In a working paper posted yesterday, the Bank for International Settlements (BIS) posted a treatise on Novel risks, mitigants and uncertainties with permissionless distributed ledger technologies (DLT).
The executive summary of the paper is brief, explaining:
“Banks that transact on permissionless blockchains or similar distributed ledger technologies (DLTs) face risks related to operations and security, governance, legal, compliance – including money laundering/financing of terrorism (ML/FT) – and settlement finality. Certain risks stem from the blockchains’ reliance on unknown third parties, which makes it difficult for banks to conduct due diligence and oversight. These risks require new risk management strategies and safeguards. Current practices for mitigating these risks remain in various stages of development and have not been tested under stress.”
The document then goes on to provide some detail on permissionless blockchain risk. Possible solutions to the apparent shortcomings while noting the tech is not yet mature and new solutions as well as risks will probably emerge.
