Group Co.
Forget Your Blockchain, Smart Contract Benefits If Your Data Isn’t in Shape
Traders Magazine Online News, August 6, 2018
No doubt, blockchain adoption and deployment has been overly hyped, but the distributed ledger technology will ultimately prove useful – and even transformational - to many industries, including financial services.
In financial services, blockchain technologies will result in cost savings by reducing the need for reconciliation, improving audibility and reducing duplicate and inaccurate documentation. Almost 80 percent of financial services incumbents expect to adopt blockchain as part of an in-production system or process by 2020, PwC research shows. The list of potential uses for blockchain in financial services is vast, from settlements to smart contracts—computer programs running on the ledger—to share trading to simplifying cross border payments.
But to get the most from blockchain technologies, companies will first need to make sure their data is in order. In much the same way that artificial intelligence (AI) depends on good data to be useful, a proper blockchain implementation is also very dependent of quality data, perhaps even more so than AI.
Garbage In = Garbage Out
When it comes to data and blockchain, the old adage of “garbage in equals garbage out” looms particularly large for some of the more forward-thinking blockchain potential implementations. Let’s take smart contracts as an example.
Loosely defined, smart contracts are pieces of code stored in a blockchain that automatically take certain actions when predefined conditions have been met. But if one is to trust that a machine, the blockchain, will settle the contract correctly, the data going into the blockchain has to be trustworthy. That’s where good data governance is critical. What’s more, the more complex the data going into the blockchain—such as terms and conditions of a derivative trade—the more important the governance of such data becomes.
After all, blockchains can only take responsibility for the accuracy and quality of data once it has been inputted into the blockchain.
“You need to trust the data being pulled from organizations’ existing source systems is of good quality,” writes Deloitte in a report, Blockchain & Cyber Risk. In that report, Prakash Santhana, a Deloitte managing director, is quoted as saying “the biggest vulnerability in the blockchain framework will lie outside the framework in ‘trusted’ oracles. A corrupted oracle could potentially cause a domino effect across the entire network.”
If smart contracts can be trusted, it will also be because the data management processes around them (i.e. outside the blockchain) can be trusted. And it will be new and novel approaches to data governance that will ensure that such data is of suitable quality. When this happens, financial services firms will benefit by automating many processes, including paper intensive ones, reducing the time associated with settlement and clearing of transactions and improving accuracy and audit trails.
Good data governance is also critical to make sure that, if data goes to a public blockchain, certain things about the data are still kept private. In such cases, data governance processes enforce what can and what cannot go onto the blockchain.
For more information on related topics, visit the following channels:
Comments (0)