Blockchain: Financial Security is Only the Beginning

Bitcoin has been called many things, from “a major disruptive force” to “a massive fraud”, depending on who you talk to. It has attracted the interest of venture capitalists, cybersecurity academics, and economists alike. Bitcoin runs on what is called a blockchain – an underlying system that has wider applications beyond the financial sector.

The fundamental principle of the blockchain lies in its decentralized existence. Blockchain is a distributed database containing transactional data, which can represent anything, and in the case of Bitcoin, it represents monetary value. It is a global, public ledger that contains a record of all transactions ever made, categorized into sequences of blocks. Each block of transactions also includes a digital signature of the previous block, and this data is distributed to all computers running the blockchain. In other words, information is synced across all participating computers (nodes), therefore making it decentralized. To hack the blockchain, one would need to infiltrate all nodes in the system before the next time it syncs – which is effectively impossible considering the sheer size of the Bitcoin network.

There are, however, some emerging national security implications of blockchain-based applications. For example, the benefit of a virtual currency is that it does not require the physical infrastructure of a government-backed/fiat currency, allowing for rapid deployment over a large area. A virtual currency can be an attractive alternative for non-state actors who want to disrupt sovereignty in countries undergoing internal turmoil.

Recently, it has become possible for terrorist groups, insurgents, and criminal organizations to deploy their own virtual currency, rather than only relying on existing virtual currencies for illegal activities. While there has not yet been a discovered case where terrorist groups have created their own virtual currency, the rapid advancement of blockchain technology will give way to this in the future (if it has not already).

The concept of a new currency by an organized group is not new. In November 2014, ISIS declared that it will issue its own commodity-based currency. The currency was not virtual, which was likely due to associated technological difficulties. Insurgent groups have 3 options when it comes to adopting currency to increase their own political and economic power: a commodity-based currency, adoption of another country’s currency, or adoption of its own currency. While ISIS and other insurgent groups involved in civil conflicts have not yet utilized virtual currencies, it is possible in the future, if the group one day achieves sufficient territorial control and governance. In the meantime, experts do not expect virtual currencies to be a preferred format. This is due to low infrastructure in turmoil areas, and lack of users’ trust in new currencies. However, deployment could be feasible when supported by a nation-state with cyber expertise. For the US and its allies to successfully thwart a deployment of virtual currency, they would need to target properties that increase its acceptance in the insurgent group: anonymity, security, and availability.

Blockchain is still an emerging technology, and as such, its applications can be volatile and difficult to regulate. But as with any other technology, it should be allowed to develop and blossom. Beyond Bitcoin, blockchains have been proposed or used for non-financial uses including: land titles, contracts, and health information. The kind of data being considered for blockchain systems may have consequences far more severe than the loss of money, such as personal healthcare history. Additionally, the non-financial applications of the blockchain are taking the centre stage away from cryptocurrency, with a promise to make centralized institutions obsolete.

 

Photo: By BalticServers via Wikimedia Commons. Licensed under CC BY 3.0.


Disclaimer: Any views or opinions expressed in articles are solely those of the authors and do not necessarily represent the views of the NATO Association of Canada.

About Julia Peng

Julia Peng is a rising senior at the Wharton School of The University of Pennsylvania, majoring in Entrepreneurial Management and Healthcare Management. A Joseph Wharton Scholar and a Benjamin Franklin Scholar, Julia’s research interests lie in economics, security, and healthcare policy. She currently serves as Co-Chair of the Wharton Undergraduate Research Board. Julia was recently named as one of Canada’s The Next 36. She will represent Canada at the upcoming OECD Forum in Paris, has chaired the UNDP Committee at the 2013 Ivy League Model UN Conference, and represented Canada in Latin America as a member of Junior Team Canada. She hopes to pursue a career in the intersection of policy and entrepreneurial innovation.