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PERSPECTIVES


To edit or not to edit: That’s the blockchain question

Has absolute immutability become a barrier to blockchain adoption in financial services?

Could absolute immutability—generally thought to be one of blockchain’s greatest strengths—actually slow the financial service sector’s uptake of this exciting technology? Accenture’s David Treat takes a closer look at the challenges to blockchain adoption and explains why there might be a time and place for editable blockchains.

Why should financial services firms be interested in blockchain technology?

The excitement is based on a simple concept. In any modern business model, I can’t fully trust your data and you can’t trust mine. As a result, highly inefficient "messaging" based models for business are the norm, with each organization recording and storing its own version of the data. We have to message data back and forth to reconcile our views of the world in order to get anything done. That messaging and reconciliation drives data fragmentation, redundancy and inefficiency.

Distributed ledger technology—and blockchain as a key form of it—is a new type of database architecture that enables participants to confidently share access to the same data.

This creates the potential for models where firms could repoint their systems to a common data source and eventually turn off significant portions of their middle and back office data and process architectures.

This will drive material operational savings and new business models for all industries. In securities trading, for example, it is estimated that circa $11-12billion could be saved in clearing and settlement.1

How does absolute immutability pose a problem for blockchain adoption?

Blockchain is an "append only" data structure. Data added to a blockchain stays on a blockchain. So, using the securities trading example, the majority of updates will take the form of "reversing" or "updating" transactions, but the entire transaction history remains visible. 

But what happens in those rare instances where reversing or updating a transaction isn’t sufficient because the data cannot or should not remain visible in the data history?

This is just one example. Other examples where absolute immutability could be problematic for financial services firms include:

Regulatory requirements, such as the multiple regulations around the world where there is a requirement to remove customer data from a financial system, e.g., the EU "right to be forgotten", the US Fair Credit Reporting Act, the Gramm-Leach-Bliley Act and the SEC's "Regulation S-P" in the United States. In all instances, where data is stored on-chain, these regulations will require the ability to redact the data.

Operational errors that inadvertently expose confidential information where client, legal and regulatory expectations will be for the data to be removed.  

Illegal actions. On a truly immutable blockchain, any illegal, nefarious or malevolent activities, such as the publication of social security numbers or fingerprint data, will stand uncorrected forever.

Mischief. While perhaps not as alarming as illegal actions, any mischief made on the blockchain—there are already examples of pornography on the bitcoin blockchain, for example—will remain there forever.

Finally, data storage. If the share of transactions on the blockchain continues to grow, and if every one of those transactions remains on the blockchain forever, storage, processing and maintenance could become costly and inefficient. 

What’s the solution?

We need to strike a balance between preserving one of the fundamental values of the technology (its immutability) and enabling enterprise adoption (with a solution that can function in our imperfect world).

In September, Accenture debuted a new prototype for a capability that allows standard blockchains to be "edited". This capability was developed in collaboration with Dr. Giuseppe Ateniese from the Stevens Institute of Technology. Designed specifically for enterprise and permissioned systems, this invention addresses a range of key immutability challenges, including the legal right to be forgotten, human error and illegal actions.

How does the editable blockchain capability work?

Without getting too technical, the Accenture solution makes it possible for designated administrators of a blockchain system to edit, rewrite and/or remove blocks of information without breaking the chain. 

The blockchain remains immutable to system users, and any editing by designated administrators is subject to strict governance rules. Additionally, any edit to a block leaves an immutable "scar"—a clear sign to everyone that the block was altered. The scar is critical to maintaining blockchain’s "tamper evident" nature, full auditability and transparency. In addition, the digital keys necessary to make a change may be divided into multiple pieces requiring a consensus threshold to be reached before a change can be made. These measures allow it to achieve what we call "pragmatic immutability".  

Does adding editing to a blockchain make it just another database?

Let’s reframe the question and start with the reasons why an enterprise or corporation might select one type of database architecture over another. A blockchain is a type of distributed database. The choice to use blockchain technology versus traditional distributed database systems boils down to the mechanism and effectiveness of creating trust in the data plus increased data resiliency, integrity and security through cryptographic techniques.

With any distributed database, when data is added or updated, software will detect the change and automatically replicate the change across the system of connected computers. Everyone can simultaneously see the change in near real time.  With blockchain, a record of consensus is created by a secure, cryptographic audit trail that is maintained and validated by members that independently check the data blocks, making it "tamper evident".  

The validated blocks of data are cryptographically linked in a chain. If the data is tampered with, everyone will know because the links between the blocks break. This also provides for a superior level of security because data is protected at the data element level versus protected in aggregate. 

Our invention does not change these key characteristics. It is still "tamper evident" as the capability leaves a "scar" of any change. It is still auditable in that the governing body retains the history. It is still governed securely in that the capability divides the key to use the capability into pieces and only works when everyone agrees. Our invention provides a necessary failsafe for those "break glass" moments, while keeping the key characteristics of blockchain.

Footnote:

[1] http://www.businessinsider.com/goldman-blockchain-beyond-the-hype-practical-uses-2016-5/#property-cutting-admin-costs-by-keeping-records-on-the-blockchain-3



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