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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

A critique of Privacy by Design

Or Reorientating how engineers think about privacy.

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

One of the leading efforts to inculcate privacy into engineering practice has been the “Privacy by Design” movement. Commonly abbreviated "PbD" is a set of guidelines developed in the 1990s by the then privacy commissioner of Ontario, Ann Cavoukian. The movement seeks to embed privacy “into the design specifications of technologies, business practices, and physical infrastructures”. PbD is basically the same good idea as build in security, or build in quality, because retrofitting these things too late in the design lifecycle leads to higher costs* and compromised, sub-optimal outcomes.

Privacy by Design attempts to orientate technologists to privacy with a set of simple callings:

    • 1. Proactive not Reactive; Preventative not Remedial
    • 2. Privacy as the Default Setting
    • 3. Privacy Embedded into Design
    • 4. Full Functionality – Positive-Sum, not Zero-Sum
    • 5. End-to-End Security – Full Lifecycle Protection
    • 6. Visibility and Transparency – Keep it Open
    • 7. Respect for User Privacy – Keep it User-Centric.

PbD is a well-meaning effort, and yet its language comes from a culture quite different from engineering. PbD’s maxims rework classic privacy principles without providing much that’s tangible to working systems designers.

The most problematic aspect of Privacy by Design is its idealism. Politically, PbD is partly a response to the cynicism of national security zealots and the like who tend to see privacy as quaint or threatening. Infamously, NSA security consultant Ed Giorgio was quoted in “The New Yorker” of 21 January 2008 as saying “privacy and security are a zero-sum game”. Of course most privacy advocates (including me) find that proposition truly chilling. And yet PbD’s response is frankly just too cute with its slogan that privacy is a “positive sum game”.

The truth is privacy is full of contradictions and competing interests, and we ought not sugar coat it. For starters, the Collection Limitation principle – which I take to be the cornerstone of privacy – can contradict the security or legal instinct to always retain as much data as possible, in case it proves useful one day. Disclosure Limitation can conflict with usability, because Personal Information may become siloed for privacy’s sake and less freely available to other applications. And above all, Use Limitation can restrict the revenue opportunities that digital entrepreneurs might otherwise see in all the raw material they are privileged to have gathered.

Now, by highlighting these tensions, I do not for a moment suggest that arbitrary interests should override privacy. But I do say it is naive to flatly assert that privacy can be maximised along with any other system objective. It is better that IT designers be made aware of the many trade-offs that privacy can entail, and that they be equipped to deal with real world compromises implied by privacy just as they do with other design requirements. For this is what engineering is all about: resolving conflicting requirements in real world systems.

So a more sophisticated approach than “Privacy by Design” is privacy engineering in which privacy can take its place within information systems design alongside all the other practical considerations that IT professionals weigh up everyday, including usability, security, efficiency, profitability, and cost.

See also my "Getting Started Guide: Privacy Engineering" from Constellation Research.

      • *Footnote
      • Not unrelatedly, I wonder if we should re-examine the claim that retrofitting privacy, security and/or quality after a system has been designed and realised leads to greater cost! Cold hard experience might suggest otherwise. Clearly, a great many organisations persist with bolting on these sorts of features late in the day -- or else advocates wouldn't have to keep telling them not to. And the Minimum Viable Product movement is almost a license to defer quality and other non-essential considerations. All businesses are cost conscious, right? So averaged across a great many projects over the long term, could it be that businesses have in fact settled on the most cost effective timing of security engineering, and it's not as politically correct as we'd like?!

Posted in Software engineering, Privacy, Innovation

Order emerging from the Blockchain storm

I’ve been a critic of Blockchain. Frankly I’ve never seen such a massed rush of blood to the head for a new technology. Breathless books are being churned out about “trust infrastructure” and an “Internet of Value”. They say Blockchain will keep politicians and business people honest, and enable “billions of excluded people to enter the global economy”.

Most pundits overlook the simple fact that Blockchain only does one thing: it lets you move Bitcoin (a digital bearer token) from one account to another without an umpire. And it doesn’t even do that very well, for the Proof of Work algorithm is stupendously inefficient. Blockchain can't magically make merchants keep up their side of a bargain. Surprise! You can still get ripped off paying with Bitcoin. Blockchain simply doesn’t do what the futurists think it does. In their hot flushes, they tend to be caught in a limbo between the real possibilities of distributed consensus today and a future that no one is seeing clearly.

