Lockstep

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Latest Card Not Present Fraud Stats - Australia

The Australian Payments Network (formerly the Australian Payments Clearing Association, APCA) releases http://www.apca.com.au/payment-statistics/fraud-statistics"card fraud statistics every six months for the preceding 12m period. For over a decade now, Lockstep has been monitoring these figures, plotting the trend data and analysing what the industry is doing - and not doing - about Card Not Present fraud. Here is our summary for the most recent calendar year 2016 stats.

CNP trends pic to CY 2016

Total card fraud climbed another 17% from 2015 to 2016; Card Not Present (CNP) fraud was up 15% to $417 million, representing 82% of all card fraud.

CNP fraud is enabled by the difficulty merchants (and merchant servers) have telling the difference between original cardholder details and stolen data. Criminals procure stolen details in enormous volumes and replay them against vulnerable shopping sites.

A proper foundational fix to replay attack is easily within reach, which would re-use the same cryptography that solves skimming and carding, and would restore a seamless payment experience for card holders. Apple for one has grasped the nettle, and is using its Secure Element-based Apple Pay method (established now for card present NFC payments) for Card Not Present transactions, in the app.

See also my 2012 paper Calling for a Uniform Approach to Card Fraud Offline and On" (PDF).

Abstract

The credit card payments system is a paragon of standardisation. No other industry has such a strong history of driving and adopting uniform technologies, infrastructure and business processes. No matter where you keep a bank account, you can use a globally branded credit card to go shopping in almost every corner of the world. The universal Four Party settlement model, and a long-standing card standard that works the same with ATMs and merchant terminals everywhere underpin seamless convenience. So with this determination to facilitate trustworthy and supremely convenient spending in every corner of the earth, it’s astonishing that the industry is still yet to standardise Internet payments. We settled on the EMV standard for in-store transactions, but online we use a wide range of confusing and largely ineffective security measures. As a result, Card Not Present (CNP) fraud is growing unchecked.

This article argues that all card payments should be properly secured using standardised hardware. In particular, CNP transactions should use the very same EMV chip and cryptography as do card present payments.

With all the innovation in payments leveraging cryptographic Secure Elements in mobile phones, perhaps at last we will see CNP payments modernised for web and mobile shopping.

Posted in Payments

Yet another anonymity promise broken

In 2016, the Australian government released, for research purposes, an extract of public health insurance data, comprising the 30-year billing history of ten percent of the population, with medical providers and patients purportedly de-identified. Melbourne University researcher Dr Vanessa Teague and her colleagues famously found quite quickly that many of the providers were readily re-identified. The dataset was withdrawn, though not before many hundreds of copies were downloaded from the government website.

The government’s responses to the re-identification work were emphatic but sadly not positive. For one thing, legislation was written to criminalize the re-identification of ostensibly ‘anonymised’ data, which would frustrate work such as Teague’s regardless of its probative value to ongoing privacy engineering (the bill has yet to be passed). For another, the Department of Health insisted that no patient information has been compromised.

It seems less ironic than inevitable that in fact the patients’ anonymity was not to be taken as read. In follow-up work released today, Teague, with Dr Chris Culnane and Dr Ben Rubinstein, have now published a paper showing how patients in that data release may indeed be re-identified.

The ability to re-identify patients from this sort of Open Data release is frankly catastrophic. The release of imperfectly de-identified healthcare data poses real dangers to patients with socially difficult conditions. This is surely well understood. What we now need to contend with is the question of whether Open Data practices like this deliver benefits that justify the privacy risks. That’s going to be a trick debate, for the belief in data science is bordering on religious.

It beggars belief that any government official would promise "anonymity" any more. These promises just cannot be kept.

Re-identification has become a professional sport. Researchers are constantly finding artful new ways to triangulate individuals’ identities, drawing on diverse public information, ranging from genealogical databases to social media photos. But it seems that no matter how many times privacy advocates warn against these dangers, the Open Data juggernaut just rolls on. Concerns are often dismissed as academic, or being trivial compared with the supposed fruits of research conducted on census data, Medicare records and the like.

