Cryptography: An Introduction
Cryptography is a sub-field of theoretical computer science. It leverages advanced number theory and hence needs a strong background in mathematics. In spite of its abstract background, it is already widely used in everyday applications. All digital communications today leverage some form of public key cryptography. Emails are a prime example. As banking goes digital, cryptography would play a major role in ensuring security and establishing trust.
Banks pay tremendous attention to detail as regards safety and security. The vault of the Federal Reserve Bank of New York is safeguarded by a comprehensive multi-layered security system, the highlight of which is a 90-ton steel cylinder protecting the main vault. The only entry into the vault creates an airtight and watertight seal which is impenetrable.
This security is important as banks have always thrived on the notion of trust that customers place in them. Direct evidence of this principle is in the fact that banks act as guardians of the currency of their customers. Customers deposit large sums of their savings in banks. They do believe that they would be able to withdraw the entire amount when need be. But banks deal with monetary values and transaction amounts which are far greater than the actual amount of currency present. And hence the entire banking system fundamentally relies on this consumer trust in banking.
This article is a part of the January edition of FICCI’s financial Foresights that focuses on ‘Leveraging the FinTech Opportunities in India’ and presents interesting propositions in the form of insightful write-ups contributed by both established and emerging players from the FinTech industry.
More articles from this series can be viewed here at: Financial Foresights
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Shift to digital is obvious; hence the need for security
When the infamous thief Willie Sutton was asked why he robbed banks, he answered, “Because that’s where the money is.” While the witty comeback still “holds up” today, the weapon of choice now is more likely to be a pen/computer than a gun. The business of a bank/financial institution is constantly under threat from menaces of robbery, or even fraud. Banks have always placed tremendous value on ensuring high standards of safety and security.
The advent of technology has made fraud-inducing practices more prevalent and sophisticated. A survey on financial trends made by PwC found that financial frauds led to approximately $20 billion (Rs 1.26 lakh crore) in direct losses annually. The same report states that as 75% of the population of India has a mobile phone, ‘banking on the go’ has become the norm. With volume of mobile banking transactions going up from INR 1819 crore in 2012 to INR 1,01,851 crore in 2015, the shift towards digital banking seems obvious.
Cryptography: four key attributes
…..financial frauds led to approximately $20 billion (Rs 1.26 lakh crore) in direct losses annually”
As the world moves to digital there is a corresponding need of this “impenetrable” safety and security in the digital world. Cryptography is the answer. Cryptography has four key attributes:
- Confidentiality: The protection of information and prevention of unauthorized access;
- Privacy: Protecting the personal information of individuals;
- Non-repudiation: The inability to deny an action took place; and
- Integrity: Assurance that information cannot be manipulated.
As banking moves digital, cryptography will become as important as the steel vaults were in the yesteryears. It will play a crucial role in preventing electronic fraud thereby ensuring the validity of financial transactions.
The Indian eco-system though has largely neglected this area. The Indian government also has not been proactive, unlike its western counterparts, in creating standards. Indian banking’s rapid digitization should be parallely supported with advancement in security practices. Building skill and knowledge base in cryptography might be a good starting point.
Cryptography powers Blockchain
Cryptography also powers one of the most rapidly rising finance technology – Blockchain. It has driven businesses to reimagine how their networks operate and has become synonymous with alternative business models. At its core, however, Blockchain leverages hash and public key encryption algorithms. These two form the major pillars of cryptography, as well. The benefits of Blockchain are well known today. It enables confidentiality, privacy and security of data and user identities.
Apart from its security benefits, Blockchain also increases the speed of different transactions. Thus, it is being seen as the modern equivalent of the internet. Companies that can effectively leverage Blockchain would as a result create distinct advantages for themselves. But success in Blockchain technology will also need a good understanding of cryptography. Hence the need for investment and focus in this area cannot be overstressed. Lock and vault makers were strong partners for banking in the 19th and 20th century. Startups today can fill that space when it comes to the digital world. There are an increasing number of startups offering services in security, digital identity and Blockchain.
Banks in India have started realizing that consumer experience and ease of banking are very important. This has led to several collaborations between the FinTech start-ups and banks. What would probably be the next wave is tie-ups with startups focusing on digital security. This will help banks bring the “offline” trust to the online world. Banks which focus on digital security and safety are more likely to build consumer trust in the coming future. Thus it is safe to say that cryptography may hold the ‘key’ to winning this digital world.
Ankit Ratan, CEO, Signzy writes this for January 2017 edition of Financial Foresights. Signzy uses cryptography, artificial intelligence and India Stack to build trust APIs for digital banking.