As more and more companies invest in the much-hyped blockchain technology, outside observers could be forgiven for thinking that the technology has arrived. The potential for the distributed ledger to transform key business processes has been spoken about but, like any cutting edge technology, blockchain comes with risks for businesses.
Speaking at the Forrester Digital Transformation Europe summit in London this week, principal analyst Martha Bennett laid out the biggest inherent risks and how businesses will have to overcome these challenges to unlock its potential.
1. Lack of clear definitions
Firstly Bennett said that it is important to reach some form of agreement over a working definition of blockchain. Bennett defines blockchain as: "A store of records which you can only write once and you can append only, you can never overwrite. Blockchain is distributed and either completely or partially replicated.
"It is cryptographically secured, and that is not the same as encrypting. By default the content on a blockchain, the transaction, the record itself, is not encrypted. The cryptographically secured bit is because you are hashing the transaction and linking it with its hash, which makes it immediately obvious if somebody has tried to change it because the hash won't match any more.
Bennett also said that if you replace the word ledger with database it becomes a lot less intimidating to discuss. So, why is this important? "My main message out of all of this is whether you are discussing blockchain make sure you are on the same page, because blockchain is like cloud or big data, it means whatever you want it to mean."
2. Security and risk
One of the key features of blockchain that has financial services and insurance companies salivating is its ability to guarantee secure transactions and reduce risk because any changes to a record are immediately obvious to anyone looking at the chain.
Bennett has some words of warning though: "Blockchain can also create tremendous exposures because, by default, the content on a chain is clear text. Or clear in another way that is easy to be decoded. So even with obfuscation there are typically techniques available to get at the content.
"That can lead to compromises of personal security if there is too much information about people out there. It can give rise to fraud if people have access to information. Most importantly it can be a violation of privacy and data protection regulations.
Bennet added: "If everything pertaining to a trade is on the chain then I can trade against you on that information. That is something companies working on this have already realised and the number of use cases are under re-investigation because of the commercial confidentiality and anti-trust issues. A lot of things need to be figured out around managing the risk, the security, the access."
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