Mobile payments growth can fix crypto’s security risk
The rapid expansion of the cryptocurrency ecosystem demonstrates the power of the blockchain to revolutionize financial services and beyond. Yet at the same time, the inherent volatility provides a cautionary tale.
With blockchain implementations gaining traction, it is clear that a new approach is required to enhance the security and usability of crypto and digital assets. But how can this be achieved?
Tokenization is a trusted, proven technology already used to secure billions of payments in-store and online. The good news is that this process can be applied to crypto assets.
By replacing sensitive credentials, such as the private keys for blockchain and cryptocurrency, with a unique token that can restrict use to a particular device or channel, tokenization mitigates fraud risk and protects the underlying value of credentials.
This is because tokens cannot be used by a third party to conduct transactions if intercepted, adding a layer of frictionless security that complements the immutability of the blockchain.
Employing multiple signatures is another way to enhance security, through the introduction of additional distributed keys for recovery and authentication.
In practice, this requires at least two signatures to confirm a transaction, increasing security and preventing fraud. It also allows consumers to safely recover their public or private key if it is lost.
Importantly, as this approach still relies on the use of original keys that are vulnerable to attack, multisignature functionality is only truly effective when combined with tokenization technology to ensure vulnerable original keys are protected if attacked.
Until recently, the storage of crypto assets fell into one of two categories — hot and cold wallets.
Hot wallets are online storage services provided by exchanges, for example. Cold wallets are offline storage options and can range from USB devices to pieces of paper.
Both options have their problems. Hot wallets are constantly connected to the internet, meaning the vulnerable private keys are susceptible to attack from hackers and fraudsters. Cold wallets, while secure from hackers, limit the usability of cryptocurrencies. What’s more, if it is misplaced, or the hard drive corrupted, access to an asset will be irrevocably lost.
Given these challenges, it is apparent that there is a need to combine the security benefits of offline cold wallets with the convenience of an online wallet.
Segregated wallets fulfill this need by enhancing cold wallets with an additional security layer. When a user wants to access their asset, they can do so via a two-factor authentication protocol, which instantly makes their cold wallet warm. And if the asset is secured in a cold environment, it cannot be hacked.
The usability problem for cryptocurrencies goes beyond just storage. The process of buying and selling is needlessly complex for novices and experts alike. From a security perspective, unfamiliar platforms and websites are an easy target for fraudsters.
But with many consumers now using online and mobile banking, there is a huge opportunity to incorporate blockchain solutions into the everyday experience. This will enable consumers to simply and securely access, trade and own multiple cryptocurrencies within a familiar environment.
For a technology to be truly transformative, a secure foundation of trust and transparency is needed. Solutions that enable the secure storage and transfer of crypto assets, while democratizing access and improving the user experience, can allow this powerful technology to reach its full potential.