The theft of some $72 million in bitcoins by hackers from Hong Kong-based exchange Bitfinex and other recent high profile blockchain breaches illustrate the serious security questions facing the many companies working to bring blockchain technology to capital markets, according to a new report, Securing the Blockchain, from Greenwich Associates.
While transaction confidentiality tops the list of concerns, the security of private keys is also seen as a major issue by a majority of respondents.
“Private keys can be thought of as secret codes or passwords that prove ownership of digital assets. The recent hacking of the Bitfinex exchange has been attributed to lax security of these private keys,” says Richard Johnson, Vice President of Market Structure and Technology at Greenwich Associates and author of the report.
Securing the Blockchain details the competing consensus mechanisms – the algorithms that leverage cryptography to securely verify and record trades on the blockchain.
While it is not necessary to understand the intricacies of differing approaches to consensus protocol, an awareness of their strengths and weaknesses is critical to their deployment for capital markets applications.
“Proof-of-work consensus, as used in the bitcoin blockchain, is generally viewed as inappropriate for financial services because of its high energy use, low throughput and slow verification times,” says Richard Johnson. “Although there remains uncertainty regarding the most appropriate consensus algorithm, our research concluded that the industry is currently leaning toward a method known as Practical Byzantine Fault Tolerance (PBFT).”