In "Health Data in an Open World (PDF)" Teague et al warn (not for the first time) that "there is a misconception that [protecting the privacy of individuals in these datasets] is either a solved problem, or an easy problem to solve” (p2). They go on to stress “there is no good solution for publishing sensitive unit-record level data that protects privacy without substantially degrading the usefulness of the data" (p3).

What is the cost-benefit of the research done on these data releases? Statisticians and data scientists say their work informs government policy, but is that really true? Let’s face it. "Evidence based policy" has become quite a joke in Western democracies. There are umpteen really big public interest issues where science and evidence are not influencing policy settings at all. So I am afraid statisticians need to be more modest about the practical importance of their findings when they mount bland “balance” arguments that the benefits outweigh the risks to privacy.

If there is a balance to be struck, then the standard way to make the calculation is a Privacy Impact Assessment (PIA). This can formally assess the risk of “de-identified” data being re-identified. And if it can be, a PIA can offer other, layered protections to protect privacy.

So where are all the PIAs?

Open Data is almost a religion. Where is the evidence that evidence-based policy making really works?

I was a scientist and I remain a whole-hearted supporter of publicly funded research. But science must be done with honest appraisal of the risks. It is high time for government officials to revisit their pat assertions of privacy and security. If the public loses confidence in the health system's privacy protection, then some people with socially problematic conditions might simply withdraw from treatment, or hold back vital details when they engage with healthcare providers. In turn, that would clearly damage the purported value of the data being collected and shared.

Big Data-driven research on massive public data sets just seems a little too easy to me. We need to discuss alternatives to massive public releases. One option is to confine research data extracts to secure virtual data rooms, and grant access only to specially authorised researchers. These people would be closely monitored and audited; they would comprise a small set of researchers; their access would be subject to legally enforceable terms & conditions.

There are compromises we all need to make in research on human beings. Let’s be scientific about science-based policy. Let’s rigorously test our faith in Open Data, and let’s please stop taking “de-identification” for granted. It’s really something of a magic spell.

Posted in Big Data, Government, Privacy

The myth of the informed Internet user

Yet another Facebook ‘People You May Know’ scandal broke recently when a sex worker found that the social network was linking her clients to her “real identity”. Kashmir Hill reported the episode for Gizmodo.

This type of thing has happened before. In 2012, a bigamist was outed when his two wives were sent friend-suggestions. In 2016, Facebook introduced a psychiatrists’ patients to each other (Kash Hill again). I actually predicted that scenario back in 2010, in a letter to the British Medical Journal.

Facebook’s self-serving philosophy that there should be no friction and no secrets online has created this slippery slope, where the most tenuous links between people are presumed by the company to give it license to join things up. But note carefully that exposing ‘People You May Know’ (PYMK) is the tip of the iceberg; the chilling thing is that Facebook’s Big Data algorithms will be making myriad connections behind the scenes, long before it gets around to making introductions. Facebook is dedicated to the covert refining of all the things it knows about us, in an undying effort to value-add its information assets.

It’s been long understood that Facebook has no consent to make these linkages. I wrote about the problem in a chapter of the 2013 Encyclopedia of Social Network Analysis and Mining (recently updated): “The import of a user’s contacts and use for suggesting friends represent a secondary use of Personal Information of third parties who may not even be Facebook members themselves and are not given any notice much less the opportunity to expressly consent to the collection.” Relatedly, Facebook also goes too far when it makes photo tag suggestions, by running its biometric face recognition algorithms in the background, a practice outlawed by European privacy authorities.

We can generalise this issue, from the simple mining of contact lists, to the much more subtle collection of synthetic personal data. If Facebook determines through its secret Big Data algorithms that a person X is somehow connected to member Y, then it breaches X’s privacy to “out” them. There can be enormous harm, as we’ve seen in the case of the sex worker, if someone’s secrets are needlessly exposed, especially without warning. Furthermore, note that the technical privacy breach is deeper and probably more widespread: under most privacy laws worldwide, merely making a new connection in a database synthesizes personal information about people, without cause and without consent. I’ve called this algorithmic collection and it runs counter to the Collection Limitation principle.

This latest episode serves another purpose: it exposes the lie that people online are fully aware of what they’re getting themselves into.

