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The biggest threat to the global financial system in 2019 and the technology that could solve it

by , 24 January 2019
The biggest threat to the global financial system in 2019 and the technology that could solve it
Did you hear that roughly one in every 15 people on the planet recently had their personal details stolen?

That's right, Marriott hotels announced that 500 million customer details have been compromised.

The company said,
 
One in every 15 people on the planet have just had their “name, mailing address, phone number, email address, passport number, Starwood Preferred Guest (“SPG”) account information, date of birth, gender, arrival and departure information, reservation date, and communication preferences stolen”
 
To put that 500 million people number into perspective…
 
It’s over 8.8 times the population of South Africa and 1.5 times the population of the US.
 
The thing is, all companies hire cybersecurity experts to sure up their databases and make them more difficult to hack. But the hacks keep on coming.
 
The truth is, no matter how good an organisation’s cybersecurity, it is still vulnerable to hackers.
 
In fact, when Mark Carney, the governor of the Bank of England, was asked what he believes to be the biggest threat to the financial system, he stated cybersecurity.
 
Why? 
 
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“Because financial systems are so interconnected”
 
This is what Mark Carney says. And that’s the key thing here: centralisation.
 
Organisations store millions – in fact billions – of user details on single, centralised databases.
 
Get into that database and you get everything, as we have seen time and time again.
 
So, if the problem is centralisation then the solution must be… decentralisation
Instead of storing all this data on a single, centralised database, bits of it can be stored on a blockchain.
 
This means there is no central database to hack. Even better, you can make it so there isn’t even any data to hack.
 
And it’s all thanks to one of the key developments in blockchain known as zero-knowledge proofs
 
Zero-knowledge proofs basically let you prove you have certain data without ever showing anyone that data. The easiest explanation of how it works foes like this…
 
Imagine your friend is colour-blind and you have two balls: one red and one green, but otherwise identical. To your friend they seem completely identical and he is sceptical that they are actually distinguishable. You want to prove to him they are in fact differently-coloured, but nothing else, thus you do not reveal which one is the red and which is the green.
 
Here is the proof system. You give the two balls to your friend and he puts them behind his back. Next, he takes one of the balls and brings it out from behind his back and displays it. This ball is then placed behind his back again and then he chooses to reveal just one of the two balls, switching to the other ball with probability 50%. He will ask you, “Did I switch the ball?” This whole procedure is then repeated as often as necessary.
 
By looking at their colours, you can of course say with certainty whether or not he switched them. On the other hand, if they were the same colour and hence indistinguishable, there is no way you could guess correctly with probability higher than 50%.
 
If you and your friend repeat this “proof” multiple times (e.g. 128), your friend should become convinced (“completeness”) that the balls are indeed differently coloured; otherwise, the probability that you would have randomly succeeded at identifying all the switch/non-switches is close to zero (“soundness”).
 
The above proof is zero-knowledge because your friend never learns which ball is green and which is red; indeed, he gains no knowledge about how to distinguish the balls.
 
Within blockchain, these zero-knowledge proofs have moved on and can now work without any interaction between the person providing the information and the one verifying it.
 
Recently, some major players are finally starting to realise how important blockchain and zero-knowledge proofs could be.
 
From Coindesk:
 
“Big Four” accounting firm EY has announced a tool that it says will bring private transactions to ethereum – that’s the public blockchain, not a permissioned, enterprise version of the network.
 
The firm announced in a press release Tuesday that its EY Ops Chain Public Edition prototype (“with patents pending”) is the “world’s first” implementation of zero-knowledge proof (ZKP) technology for ethereum.
 
ZKPs are a cryptographic method that allows two parties to prove that a secret is true without revealing the actual secret. In the case of cryptocurrencies and blockchains, this is most often data about transactions.
 
EY’s privacy prototype is aimed to allow companies to create and sell product and service tokens on the public ethereum blockchain while keeping access to their transaction records private. The firm said that the prototype supports payment tokens that are “similar” to ethereum’s ERC-20 and ERC-721 token standards.
 
With zero-knowledge proofs, organizations can transact on the same network as their competition in complete privacy and without giving up the security of the public Ethereum blockchain.
 
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________________________________________
 
In short, with blockchain and zero-knowledge proofs, data breaches become virtually impossible.
 
The problem is, big institutions and government entities are not really aware this kind of technology exists, yet.
 
However, if the world is serious about stopping data breaches for good, this is the way to do it.
 
See you next week,
Joshua Benton,
Editor, The South African Investor
 
P.S. Crypto prices maybe in the gutter right now, but that doesn’t mean they aren’t going to be an essential part of many different industries in the coming years. That’s why now is a great time to stock up on the cryptos that will revolutionise industries.


The biggest threat to the global financial system in 2019 and the technology that could solve it
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