Moody's warned about the risks of private blockchains

The leading rating agency Moody's has published a new report that discusses scenarios for the use of blockchain technology in securitizing financial assets, and describes the possible risks of such an approach. This writes CoinDesk .

The authors of the report entitled “Blockchain increases operational efficiency for securitization under the conditions of new risks” also pay attention to the level of security of private blockchains. According to them, the mechanisms of consensus in such networks may not be as strong as in public blockchains, or may be absent altogether.

“Private / centralized blockchains are more at risk of fraud, since the development and administration of the system remains under the control of one or more parties, ” the report says.

As emphasized in Moody's, a key element of risk management is reliable blockchain management. From this point of view, private blockchains with a clearer structure of governance and responsibility will undoubtedly benefit. At the same time, it is noted that although decentralized systems simplify data recovery and auditing, they increase the number of attack vectors.

In addition, new types of risks are associated with blockchains, the report says. Thus, technology replaces the trust in “known others” (people, institutions, intermediaries) with trust in “unknown others” and processes that are difficult to see and understand from outside.

However, the report also discusses the potential benefits of the blockchain for certain industries. For example, the use of smart contracts can simplify the creation of securities and their further management. Nevertheless, the technology has not yet reached maturity, and therefore “in the near future, applications will remain experimental, limited pilot phases with a small number of participants and / or parallel processing with traditional technologies,” the authors write.

Another promising option for using the blockchain technology is the lending industry. Placing information about loans in the blockchain, along with data on securities secured by a loan, will make communication between these parts of the banking business faster and easier, and the information will be updated and changed automatically.

The report also provides examples of successful implementation of blockchain-based solutions. For example, some EU countries have already begun to use technology in land registries.

Additionally, the authors of the study touch upon the possibility of using smart contracts as legally binding agreements. Such a future, in their opinion, is quite realistic, although it will take a lot of time to do this.

Earlier in April, Forbes Magazine published a list of companies with a capitalization of more than $ 1 billion that use distributed registry technology in their activities . It included blockchain and crypto companies directly, as well as representatives of the traditional finance world, including Amazon, Walmart, Facebook, Mastercard, Microsoft, Nestle and Google.

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