There’s a bargain at the heart of the social Internet, where digital companies provide fabulous and ostensibly free services in return for our personal information. When challenged about the fairness of this trade, the data barons typically claim that savvy netizens know there is no such thing as a free lunch, and are fully aware of how the data economy works.

But that’s patently not the case. The data supply chain is utterly opaque. In Kash Hill’s article, she can’t figure out how Facebook has made the connection between a user’s carefully anonymous persona and her “real life” account (and Facebook isn’t willing to explain the “more than 100 signals that go into PYMK”). If this is a mystery to Hill, then it’s way beyond the comprehension of 99% of the population.

The asymmetry in the digital economy is obvious, when the cleverest data scientists in the world are concentrated not in universities but in digital businesses (where they work on new ways to sell ads). Data is collected, synthesized, refined, traded and integrated, all behind our backs, in ever more complex, proprietary and invisible ways. If data is “the new crude oil”, then we’re surely approaching crunch time, when this vital yet explosive raw material needs better regulating.

Posted in Privacy

Award winning blockchain paper at HIMSSAP17

David Chou, CIO at Children’s Mercy Hospital Kansas City, and I wrote a paper “How Healthy is Blockchain Technology?” for the HIMSS Asia Pacific 17 conference in Singapore last week. The paper is a critical analysis of the strategic potential for current blockchains in healthcare applications, with a pretty clear conclusion that the technology is largely misunderstood, and on close inspection, not yet a good fit for e-health.

And we were awarded Best Paper at the conference!

The paper will be available soon from the conference website. The abstract and conclusions are below, and if you’d like a copy of the full paper in the meantime, please reach out to me at Steve@ConstellationR.com.

Abstract

Blockchain captured the imagination with a basket of compelling and topical security promises. Many of its properties – decentralization, security and the oft-claimed “trust” – are highly prized in healthcare, and as a result, interest in this technology is building in the sector. But on close inspection, first generation blockchain technology is not a solid fit for e-health. Born out of the anti-establishment cryptocurrency movement, public blockchains remove ‘people’ and ‘process’ from certain types of transactions, but their properties degrade or become questionable in regulated settings where people and process are realities. Having inspired a new wave of innovation, blockchain technology needs significant work before it addresses the broad needs of the health sector. This paper recaps what blockchain was for, what it does, and how it is evolving to suit non-payments use cases. We critically review a number of recent blockchain healthcare proposals, selected by a US Department of Health and Human Services innovation competition, and dissect the problems they are trying to solve.

Discussion

When considering whether first generation blockchain algorithms have a place in e-health, we should bear in mind what they were designed for and why. Bitcoin and Ethereum are intrinsically political and libertarian; their outright rejection of central authority is a luxury only possible in the rarefied world of cryptocurrency but is simply not rational in real world healthcare, where accountability, credentialing and oversight are essentials.

Despite its ability to transact and protect pure “math-based money”, it is a mistake to think public blockchains create trust, much less that they might disrupt existing trust relationships and authority structures in healthcare. Blockchain was designed on an assumption that participants in a digital currency would not trust each other, nor want to know anything about each other (except for a wallet address). On its own, blockchain does not support any other real world data management.

The newer Synchronous Ledger Technologies – including R3 Corda, Microsoft’s Blockchain as a Service, Hyperledger Fabric and IBM’s High Security Blockchain Network – are driven by deep analysis of the strengths and weaknesses of blockchain, and then re-engineering architectures to deliver similar benefits in use cases more complex and more nuanced than lawless e-cash. The newer applications involve orchestration of data streams being contributed by multiple parties (often in “coopetition”) with no one leader or umpire. Like the original blockchain, these ledgers are much more than storage media; their main benefit is that they create agreement about certain states of the data. In healthcare, this consensus might be around the order of events in a clinical trial, the consent granted by patients to various data users, or the legitimacy of serial numbers in the pharmaceuticals supply chain.

Conclusion

We hope healthcare architects, strategic planners and CISOs will carefully evaluate how blockchain technologies across what is now a spectrum of solutions apply in their organizations, and understand the work entailed to bring solutions into production.
Blockchain is no silver bullet for the challenges in e-health. We find that current blockchain solutions will not dramatically change the way patient information is stored, because most people agree that personal information does not belong on blockchains. And it won’t dispel the semantic interoperability problems of e-health systems; these are outside the scope of what blockchain was designed to do.

