Page 157 - ITU-T Focus Group Digital Financial Services – Technology, innovation and competition

ITU-T Focus Group Digital Financial Services
Technology, Innovation and Competition

For financial institutions using permissioned, private blockchains, the visibility of commercially sensitive
information – customers, transactions etc. – to everyone may be a serious barrier to adoption. So, although
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a blockchain could potentially replace Society for Worldwide Interbank Financial Telecommunication (SWIFT)
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for value transfer or a bank for settlement, it also means that everyone could see the transaction flows, since
they are on the nodes and ‒ intrinsically to the distributed nature of blockchain ‒ would have to verify any
transactions for that transaction to be placed on the block. 81

There is thus a tension between shared control of data on a ledger ‒ the core of the DLT motif ‒ and sharing
of the data on a ledger. 82
Solutions to these issues are being developed, but not yet mainstream. For example, ‘zero-knowledge proofs’
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are emerging, potentially enabling validation of data without visibility over the underlying data itself. This is being
applied in the crypto currency realm with Zcash, an emerging decentralized and open-source cryptocurrency
that competes with Bitcoin and which purports to offer privacy and selective transparency of transactions.
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There is also R3’s Corda blockchain technology ‒ supported by over 70 banks and insurance companies
worldwide – that shuns, in its design, global sharing of data such that only those parties with a legitimate
need to know can see the data placed within an agreement on the blockchain.
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Digital Asset Holdings has also announced a ‘fingerprinting’ model to address privacy concerns: Though these
fingerprints with blockchain data are shared amongst all users of a given blockchain, only trusted parties will
be able to decipher them.
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And, for smart contracts, Hawk has been announced: It is a decentralized smart contract system that does
not store financial transactions in the clear on the blockchain, retaining transactional privacy from the public’s
view.
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5.3 Security of DLTs
There have been very high-profile intrusions into the ‘vaults’ that store Bitcoins, resulting in huge loses for
Bitcoin holders. But while Bitcoin storage facilities have been compromised, there are no reports to date of
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the Bitcoin blockchain itself being compromised.
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79 For discussions of these potential tradeoffs and concerns, see Kosba, A et al (2016) Hawk: The Blockchain Model of Cryptography
and Privacy-Preserving Smart Contracts, available at https:// eprint. iacr. org/ 2015/ 675. pdf; Greenspan, G (2016a) Blockchains vs
Centralized Databases, available at https:// goo. gl/ gKfoym ; and R3 (2016) Introducing R3 Corda™: A Distributed Ledger Designed
for Financial Services, available at https:// goo. gl/ IgD1uO ; and Deloitte (2016) Blockchain: Enigma. Paradox, Opportunity, avail-
able at https:// goo. gl/ yNjtFE ; and Irrera, A (2016) Blockchain Users Cite Confidentiality As Top Concern, available at https:// goo.
gl/ IIuuua .
80 Society for Worldwide Interbank Financial Telecommunication (SWIFT) - supplies secure messaging services and interface soft-
ware to wholesale financial entities.
81 See further Greenspan, G (2016b) Understanding Zero Knowledge Blockchains, available at https:// goo. gl/ r9P4jZ . Greenspan is
founder and CEO of Coin Sciences, a company developing the MultiChain platform for private blockchains.
82 Lewis, A (2017) Distributed Ledgers: Shared Control, Not Shared Data, available at https:// goo. gl/ KieCHG .
83 In cryptography, a zero-knowledge proof or zero-knowledge protocol is a method by which one party (the prover) can prove to
another party (the verifier) that a given statement is true, without conveying any information apart from the fact that the state-
ment is indeed true. Quisquater, J-J, (2016) How to Explain Zero-Knowledge Protocols to Your Children, available at http:// pages.
cs. wisc. edu/ ~mkowalcz/ 628. pdf.
84 Zcash payments are published on a public blockchain, but the sender, recipient, and amount of a transaction remain private.
Zcash uses different encryption approaches to keep both transactions and identities private. See https:// z. cash/ about. html?
page= 0a.
85 R3 (2016) ibid
86 Leising, M (2016) Blythe Masters Unveils Fix for Blockchain Privacy Concerns, available at https:// goo. gl/ KblSLm.
87 Kosba et al (2016) ibid
88 Reuters (2016) Bitcoin worth $72 million stolen from Bitfinex exchange in Hong Kong, available at http:// reut. rs/ 2atByqe.
89 Compromised in the sense that data on the blockchain was altered without consensus of all the user nodes in the blockchain.

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