Home The C-SuiteChief Security Officer (CSO) As Currency Moves Toward Digitization, Hackers Become a Growing Threat

As Currency Moves Toward Digitization, Hackers Become a Growing Threat

by internationaldirector

Written By: Matthew Hemmings – Corporate Finance

Currency is moving toward a digitized model. Cryptocurrencies, as they’re dubbed, have quickly become a multimillion-dollar industry, with droves of users, uses and formats that stand to upend the current financial industry. However, this change toward a currency almost entirely dependent on computers and digital transactions suffers from the age-old dilemma of trading convenience for security. As cryptocurrencies became more prevalent, billions of dollars become increasingly vulnerable to cyberthreats from hackers who can abscond with massive sums of money using minimal effort. Like the bank robbers of the Wild West, hackers can make off with large sums of money through brazen attacks. Unlike the Wild West, however, there are few, if any, means of stopping or catching these bandits. Above all, cryptocurrencies prioritize anonymity and instantaneous transactions. Thus, the risk to cyberthieves of being identified or apprehended drops significantly when compared to traditional bank thefts. With no governing body to regulate the market, cryptocurrencies and their trading houses must take it upon themselves to secure the funds of their customers.

This has proven difficult. While cryptocurrencies have been effective at providing a seamless procedure to facilitate these transactions, the attention to security has left much wanting. High-profile cryptocurrency thefts have seen millions of dollars evaporate from digital wallets, as cyber-thieves use numerous hacking techniques in concert to make off with their stolen goods. While the underlying technology provides an instant ledger of the transactions made, and trading houses make efforts to use multiple signature (multisig) technologies for identification, security is still plagued by the same issues that pervade many computers and networks.

The issue becomes slightly more pressing when cryptocurrencies’ proliferation is considered. A growing number of retail locations and online services accept bitcoin as a means of payment. Even banks are getting in on the act. Goldman Sachs, Santander and a Swiss bank have all announced that they plan to be the first bank to start issuing bitcoin to its customers. The technology’s efficiency and speed have made it an attractive alternative for companies looking to integrate fintech advancement into their operations. Cryptocurrencies are a perfect candidate for technological innovation within the financial system as they already possess an underlying infrastructure and have proven to be an effective generator of wealth. The large spikes in value have seen bitcoin—the first and largest cryptocurrency—quadruple in value since its inception.

But the lucrativeness, anonymity and lack of security attributed to cryptocurrencies are also what make them such beacons for cybercrime. Due to anonymity, cryptocurrencies are often used for criminal activity on the black market. Whether the transactions are for illegal smuggling or weapons purchases, cryptocurrencies are quickly becoming a go-to option for those purchasing illegal goods on the black market. Cyber-theft sits right alongside this criminal activity as millions have been stolen in these daring cyber-robberies.

Earlier this year, Parity Technologies, a company that produces digital wallets for cryptocurrency users to store their digital funds, was robbed of more than $32 million by hackers. More than 150,000 ether (ethereum) coins—a competitor to bitcoin—were lifted straight out of users’ wallets. This incident followed a smaller theft that saw only $7 million stolen from the electronic wallets. Hackers reportedly exploited an outdated patch in the security system of the digital wallets Parity uses to store customers’ funds. While Parity boasts that its multisig wallet system is a foolproof deterrent to cyberthieves, the system failed to stop almost $40 million in funds from evaporating into the dark web. The system consists of two separate signatures being required prior to the transaction’s inscription into the blockchain ledger. The result was ether’s price dropping from $235 to $196 in less than a day. While the price has recovered somewhat, confidence has been shaken in the company’s ability to secure customers’ liquidity. While the vulnerability has now been patched, and Parity’s leadership has addressed the concerns of many of its customers, the question of how to create long-lasting security in the cryptocurrency system is still unanswered. Upon hearing of the breach, Parity officials advised clients to move their funds to a more secure location. But this type of Band-Aid solution will likely yield attacks with greater frequency and severity.

As it stands, bitcoin has been used in ransomware attacks across the globe this past year, impacting the cryptocurrency’s reputation and valuation. The WannaCry cyberattack held more than 200,000 computers hostage and demanded ransom payments in bitcoin to release the equipment’s data. The attack caused bitcoin’s value to drop $200 to $1,644.64 in less than two days.

Why it’s still a good thing.

But the propensity for digital currency to be coopted by criminals should not be a deterrent to its continued usage or increased integration. The benefits of cryptocurrencies are staggering when considered against the qualities of the current system. The fluidity and speed with which transactions take place could be disruptive to the existing operations underwriting global financial structures.

The ledger system in the blockchain technology supporting cryptocurrency transactions creates an immediate and permanent record of each and every transaction that takes place in the cryptocurrency space. While cryptocurrencies themselves may not be the avenue of choice for traditional lending institutions, the technological breakthroughs provided by blockchain could yield a quicker and more efficient financial system. Transaction processes will take advantage of the benefits that the Internet and the diffuse nature of blockchain technology offer to construct a new financial system built on better transactions and communications with fewer lags and errors.

Ditch the anonymity and the irreversibility of transactions, and a new blockchain system could be a perfect fit for financial trading in the post-Internet world. As Open Banking application programming interfaces (APIs) become more prevalent, the transfer of information will take precedence over many of banks’ traditional roles. Blockchain creates a perfect avenue for this newly efficient and effective financial model. But before any of this takes place, cryptocurrency and blockchain advocates must prioritize data security.

While it is tempting to forge ahead and deal with security later, the number of breaches and millions of dollars lost are a call to prioritize securing the system. Cryptocurrencies are attractive because of their volatile and lucrative nature. People have made millionaires overnight while trading in cryptocurrencies. But the growth of the technology and the industry is now at a stage that requires a shift in priorities. Namely, this shift must be away from unfettered accumulation of wealth toward increased security to secure longevity. If these issues are not properly addressed, the technology will be short-lived and simply a flash in the pan of the larger world of financial innovation.

Cryptocurrencies possess far too many benefits to allow this outcome. Not only do they allow a new avenue of wealth creation for large, underserviced market sectors, but they have spinoff effects that could have a myriad of applications. The future only knows exactly where blockchain technology can be applied to where it would not provide a direct benefit. For the sake of its stakeholders, its reputation and its longevity, cryptocurrency advocates should now push to secure the holes currently leaving their customers with heightened vulnerability.


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