The Fresh York Times
September 9, 2016
There has been much discussion about the potential of blockchain, the technology underlying virtual currencies like Bitcoin, to switch the world. We have heard swings of inspired commentary on how the technology, with its capability to share information and record transactions, will be as revolutionary as the internet itself. At Accenture, we agree about these large possibilities, but there is an elephant in the room that will need to be confronted.
One of the accepted virtues of blockchain is that it creates a permanent, immutable ledger of transactions. For example, each of the toughly one hundred sixty million Bitcoin transactions that have occurred since the cryptocurrency began in two thousand nine will stay on that ledger as long as Bitcoin exists.
That permanence has been vital in building trust in the decentralized currencies, which are used by millions of people. But it could severely limit blockchain’s usefulness in other areas of financial services relied on by billions of people. By clashing with fresh privacy laws like the “right to be forgotten” and by making it almost unlikely to resolve human error and mischief efficiently, the blockchain’s immutability could end up being its own worst enemy.
The financial services industry needs to face the question of how to balance the appeal of pristine accounting with the requests of the real world, where some things simply need to be struck from the records.
This challenge is coming to light with fresh data privacy rules like the European Union’s general data protection regulation, which will add fresh consumer data privacy and ownership rights over the next two years. These rules will not just affect Europe; they will have a far-reaching influence on global companies, and not least on the back offices of major financial institutions.
Entities anywhere in the world that treat individual data belonging to Europeans will be affected by such laws, and infractions could lead to fines of four percent of revenue. Little wonder that Accenture clients are asking how they will defend the “right to be forgotten” rules using blockchain technology that always remembers.
Blockchain’s immutability could eventually run at odds with existing regulations, too. For example, the United States Fair Credit Reporting Act, the Gramm-Leach-Bliley Act and the Securities and Exchange Commission’s Regulation S-P all require individual financial data to be lightly redacted.
For blockchain purists, simply questioning the immutable nature of the technology is a heresy to be resisted. Like the early internet pioneers who eyed e-commerce as a crass concept that would spell the end of the web as a place for “cooperation and helpfulness,” many of today’s strongest blockchain advocates, however often very inventive and visionary, tend to be more idealistic than pragmatic about blockchain’s evolution. (It’s worth noting that the internet, arguably the world’s primary social fabric, now also supports commerce inbetween two billion people every day.)
For example, a hacker exploited a programming error this spring in a self-executing blockchain “smart contract,” stealing more than $60 million of “ether” (another digital currency) from a start-up fund called the Decentralized Autonomous Organization.
When lawyers argued that the hacker was entitled to the assets under the erroneous code, a surprising number of blockchain purists agreed. Even after the project’s leaders succeeded in winning a consensus of participants to bifurcate the code at a point before the transaction occurred, a large number of participants proceed to use the version of the chain where the theft occurred.
One thing is clear: If the financial services industry is to embrace a fresh technology, it cannot be one in which mischief and mistakes are immutable and fraudsters can defend their deeds on spurious ideological grounds. Even the smartest contracts can be susceptible to human error, and even the cleverest I.T. architectures will be hit by events that need to be undone.
We need the means to solve this challenge, while maintaining blockchain’s vast strengths. At Accenture, we’re working with leading academics on a prototype that would enable blockchains to be amended or redacted where necessary — under responsible governance models potentially developed in cooperation with regulators.
The venture capital community has invested more than $1.Four billion in blockchain applications over the last three years, according to the World Economic Forum. This year alone, banks and technology companies are expected to spend more than $1 billion out of their own pockets to develop the technology.
But if blockchain is to budge beyond cryptocurrency and lab experiments to real and profitable deployments, we need to challenge conventional orthodoxy and rethink the role of absolute immutability. Perhaps we will then soon be able to read more about blockchain’s achievements rather than its potential.
Richard Lumb is Accenture’s group chief executive for financial services.