Bridging The Gap Between Legacy Business Systems and Blockchain
A decade down the line, fundamental challenges including technological weaknesses, security vulnerabilities, and regulatory uncertainties are hindering the widespread adoption of blockchain, writes Lars Seier Christensen, Chairman of Concordium.
Though still in its infancy, much has been written about the potential of blockchain and it is widely accepted that this emerging technology will transform a myriad of industries, from banking and finance, to healthcare and real estate.
Despite this, a glaring gap continues to divide today’s businesses with blockchain’s current offering.
Blockchain platforms are still struggling to find their feet and the pitfalls of many blockchain platforms, including technological weaknesses, security vulnerabilities, and regulatory uncertainty continue to keep legacy business systems from realizing blockchain’s full potential.
One of the most innovative blockchain concepts with the potential to revolutionize transactions is the smart contract. Smart contracts allow for transactions to be executed between trustless parties without the need for an intermediary. However, the lack of formal verification around smart contracts means that if there are programming errors in contract codes, users are exposed to major security risks.
In addition, high energy consumption due to blockchain’s use of proof-of-work algorithms is damaging for both the environment, as well as the industry’s reputation.
While it is most commonly known as the technology underpinning bitcoin, cryptocurrencies and blockchain have struggled to emerge from the shadow of Silk Road. Borne out of an ideology of anonymity, this has made many platforms hubs for criminal activity and undoubtedly tarnished the industry’s reputation Unsurprisingly, the anonymity of transactions recorded on the blockchain is simply not an option in most industries. Large businesses will not want purchasing information to be accessible to competitors, and financial investors will require privacy and confidentiality.
Regulating the space is an ongoing, albeit contentious, debate among developers, business owners, and legislators alike. While the crypto and wider blockchain industry has operated in somewhat of a Wild West legislative framework, regulation is poised to play a pivotal role in shaping blockchain-powered business’ offerings in the future.
While some may view regulation as a hindrance to blockchain’s potential, it is a necessary step in securing buy-in from legacy and institutional players. If we are to accelerate mainstream usage of the technology, businesses must ensure that they are complying with regulatory requirements, ranging from ID/KYC verification to simple checks such as VAT numbers or customer age.
Top industries are built around key pillars of privacy, trust, security, and regulatory engagement and those who succeed in blockchain will be those who are willing to meet these rules and requirements.
In my view, the gap between blockchain platforms and legacy business models can be addressed by integrating formal verification of smart contracts and avoiding problems associated with flawed codes; facilitating the ID verification of users, ensuring legitimacy and building trust between parties; incorporating appropriate privacy features that allow for revocation in the case of regulatory transgressions; and being willing to engage with regulators to ensure that the blockchain industry has a positive impact on society and has long-term market sustainability.
By meeting legacy businesses’ requirements with practical, innovative solutions, blockchain platforms and ecosystems will be made suitable for widespread adoption, while still maintaining its unique offering of transparency, immutability, and decentralization.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.