However newer blockchain-inspired Synchronous Ledger Technologies show great potential to address nuanced security requirements in complex networks of cooperating/competing actors. The excitement around the first blockchain has been inspirational, and is giving way to earnest sector-specific R&D with benefits yet to come.

Posted in Security, Privacy, Innovation, e-health, Blockchain

Blending security and privacy

An extract from my chapter “Blending the practices of Privacy and Information Security to navigate Contemporary Data Protection Challenges” in the new book “Trans-Atlantic Data Privacy Relations as a Challenge for Democracy”, Kloza & Svantesson (editors), Intersentia, 2017.

The relationship between privacy regulators and technologists can seem increasingly fraught. A string of adverse (and sometimes counter intuitive) privacy findings against digital businesses – including the “Right to be Forgotten”, and bans on biometric-powered photo tag suggestions – have left some wondering if privacy and IT are fundamentally at odds. Technologists may be confused by these regulatory developments, and as a result, uncertain about their professional role in privacy management.

Several efforts are underway to improve technologists’ contribution to privacy. Most prominent is the “Privacy by Design” movement (PbD), while a newer discipline of ‘privacy engineering’ is also striving to emerge. A wide gap still separates the worlds of data privacy regulation and systems design. Privacy is still not often framed in a way that engineers can relate to. Instead, PbD’s pat generalisations overlook essential differences between security and privacy, and at the same time, fail to pick up on the substantive common ground, like the ‘Need to Know’ and the principle of Least Privilege.

There appears to be a systematic shortfall in the understanding that technologists and engineers collectively have of information privacy. IT professionals routinely receive privacy training now, yet time and time again, technologists seem to misinterpret basic privacy principles, for example by exploiting personal information found in the ‘public domain’ as if data privacy principles do not apply there, or by creating personal information through Big Data processes, evidently with little or no restraint.

See also ‘Google's wifi misadventure, and the gulf between IT and Privacy’, and ‘What stops Target telling you're pregnant?’.

Engaging technologists in privacy is exacerbated by the many mixed messages which circulate about privacy, its relative importance, and purported social trends towards promiscuity or what journalist Jeff Jarvis calls ‘publicness’. For decades, mass media headlines regularly announce the death of privacy. When US legal scholars Samuel Warren and Louis Brandeis developed some of the world’s first privacy jurisprudence in the 1880s, the social fabric was under threat from the new technologies of photography and the telegraph. In time, computers became the big concern. The cover of Newsweek magazine on 27 July 1970 featured a cartoon couple cowered by mainframe computers and communications technology, under the urgent upper case headline, ‘IS PRIVACY DEAD?’.Of course it’s a rhetorical question. And after a hundred years, the answer is still no.

In my new paper published as a chapter of the book “Trans-Atlantic Data Privacy Relations as a Challenge for Democracy”, I review how engineers tend collectively to regard privacy and explore how to make privacy more accessible to technologists. As a result, difficult privacy territory like social networking and Big Data may become clearer to non-lawyers, and the transatlantic compliance challenges might yield to data protection designs that are more fundamentally compatible across the digital ethos of Silicon Valley and the privacy activism of Europe.

Privacy is contentious today. There are legitimate debates about whether the information age has brought real changes to privacy norms or not. Regardless, with so much personal information leaking through breaches, accidents, or digital business practices, it’s often said that ‘the genie is out of the bottle’, meaning privacy has become hopeless. Yet in Europe and many jurisdictions, privacy rights attach to Personal Information no matter where it comes from. The threshold for data being counted as Personal Information (or equivalently in the US, ‘Personally Identifiable Information’) is low: any data about a person whose identity is readily apparent constitutes Personal Information in most places, regardless of where or how it originated, and without any reference to who might be said to ‘own’ the data. This is not obvious to engineers without legal training, who have formed a more casual understanding of what ‘private’ means. So it may strike them as paradoxical that the terms ‘public’ and ‘private’ don’t even figure in laws like Australia’s Privacy Act.

