Bitcoin, Blockchain & XMS by MereSecure®
Markus B. Schmucki
Reprinted from EBA Journal January 2018 Edition pages 30-33
“It seems that daily there are internet articles being written with respect to crypto digital currencies taking hold of extension into the global markets. More specifically “BITCOIN” established in 2009 has had a tumultuous ride since last year with a price per bitcoin hitting an alltime high in the last four weeks. On October 30th, 2017 it was hovering at $6,169 USD according to Coindesk. com. It is listed by the symbol BTC/USD.
What is all the hubbub about this digital currency. We will first dive into some of those reports. In addition, we will identify the underlying technology that is used and how it may be useful in several other spaces including the Environmental Banking space. Finally, we will explain how implementing blockchain directs another use for due diligence with an example product called XMS by MereSecure® that can help companies manage the information needed from their third-party contractors, clients and customers.
According to Will Knight, DF – in an online article titled: Can Bitcoin Be the Foundation of a Fairer Financial System? (published 4/18/2017), Bitcoin is an opensource,decentralized digital currency built on top of a distributed cryptographic ledger. Every transaction is stored across a distributed ledger that is maintained through a process of “mining” that generates more bitcoins.
The concept of a distributed ledger is like accounting practices given a debit and credit style journal entry for reconciling. Each of the journal entries are sequential and dependent on each other. Removing an entry would invalidate the sum at the bottom of the accounting journal. Bitcoin transactions are similarly recorded in a chain of blocks. Each block is encrypted with a hash SHA-256. Each of the transactions are replicated across hundreds of bitcoin nodes that identify as miners. These recorded blocks are immutable due to a portion of each block consists of information from the previous block in the chain. This approach effectively protects the contents of the data from tampering. Removing a block would invalidate any other blocks downstream in the chain.
Earlier it was mentioned that the price of bitcoin has gone to record levels over the past year. There has been a lot of discussion on limitations with the existing software algorithm for bitcoin and so action was taken with “the first ‘hard fork’ in bitcoin’s history..” says Jordan Pearson, — in an online article titled: Bitcoin Just Split Into Two Different Versions (published 8/1/2017). This news was huge and caused the trading exchange markets to react with pause. Following the split in July a new copy of the bitcoin database records was created, identical and both currencies, bitcoin and bitcoin cash would be available for transactions utilizing miners. The reasoning for the split included increasing the block size from 1MB to 8MB each giving better scalability with performance. With all the discussion before the split another group decided to force another split. This split is scheduled for November 2017 as its digital currency with 2MB block size is named “Segwit2x” according to Jordan Pearson, — in an online article titled: Bitcoin Is Forking. Again. (published 8/16/2017). So effectively “in November there will be three versions of the world’s most popular cryptocurrency.” It is unknown as to what effect this will have on the original Bitcoin currency pricing but with a currency age of eight years it has already split, and another is on the way. According to Wikipedia the List of Cryptocurrencies worldwide identify as “more than nine-hundred over the internet as of 7/11/2017 and growing”. Bitcoin is by far the “largest currency available.. and running the largest blockchain network”. These blocks chained together to record bitcoin transactions are based on “block chain technology”. This platform is applicable to other industries besides currency. Wherever there is risk for fraud or tampering a blockchain can help. An online site www.iftf.org/blockchainfutureslab identifies a great summary of what a blockchain is with a short video clip under two minutes long. “Block chains expand over many personal computers.. and these nodes all contain the same copy of the ledger as other nodes on the network.” Since “no one owns the network of computers” there is an assumption of validation whereby the data could not all be compromised on all computers in the network. The IFTF video states that the data is “immutable”. The data can never be modified without compromising the “bundles of records submitted in blocks by contributors.. of this chronological chain data..”
There have been many mainstream software companies that have created different platforms in support of blockchain. Microsoft Corporation has their Blockchain-as-a-Service (BaaS) platform as does Amazon. There are other currencies such as Ethereum which is used by Consensys.net for their offerings. Some software companies like SoftJourn.com use the Monax platform to offer solutions. Some examples of proof of concepts for blockchain include an internal voting system with Germany based banks, a Europe based ticketing company running a pilot program and as cited by SoftJourn a project that moves a SQL relational database to form a blockchain based database.
There are a range of areas that blockchain can be applied to industries. One such example is in Cook County, Illinois. They decided to pilot a blockchain project to convert all the property title conveyances to a blockchain. The project was called the “Cook County Recorder of Deeds Pilot Program”. John Mirkovic, Deputy Recorder, Cook County and Karen Yarbough from the County Recorder of Deeds published: Final-Report-CCRD-Blockchain-Pilot-Program-forweb (PDF). In this final report the scope included taking all the records for the “abandoned” type of building and cataloging them in a blockchain database like ledger. The pilot expanded to all records in Cook County. The team relied on integrating third party data sources called “oracles” to help search and link records between many systems outside of the County Recorder’s office. The pilot had some findings reported including the “use of blockchain file hashing and data integrity certification into a new land records system currently being installed”. They were pleased with the tamper-proof capability of the way the blockchain works. Current methods of recording title conveyances are digitally scanned from paper and involve coordinating many departments opening risk for accuracy errors. The paper noted that it would be plausible to submit a fake property title recording request given the minimal requirement and especially abandoned or unoccupied buildings where owners are not keeping tabs on their property information. To “avoid fraud with verified records in the chain” that would lower the risk. The report also identified modifications to the blockchain model to accommodate a scenario of needing speed and performance of the chain in comparison to “proof-of-work” in a typical blockchain designed to slow down inserting of new records as it validates the record itself mathematically. The distribution of ledgers itself is more than sufficient given the application need.