But Blockchain does solve what was thought to be an impossible problem, and in the right hands, that insight can convert to real innovation. I’m happy to see some safe pairs of hands now emerging in the Blockchain storm.

One example is an investment being made by Ping Identity in Swirlds and its new “hashgraph” distributed consensus platform. Hashgraph has been designed from the ground up to deliver many of Blockchain’s vital properties (consensus on the order of events, and redundancy) in a far more efficient and robust manner.

And what is Ping doing with this platform? Well they’re not rushing out with vague promises to manufacture "trust" but instead they’re making babysteps on real problems in identity management. For starters, they’re applying the new hashgraph platform to Distributed Session Management (DSM). This is the challenge of verifiably shutting down all of a user’s multiple log-on sessions around the web when they take a break, suffer a hack, or lose their job. It's one of the great headaches of enterprise identity administration and is exploited in a great many cyberattacks.

Ping’s identity architects have carefully set out the problem they’re trying to solve, why it’s hard, and how existing approaches don’t deliver the desired security properties for session management. They then evaluated a number of consensus approaches - not just Blockchain but also Paxos and Raft – and discussed their limitations. The Ping team then landed on hashgraph, which appears to meet the needs, and also looks like it can deliver a range of advanced features.

In my view, Ping Identity’s work is the very model of mature security design. It’s an example of the care and attention to detail that other innovators should follow.

Swirld’s founder Dr Leemon Baird will be presenting hashgraph in more detail to the Cloud Identity Summit in New Orleans tomorrow (June 7th).

Posted in Security, Innovation, Identity, Blockchain

Almost everything you read about the blockchain is wrong

Almost everything you read about the blockchain is wrong. No new technology since the Internet itself has excited so many pundits, but blockchain just doesn’t do what most people seem to think it does. We’re all used to hype, and we can forgive genuine enthusiasm for shiny new technologies, but many of the claims being made for blockchain are just beyond the pale. It's not going to stamp out corruption in Africa; it's not going to crowdsource policing of the financial system; it's not going to give firefighters unlimited communication channels. So just what is it about blockchain?

The blockchain only does one thing (and it doesn’t even do that very well). It provides a way to verify the order in which entries are made to a ledger, without any centralized authority. In so doing, blockchain solves what security experts thought was an unsolvable problem – preventing the double spend of electronic cash without a central monetary authority. It’s an extraordinary solution, and it comes at an extraordinary price. A large proportion of the entire world’s computing resource has been put to work contributing to the consensus algorithm that continuously watches the state of the ledger. And it has to be so, in order to ward off brute force criminal attack.

How did an extravagant and very technical solution to a very specific problem capture the imagination of so many? Perhaps it’s been so long since the early noughties’ tech wreck that we’ve lost our herd immunity to the viral idea that technology can beget trust. Perhaps, as Arthur C. Clarke said, any sufficiently advanced technology looks like magic. Perhaps because the crypto currency Bitcoin really does have characteristics that could disrupt banking (and all the world hates the banks) blockchain by extension is taken to be universally disruptive. Or perhaps blockchain has simply (but simplistically) legitimized the utopian dream of decentralized computing.

Blockchain is antiauthoritarian and ruthlessly “trust-free”. The blockchain algorithm is rooted in politics; it was expressly designed to work without needing to trust any entity or coalition. Anyone at all can join the blockchain community and be part of the revolution.

The point of the blockchain is to track every single Bitcoin movement, detecting and rejecting double spends. Yet the blockchain APIs also allow other auxiliary data to be written into Bitcoin transactions, and thus tracked. So the suggested applications for blockchain extend far beyond payments, to the management of almost any asset imaginable, from land titles and intellectual property, to precious stones and medical records.

From a design perspective, the most troubling aspect of most non-payments proposals for the blockchain is the failure to explain why it’s better than a regular database. Blockchain does offer enormous redundancy and tamper resistance, thanks to a copy of the ledger staying up-to-date on thousands of computers all around the world, but why is that so much better than a digitally signed database with a good backup?