Probably the most distracting message for engineers is the well-intended suggestion ‘Privacy is not a Technology Issue’. In 2000, IBM chair Lou Gerstner was one of the first high-profile technologists to isolate privacy as a policy issue. The same trope (that such-and-such ‘is not a technology issue’) is widespread in online discourse. It usually means that multiple disciplines must be brought to bear on certain complex outcomes, such as safety, security or privacy. Unfortunately, engineers can take it to mean that privacy is covered by other departments, such as legal, and has nothing to do with technology at all.

In fact all of our traditional privacy principles are impacted by system design decisions and practices, and are therefore apt for engagement by information technologists. For instance, IT professionals are liable to think of ‘collection’ as a direct activity that solicits Personal Information, whereas under technology neutral privacy principles, indirect collection of identifiable audit logs or database backups should also count.

The most damaging thing that technologists hear about privacy could be the cynical idea that ‘Technology outpaces the Law’. While we should not underestimate how cyberspace will affect society and its many laws borne in earlier ages, in practical day-to-day terms it is the law that challenges technology, not the other way round. The claim that the law cannot keep up with technology is often a rhetorical device used to embolden developers and entrepreneurs. New technologies can make it easier to break old laws, but the legal principles in most cases still stand. If privacy is the fundamental ‘right to be let alone’, then there is nothing intrinsic to technology that supersedes that right. It turns out that technology neutral privacy laws framed over 30 years ago are powerful against very modern trespasses, like wi-fi snooping by Google and over-zealous use of biometrics by Facebook. So technology in general might only outpace policing.

We tend to sugar-coat privacy. Advocates try to reassure harried managers that ‘privacy is good for business’ but the same sort of naïve slogan only undermined the quality movement in the 1990s. In truth, what’s good for business is peculiar to each business. It is plainly the case that some businesses thrive without paying much attention to privacy, or even by mocking it.

Let’s not shrink from the reality that privacy creates tensions with other objectives of complex information systems. Engineering is all about resolving competing requirements. If we’re serious about ‘Privacy by Design’ and ‘Privacy Engineering’, we need to acknowledge the inherent tensions, and equip designers with the tools and the understanding to optimise privacy alongside all the other complexities of modern information systems.

A better appreciation of the nature Personal Information and of technology-neutral data privacy rules should help to demystify European privacy rulings on matters such as facial recognition and the Right to be Forgotten. The treatment of privacy can then be lifted from a defensive compliance exercise, to a properly balanced discussion of what organisations are seeking to get out of the data they have at their disposal.

Posted in Big Data, Biometrics, Privacy, RTBF, Social Media

A hidden message from Ed Snowden to the Identerati

The KNOW Identity Conference in Washington DC last week opened with a keynote fireside chat between tech writer Manoush Zomorodi and Edward Snowden.

Once again, the exiled security analyst gave us a balanced and nuanced view of the state of security, privacy, surveillance, government policy, and power. I have always found him to be a rock-solid voice of reason. Like most security policy analysts, Snowden sees security and privacy as symbiotic: they can be eroded together, and they must be bolstered together. When asked (inevitably) about the "security-privacy balance", Snowden rejects the premise of the question, as many of us do, but he has an interesting take, arguing that governments tend to surveil rather than secure.

The interview was timely for it gave Snowden the opportunity to comment on the "Wannacry" ransomware episode which affected so many e-health systems recently. He highlighted the tragedy that cyber weapons developed by governments keep leaking and falling into the hands of criminals. For decades, there has been an argument that cryptography is a type of “Dual-Use Technology”; like radio-isotopes, plastic explosives and supercomputers, it can be used in warfare, and thus the NSA and other security agencies try to include encryption in the "Wassenaar Arangement" of export restrictions. The so-called "Crypto Wars" policy debate is usually seen as governments seeking to stop terrorists from encrypting their communications. Even if crypto export control worked, it doesn’t address security agencies' carelessness with their own cyber weapons.

But identity was the business of the conference. What did Snowden have to say about that?

