The Israeli Securities Authority, the equivalent of the American SEC, is incorporating blockchain technology into its information systems, in an effort to improve the cybersecurity of its nation-level critical systems against cyberterrorism attacks.
A public embrace of blockchain technology from any government agency signals a very positive move towards wide adoption, especially when coming from the innovative startup nation’s cybersecurity specialists.
The ISA has already embedded the technology into their existing communication system used to deliver messages to entities supervised by the government regulator. It is also planning to use blockchain technology to develop two additional systems: one is an online voting system for investors to cast their vote on decisions taken in ISA assemblies and the other will be a system for tracking financial reports submitted by supervised entities.
BLOCKTV spoke to Eran Ovadia, the project lead from Taldor, who implemented the infrastructure for the ISA, in order to understand why they chose blockchain, and what blockchain technology does for the project that other technologies do not.
The ISA’s systems are constantly being targeted by cyberterrorism attacks and hacking attempts originating from hackers backed by foreign governments and hostile actors around the globe. Specialized teams monitor incidents 24/7. But the availability of the ISA's systems is highly critical, since if any hacker could manage to take it down, it would practically paralyze the stock exchange and the entire nation's economy. That is simply something the ISA cannot afford to let happen.
The innate decentralized nature of blockchains make them resilient to hacker’s attempts to take them down, compared to taking down one central server.
Another critical factor of the ISA’s systems is the integrity of financial reports submitted. The ISA cannot allow hackers to tamper with reports' data stored on central databases. Distributed Ledger Technology (DLT) helps make its systems more resilient to attempts of fraud or tampering with messages. It validates the immutability of the entire data within their system, similar to the way the Bitcoin consensus would not allow tampering with currency transactions. A hacker could not manipulate any part of the system without it being immediately detected. They even implemented smart contracts to automatically revert to the system's last valid state in any case of inconsistency.
Eran Ovadia, Taldor Project Lead. Courtesy.
In the vote casting system, Taldor said it’s using multi-factor authentication to verify voters’ identities, and is performing consensus validation by using a hybrid public and private ledger. They initially based their system on the Ethereum platform, but eventually chose to use a lighter validation method, since the algorithms used to validate cryptocurrency transactions were too heavy to process.
The ISA’s new blockchain-based system is an attempt to keep up with the fintech industry’s global trend to apply innovative technologies, and according to Natan Hershkovitz, director of ISA’s Information Systems department, puts it ahead of the race as one of the leading government authorities in the world in implementing information cybersecurity and authenticity.
"We are witnessing a growing trend toward incorporating of innovative and pathbreaking technologies in the financial industry. The implementation of blockchain technology in the ISA's information systems positions it as one of the leading government authorities worldwide in the security and reliability of information."
Natan Hershkovitz - ISA Director of the Information Systems Department. Inbal Marmari/Courtesy.
With the current step, the ISA is joining the growing trend of governments and official establishments adopting blockchain technology as a viable and useful technology. As the Israeli entity in charge of regulating the financial investment market, the equivalent of the American SEC, the ISA members are much quicker in expressing a more accepting approach towards blockchain technology, compared to their American colleagues, who are known for taking their time with the infamous Bitcoin ETFs submissions.