For decades, cryptography has been used as a mean to protect confidential information. In World War II, the Nazis used an electromechanical device known as the “Enigma Machine” to encrypt important messages. Confident in the efficiency of their technology, the Nazi didn’t think it necessary to change the coding of messages. This allowed the mathematician Alan Turing and a group of experts to build a computer capable of deciphering the German messages.
Based on these concepts, it emerged the digital cryptography, from which derives the term cryptocurrencies. During the purchase, sale and exchange of cryptocurrencies, long strings of encrypted characters are sent from several transmitters to the same receiver. The encrypted information is stored and synchronized in several servers known as ledgers. The shared information contains important information about the issuers, the receiver and the amount of transferred money. Currently, many peopletrackblockchain directionsto hack them and keep the money. However, achieving this is an almost impossible task, since every encryption code gets even more complicated as the blockchain evolves.
In inter-bank transactions with electronic money, there are usually three main parties: the issuer, the mediator (the bank) and the receiver. If there’s a vulnerability in the security of banks’ databases, hackers can appropriate sensitive information such as name, address, telephone number, account number, username and password. With this data, hackers can extract money from bank accounts or blackmail their victims over the phone.
With cryptocurrencies, sensitive user information is encrypted. If the hacker doesn’t have the encryption code, he will never be able to decipher the information.
Due to the security of cryptocurrencies and blockchain technologies, their implementation in the current banking system would bring many benefits. For example, many banks would no longer need the services of electronic security companies, which charge large amounts of money for software renewal and professional advice. In addition, information on each transaction would be recorded on multiple servers around the world. Many banks have their own servers to store information. If there is no backup memory, a lot of important information about clients would be lost forever in case of a failure.
Although the information on each transaction is recorded in ledgers, the identity of the parties involved in each transaction remains anonymous. Thus, potential scammers will never know how much money moves in the accounts of certain bank users.
The implementation of blockchains eliminates the common conflicts in international inter-bank transactions. If someone needs to transfer money urgently between banks in different countries, they always have to wait several hours or even days until the transaction is audited and confirmed. With blockchain technology, the wait is much shorter and the transaction becomes effective when the information shared between ledgers is automatically audited.
Blockchains is what the current banking system needs to be more secure and reliable. However, the anonymity of clients is what most concerns banks. However, if a control mechanism is implemented for the creation and maintenance of new wallets, there’s nothing to worry about.
Kamran Gasimov is an adviser to the Chairman of the Board and Director of Creation of Bank Products and Development of Sales Channels at MuganBank OJSC. He also is a Co-Founder and Development Director of Accounting and Tax Resources and the Founder and Director of Richmond Group.