is the progression of all these records. To understand who owns what, we simply have to examine the blockchain.
No Central Repository, No Hack Bait
Importantly, the blockchain record is distributed. Recall that the record is created at the time the transaction is and that those transactions can happen anywhere in the world—and they do. Because they happen everywhere, the blockchain lives across many domains and there is no one central repository.
This is an important point about blockchain technology, because the central repository is pay dirt for the hacker. No hacker wants to wreak havoc on a couple of data files here and there. They look for single points of failures into the biggest datasets they can find in order to wreak maximum havoc. Blockchain’s distributed structure means there is no single point of entry, no single point of failure, and no big data lake at the end of the rainbow for hackers—there is very little to gain.
How Transparency Means Security
Another central difference between using traditional bank-to-bank wire transfers and blockchain technology is that blockchain replaces secrets with transparency. Where records of your bank transactions are only accessible by you and your bank (or are supposed to be, anyway), blockchain global business payment records are public. Many copies of the block records in these chains are distributed on servers and domains all over the world. Because knowledge of your transaction is shared by so many, it’s easy to prove that it actually happened. Blockchain has turned the whole idea of data integrity on its head. Instead of putting it under lock and key, blockchain technology keeps it safe by making it known to everyone.