Unsafe Crypto Exchanges
Bank of America, the second largest bank in the United State, could solve the Bitcoin exchange hack problem. The bank has filed a patent application with the United States Patent and Trademark Office (USPTO) for this.
Crypto exchanges emerged to facilitate crypto trading. Different cryptocurrencies exist on their separate blockchains and these often use varying technologies. Crypto users needed a way to trade one coin for another. These exchanges filled that gap.
However, crypto exchanges are centralized services. Using them does involve some risk. If you store your cryptocurrencies in their online wallets, you don’t own anything! The exchanges have the private key for the wallet and this compromises your security.
As you know, hackers find it easier to target one central server. Not surprisingly, crypto exchange hacks are very common. Blockchain networks are secure, but hackers have successfully targeted many centralized exchanges.
Analyze the concept of centralized crypto exchanges, and you will notice more issues. Cryptocurrencies promised decentralization and disintermediated transactions. However, centralized exchanges hold traders coins, and this contradicts the entire principle of decentralization.
Secondly, centralized exchanges operate like banks, but without a banking license. Banks aren’t perfect, but they are forced to follow stringent regulations that come with heavy monitoring. Banks are also insured, and depositors have legal recourse in case of foul play. However, crypto exchanges operate outside of current regulatory constructs. They provide no safety measures to crypto traders in the event of a hack.
Crypto traders need better security. Regulated banks could play a role here. The Bank of America patent application shows a way to solve the bitcoin exchange hack issue.
Encrypted Crypto Storage
Bank of America proposes a blockchain-powered system in their patent application. The system will have the necessary blockchain infrastructure. It will first receive a data set and then it retrieves an encryption key from the memory. The application will encrypt the first data set with that key. It will now store this encrypted data in a block in the blockchain.
This system then goes on to generate an encrypted element map. It shows the location of the encrypted data set within that block. The application will then combine the encrypted data map with the encryption key. Bank of America calls this a ‘creator tag’ in their patent application.
In the next step, the proposed solution encrypts this creator tag. It subsequently embeds this encrypted creator tag in the block and it broadcasts that block. You could see the multiple layers of encryption in action. This entire process executes in the distributed ledger. Bitcoin exchange hack is a hard proposition with this solution.
Banks must also undertake many transparency measures, therefore, this solution could help crypto traders. Bank of America has named this application as “Block Chain Encryption Tags”. They have built this proposal using a 2014 non-provisional proposal. They named that “Cryptocurrency Online Vault Storage System”.
Bank of America has filed several patent applications for their blockchain solutions. This probably indicates that banks are gradually reconciling to crypto. Bank of America is one of many enterprises patenting their blockchain innovations. For e.g., Sony is patenting a crypto-mining hardware solution, also, UPS is patenting a solution to upgrade their logistics.