Remember what blockchain was specifically designed to do: resolve the order of entries in the ledger, in a peer-to-peer mode, without an administrator. When it comes to all-round security, blockchain falls short. It’s neither necessary nor sufficient for any enterprise security application I’ve yet seen. For instance, there is no native encryption for confidentiality; neither is there any access control for reading transactions, or writing new ones. The security qualities of confidentiality, authentication and, above all, authorization, all need to be layered on top of the basic architecture. ‘So what’ you might think; aren’t all security systems layered? Well yes, but the important missing layers undo some of the core assumptions blockchain is founded on, and that’s bad for the security architecture. In particular, as mentioned, blockchain needs massive scale, but access control, “permissioned” chains, and the hybrid private chains and side chains (put forward to meld the freedom of blockchain to the structures of business) all compromise the system’s integrity and fraud resistance.

And then there’s the slippery notion of trust. By “trust”, cryptographers mean so-called “out of band” or manual mechanisms, over and above the pure math and software, that deliver a security promise. Blockchain needs none of that ... so long as you confine yourself to Bitcoin. Many carefree commentators like to say blockchain and Bitcoin are separable, yet the connection runs deeper than they know. Bitcoins are the only things that are actually “on” the blockchain. When people refer to putting land titles or diamonds “on the blockchain”, they’re using a short hand that belies blockchain’s limitations. To represent any physical thing in the ledger requires a schema – a formal agreement as to which symbols in the data structure correspond to what property in the real world – and a binding of the owner of that property to the special private key (known in the trade as a Bitcoin wallet) used to sign each ledger entry. Who does that binding? How exactly do diamond traders, land dealers, doctors and lawyers get their blockchain keys in the first place, and how does the world know who’s who? These questions bring us back to the sorts of hierarchical authorities that blockchain was supposed to get rid of.

There is no utopia in blockchain. The truth is that when we fold real world management, permissions, authorities and trust, back on top of the blockchain, we undo the decentralization at the heart of the design. If we can’t get away from administrators then the idealistic peer-to-peer consensus algorithm of blockchain is academic, and simply too much to bear.

I’ve been studying blockchain for two years now. My latest in-depth report was recently published by Constellation Research.

Posted in Security, Internet, Innovation, Identity, Blockchain

Card Not Present Fraud up another 25% YOY

The Australian Payments Clearing Association (APCA) releases card fraud statistics every six months for the preceding 12m period. For 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 financial year 2015 stats.

CNP trends pic to FY 2015

Card Not Present (CNP) fraud has grown over 25 percent year-on-year from FY2014, and now represents 84 percent of all fraud on Australian cards.

APCA evidently has an uneasy relationship with any of the industry's technological responses to CNP fraud, like the controversial 3D Secure, and tokenization. Neither get a mention in the latest payment fraud media release. Instead APCA puts the stress on shopper behaviour, describing the continuing worsening in fraud as "a timely reminder to Australians to remain vigilant when shopping online". Sadly, this ignores that fact that card data used for organised criminal CNP fraud comes from mass breaches of databases, not from websites. There is nothing that shoppers can do when using their cards online to stop them being stolen, because they're much more likely to get stolen from backend systems over which the shoppers have no control.

You can be as careful as you like online - you can even avoid Internet shopping entirely - and still have your card data stolen from a regular store and used in CNP attacks online.

APCA says:

    • "Financial institutions and law enforcement have been working together to target skimming at ATMs and in taxis and this, together with the industry’s progressive roll-out of chip-reading at ATMs, is starting to reflect in the fraud data".

That's true. Fraud by skimming and carding was halved by the smartcard rollout, and has remained low and steady in absolute terms for three years. But APCA errs when it goes on:

    • "Cardholders can help these efforts by always protecting their PINs and treating their cards like cash".

Safeguarding your physical card and PIN does nothing to prevent the mass breaches of card data held in backend databases.

A proper 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 modernise for web and mobile shopping.

Posted in Smartcards, Security, Payments, Innovation, Fraud

Weak links in the Blockchain

One of the silliest things I've read yet about blockchain came out in Business Insider Australia last week. They said that the blockchain “in effect” lets the crowd police the monetary system.

In the rush to make bigger and grander claims for the disruptive potential of blockchain, too many commentators are neglecting the foundations. If they think blockchain is important, then it’s all the more important they understand what it does well, and what it just doesn’t do at all.

Blockchain has one very clever, very innovative trick: it polices the order of special events (namely Bitcoin spends) without needing a central authority. The main “security” that blockchain provides is nottamper resistance or inviolability per se -- you can get that any number of ways using standard cryptography -- but rather it’s the process for a big network of nodes to reach agreement on the state of a distributed ledger, especially the order of updates to the ledger.

