Mimo Protocol: Enhancing Cybersecurity in the Global Finance Industry through Blockchain Technology
Any finance consultant worth his salt would advise that if you own a sizeable amount of assets, its best to leverage on it to create further wealth. For decades the premium advice has always been to put your money away in some form of interest yeilding savings account with your bank or investment firm. However, the traditional finance system has been riddled with flaws that leave many people watching their investment lose value, or at best grow at snail-speed. In the same vein, data integrity, security of funds, financial inclusion, and access to credit remains below-par across the globe.
With blockchain technology, many disruptive initiatives have sprung up to provide efficient solutions to these gaping flaws. Some of such initiatives are Decentralized Vaults and Safety Reserves introduced by leading crypto-lending platforms such as MIMO protocol.
If you are curious to know just how these new blockchain safety initiatives work, then you’re in luck. In this article, we will examine the importance of these Decentralized vaults, Safety reserves, and how they can enhance safety and security in the global financial industry. But before we dive deep into it, let’s have an overview of blockchain safety vs traditional Finance and Fintech security features.
How does Safety and Security work on the Blockchain vs Other Traditional Finance & Fintech Industries
The finance industry in one of the most lucrative sector in the world. According Financial Services Global Market Report 2021, the global financial industry it worth an astounding $22.5 trillion. This makes the entire sector a prime target for fraudsters and hackers. Consequently, the importance of sound safety measures and sophisticated security infrastructure cannot be understated.
Safety and Security in Traditional Finance & Fintech Sectors
The traditional finance and Fintech sector has held mainstream dominance for decades. Over the years, the dominant corporations have deployed various security protocols and risk management features to try and maintain the sanity of the sector and protect investments.
One of the earliest forms of safety features deployed in the traditional finance sector is risk management. Risk management is the evaluation, and anticipation of potential risks and the allocation of resources towards minimizing and controlling the impact of unfortunate events in the finance sector. Having realized the need to ward of security risks, many corporations promptly created Enterprise and Security Risk Management units (ERM) within their internal set-up. A 2020 survey by American Institute of Certified Public Accountants (AICPA) showed that over 80% of large corporations and multi-national companies have an established ERM within their internal framework.
However, despite the huge resources and time dedicated towards risk management, these safety measure has proved inadequate in many cases. The global financial and security risk management set-up is retroactive. And in a finance world that dynamic and fast-changing, new forms of security risks that crop up every day often unanticipated.
As the internet attained mainstream adoption in the early 2000’s, the finance industry is one of the sectors that embraced it and quickly digitized many of their processes. It became imperative to create security infrastructure around their IT operations.
Cyber security in the traditional finance sector involves the practice of protecting computer servers, electronic systems, networks, and critical data from malicious attacks. Deloitte’s 2020 reports shows that financial institutions globally, spent about 10.9% of their budget on cybersecurity.
One of the most prominent security breaches was the Panama papers leak that occurred in 2016. The incident saw over 11.5 million financial documents leaked, leading to a worldwide scandal. Another high-profile cyber-security breach was the Bangladesh Central bank heist. The spectacular hack attack saw hackers illegally transfer about $1 billion from the Federal Reserve Bank of New York account belonging to the Central bank of Bangladesh.
This shows that despite cutting-edge cybersecurity efforts and big budgets, financial institutions have continued to fall victim to hacking attacks.
This refers to the good old physical security. It involves policing and protecting physical assets, storage units, and funds from intruders. In an attempt to protect customer’s funds and collateral assets, contract papers, and documents, financial institutions spend huge amounts annually on Surveillance Security Cameras. Security personnel, security vehicles, bullion services and lot’s more.
But in spite of all of these security measures, the spate of robbery attacks on banks and financial institutions have continued to occur globally at pandemic levels. For instance, in 2019 alone, reports published by the FBI showed that nearly 270,000 occurred globally in 2019 alone. With many of those going unsolved and investors' funds seemingly disappearing into the thin air.
Although a lot of improvement has been recorded in the industry’s security features. It is obvious that the status quo is still very far from security and safety El-dorado.
Customer information is not entirely safe, financial assets cannot be protected. And due to the centralized nature of large financial corporations, the safety of investors' assets is often at the mercy of the integrity of the top management executives. And given the sheer number of companies that have shut down and people that have lost their investments due to the mismanagement by top executives of companies, it is obvious that the safety and security measures of the traditional finance and fintech space is shaky, to put it mildly.
The great news is that blockchain solutions are here to solve these security issues without
Safety and Security on the Blockchain
As the world economy grows, the world becomes more interconnected. Globalization is imminent. It has become imperative to create efficient solutions to fix the various gaping security flaws of the traditional finance and fintech systems. This is where Blockchain and Decentralized Finance come in.
The blockchain facilitates the development of Decentralized finance applications (DeFi apps or DApps), that provide borderless, safe, and secure avenues for people to invest their assets globally.
DeFi lending platforms such as MIMO protocol are the closest thing to banks on the blockchain. Just like the traditional banks and financial institutions, they also face huge security threats and risks.
So, how do Defi Apps like MIMO protocol ensure the security of their platforms? They employ the use of smart contracts and some sophisticated digital security features such as Decentralized Vaults and Safety Reserves.