John Mirkovic and Karen Yarbough are quoted as saying, “Blockchain is not an all-or-nothing approach; aspects of the component technology can be implemented individually or selectively to improve recordkeeping outcomes.” That is precisely what the report stated as recommendations for future government officials as the pilot identified an approach to take in the distant future. Blockchains can be implemented at the property record level, it can be used in healthcare for privacy records. In addition, for food safety tracking the history of a fruit or vegetable from farmer harvesting to grocery store selling lead a consortium of players according to Michael del Castillo and an online article titled Walmart, Kroger & Nestle Team with IBM Blockchain to Fight Food Poisoning (8/22/2017). Powerful options in agriculture developments.
Other industries include banking where middle transaction layers with currency exchanges can benefit from a blockchain to reduce the number of these protection layers and reduce cost. Trials and efforts are being made across several large financial institutions. Nathaniel Bullard writes an online article titled: Blockchain Used as Settlement Mechanism for Cat Bond with Parametric Trigger (8/14/2017) for an insurance carrier. The implementation allows the “catastrophe bonds to lay off the risk on assets while the blockchain lays off the risk on settlement”. The concept involves the insurance carrier selling a bond to a bunch of investors and in this case, they are parameterized with conditions as triggers to whether the bond pays out or not. One such example included a “cat bond on a Category 5 hurricane hitting Tampa, Florida, from Aug 1 to Nov 1”. The after fact is during that period the state of Florida did have a Category 4 hurricane on its shores. Based on the parameter on the bond, an investor would not benefit as it was not a Category 5 hurricane. Using blockchains on insurance bonds and settlement achieve two goals. One as Mr. Bullard wrote will help distribute accurate policy information across many machines in a de-centralized manner. Therefore, if the settlement center is affected by the hurricane with a blockchain implementation there would be many sites with verified data to execute those settlements. Secondly, adding parameters or rules on a bond gives options as well as assurances of it not being tamper able given the outcome of the catastrophe.
John Mirkovic and Karen Yarbough sum it all up as blockchain can help a record be secured much the same as how a strong password helps secure a wireless access point. Blockchain is not for every application yet as exampled above it does have a range of applicability and is undergoing an evolution of adoption.
The use of a database of records whether stored as blockchain or conventional centralized requires oversight. The question of who has access to the data. How much access does the backend engineer monitoring and maintaining systems need to have. Companies are advised to implement separation of duties practices to help isolate mistakes in the pipeline for a release of a new software build or server or accessing confidential data. Numerous third-party environmental companies do work for numerous small, medium and large financial companies as they process property and asset work orders as outside assignments for their lines of business. Third-party management, risk management, due diligence and additionally many programs to monitor a company’s actions from outside the organization.
Let us look at a tool called XMS by MereSecure®. The eXchange Management System helps organizations share documents and forms from one to all external participants. Examples such as spreadsheets, questionnaire feedback forms and certification documents all can be collected or distributed to an outside audience. What uniquely distinguishes this product from other file sharing platforms is a few features. First, XMS defines that everyone externally invited cannot see each other’s uploaded documents, or cannot see who else has been invited. Second, XMS defines any internal user that does see all invited participants can see all documents provided in response. This combination makes vendor management of outside documentation much simpler. It is like a modern bcc: blind-carbon-copy but without using email to transport the attachments back and forth. Third, XMS can track third-party forms implemented under one exhibit. An exhibit is a user created container of files and forms. If you are a banker you could use XMS to collect all the third and fourth party due diligence information for everyone invited to that exhibit. You can post files and ask for others. You can restrict access and see when a document was downloaded or uploaded and by who. An encrypted at rest system of record all searchable securely.
If you are a third party, fourth party organization or individual, you could use XMS to respond to many requests from clients and customers to provide documentation to satisfy vendor compliance. A XMS exhibit is versatile with any grouping of files and forms. If you upload the same files more than 1x, XMS can help streamline your repetition. If you are an attorney or any professional, you could use XMS to send information to your clients to fill out and ask them to respond with the needed documentation.
If any of those scenarios do not match your situation, there are sixteen industry sectors identified for implementing XMS at MereSecure.com
In summary we have looked at the bitcoin drama and how its underlying technology, blockchain has been adopted in other non-currency implementations. Blockchain is gaining traction in the news cycle and is fascinating to see how it can help secure various solutions in a de-centralized format. Its anonymity and privacy aspects do offer pros and cons for various integrations. Industry is trying different ways to implement blockchain like features. We mentioned many of those.
Whether an exchange running currency, a blockchain platform or a conventional third-party service or product – the need to monitor with online tools is ever growing and MereSecure by example has a tool and experience that can start a conversation to help.”