To say blockchain is “more secure” is a non sequitur. Security claims need context.

  • If what matters is agreeing ‘democratically’ on the order of events in a decentralised public ledger, without any central authority, then blockchain makes sense.
  • But if you don't care about the order of events, then blockchain is probably irrelevant or, at best, heavily over-engineered.
  • And if you do care about the order of events (like stock transactions) but you have some central authority in your system (like a stock exchange), then blockchain is not only over-engineered, but its much-admired maths is compromised by efforts to scale it down, into private chains and the like, for the power of the original blockchain consensus algorithm lies in its vast network, and the Bitcoin rewards for the miners that power it.

A great thing about blockchain is the innovation it has inspired. But let’s remember that the blockchain (the one underpinning Bitcoin) has been around for just seven years, and its spinoffs are barely out of the lab. Analysts and journalists are bound to be burnt if they over-reach at this early stage.

The initiatives to build smaller, private or special purpose distributed ledgers, to get away from Bitcoin and payments, detract from the original innovation, in two important ways. Firstly, even if they replace the Bitcoin incentive for running the network (i.e. mining or “proof of work”) with some other economic model (like “proof of stake”), they compromise the tamper resistance of blockchain by shrinking the pool. And secondly, as soon as you fold some command and control back into the original utopia, blockchain’s raison d'etre is no longer clear, and its construction looks over-engineered.

Business journalists are supposed to be sceptical about technology, but many have apparently taken leave of their critical faculties, even talking up blockchain as a "trust machine". You don’t need to be a cryptographer to understand the essence of blockchain, you just have to be cautious with magic words like “open” and “decentralised”, and the old saw "trust". What do they really mean? Blockchain does things that not all applications really need, and it doesn't do what many apps do need, like access control and confidentiality.

Didn't we learn from PKI that technology doesn't confer trust? It's been claimed that putting land titles on the blockchain will prevent government corruption. To which I say, please heed Bruce Schneier, who said only amateurs hack computers; professional criminals hack people.

Posted in Security, Payments, Innovation, Blockchain, Trust

The Economist's take on blockchain

An unpublished letter to the editor of The Economist.

November 1, 2015

Just as generalists mesmerized by quantum physics are prone to misapply it to broader but unrelated problems, some are making exorbitant claims for the potential of blockchain to change the world ("The trust machine", The Economist, October 31st). Yes, blockchain is extraordinarily clever but it was designed specifically to stop electronic cash from being double spent, without needing central oversight. As a general ledger, blockchain is unwieldy and expensive.

Trust online is all about provenance. How can I be sure a stranger’s claimed attributes, credentials and possessions are genuine? Proving a credit card number, employment status, or ownership of a block of land in a ‘democratic’ peer-to-peer mesh strikes some as utopian, but really it’s oxymoronic. The blockchain is an indelible record of claims, which still need to be vouched for before they are carved forever into mathematical stone.

Steve Wilson
Principal Analyst - Identity & Privacy, Constellation Research.

Posted in Security, Innovation, Blockchain, Trust

My opening remarks on privacy at Constellation Connected Enterprise 2015

A big part of my research agenda in the Digital Safety theme at Constellation is privacy. And what a vexed topic it is! It's hard to even know how to talk about privacy. For many years, folks have covered privacy in more or less academic terms, drawing on sociology, politics and pop psychology, joining privacy to human rights, and crafting new various legal models.

Meanwhile the data breaches get worse, and most businesses have just bumped along.

When you think about it, it’s obvious really: there’s no such thing as perfect privacy. The real question is not about ‘fundamental human rights’ versus business, but rather, how can we optimise a swarm of competing interests around the value of information?

Privacy is emerging as one of the most critical and strategic of our information assets. If we treat privacy as an asset, instead of a burden, businesses can start to cut through this tough topic.

But here’s an urgent issue. A recent regulatory development means privacy may just stop a lot of business getting done. It's the European Court of Justice decision to shut down the US-EU Safe Harbor arrangement.

The privacy Safe Harbor was a work-around negotiated by the Federal Trade Commission, allowing companies to send personal data from Europe into the US.

But the Safe Harbor is no more. It's been ruled unlawful. So it’s a big, big problem for European operations, many multinationals, and especially US cloud service providers.

At Constellation we've researched cloud geography and previously identified competitive opportunities for service providers to differentiate and compete on privacy. But now this is an urgent issue.

