Global use of bitcoin, the digital currency, is growing by leaps and bounds.
But a new Stevens Institute of Technology co-invention has just ensured that bitcoin's lesser-known core technology, blockchain, will also become white-hot — perhaps even going mainstream to banks and financial exchanges.
A virtual padlock
Blockchain works like this: a large network of globally interconnected computers process and pass along transactions on a running ledger, or chain. The power of the systems stems from the fact that transactions can't be altered at any step; even a single change in the chain renders it invalid.
As powerful as blockchain is, however, it's also a relatively cumbersome way to process transactions.
The decentralized accounting method and ironclad no-changes-allowed rule render it difficult for financial institutions or systems to deploy it efficiently. And any data entry errors, updates or outright instances of fraud must be corrected with additions of new forks, blocks or 'patch' ledgers to the chain, further slowing and complicating the flow of information.
Stevens computer science professor Giuseppe Ateniese's breakthrough research innovation was to create a new type of blockchain tech that can edit the transaction chain — rewriting or removing information for legal, privacy or other reasons, and marking the change — while still preserving security and continuing the chain without complex additions required. The technology works by modifying the blockchain's ‘hash’ function to unlock the single link between an affected block and the next block. A new, edited block can be substituted without breaking the hash chain; the original blockchain remains intact, mistakes are updated and corrections propagate forward.
"For financial services institutions faced with a myriad of risk and regulatory requirements, absolute immutability is a potential roadblock," notes Richard Lumb, group chief executive for financial services at Accenture. "Our invention strikes a balance for enterprise use that preserves the fundamental value of the technology while enabling enterprise adoption."
The innovation may seem to disobey blockchain's founding principle of creating data that is irreversible and permanently uneditable. However, Ateniese says there is more to the story:
- The technology is meant to work in so-called "permissioned" blockchain systems: that is, those managed by trusted, designated administrators under agreed-upon governance. That's the type of system generally used by financial institutions. It should not be applied to permissionless systems.
- Only the administrators in the system may edit blocks in transactions, not users of the system—and those administrators are high-level organizations, such as the Supreme Court, privacy organizations or financial regulators, rather than individual employees or users.
- And it's a simple matter to publicly denote that a particular chain has been modified. The technology permanently marks an edit — a mark that can't be later removed by anyone.
Ateniese and Accenture have applied for patents to the technology in both the U.S. and Europe.
Q&A with Stevens professor Giuseppe Ateniese, Ph.D.
Q: Will this technology affect bitcoin in any way?
Ateniese: No. Bitcoin is a miracle technology and should be left alone.
Bitcoin is one application of the blockchain. While I believe our solution could help bitcoin in the future, it's important to let it prosper on its own.
Financial institutions are concerned with their own systems, known as private or permissioned blockchains and bitcoin is not on their radar for the moment.
Q: How did you develop this new technology?
Ateniese: While reading reports on the pros and cons of the blockchain in various sectors, I realized that all concerns raised against the blockchain could be addressed if more flexibility were allowed. Links in standard blockchains are permanent; I created padlocks between blocks with their keys stored in an emergency box. I involved two trusted collaborators, Bernardo Magri and Daniele Venturi, and we devised several padlocks and emergency boxes to cover different application scenarios. We also made a working prototype with the help of Ewerton Andrade, described in our paper. Both the solution and prototype developed with Accenture are a significant evolution and refinement of this initial work.
Q: The announcement of this technology made international news and appeared in the Financial Times, The New York Times, Fortune, Reuters, MIT Technology Review, TechRepublic and many other outlets.
Ateniese: Yes, we received tremendous support. But it is a controversial solution and we have also received criticism, particularly on social media platforms. We value this feedback, as it will help us refine our solution and future work. We plan to address all concerns raised.
For example, one concern is that the blockchain then reverts to being a simple database. This is not true. A standard blockchain is indeed a database, a distributed database that relies on a probabilistic consensus mechanism. A blockchain is also immutable.
We are not changing this. We are simply adding an emergency box with a key inside. Only certain designated, trusted authorities can open the emergency box and retrieve the key to make changes. For all other participants, the blockchain will remain as immutable as before, with the same consensus mechanism. A bad actor won't be able to make changes, because access to the emergency box is restricted.
Q: Who are these trusted organizations?
Ateniese: In society, we make collective decisions to trust certain people and organizations: judges, juries, legislators, our brokers, our doctors, regulatory bodies, certification authorities. This is no different. Someone will ultimately have the power to hold the private cryptographic key that can unlock the padlock. For example, if the blockchain is adopted by securities exchanges, I would imagine trusted authorities could include entities such as SEC, FINRIA, or IMF, and possibly only when they are all in agreement — since a key can in fact be split into 'shares' — only by pooling together their shares can the padlock key be reconstructed.
Q: What if the key gets in the wrong hands?
Ateniese: Let's ask a similar question: what if the keys of major certification authorities are exposed? We use certificates signed by these authorities every day to connect online to our banks or to buy items online. Without certificates, we would not be able to make secure transactions.
We need to follow the same procedures and safety measures that certification authorities adopt to protect the key. We are now in the process of devising more effective methods to do this.
Q: Ultimately, what is the real-world impact of this new technology?
Ateniese: It makes the blockchain suitable for many application sectors. Corporations and organizations are now willing to invest in blockchain technology and explore use cases in finance, healthcare, property and law, and identity management. But to succeed, we must resolve human errors, accommodate legal and regulatory requirements, and address bugs, mischief and other issues.
Stevens Institute of Technology, The Innovation University®, is a premier, private research university situated in Hoboken, N.J. overlooking the Manhattan skyline. Founded in 1870, technological innovation has been the hallmark and legacy of Stevens’ education and research programs for more than 145 years. Within the university’s three schools and one college, 6,600 undergraduate and graduate students collaborate with more than 290 full-time faculty members in an interdisciplinary, student-centric, entrepreneurial environment to advance the frontiers of science and leverage technology to confront global challenges. Stevens is home to three national research centers of excellence, as well as joint research programs focused on critical industries such as healthcare, energy, finance, defense, maritime security, STEM education and coastal sustainability. The university is consistently ranked among the nation’s elite for return on investment for students, career services programs and mid-career salaries of alumni. Stevens is in the midst of a 10-year strategic plan, The Future. Ours to Create., designed to further extend the Stevens legacy to create a forward-looking and far-reaching institution with global impact.