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Eighty years ago, IBM helped the United States government create the Social Security system, which, at the time, was the most complex financial system ever developed. Today, as financial transactions become increasingly digital and networked, government and industry must once again combine forces to make the financial systems of the future more efficient, effective and secure than those of the past.
At IBM, we believe that blockchain technology is becoming an essential tool as business and society navigate this shift–with the potential for transforming commerce and the interactions between governments and individuals. Blockchain has inherent qualities that provide trust and security, but, to fulfill its promise, the core technology must be further developed using an open source governance model to make it deployable on a grand scale.
There’s a critical role for government here—both to enhance national competitiveness and national security. The federal government must invest in scientific research to accelerate progress. The National Institute of Standards and Technology can help shape standards for interoperability, privacy and security. And government agencies can become early adopters of blockchain applications. In addition, government has a key role to play in certifying the identities of participants in blockchain-based systems.
Blockchain came to prominence because it’s the core technology underlying the infamous Bitcoin cryptocurrency, but, while Bitcoin is an anonymous network, industries and government agencies are exploring the use of blockchain in networks where the participants are known. We call this a “permissioned blockchain.”
Here’s how it works: A blockchain is a distributed ledger shared via a peer-to-peer network that maintains an ever-expanding list of data records. Each participant has an exact copy of the ledger’s data, and additions to the chain are propagated throughout the network. Therefore, all participants in an interaction have an up-to-date ledger that reflects the most recent transactions. Once a transaction is entered in the ledger it can’t be changed. Cryptography and digital signatures are used to prove identity and gate access to the shared ledger. Blockchain makes applications fast, efficient and inherently secure.
IBM is playing a central role in the development of a permissioned blockchain. We’re a founding member of the Linux Foundation’s open-source HyperLedger Project, where we’re helping to build the foundational elements of business-ready blockchain architecture; with a focus on privacy, confidentiality and auditability. We have joined consortia that are developing industry-specific blockchain implementations. And we’re pioneering the use of blockchain in our own operations.
There are four areas where we believe government, technology companies and industries should work together to advance blockchain to enhance national security:
Proof of Identity. The Social Security number has been a mainstay of our society for decades, but it’s not secure and certifiable enough to serve as the building block of identity in a blockchain ecosystem. So we believe a new identity management system must be created. For guidance, we might study the Unique Identification Authority of India, which is in the process of issuing 12-digit identity numbers to all 1.2 billion Indian residents. An individual’s “Aadhaar” number is linked to biometric and demographic information and can be used for everything from setting up a bank account to accessing government services.
Data provenance: To make organizations and individuals comfortable exposing their data through the use of blockchain applications, the systems must automatically track every change that is made to data, so it’s auditable and completely trustworthy. The data provenance mechanism provides a fingerprint for the data—complete with time stamps and annotations. A participant can rest assured that what they see is accurate, up to date, and untampered with. The same goes for government regulators or law enforcement.
Secure transaction processing: While the parties in a transaction managed using blockchain are known to other participants in the system, the actual details of the transaction should be visible only to those involved (or others who are granted permission). So we have to enable the entities that monitor blockchain transactions to verify that contracts are being fulfilled but without revealing confidential information to them. This will require the use of multi-party computation. One of the most intriguing of these techniques, called full homomorphic encryption, makes it possible to verify information without having to de-encrypt it—which would leave it vulnerable to tampering, theft or prying eyes. The technique is still several years from being practical, but it’s on the way.
Sharing intelligence. Amid a rising tide of cyber-crime and fears of cyber-terrorism, the White Hats of the world are under pressure to change the game. Blockchain has the potential to do just that. Not only is it inherently more secure than other types of networks and financial management systems, but blockchain has the potential to be used by multiple parties to share cyber-threat intelligence. Today, for fear of being exposed, many financial services firms are reluctant to share information about cyber-attacks. However, with blockchain, they could confidentially share information in real time that, when combined with data from other companies, could be used to spot patterns and quickly develop countermeasures.
While government should not seek to control these new financial systems, it has an important role to play in helping them to take off and in safeguarding them. We need to create a new social compact, where business, with input from government, architects the future of financial services. We at IBM look forward to working with our partners in government, industry and academia to get this done.
Jerry presented IBM’s point of view today to the President’s Commission on Enhancing National Security at a hearing in New York City.