Crypto-anchors and how they can be used to prevent fraud

 

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The Cost of Fraud

In Clabby Analytics blog, “What is blockchain and how are businesses preparing?” we note that the world relies on the Internet for trillions of dollars of transactions annually.  Along with this reliance comes fraud and risk.  According to IBM Research, fraud is costing the global economy more than $600 billion dollars annually, and cases of fraud are continuing to escalate. With fraud on the rise, every dollar of fraud costs organizations nearly 2 ½ times more than the actual loss itself. With fraud tactics becoming increasingly more complicated, faster, and more challenging to prevent, businesses need to adapt to prevent fraud or risk losing customer’s trust, and ultimately their business.

As we describe in this report, filling these trust gaps will improve customer satisfaction, while also lowering costs associated with identity theft and fraud. In the digital age, news spreads quickly and companies don’t want to be in the hot seat. As we have seen, when hackers compromised over 70 million credit card records from Target in 2014, with Wells Fargo and their ongoing account fraud scandal, and most recently, Equifax’s security breach that affected 143 million people, poor internal threat prevention can put a company’s reputation on the line and cost businesses hundreds of millions of dollars.

Blockchain and crypto-anchors

Blockchain has positioned itself as the future of digital transactions by providing a holistic view into the ledger that your transaction is following. Crypto-anchors will help businesses go a step further.

To understand crypto-anchors, let’s look more closely at what contributes to fraud. Fraudulent attacks usually start with the hacking of an online portal. This is how a hacker gains access to the front-end web portal to in order to query (write code), that pulls data from a company’s database. Obviously, this data is not something that should be accessible to anyone, which is where Equifax failed the millions of users whose social securities numbers were compromised.  Unfortunately, today, traditional encryption methods aren’t too hard for a hacker to figure out. Cryptographic hashing can help by scrambling data into strings of random characters, which will delay a data breach. However in time,  just like a puzzle, hackers can figure out how to decode the enciphered numbers.

Crypto-anchors go beyond cryptographic hashing, adding a new level of safeguarding to hashing or encryption schemes. For example, in the case of Equifax, setting up a crypto-anchor could actually help safeguard the system by adding another layer of security. By giving every single social security number its own unique secret key, Equifax could potentially prevent future data leakage. Crypto-anchors encrypt the social security information stored in a database with a key that is stored on a single-purpose computer known as a Hardware Security Module (HSM). If a computer on a company’s network tries to access the database and its record, whether that is an employee or an ill- intended malicious act from a hacker, the HSM protects the data and requires decryption at significantly slower rates. The goal is not to prevent the hacker from getting access to the system (although that would be ideal) but to trap them inside so they are more likely to be detected as the network waits for the HSM to completely decrypt each and every bit of data.

As Andy Greenburg from Wired describes “They remain “anchored” inside the network, painstakingly waiting for the HSM to decrypt each bit of data. And that can transform a rip-and-run attack lasting only hours or days into one that can take months or years—time during which the hackers must remain active on a victim’s network, and vulnerable to being detected and stopped.” Overall, unique keys make stealing data much less efficient, which makes it less appealing to someone who wants to quickly and surreptitiously steal a massive amount of information and leak it or sell it online. An excellent in-depth description of how crypto-anchors work is also available here.

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IBM’s work with crypto-anchors

Every year IBM announces five innovations that will change the lives of humans in the next five years. This year, IBM Research identified crypto-anchors and blockchain technology as one of those innovations that will significantly alter the way companies do business by helping to guarantee that product transactions will be secure and authentic from the point of origin to the  consumer at the end of the transaction. This technology was featured at IBM’s recent Think 2018 conference held in Las Vegas.

IBM research has determined that in some countries, counterfeits of life -saving drugs could comprise 70% of the market. With so many different hand-offs, and different suppliers from different countries, it is difficult to follow each transaction and to guarantee that nothing is altered. Blockchain and crypto-anchors can work together to ensure that supply chains-whatever the product may be-are trustworthy, efficient, and have not been tampered with. Crypto-anchors are being embedded in to products using cryptographic mechanisms to ensure that steps are unclonable and cannot be tampered with.

IBM is researching a variety of unique ways to develop different crypto-anchors, including tamper-proof digital fingerprinting that can be embedded in to products. This can take different forms, including magnetic ink which can be used to dye malaria pills. The pill can be authenticated by the color and code it displays when it has been placed underwater, or using computers smaller than a grain of rock salt. Scientists at IBM have also combined smartphones and their mobile sensors with special artificial intelligence algorithms that can identify the structure and features an object should have, and create alerts if something is wrong. IBM is hoping that the earliest models could be available for clients within the next 18 months.

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Summary Observations

As businesses and consumers increasingly rely on digital channels to complete their most private transactions, fraud will have an even greater impact our global economy. Changes and enhancements must be made to existing security and privacy practices in use today, or we will continue to see breaches that cost both businesses and consumers.  By employing technologies such as blockchain and crypto-anchors, fraud can be reduced dramatically.  Stay tuned to future blogs to find out more about how businesses are using blockchain and other related technologies such as crypto-anchors to reduce risk, improve customer satisfaction and combat fraud.

By Billy Clabby, Clabby Analytics

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Please email me directly with feedback, comments, or with any questions at billyclabby@clabbyanalytics.com.

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