An Encrypted Future

Tag: security

The Case for Digitization by Blockchain

By Ben Walton, CHAMPtitles 

Digitization is the process of creating a digital representation of an asset. You can read more about that in our earlier post here

Blockchain technologies are well suited to be the system of record for these digital representations. They have the potential to improve asset security, efficiency of the processes involving the asset, and trust among the parties using the asset.

The blockchain structure can be thought of as entries in a book (or ledger). Each entry represents a transaction which includes creating, modifying, and destroying the digital representation. Due to the structure of a blockchain, an entry itself cannot be altered or removed. The only way to modify the state of an asset is through a new transaction. With this additional security, users of the blockchain are more inclined to trust the authenticity of the data on the ledger.

If you imagine that the entries in the ledger are about an asset (perhaps medical records) being shared or exchanged between two parties, then you can use the ledger to understand who has modified or transferred which assets. This provides built-in trust to the system due to the transparent nature of how the ledger stores data. A third-party auditor could easily look at the ledger and follow the flow of data to construct a timeline of which parties own or have edited which assets. This transparency will help to reduce fraud and eliminate disputes arising from two parties having differing information.

Another feature of blockchain data storage is that the ledger can be held in multiple locations. This way, the data is no longer siloed in one location, so it is more secure from cyberattacks that attempt to hold the data hostage until a ransom is paid or corrupt it in some way.

With this inherent trust between users of the blockchain system, the concept of programmable logic called smart contracts can be introduced. In the blockchain system, these smart contracts can be written in such a way that they automatically execute when certain conditions are met. For example, let us assume the asset is an eBook where Party A (Alice) owns the book and Party B (Bob) would like to purchase it. Alice has set a price of $20 for the book. Bob enters his payment information and creates an order to purchase the book up to a price of $50. Once the blockchain system recognizes that the book is available for purchase and someone has agreed to buy it for that price, the smart contract is automatically triggered and purchases the book for Bob from Alice for $20. The power of smart contracts is that they significantly improve efficiency. They can automate many of the processes, if not all, involving an asset.

Blockchain technologies enhance asset security, improve the efficiency of the transactions involving the asset, and increase trust among the involved parties. Blockchain may not be suited for all digitization efforts but is worth exploring and testing as a path for achieving digitization.

Impacts of Digitization (Part ll of III) – Enhanced Security

By Ben Walton, CHAMPtitles

There is no process with zero risk, only those with very little risk. When improving the security of a process, the goal is to minimize risk as much as possible. To do this, all potential risks are identified, prioritized, and then mitigated, reduced, or accepted. In a paper-based process, there are inherent risks including fraud and loss. When the process becomes digitized, these risks are nearly eliminated.

Fraud can occur in a paper process due to the time lag between when a transaction takes place and when the system of record is updated. Let’s look at a hypothetical situation to better understand how this could happen. We have three individuals: A, B, and C. Individual A sells an asset to individual B. B verifies the authenticity of the asset against a third-party system – it is authentic, so B purchases the asset. B then mails a paper document to an authorized individual to update the third-party system with the change in ownership. Now A sells a duplicate or forged copy of the asset to C. Individual C verifies the authenticity of the asset against the system – it is still authentic because B’s paper document has not yet been received, so C purchases the asset. This time lag has allowed A to commit fraud and receive two separate payments for selling the same asset.

In the digital world, real time communication eliminates the time lag for transactions. Returning to our hypothetical situation, the system of record is updated or flagged as soon as individual B purchases the asset. When individual A attempts to sell a duplicate or forged copy of the asset, the authentication test fails revealing the inauthenticity of the asset attempting to be sold.

Loss, damage, or theft can occur when a paper-based process has an associated physical asset. Let’s look at the example of paying for something. Cash or a credit card can be stolen and then used to make a purchase. Cash can always be used to transact, and a credit card can be used until it is deactivated by the owner, which takes time.

In the digital world, digital payment methods such as Apple Pay provide more security. Theft can still occur; a smart device with a mobile payment option can be stolen and then used to purchase something. However, more built-in security checks mean there is a lower chance of it happening. For example, Apple Pay requires a password to unlock the smart device and then another password to access the application. Multi-factor authentication can also be enabled to add yet another password.

To be clear, digitizing a process does not make it completely secure, but it is infinitely more secure than a paper-based one because it eliminates the inherent risks that lead to fraud or loss. Digitization allows for real-time communication, which removes the time lag for transactions to be recorded and eliminates the chance an asset can be transacted upon twice. A digital asset in place of a physical asset allows for more security measures to be enabled to protect the owner from loss or theft. The relationship between digitization and enhanced security is appealing and further underscores the benefits of creating a digital asset. And still, there is one more to be addressed up next: the environmental benefits.