Information technology has in a great way revolutionized how many aspects of today's life. Communication and purchase of goods and services are made possible through the internet. A more recent revolution is seen in the emergence of Bitcoin cryptocurrency, which has not only changed ways of conducting business but also affected the entire banking system. To fully understand opportunities and threats of this new cryptocurrency it is crucial to conduct an IT analysis in relation to existing financial and monetary procedures.
Financial institution today play a vital role acting as a third party to process payments and keep records of transactions of goods and services bought or sold. Financial institutions have also continued to improve their services with the help of technological advancement inform of e-commerce to enhance and expand their services through platforms like mobile banking. What makes Bitcoin cryptocurrency different is that it is a peer-to-peer form of electronic cash that is decentralized to allow transaction without involving financial institution as a third party( Palmer,2014). A better way to differentiate Bitcoin network from other networks is to see the commercial perspective, which lacks human and institutional supervision unlike current networks, which were created to enhance communication and linkages lacking complete independence a commercial player. With such a brief explanation, Bitcoin has created a fully integrated corporate information system where data is owned by the organization, which fulfills the entire organizational ICT requirement. The emergence of Bitcoin cryptocurrency is largely due to failure and weaknesses in the present financial systems, which are prone to currency manipulation especially by governments and high commission charged by these institutions for services offered. Opportunities and security threats are best unmasked by presenting an overview of protocols and components of Bitcoin since its success and vulnerability is deeply embedded in their functionality and interaction.
Components and protocols
Bitcoin system comprises of users/customers, miners who assume the role of verifying funds being transferred and updating the leger and the user's wallet. Miners are more of management staffs who verify the integrity, correctness and authenticity of transactions, which are processed in a single unit, called a block and constantly update the ledger. However, ledger update is not done automatically, miners need to compute balance to solve a complex mathematical problem, verify, incorporated time-stamped entry on the distributed ledger and transaction fee paid for the miner to place the verified transaction into the distributed ledger. To fulfill such requirement Bitcoin use proof-of-work (POW) to ensure a number of miners have verified the transaction to avoid inconsistencies in the block chain ledger. Bitcoin utilizes block chain technology to maintain a public ledger, which is available to every user of Bitcoin automatically assuming the role of a central bank. However, the cryptocurrency ledger uses standard cryptographic technology to maintain the record of all transactions. By definition, it is a list of linked data structure, which stores the entire networks transaction history and is virtually public. Bitcoin protocols initiate a transaction by indicating that a value has been transferred out of one address to another. The source and the destination addresses are informed of a cryptographic public key, which is associated with the users wallet (Palmer, 2014). A private key is also needed for the user to spend coins, which are in form of digitally signed transactions. Both keys act as identifiers and no more personal information is requested to perform these transactions, which provide a degree of anonymity on the user.
Opportunities and threats
The success of bitcoin information technology lies in its virtual block chain ledger, which is transparent and incorruptible. The fact that it is public and uses high-level encryption make to generate keys to all users makes it hard for fraudulent users to alter. Since any particular organization or institution does not own the network, it is easier to track inconsistency posed by malicious users who attempt to spend coins from an address whose keys they do not control or double spend coins already used in a previous transaction. Therefore, any malicious attempt to alter the database is fruitless because all network nodes will ignore any actions that violate well-programmed consensus rules. Another appealing feature of bitcoin when used, as a medium of exchange, is lower transaction costs compared to traditional means of payments, which are considerably high due to regulatory, transactional, storage and security costs, which are charged, inform of commissions. Another opportunity for Bitcoin is its idea of decentralization where it is managed by its network, not a single entity. This insulates its users from the global financial crisis caused by governments manipulation of currencies and inflation. Bitcoins also lack a single point of vulnerability that hackers can exploit through its use of public and private keys, which are highly encrypted and would require enormous computer capability to hack such a system.
However as with all network system Bitcoin is susceptible to attacks, for example despite Proof of work scheme and time stamping on transaction double spending is still possible through a number of attacks. They can be informed of finery attacks, brute force attacks or balanced attacks, all which have the same characteristic of mining blocks faster than other networks and hence convince vendors to release products based on a false previous transaction. Other attacks are directed to Bitcoin protocols and networking infrastructure e.g. distributed denial of service (DDOS) which are disruptive which work by exhausting the network resources to prevent them from accessing genuine users( Palmer,2014). Bitcoin also faces challenges for it to be recognized as a legal tender and is constantly viewed with suspicion by governments due to its anonymity. This makes it a preferred means of payment by criminals such as drug dealers, terrorists and money launderers.
Risk management strategy
One area that would greatly assist in managing risks associated with irreversibility and loss of funds by the user is to incorporate insurance packages to mitigate these risks. It will be a step further to gaining trust in the system, which currently it does not enjoy. It is also crucial for Bitcoin community not to be synonymous with criminal activities within the system by collaborating with crime prevention units in addition to management evolving in relation to tactics and techniques used by criminals( Palmer,2014). Local network attacks can also be mitigated by a standardized server-side security, cold storage of key, which involves storage of keys in an offline physical secure place. Other tactics are the muti-sig and control persons where transfers need to be multi-signed by a different person and high breed wallets.
Kiran, M. and Stanett, M., 2015. Bitcoin risk analysis. NEMODE Policy Paper.
Palmer, C. and Henderson, C., 2014. Bitcoin Risk Analysis.
Reid, F., and Harrigan, M., 2013. An analysis of anonymity in the bitcoin system. In Security and privacy in social networks (pp. 197-223). Springer New York.
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