It's time American businesses stopped getting caught out by global privacy rulings. There shouldn't be too many surprises here, if you understand what data protection means internationally. Even the infamous "Right To Be Forgotten" ruling on Google’s search engine – which strikes so many technologists as counter intuitive – was a rational and even predictable outcome of decades old data privacy law.

The leading edge of privacy is all about Big Data. And we aint seen nothin yet!

Look at artificial intelligence, Watson Health, intelligent personal assistants, hackable cars, and the Internet of Everything where everything is instrumented, and you see information assets multiplying exponentially. Privacy is actually just one part of this. It’s another dimension of information, one that can add value, but not in a neat linear way. The interplay of privacy, utility, usability, efficiency, efficacy, security, scalability and so on is incredibly complex.

The broader issue is Digital Safety: safety for your customers, and safety for your business.

Posted in Privacy, Innovation, Cloud, Big Data

Who buys Bitcoin for Identity?

You’ll have to forgive the deliberate inaccuracy in the title, but I just couldn’t resist the wordplay. The topic of this blog is the use of the blockchain for identity, which is not exactly Bitcoin. By my facetiousness, and by my analysis, you’ll see I don’t yet take the identity use case seriously.

In 2009, Bitcoin was launched. A paper was self-published by a person or persons going by the nom de plume Satoshi Nakamoto, called “Bitcoin: A Peer-to-Peer Electronic Cash System” and soon after an open source software base appeared at http://www.bitcoin.org. Bitcoin offered a novel solution to the core problem in electronic cash: how to prevent double spending without reverting to a central authority. Nakamoto’s conception is strongly anti-authoritarian, almost anarchic, with an absolute rejection of fiat currency, reserve banks and other central institutions. Bicoin and its kin aim to change the world, and by loosening the monopolies in traditional finance, they may well do that.

Separate to that, the core cryptographic technology in Bitcoin is novel, and so surprising, it's almost magical. Add to that spell the promise of security and anonymity, and we have a powerful mix that some people see excitedly as stretching far beyond mere money, and into identity. So is that a reasonable step?

Bitcoin’s secret sauce

A decentralised digital currency scheme requires some sort of community-wide agreement on when someone spends a virtual coin, so she cannot spend it again. Bitcoin’s trick is to register every single transaction on one public tamper-proof ledger called the blockchain, which is refreshed in such a way that the whole community in effect votes on the order in which transactions are added or, equivalently, the time when each coin is spent.

The blockchain ledger is periodically hashed to keep it to a manageable length, but all transactions are visible, archived in effect for all time. No proof of identity or KYC check is needed to register a Bitcoin account, and currency – denominated "BTC" – may be transferred freely to any other account. Hence Bitcoin may be called anonymous (but the unique account identifiers are set in stone, providing a rock solid money trail that has been the undoing of many criminal Bitcoin users).

The continuous arbitration of blockchain entries is effected by a peer-to-peer network of servers that race each other to double-check a special hash value for the refreshed chain. The particular server that wins each race is rewarded for its effort with a tiny fraction of a Bitcoin. The ongoing background computation that keeps a network like this honest is referred to technically as "Proof of Work"; with Bitcoin, since there is a monetary reward, it’s called mining.

Whether or not Bitcoin lasts as a form of electronic cash, there is a groundswell of enthusiasm for the blockchain as a new type of public ledger for a much broader range of transactions, including “identity”. The scare quotes are deliberate on my part, reflecting that the blockchain-for-identity speculations have not been clear about what part of the identity puzzle they might solve.

For identity applications, the reality of Bitcoin mining creates some particular challenges which I will return to. But first let’s look at the positive influence of Bitcoin and then review some of its cryptographic building blocks.

Bitcoin inspirations

People will argue about its true originality, but we can regard Bitcoin and the blockchain as providing an innovative and practical solution to the unsolved double-spend problem. I like Bitcoin as the latest example of a wondrous pattern in applied mathematics. Conundrums widely accepted as impossible are, in fact, solved quite often, after which frenetic periods of innovation can follow. The first surprise or prototype solution is typically inefficient but it can inspire fresh thinking and lead to more polished methods.

