Private blockchain may pose risks, report warns, but governance advantages

Rating agency Moody’s has issued a warning against private, centralised blockchains, CoinDesk writes. Moody's report entitled “Blockchain Improves Operational Efficiency for Securitizations, Amid New Risks” noted that private blockchain may not have consensus mechanisms as secure as public blockchains. In fact, those safeguards may be completely absent from some private chains, exposing them to fraud risks.

“Private/centralised blockchains are more exposed to fraud risk because system design and administration remains concentrated with one or few parties,” Moody's writes.

However, private blockchains win when it comes to the governance and responsibility structure—it is much clearer. Moreover, a decentralised blockchain may pose additional issues, for instance, it provides a “number of gateways for attacks.”

The report argues it is actually the new technology that causes new threats. It “replaces trust in the ‘known other’ (other humans, institutions, intermediaries) with trust in the ‘unknown other’ (code, entities and dynamics that are hard to see and understand from the outside).”

Despite blockchain's drawbacks, the report points to various industries that may benefit from blockchain. Smart contracts may make creation and management of securities easier. Similarly, the tech could streamline loan issuance, it concludes.