  • * Identifiers and identity are not the same thing. Identifiers are for computers but “identity is about the self”, to differentiate yourself from others.
  • * Individuals need names, tokens and cryptographic keys, to be able to express themselves online, to trade, to exchange value.
  • * “Vendors don’t need your true identity”; notwithstanding legislated KYC rules for some sectors, unique identification is rarely needed in routine business.
  • *Historically, identity has not been a component of many commercial transactions.
  • *The original Web of Trust, for establishing a level of confidence in people though mutual attestation, was “crude and could not scale”. But new “programmatic, frictionless, decentralised” techniques are possible.
  • * He thought a “cloud of verifiers” in a social fabric could be more reliable, to avoid single points of failure in identity.
  • *When pressed, Snowden said actually he was not thinking of blockchain (and that he saw blockchain as being specifically good for showing that "a certain event happened at a certain time").

Now, what are identity professionals to make of Ed Snowden’s take on all this?

For anyone who has worked in identity for years, he said nothing new, and the identerati might be tempted to skip Snowden. On the other hand, in saying nothing new, perhaps Snowden has shown that the identity problem space is fully defined.

There is a vital meta-message here.

In my view, identity professionals still spend too much time in analysis. We’re still writing new glossaries and standards. We’re still modelling. We’re still working on new “trust frameworks”. And all for what? Let’s reflect on the very ordinariness of Snowden’s account of digital identity. He’s one of the sharpest minds in security and privacy, and yet he doesn’t find anything new to say about identity. That’s surely a sign of maturity, and that it’s time to move on. We know what the problem is: What facts do we need about each other in order to deal digitally, and how do we make those facts available?

Snowden seems to think it’s not complicated a question, and I would agree with him.

Posted in Security, Privacy, Identity, Government

Blockchain unblocked

It’s been a big month for blockchain.

    • The Hyperledger consortium released the Fabric platform, a state-of-the-art configurable distributed ledger environment including a policy editor known as Composer.
    • The Enterprise Ethereum Alliance was announced, being a network of businesses and Ethereum experts, aiming to define enterprise-grade software (and evidently adopt business speak).
    • And IBM launched its new Blockchain as a Service at the Interconnect 2017 conference in Las Vegas, where blockchain was almost the defining theme of the event.  A raft of advanced use cases were presented, many of which are now in live pilots around the world.  Examples include shipping, insurance, clinical trials, and the food supply chain.

I attended InterConnect and presented my research on Protecting Private Distributed Ledgers, alongside Paul DiMarzio of IBM and Leanne Kemp from Everledger. 

Disclosure: IBM paid for my travel and accommodation to attend Interconnect 2017.

Ever since the first generation blockchain was launched, applications far bigger and grander than crypto-currencies have been proposed, but with scarce attention to whether or not these were good uses of the original infrastructure.  I have long been concerned with the gap between what the public blockchain was designed for, and the demands from enterprise applications for third generation blockchains or "Distributed Ledger Technologies" (DLTs).  My research into protecting DLTs  has concentrated on the qualities businesses really need as this new technology evolves.  Do enterprise applications really need “immutability” and massive decentralisation? Are businesses short on something called “trust” that blockchain can deliver?  Or are the requirements actually different from what we’ve been led to believe, and if so, what are the implications for security and service delivery? I have found the following:

In more complex private (or permissioned) DLT applications, the interactions between security layers and the underlying consensus algorithm are subtle, and great care is needed to manage side effects. Indeed, security needs to be rethought from the ground up, with key management for encryption and access control matched to often new consensus methods appropriate to the business application. 

At InterConnect, IBM announced their Blockchain as a Service, running on the “Bluemix High security business network”.  IBM have re-thought security from the ground up.  In fact, working in the Hyperledger consortium, they have re-engineered the whole ledger proposition. 

And now I see a distinct shift in the expectations of blockchain and the words we will use to describe it.

For starters, third generation DLTs are not necessarily highly distributed. Let's face it, decentralization was always more about politics than security; the blockchain's originators were expressly anti-authoritarian, and many of its proponents still are. But a private ledger does not have to run on thousands of computers to achieve the security objectives.  Further, new DLTs certainly won't be public (R3 has been very clear about this too – confidentiality is normal in business but was never a consideration in the Bitcoin world).  This leads to a cascade of implications, which IBM and others have followed. 