One of the greatest examples is Merkle’s Puzzles, a theoretical method invented by Ralph Merkle in 1974 for establishing a shared secret number between two parties who need only exchange public pieces of data. This was the holy grail for cryptography, for it meant that a secret key could be set up without having to carry the secret from one correspondent to the other (after all, if you can securely transfer a key across a long distance, you can do the same with your secret message and thus avoid the hassle of encryption altogether). Without going into detail, Merkle’s solution could not be used in the real world, but it solved what was thought to be an unsolvable problem. In quick succession, practical algorithms followed from Diffie & Hellman, and Rivest, Shamir & Adleman (the names behind “RSA”) and thus was born public key cryptography.

Bitcoin likewise has spurred dozens of new digital currencies, with different approaches to ledgers and arbitration, and different ambitions too (including Ripple, Ethereum, Litecoin, Dogecoin, and Colored Coins). They all promise to break the monopoly that banks have on payments, radically cut costs and settlement delays, and make electronic money more accessible to the unbanked of the world. These are what we might call liquidity advantages of digital currencies. These objectives (plus the more political promises of ending fiat currency and rendering electronic cash transactions anonymous or untraceable) are certainly all important but they are not my concern in this blog.

Bitcoin’s public sauce

Before looking at identity, let’s review some of the security features of the blockchain. We will see that safekeeping of each account holder’s private keys is paramount – as it is with all Internet payments systems and PKIs.

While the blockchain is novel, many elements of Bitcoin come from standard public key cryptography and will be familiar to anyone in security. What’s called a Bitcoin “address” (the identifier of someone you will send currency to) is actually a public key. To send any Bitcoin money from your own address, you use the matching private key to sign a data object, which is sent into the network to be processed and ultimately added to the blockchain.

The only authoritative record of anyone’s Bitcoin balance is held on the blockchain. Account holders typically operate a wallet application which shows their balance and lets them spend it, but, counter-intuitively, the wallet holds no money. All it does is control a private key (and provide a user experience of the definitive blockchain). The only way you have to spend your balance (that is, transfer part of it to another account address) is to use your private key. What follows from this is an unforgiving reality of Bitcoin: your private key is everything. If a private key is lost or destroyed, then the balance associated with that key is frozen forever and cannot be spent. And thus there has been a string of notorious mishaps where computers or disk drives holding Bitcoin wallets have been lost, together with millions of dollars of value they controlled. Furthermore, numerous pieces of malware have – predictably – been developed to steal Bitcoin private keys from regular storage devices (and law enforcement agencies have intercepted suspects’ private keys in the battle against criminal use of Bitcoin).

You would expect the importance of Bitcoin private key storage to have been obvious from the start, to ward off malware and destruction, and to allow for reliable backup. But it was surprisingly late in the piece that “hardware wallets” emerged, the best known of which is probably now the Trezor, which first appeared in 2013. The use of hardware security modules for private key management in soft wallets or hybrid wallets has been notably ad hoc. It appears crypto currency proponents pay more attention to the algorithms and the theory than to practical cryptographic engineering.

Identifying with the blockchain

The enthusiasm for crypto currency innovation has proven infectious, and many commentators have promoted the blockchain in particular as something special for identity management. A number of start-ups are “providing” identity on the blockchain – including OneName, and ShoCard – although on closer inspection what this usually means is nothing more than reserving a unique blockchain identifier with a self-claimed pseudonym.

Prominent financial services blogger Chris Skinner says "the blockchain will radically alter our futures" and envisages an Internet of Things where your appliances are “recorded [on the blockchain] as being yours using your digital identity token (probably a biometric or something similar)”. And the government of Honduras has hired American Bitcoin technology firm Factom to build a blockchain-based land title registry, which they claim will be “immutable”, resistant to insider fraud, and extensible to “more secure mortgages, contracts, and mineral rights”.

While blockchain afficionados have been quick to make a leap to identity, the opposite is not the case. The identerati haven’t had much to say about blockchain at all. Ping Identity CTO Patrick Harding mentioned it in his keynote address at the 2015 Cloud Identity Summit, and got a meek response from the audience when he asked who knew what blockchain is (I was there). Harding’s suggestions were modest, exploratory and cautious. And only now has blockchain figured prominently in the twice-yearly freeform Internet Identity Workshop unconference in Silicon Valley. I'm afraid it's telling that all the initial enthusiasm for blockchain "solving" identity has come from non identity professionals.

What identity management problem would be solved by using the blockchain? The most prominent challenges in digital identity include the following:

  • account creation including validation of identity or other attributes
  • the cost and inconvenience of multiple account registrations
  • the inconvenience and insecurity of multiple usernames and passwords
  • identity theft and account takeover
  • interoperability of identity data or attributes between services and applications
  • provenance of attributes.

