Andrew Poelstra, a cryptographer at Blockstream, explains how.
Last year, as was recently revealed, the SEC’s network was hacked, giving criminals access to non-public information before it became public, and potential access to lucrative and illegal trading opportunities. But if the SEC adopted technology similar to blockchains, where data must be secured while being stored on public networks, it could have prevented hackers from learning anything from the sensitive data they may have gotten their hands on.
The specific network, Electronic Data Gathering, Analysis and Retrieval (Edgar), is dedicated to the online collection of such information, which the SEC uses to watch actors on the financial stage and detect bad behavior. Financial regulations are full of reporting requirements related to data such as that collected by Edgar, and it is an implicit assumption in the financial world that the SEC, and all regulatory bodies, can be trusted to keep non-public data secret and secure. This trust is based on the SEC’s ability to monitor its network and stay ahead of any would-be attackers. While on the whole, the SEC does a commendable job at this, it is an ongoing battle in which both sides are continually improving their techniques.
In contrast to the carefully controlled information flows of traditional finance, on the Bitcoin blockchain, everything is public. It’s public because it is a decentralized and permission-less system: There are no central authorities to decide the validity of transactions, so everything must be publicly verifiable by the system’s users. Bitcoin has been criticized for its transparency, which leaves no room for confidentiality, or even personal privacy. Despite its reputation as an anonymous currency, Bitcoin is anything but, and researchers in the space are actively working to bring to Bitcoin the basic privacy technology it needs to work as a serious financial system.