Be it errors, fraudulent transactions or bugs in the code on smart contracts they all require strong governance mechanisms to ensure they can be dealt with in a way that doesn’t create vulnerability.
Banks, capital markets firms and insurers are already engaged in trials, pilots, proofs of concept studies and initial production solutions. Blockchain’s audit and data-tracking capabilities are beginning to be deployed in new settings such as payments, reference data, Know Your Customer (KYC) and trade finance.
In most instances, immutability is an obvious benefit. But it's also increasingly apparent that instances will arise where absolute immutability is a hurdle standing in the way of blockchain's adoption.
For financial services institutions faced with risk and regulatory requirements, absolute immutability can become problematic for large-scale enterprise use in areas including:
Data storage: In a world where every transaction remains on the blockchain permanently, new solutions will be required as the need for onchain data scale expands.
Illegal actions: On an immutable blockchain, illegal or nefarious activities could stand uncorrected, as in the recent case of the $60 million smart contract hack of the DAO.
Operational errors: Coding and transaction mistakes happen and misbooked information may be confidential or required by law to be removed.
Permanent mischief: Pornography and classified documents are already permanently embedded on the bitcoin blockchain. The heavily regulated financial services industry would need to ensure sensitive data could not be permanently embedded on a blockchain solution.
Regulatory concerns: The European Union's incoming General Data Protection Regulation regarding consumer data privacy and ownership rights and the US Fair Credit Reporting Act, the GrammLeachBliley Act and the SEC's "Regulation SP" all require personal financial data to be redactable—something that is not possible on an immutable platform.
Managing Director, Capital Markets Blockchain Lead
Accenture has created a prototype of a new capability that enables blockchain technology to be edited under extraordinary circumstances. The capability allows enterprises to resolve human errors, accommodate legal and regulatory requirements, and address mischief and other issues, while preserving key cryptographic features, because it:
Allows designated authorities to edit, rewrite or remove previous blocks of information without breaking the chain.
Enables blockchain editing by using a new variation of the “chameleon” hash function, through the use of secure private keys.
Ensures that flawed smart contracts can be updated at the time the contract was issued and the changes would apply to subsequent smart contracts in the chain.
Remains compatible with current blockchain designs, can be implemented now and requires only minimal changes to current application software. Preserves the virtues of immutability by making it possible to identify blocks that have been changed with an inevitable “scar” that cannot be removed, even by trusted parties.
DR. GIUSEPPE ATENIESE
A leading cryptographer and professor of computer science at The Stevens Institute of Technology
We’re on the cusp of a profound revolution in the way information is processed, stored and distributed across permissioned blockchain and distributed ledger systems. Accenture recommends considering the editable blockchain capability as an option in specific circumstances due to these key factors:
The distributed ledger technology needs to evolve to adapt to an imperfect world where human error, laws and mischief will require flexibility,
An editable form of blockchain will make the technology more practical and useful for enterprise systems and accelerate its adoption,
Having the ability to edit, rather than append, smart contracts will preserve time and resources,
It will allow financial institutions to properly manage risk and meet the complex regulatory requirements under which they operate,
It combines the confidence that comes from immutability with the pragmatism required in financial services.