When business requires confidentiality and permissions, there must be centralised administration of user keys and user registration, and that leaves the pure blockchain philosophy in the shade. So now the defining characteristics shift from distributed to concentrated.  To maintain a promise of immutability when you don't have thousands of peer-to-peer nodes requires a different security model, with hardware-protected keys, high-grade hosting, high availability, and special attention to insider threats. So IBM's private blockchains private blockchains run on the Hyperledger Fabric, hosted on z System mainframes.  They employ cryptographic modules certified to Common Criteria EAL 5-plus and FIPS-140 level 3. These are the highest levels of security certification available outside the military. Note carefully that this isn't specmanship.  With the public blockchain, the security of nodes shouldn't matter because the swarm, in theory, takes care of rogue miners and compromised machines, but the game changes when a ledger is more concentrated than distributed.  

Now, high-grade cryptography will become table stakes. In my mind, the really big thing that’s happening here is that Hyperledger and IBM are evolving what blockchain is really for. 

The famous properties of the original blockchain – immutability, decentralisation, transparency, freedom and trustlessness – came tightly bundled, expressly for the purpose of running peer-to-peer cryptocurrency.  It really was a one dimensional proposition; consensus in particular was all about the one thing that matters in e-cash: the uniqueness of each currency movement, to prevent Double Spend.

But most other business is much more complex than that.  If a group of companies comes together around a trade manifest for example, or a clinical trial, where there are multiple time-sensitive inputs coming from different types of participant, then what are they trying to reach consensus about?

The answer acknowledged by Hyperledger is "it depends". So they have broken down the idealistic public blockchain and seen the need for "pluggable policy".  Different private blockchains are going to have different rules and will concern themselves with different properties of the shared data.  And they will have different sub-sets of users participating in transactions, rather than everyone in the community voting on every single ledger entry (as is the case with Ethereum and Bitcoin).

These are exciting and timely developments.  While the first blockchain was inspirational, it’s being superseded now by far more flexible infrastructure to meet more sophisticated objectives.  I see us moving away from “ledgers” towards multi-dimensional constructs for planning and tracing complex deals between dynamic consortia, where everyone can be sure they have exactly the same picture of what’s going on

In another blog to come, I’ll look at the new language and concepts being used in Hyperledger Fabric, for finer grained control over the state of shared critical data, and the new wave of applications. 

Posted in Security, Cloud, Blockchain

Blockchain plain and simple

Blockchain is an algorithm and distributed data structure designed to manage electronic cash without any central administrator. The original blockchain was invented in 2008 by the pseudonymous Satoshi Nakamoto to support Bitcoin, the first large-scale peer-to-peer crypto-currency, completely free of government and institutions.

Blockchain is a Distributed Ledger Technology (DLT). Most DLTs have emerged in Bitcoin's wake. Some seek to improve blockchain's efficiency, speed or throughput; others address different use cases, such as more complex financial services, identity management, and "Smart Contracts".

The central problem in electronic cash is Double Spend. If electronic money is just data, nothing physically stops a currency holder trying to spend it twice. It was long thought that a digital reserve was needed to oversee and catch double-spends, but Nakamoto rejected all financial regulation, and designed an electronic cash without any umpire.

The Bitcoin (BTC) blockchain crowd-sources the oversight. Each and every attempted spend is broadcast to a community, which in effect votes on the order in which transactions occur. Once a majority agrees all transactions seen in the recent past are unique, they are cryptographically sealed into a block. A chain thereby grows, each new block linked to the previously accepted history, preserving every spend ever made.

A Bitcoin balance is managed with an electronic wallet which protects the account holder's private key. Blockchain uses conventional public key cryptography to digitally sign each transaction with the sender's private key and direct it to a recipient's public key. The only way to move Bitcoin is via the private key: lose or destroy your wallet, and your balance will remain frozen in the ledger, never to be spent again.

The blockchain's network of thousands of nodes is needed to reach consensus on the order of ledger entries, free of bias, and resistant to attack. The order of entries is the only thing agreed upon by the blockchain protocol, for that is enough to rule out double spends.

The integrity of the blockchain requires a great many participants (and consequentially the notorious power consumption). One of the cleverest parts of the BTC blockchain is its incentive for participating in the expensive consensus-building process. Every time a new block is accepted, the system randomly rewards one participant with a bounty (currently 12.5 BTC). This is how new Bitcoins are minted or "mined".