Now let’s examine each of these features
What are Smart contracts and Why are they Considered safe?
Smart contracts are blockchain-based agreements between two or more parties. They create a protocol to hold contributors’ funds until a certain date passes or a specified transactional goal is met. Based on the result of these pre-determined targets, the funds may then be released to the contract beneficiaries or sent back to contributors.
DApps combine smart contracts with an interactive frontend user interface that users can access on their mobile phones or computers. The developers of the DApps can then create a business model or gamification feature that they wish, using the decentralized networks and Smart contract features of the Ethereum platform as their underlying framework.
So it begs the question, why are smart contracts considered safe? Well, unlike bullion vans, military-grade weapons, and huge cybersecurity budgets that traditional finance companies deploy, smart contracts depend on the following unique features.
Safety Features of Smart Contracts
Smart contracts “live” on decentralized blockchain networks, meaning the data’s security is dependent on complex cryptographic protocols applied and validated by several computers on the network to keep it secure. With millions of computers in the network located in different parts of the world, it becomes improbable for any hackers to infiltrate or sabotage the system
Once smart contracts are deployed on the blockchain, it is impossible for anyone to alter the original terms. This gives the protocol a foolproof data protection system less susceptible to fraud and counterfeiting
Smart contracts are published on an easily accessible public ledger. This means that every party to the contract can always view the contract at any time to check the details, terms, and execution history.
Smart contracts eradicate the need for a third-party intermediary or a central facilitator which essentially gives you full control of any agreement deployed in the contract. Unlike the traditional finance system that relies on a retinue of intermediaries such as, notaries, estate agents, lawyers, advisors, etc, to interpret and execute a contract. And, by extension, you get to save the cost of extortionate fees associated with their services.
On the blockchain, no one can steal, tamper or lose any documents, as they are encrypted and safely stored on a secured, publicly shared ledger. As a result, you don’t have to place so much trust in the integrity of the people that you’re dealing with nor expect them to trust you. The unbiased features of smart contracts essentially replace trust in business transactions.
So, with these unique features, it is obvious that blockchain-based smart contracts are a massive upgrade to the traditional finance system. Now, let’s examine the applications of these unique features towards Lending and Credit Administration. Firstly, how does lending work on the blockchain?
How Lending Works on the Blockchain
The concept of lending and credit administration on the blockchain is not very different in principle from what is obtainable in the traditional finance space.
In the Decentralized finance world, Lending involves transferring custody of your cryptocurrency or digital asset holdings into the hands of a lender company for a specific period. The company pays you an agreed amount of interest. The volume of interest will largely depend on the volume of assets that you are locking away as well as the duration. The lending platform generates profits while loaning out your funds to other borrowers at a higher rate.
Just like the traditional finance sector, blockchain lending platforms also provide custodial services for collateral assets. However, the items are much safer and secure. Instead of heavily guarded bullion vehicles, blockchain lending platforms make use of Decentralized Vaults and Safety reserves to ensure that customer’s assets are protected.
What are Decentralized vaults and how do they guarantee the Safety of Collateral Assets?
Every credible lending process requires some form of security collateral to be posted as security to hedge, mitigate or insure against the risk of default.
In traditional finance, companies insure fund provider’s funds by locking away collateral assets in large, sophisticated, and heavily guarded chambers, otherwise known as Vaults. This has proven time and again to not only be ineffective in terms of security of the assets, but prohibitively expensive as well. The high costs eventually add to the cost of funds, in form of transportation costs, legal fees, and reinsurance costs.
Through decentralized vaults, DeFi-lending platforms have created a highly sophisticated, credible, efficient, and secured system to help users’ lock away digital collateral assets.
With the immutability and transparency features of smart contracts that are used to create these vaults, the lending process becomes much more credible and less expensive for all involved.
What is a Decentralized Vault and Why are they Considered Safe?
A decentralized vault is a sophisticated blockchain-based storage unit that can receive cryptocurrency like a regular wallet, but it goes one step further to prevent stored assets from being immediately withdrawn by adding optional security protocols.
Decentralized Vaults are considered safe because they provide sophisticated security protocols for collaterals to be stored safely and efficiently. They also allow users to split ownership and control of the “vault keys” between multiple users. This additional security protocol requires some or all of these pre-determined users to approve a transaction before it can be validated. Prominent vaulting platforms such as BitGo and Coinbase all make use of decentralized vaults to secure digital assets posted as collateral.
However, Mimo Protocol has effectively changed the game by offering safety tweaks that effectively revolutionize how the lending and stablecoin insurance systems currently work on the blockchain.
For instance, while other platforms require users to relinquish custody of their crypto assets for the entire duration of the lending transactions. This carries some element of risk.
Conversely, on the Mimo platform, Vaults are non-custodial. This means that each Borrower simultaneously retains full control over their collateral and borrowed PAR balances. Non-custodial vaults are a much better and advanced system. As the saying goes, “not your keys, not your coin”.
While the role of cryptocurrencies in the global economy may remain unclear at the moment, the series of advantages that Blockchain-based DeFi offers when compared to traditional finance systems are crystal clear.