Blockchain's main characteristics present many challenges to the legal and regulatory framework and organzations that want to develop a decentralized application on a blockchain also face a new set of risks and issues. What are they and how can organisations mitigate them?
Blockchain, or distributed ledger technology (DLT), is a tamper-evident and tamper-resistant digital ledger implemented in a distributed fashion.
This emerging technology, which enables direct transactions within a ledger without need for a central authority or trusted intermediary, has the potential to re-engineer economic models and enable the creation of markets and products previously unavailable or unprofitable across emerging markets.
However, in considering the potential benefits of blockchain, organizations must also consider the associated risks and how they can be managed.
These risks include jurisdictional challenges, crypto assets, privacy and data protection, double spending, and distributed denial-of-service (DDoS) attacks.
Several risks have been identified and overcome at similar innovative leaps in the recent past, including the commercialization of the Internet and cloud computing.
It is essential that enterprises understand all risks inherent in blockchain systems, including being able to clearly identify who is accountable and legally responsible.
This article examines:
- some of the key issues that present risks to organisations wishing to adopt blockchain technology;
- how these can be understood and mitigated; and
- the potential adoption models that can be considered.
The article was co-written by Gordon Myers, Chief Counsel, Legal Department, Technology and Private Equity, IFC, and Co-Chair, Legal and Policy Community, ITS Innovation Lab, World Bank Group and is was first published in the January 2019 edition of IFC, a member of the World Bank Group.
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