Blockchain has security qualities geared towards incorruptible cryptocurrency. The ledger is immutable so long as a majority of nodes remain independent, for a fraudster would require infeasible computing power to forge a block and recalculate the chain to be consistent. With so many nodes calculating each new block, redundant copies of the settled chain are always globally available.

Contrary to popular belief, blockchain is not a general purpose database or "trust machine". It only reaches consensus about one specific technicality – the order of entries in the ledger – and it requires a massive distributed network to do so only because its designer-operators choose to reject central administration. For regular business systems, blockchain's consensus is of questionable benefit.

Posted in Blockchain

Proof of life or what?

A few days ago, it was reported that Julian Assange "read out a bitcoin block hash to prove he was alive". This was in response to rumours that he had died. It was a neat demonstration not only that he was not dead, but also of a couple of limits to the blockchain that are still not widely appreciated. It showed that blockchain on its own provides little value beyond cryptocurrency; in particular, on its own, blockchain doesn’t ‘prove existence’. And further, we can see that when blockchain is hybridised with other security processes, it is no longer terribly unique.

What Assange did was broadcast himself reading out the hexadecimal letters and numbers of the most recent block hash at the time, namely January 10th. Because the hash value is unique to the transaction history of the blockchain and cannot be predicted, quoting the hash value on January 10th proves that the broadcast was not made earlier than that day. It’s equivalent to holding up a copy of a newspaper to show that a video has to be contemporary.

With regards to proof of existence, the evidence on the blockchain comes from the digital signatures created by account holders’ private keys. A blockchain entry certainly proves that a certain private key existed at the time of the entry, but on its own, blockchain doesn’t prove who controls the key. A major objective of blockchain as a crypto-currency engine was indeed to remove any central oversight of keys and account holders.

Quoting the blockchain hash value from January 10th doesn’t prove Assange was alive that day. It is the combination of the broadcast and the blockchain that tells us he was alive.

If this is an example of blockchain providing proof-of-existence (or “proof of life” according to some reports) then the video is like a key management layer: it augments the blockchain by binding the physical person to the data structure. Yet the combination of a video and the blockchain doesn’t provide any unique advantages over, for example, a video plus the day’s newspaper, or a video plus a snapshot of the day’s stock market ticker tape or lotto numbers.

The pure blockchain was designed to manage decentralised electronic cash and it does that with great distinction. But blockchain needs to be combined with other processes to achieve the many other non-cryptocurrency use cases, and those combinations erode its value. If you need to wrap blockchain with other security mechanisms to achieve some outcome, you will find that the consensus algorithm becomes redundant, and that simpler systems can get the job done.

Posted in Blockchain

Blockchain visionaries and blockchain awareness

In a Huffington Post blog "Why the Blockchain Still Lacks Mass Understanding" William Mougayar describes the blockchain as "philosophically inclined technology". It's one of his rare instances of understatement. Like most blockchain visionaries, Mougayar massively exaggerates what this thing does, overlooking what it was designed for, and stretching it to irrelevance. If "99% of people still don’t understand the blockchain" it's because Mougayar and his kind are part of the problem, not part of the solution.

Let's review. This technology is more than philosophically "inclined". Blockchain was invented by someone who flatly rejected fiat currency, government regulation and financial institutions. Satoshi Nakamoto wanted an electronic cash devoid of central oversight or 'digital reserve banks'. And he solved what was thought to be an unsolvable problem, with an elaborate and brilliant algorithm that has a network of thousands of computers vote on the order in which transaction appears in a pool. The problem is Double Spend; the solution is have a crowd watch every spend to see that no Bitcoin is spent twice.

But that's all blockchain does. It creates consensus about the order of entries in the ledger. It does not and cannot reach consensus about anything else, not without additional off-chain processes like user registration, permissions management, access control and encryption. Yet these all require the sort of central administration that Nakamoto railed against. Nakamoto designed an amazing solution to the Double Spend problem, but nothing else. Nakamoto him/herself said that if you still need third parties in your ledger, then the blockchain loses its benefits.

THAT is what most people misunderstand about blockchain. Appreciate what blockchain was actually for and you will see that most applications beyond its original anarchic scope for this philosophically single-minded technology simply don't add up.

Posted in Blockchain