Moody's, a famous financial rating agency, has released a report on blockchain risks

Coindesk (Coindesk)postIn a report to clients, the financial rating agency Moodys listed several risks of private chains, or centralised blockchains, and warned of them. The report analyzes the advantages and disadvantages of blockchain technology for financial companies.

Moodys (nyse: MCO) contributes positively to the transparency and integrity of financial markets by providing credit ratings, research reports, research tools and analysis.

Moody's affiliates include Moodys Investors Services and Moody's ' S Analytics. The former provides credit ratings and research on debt instruments and securities, while the latter provides advanced software, advisory services and research papers on credit and economic analysis and financial risk managementTell them. Blockbeats, Moody'sWith total revenue of $4.2 billion in 2017, it currently has approximately 12,000 employees in 42 countries/regions worldwide.

Moody's recently released a report titled "with new risks, blockchain improves operational efficiency of securitization," which describes the basic characteristics and promises of blockchain technology and explains how Banks and other companies can use it to their advantage.

In the report, Moodys highlighted the security differences between private and public blockchains, saying that consensus mechanisms in private blockchains may not be as powerful as those in public blockchains, or may not have security mechanisms at all. "Private chains/centralized blockchains are more susceptible to fraud risk because system design and management remain concentrated in one or more areas," the report said.

"Sound blockchain governance is key to risk management," the report continued. In this case, private chains still have an advantage in the eyes of Moodys. Private blockchains with clearer governance and accountability structures will prevail. In addition, although decentralized systems make data recovery and auditing easier, they increase the "number of attack gateways."

Moodys argues that the emergence of blockchain actually poses a new risk. The technology "replaces trust in" known others "(other humans, institutions and intermediaries) with trust in" unknown others "(code, entities and dynamics that are hard to see and understand from the outside).

However, the Moodys report also discusses the potential for blockchain to bring benefits to multiple industries. For example, using smart contracts can simplify the creation and management of securities. Although, as the technology has not yet reached maturity, "in the short term, applications will remain experimental, limited to a small number of participants and/or pilot phases of processing in parallel with traditional technologies," the report notes.

Another promising example of widespread use is loan issuance, where placing loan information along a chain with data on securities backed by loans would allow Banks to communicate faster and more directly with these institutions, while information would be updated and changed simultaneously.

Code as law? There is still a long way to go

The report also mentions the possibility of using smart contracts as legally binding agreements in the future. Because scripting languages lack flexibility, computer code is unlikely to completely replace natural language contracts. In addition, "parties to a smart contract should consider governance and control mechanisms to ensure that there is no greater difficulty in modifying the original contract at a later stage," they write.

As early as 2016, Moodys revealed that the governments and companies it rates are working on as many as 120 different blockchain-related projects. Blockbeats has learned that in April last year, the company released a report saying blockchain technology could help the us mortgage industry cut spending by up to $1bn.

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