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Risks and standards that affect blockchain adoption

Key takeaways

Apr 01, 2020 • 6 min read

Key takeaways

This paper presents perspectives on risks and standards that affect the requirements engineering of blockchain technology.

A lack of standardization and requirement engineering approaches are reasons for the failure of 92% of all blockchain projects.

A systematic literature review provides insights into leading developments in academia and industry.

A clear need for standards-based approaches and structured requirements engineering is demonstrated.

Journal

Computer Standards &
Interfaces (Volume: 69)

Authors

Nusi Drljevic

Daniel Arias Aranda

Vladimir Stantchev

Summary

Summary

Considerations of block-chain-based transformation

The need-to-know risks and standards that will help you successfully run blockchain projects and reimagine your business.

Due to the promising, yet disruptive nature of blockchain, current research attempts to grasp what this technological leap will mean for a wide spectrum of industries and use cases. High expectations surround blockchain’s potential for contributing to sustainable socio-economic advances.

Blockchain aims to transform businesses and other forms of transactions from a centralized, human-based to a shared, algorithm-based trust model, which requires a new risk management paradigm. Misaligned incentives in different principal – agent scenarios are important risk factors from a governance point of view. With blockchain, these misalignments are accounted for algorithmically, therefore novel governance models are possible.

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Kenza insights article blockchain technology sustainable adoption human with digital patterns and quote

What role do risks play in terms of deciding for, or against the adoption of blockchain?

This paper explores standards and risk as factors, which can support or hinder the
sustained application of blockchain in a broad scope of environments. We conducted a systematic literature review that outlines a current understanding of perceived risk surrounding the adoption and use of blockchain technology in the context of requirements engineering. Furthermore, selected models for managing risks are presented.

Finally, areas where deeper research is required are identified. We conclude that a gap
exists in normative frameworks that affect the adoption and sustainable use of blockchain technology. Closing this gap can support the sustainable use of blockchain technology.

Introduction

Introduction

Categorisation for smarter
decision-making

Defined blockchain functionalities that make it easy to identify and take advantage of business growth opportunities.

Blockchain is a shared, distributed and synchronized ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible, such as a house, car, money, land, or intangible, such as intellectual property, energy, patents or copyright. Virtually anything of value can be tracked and traded on a blockchain network. A ledger is comprised of unchangeable, digitally recorded data in blocks. These blocks are stored in a chain and are spread across multiple servers in a public or private peer-to-peer network to eliminate manipulation.

The synchronization of the ledger database, the agreement of content and transactions within the ledger, requires a validating consensus protocol between all parties. The protocol effectively manages the risks associated with entries on the ledger, e.g., double spending. Blockchains can be either private, or permissioned, which allows only selected parties to submit and validate transactions, or public and unpermissioned, which enables anybody to submit a transaction and participate in validating the network. Hybrid versions exist as well. These alternatives present different challenges with respect to risk management.

Table 1:

Functionalities of blockchain types

FunctionalitiesPublic blockchainFederated blockchainPrivate blockchain
IdentityAnonymous usersIdentified usersIdentified users
ReadPublicPublic or restrictedPublic or restricted
WriteAnyoneAuthorized participantsNetwork operator only
ImmutabilityAlmost impossible to tamperCollusion attacks possibleCollusion attacks possible
Consensus mechanismCostly proof-of-work,proof-of-stake: all miners – permissionlessLight proof-of-work, federated consensus:selected set of nodes – permissionedPractical byzantine faulttolerance (PBFT) federated consensus: centralized organization – permissioned
Protocol efficiencyLow levelHigher levelHigh level
Energy consumptionHigh levelLower levelLow level
Transaction speedOrder of minutesOrder of millisecondsOrder of milliseconds
HostingPublic serversPrivate serversPrivate servers
ScalabilityLow levelMedium levelHigh level
ExamplesBitcoin, EthereumEWF, B3iHyperledger, Ripple
Methods

Methods

Risk parameters for resilient implementation

How managing business process in combination with blockchain is the key to igniting value creation.

There appears to be high expectations and potential promise for blockchain technology’s contribution to sustainable socio-economic advances, due to the technology’s functions for increasing the transparency and traceability of goods, services and any other assets, facilitating market access and improving the efficiency of transactions. However, major risks are addressed in various research literature and specialized media publications, questioning whether the technology is far enough in its development to be adopted and applied.

The scope and speed of blockchain adoption speaks for change and requirements management being a standard area of perceived risk.

80%

of the blockchain technology is related to the change in business processes and 20% to implementation of the technology.

A clear understanding of related requirements standards and perceived risks surrounding blockchain could provide insights into the transformative nature of this technology in its relatively early stages of maturity. Blockchain adoption requires businesses to transform, not only in terms of becoming decentralized and transparent, but also employing requirements engineering and risk management across all stages of the innovation lifecycle, i.e. throughout end-to-end transformation process. Furthermore, without considering potential risks and challenges, the price to pay due to reverse effects might surpass the potential socio-economic benefit expected from blockchain.  

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Kenza article blockchain technology sustainable adoption machine with quote

Blockchain is a double-edged sword: without considering risks at all stages in a structured way, the technology could have a negative ripple effect and actually hinder sustainable growth.

Specific risks in blockchain adoption include: missing return-on-invest (ROI) and missing business value, unsustainable usage scenarios, as well as insufficient understanding of the technology potential that is directly attributable to missing standards and requirements engineering practices in the subject matter.

An example for such standard is the ISO/IEC/IEEE 29148 standard.1⁠ Developed and supported by the leading international standardization organizations, the standard uses a lifecycle based approach to outline processes and products related to the engineering of requirements. 

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