Like AI, blockchain has seen rapid adoption in a number of industries and functions. Blockchain’s ability to create an immutable, transparent and secure record of transactions and data, governed by a consensus, removes the need for central aggregators or intermediaries. It allows immediate reconciliation, improves the integrity of data and generates trust because it allows participants to provide increased transparency to stakeholders and gain control of their own operations in a digital environment.
While most famous for powering cryptocurrencies, far broader applications are emerging for how enterprises can use blockchain to increase trust and create efficiency across their operations. In the supply chain for instance, blockchain is being used to enhance traceability and fight counterfeiting.
But blockchain can also create new risks. As with any digital system, code integrity is vital to create trust in the platform, and cybersecurity is an inherent risk in a weak code.
There are also more macro-scale challenges to implementing blockchain solutions, such as a lack of standardization in protocols, and inconsistent regulation and legislation. Risks can also originate off-platform – if the information on the blockchain comes from activities outside the blockchain, how can the originating transaction be verified?
To mitigate such potential financial and operational risks from blockchain, participants must:
- Follow best practice in internal control frameworks, focusing on safeguarding assets, existence, rights and valuation
- Evaluate IT risk, including cybersecurity, smart contracts, access rights and program change
- Implement compliance with tax, legal and regulatory matters, such as Know Your Customer (KYC) checks and anti-money laundering legislation
- Periodically review and evaluate cryptography and consensus mechanisms
- Perform analysis of the blockchain data
- Leverage trusted independent parties to review and report on process, and work towards building in trust by design.
To build trust in the blockchain, it will be essential for companies to gain independent visibility of the data, the transacting parties and the transactions recorded on the ledger.
Even though blockchain can create trust, it does not remove the need for assurance in the process itself, nor in the performance and financial outcomes.