CryptoTech 101: Confidentiality as a Service

by John Dwyer, March 2, 2016
Industry Trends
Global, EMEA

Abstract

Blockchain technology has the potential to remove cost, shorten settlement cycles, remove central points of failure, automate capital markets processes, and optimize the flow of capital. However, a central tenet of capital markets transactions is confidentiality, while a central tenet of Blockchain 1.0 is transparency.

Therefore, if blockchain technology is to deliver its potential, then a key area that needs addressing is how to maintain confidentiality via decentralized consensus without compromising efficiency, integrity, governance, cost, and throughput.

This report takes a more detailed look at the cryptographic mechanisms that drive security within Blockchain 1.0 technology, highlights the deficiencies from a capital markets perspective, and explores some of the cutting-edge cryptographic techniques which are likely to catalyze adoption of distributed ledger technology within the capital markets.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Confidentiality

1

 

CryptoTech

1

 

Cybersecurity

1

 

Confidentiality Deficiencies of Blockchain 1.0

1

 

Innovations in Cryptography

1

 

Thinking Laterally: RegTech and Beyond

2

Cryptography in Blockchain

3

 

Asymmetric Public Key Cryptography

3

 

Trapdoor Functions

3

 

Hash Functions

3

 

Elliptic Curve Multiplication

4

 

Nakamoto’s Transaction Blocks

5

Confidentiality Is the Key

6

 

Decentralized Consensus

6

 

Permissioned Distributed Ledgers

6

 

Confidentiality of Blockchain 1.0

6

 

IoT, Trustless Environment, and Unencrypted Data

7

 

Should Permissioned Assume a Trustless Environment?

7

Key Areas of CryptoTech

8

 

Objectives of Distributed Ledgers in Capital Markets

8

 

A Baseline Understanding of Cryptography

8

 

Multi-Party Computation

8

 

Homomorphic Encryption

9

 

The Five Key Principles — “The Nodes’ Unknowns”

10

 

Further Divergence Ahead

10

Conclusion

12

Leveraging Celent’s Expertise

13

 

Support for Financial Institutions

13

 

Support for Vendors

13

Related Celent Research

14

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