    What does the blockchain have to offer?

    Certainly, pseudonymity is important in some settings, but is rare in economically important personal business, and in any case is not unique to the blockchain. The secure recording of transactions is very important, but that’s well-solved by regular digital signatures (which remain cryptographically verifiable essentially for all time, given the digital certificate chain). Most important identity transactions are pretty private, so recording them all in a single public register instead of separate business-specific databases is not an obvious thing to do.

    The special thing about the blockchain and the proof-of-work is that they prevent double-spending. I’ve yet to see a blockchain-for-identity proposal that explains what the equivalent “double identify” problem really is and how it needs solving. And if there is such a thing, the price to fix it is to record all identity transactions in public forever.

    The central user action in all blockchain applications is to “send” something to another address on the blockchain. This action is precisely a digital (asymmetric cryptographic) signature, essentially the same as any conventional digital signature, created by hashing a data object and encrypting it with one’s private key. The integrity and permanence of the action comes from the signature itself; it is immaterial where the signature is stored.

    What the blockchain does is prevent a user from performing the same action more than once, by using the network to arbitrate the order in which digital signatures are created. In regular identity matters, this objective simply doesn’t arise. The primitive actions in authentication are to leave one’s unique identifying mark (or signature) on a persistent transaction, or to present one’s identity in real time to a service. Apart from peer-to-peer arbitration of order, the blockchain is just a public ledger - and a rather slow one at that. Many accounts of blockchain uses beyond payments simply speak of its inviolability or perpetuity. In truth, any old system of digitally signed database entries is reasonably inviolable. Tamper resistance and integrity come from the digital signatures, not the blockchain. And as mentioned, the blockchain itself doesn't provide any assurance of who really did what - for that we need separate safeguards on users' private keys, plus reliable registration of users and their relevant attributes (which incidentally cannot be done without some authority, unless self-attestation is good enough).

    In addition to not offering much advantage in identity management, there are at least two practical downsides to recording non Bitcoin activity on the blockchain, both related to the proof-of-work. The peer-to-peer resolution of the order of transactions takes time. With Bitcoin, the delay is 10 minutes; that’s the time taken for an agreed new version of the blockchain to be distilled after each transaction. Clearly, in real time access control use cases, when you need to know who someone is right away, such delay is unacceptable. The other issue is cost. Proof-of-work, as the name is meant to imply, consumes real resources, and elicits a real reward.

    So for arbitrary identity transactions, what is the economics for using the blockchain? Who would pay, who would be paid, and what market forces would price identity, in this utopia where all accounts are equal?

    Posted in Innovation, Identity, Federated Identity, Blockchain, Payments

  • Does government have the innovation appetite?

    Under new Prime Minister Malcolm Turnbull, innovation for once is the policy du jour in Australia. Innovation is associated with risk taking, but too often, government wants others to take the risk. It wants venture capitalists to take investment risk, and start-ups to take R&D risks. Is it time now for government to walk the talk?

    State and federal agencies remain the most important buyers of IT in Australia. To stimulate domestic R&D and advance an innovation culture, governments should be taking some bold procurement risk, punting to some degree on new technology. Major projects like driver licence technology upgrades, the erstwhile Human Services Access Card, the national broadband roll-out, and national e-health systems, would be ideal environments in which to preferentially select next generation, home-grown products.

    Obviously government must be prudent spending public money on new technology. Yet at the same time, there is a public interest argument for selecting newer solutions: in the rapidly changing online environment, citizens stand to benefit from the latest innovations, bred in response to current challenges.

    What do entrepreneurs need most to help them innovate and prosper? It's metaphorical oxygen!

    Innovators need:

  • access to prospective customers, so we may showcase disruptive technologies
  • procurement processes that admit, nay encourage, some technology risk taking
  • agile tender specifications that call for the unexpected in responses, prompting disruptive technologies
  • open-mindedness from big prime contractors, who too often are deaf to inventive SMEs
  • curiosity for innovation amongst business people
  • optimism amongst buyers that small local players might have something special to offer
  • and a reversal of the classic Australian taboo against sales.

    Too often, innovative entrepreneurs are met with the admonition you’re only trying to sell us something. Well yes we are, but it's because we believe we have something to meet real needs, and that customers actually need to buy something.

    Posted in Innovation, Government