While distributed ledger technology (DLT) promises a securer and more transparent way to pay and transact, any system is only as strong as its weakest link. So what are the risks of DLT networks?

Much has been said about how blockchain is set to transform the financial services industry and make payments and trade finance faster, more secure and more transparent. But few people are really focusing on the potential weaknesses of a blockchain-based payments or trade finance system. Yesterday, CTMfile covered a report from the Committee on Payments and Market Infrastructures (CPMI), which identified some of the risks and security weaknesses in blockchain technology. The main risks it highlighted for payment systems were:

1. potential uncertainty about operational and security issues arising from the technology;
2. the lack of interoperability with existing processes and infrastructures;
3. ambiguity relating to settlement finality;
4. questions regarding the soundness of the legal underpinning for DLT implementations;
5. the absence of an effective and robust governance framework; and
6. issues related to data integrity, immutability and privacy.

Where is the weakest link?

Another voice advising caution and a real focus on blockchain's security weak spots is Dan Robinson, from the technology company Chain, who spoke to the Association for Financial Professionals (AFP) about this topic. He explains that, with a very large amount of processing power, it is possible to carry out attacks (for example a 'double-spend' attack) on proof-of-work blockchains (such as Bitcoin or Ethereum, which are non-permissioned networks). Robinson points out that permissioned ledgers are stronger but he warns against simply looking at the strengths in a system and basing an assessment on that. He says: “Something we try to focus on are the weak points. Often this isn't the protocol itself or the cryptography, but it's the end-point where someone connects to the network, so the exchanges where somebody trades or the places where keys [to access blockchains] are kept. Ultimately, a system is only as strong as its weakest link.”

See the AFP's interview with Robinson here.

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CTMfile take: And isn't it us humans who are usually the weakest link in any system?