Do your customers trust you? And do you trust them? The emerging trust economy depends on each transacting party’s reputation and digital identity—and that’s where blockchain comes in. The technology behind digital contracts transforms reputation into a useful, manageable attribute.
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Just as distributed architecture and open standards play spotlight roles in the inevitable architecture trend, they loom large in blockchain and the emerging trust economy. Blockchain is an open infrastructure technology that enables users operating outside of an organizational or network boundary to execute transactions directly with each other. Blockchain’s fundamental value proposition is anchored in this universal availability.
It is also anchored in integrity. When someone adds a block, or executes a blockchain-based smart contract, those additions are immutable. The potential value of the numerous blockchain applications currently being explored—including regulatory compliance, identity management, government interactions with citizens, and medical records management—resides, to a large degree, in the security benefits each offers users. Some of these benefits include:
- The immutable, distributed ledger creates trust in bookkeeping maintained by computers. There is no need for intermediaries to confirm transactions.
- Transactions are recorded with the time, date, participant names, and other information. Each node in the network owns the same copy of the blockchain, thus enhancing security.
- Transactions are authenticated by a network of computer “miners” who complete complex mathematical problems. When miners arrive at the same solution, the transaction is confirmed and recorded on the “block.”
The distribution of miners means that the system cannot be hacked by a single source. If anyone tries to tamper with one ledger, the nodes will disagree on the integrity of that ledger and will refuse to incorporate the transaction into the blockchain.
Though blockchain may feature certain security advantages over more traditional transactional systems that require intermediaries, potential risks and protocol weaknesses that could undermine the integrity of blockchain transactions do exist. For example, it has recently come to light that vulnerabilities may exist in the programming code that some financial services companies are using as they integrate distributed ledger technologies into their operations.
Given that there is no standard in place for blockchain security, other potential cyber issues could emerge. For this reason, users currently rely—arguably too much—on crowdsourced policing. Blockchain is a relatively new technology, and therefore discussion of its potential weaknesses is somewhat academic. Somewhere down the road, an underlying vulnerability in blockchain may emerge—one that would put your systems and data at risk.
Though you should not let fear of scenarios like this prevent your company from exploring blockchain opportunities, as with other leading-edge technologies, it pays to educate yourself and, going forward, let standards of acceptable risk guide your decisions and investments.
For more on blockchain, see Cryptocurrencies Unlock New Concepts Of Value.
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