Banks have been flocking to disruptive technologies such as Artificial Intelligence (AI), cloud technologies as well as blockchain technologies. A recent joint report from UK Finance and Parker Fitzgerald warns of the “systemic risks” attributed to the three technological innovations.
More specifically, the three-part report goes on to identify the risks attributed with distributed ledger technology (DLT) and blockchain technology. For starters, the paper makes a note of the growing scale of “experimentation and potential adoption” within the industry; it holds the belief that blockchain technologies will require “industry scrutiny,” which is because of issues regarding privacy, scalability, security, and competition.
The paper argues that while the technologies will benefit banks as they can move away from their archaic, inefficient legacy systems, they still carry new risks. For instance, the report harbors concerns with privacy as blockchain anonymizes data such as the keys or certificates of each transaction.
This causes trouble for smaller financial institutions as the transactions will be easier to identify within a smaller network and gives them right to be “understandably concerned” running a network that allows for even their competitors to see the anonymized transaction records.
However, it also goes on to state that “technological solutions are possible”; the implementation of ‘cross-chains could address the concerns surrounding privacy by “allowing each participant to maintain a separate bilateral chain with all other participants. To increase security and address privacy others have suggested the potential of storing data ‘off-chain’”.
Though it continues to admit that this could reduce the benefits of using the technology as using cross-chains slows “the clearing of transactions” and in the instance side-chains are used, “reducing the ability to test and confirm the veracity of information on the ledger”.
Some conclusions are made and are generally rather optimistic, acknowledging that despite challenges ahead, embracing the emerging technologies carries far-reaching benefits and will catalyze the enablement of efficiencies and new economies as detailed in the report.
Timing is everything, Poland, and the GDPR
Furthermore, the paper was published a week after Poland became the first country to move banking records on a gigantic scale onto blockchain and recently, “temporarily” suspended tax collection for digital currencies.
It also comes just days before the new EU General Data Protection Law (GDPR) guidelines around data protection were released; the legislation which has been in the works for some years is to be implemented on 25 May 2018 in all EU member states.
In the build-up to the legislation, there had been some knee-jerk responses, fear, and uncertainty, though it is argued that blockchain technology can be used to authenticate user identity as opposed to storing it, which can be a helping hand in meeting the new GDPR provisions.
It appears as though the global conversation surrounding blockchain technology is reaching a pivotal moment, one in which the global community acknowledges the validity of the tech and works hard to ensure it can be safely, securely and effectively utilized.
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