Blockchain Risk Mitigation Strategies

This assignment focuses on evaluating various risk mitigation approaches within the context of blockchain technology. It delves into strategies for addressing key risks such as those related to security, decentralization, data governance, and business continuity. Students are asked to analyze the effectiveness of different techniques, including cryptographic protocols, permissioned blockchains, and secure implementation practices. The assignment aims to assess understanding of the complexities and challenges associated with securing blockchain systems.

Running head: BLOCKCHAIN AND RISK MANAGEMENT
Risk management in blockchain
إدارة المخاطر في المعامالت الرقمية (البلوك تشين )
By
xxxx
A dissertation submitted in fulfilment of the requirements for the
degree of
MSc PROJECT MANAGEMENT
At The British University in Dubai
xxxxx
October 2018

BLOCKCHAIN AND RISK MANAGEMENT
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be specified in the application, together with the precise reasons for making that application.
Sultan Al Houli
_______________________
Signature of the student

BLOCKCHAIN AND RISK MANAGEMENT
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BLOCKCHAIN AND RISK MANAGEMENT
Abstract
The aim of the research is to identify the different concepts of blockchain which helps in easier
identification of the different risks and the issues associated with blockchain technology.
Blockchain is an emerging concept and therefore, it is necessary to identify the different risks
and the issues associated with the blockhain technology. The research involves an extensive
literature review that aims in thorough understanding of the different concepts and the structure
of blockchain architecture. The data collection and data analysis is an important chapter of this
research project since it aims in providing an accurate knowledge about the effectiveness of the
different risk mitigation approaches that is identified in the literature review section. The
research objective is to identify the different risks and the issues associated with a blockchain
technology, its system and applications along with the recommendation of the strategy that will
help in easier management of the risk and different issues associated with the use of blockchain.
It is essential to identify the different risks associated with the use of blockchain and its
application and the use and adoption of the blockchain technology is expected to increase in
future

BLOCKCHAIN AND RISK MANAGEMENT
نبذة مختصرة
الهدف من البحث هو التعرف على المفاهيم المختلفة لتقنيةالبلوكتشين مما يساعد في التعرف على
المخاطر المختلفة والمسائل المرتبطة بتكنولوجيا البلوك تشين. البلوك شينهو مفهوم ناشئ وبالتالي ،
.اختار الباحث نهجًا أساسيًا فمن الضروري تحديد المخاطر المختلفة والقضايا المرتبطة بتقنية البلوك تشين
.لجمع البياناتاألولية لهذه الدراسة يتضمن البحث مراجعة شاملة للدراسات السابقة والتي تهدف إلى فهم
.شامل للمفاهيم المختلفة وهيكل بنية البلوك تشين يعتبر قسم مراجعة الدراسات السابقة جزءًا مهمًا من
.هذا المشروع البحثي حيث يهدف إلى تحليل المفاهيم المختلفة والقضايا المرتبطة بتكنولوجيا البلوك تشين
يتبعه قسم مراجعة الدراسات السابقة في البحث ، يهدف البحث إلى جمع البيانات األولية وتحليل البيانات
.إحصائيا ًيمثل جمع البيانات وتحليل البيانات فصال ًهامًا من هذا المشروع البحثي ، حيث يهدف إلى توفير
معرفة دقيقة حول فعالية أساليب تخفيف المخاطر المختلفة التي تم تحديدها في قسم مراجعة الدراسات
.ًالسابقة الهدف من البحث هو تحديد المخاطر المختلفة والقضايا المرتبطة بتكنولوجيا البلوك تشين جنبا
إلى جنب مع توصية االستراتيجية التي ستساعد في سهولة إدارة المخاطر والقضايا المختلفة المرتبطة
.باستخدام البلوك تشين من المهم أن نفهم الحاجة إلى إدارة مختلف القضايا والمخاطر المرتبطة بالبلوك
.تشين ضخمة ألنها تستخدم من قبل عدد من منظمات األعمال في اآلونة األخيرة هناك عدد من التطبيقات
لتكنولوجيا البلوك تشينالتي تشملالعملة الرقمية ( بتكوين)، والعقود الذكية ،ايثريوم.وهلم جرا من
الضروري تحديد المخاطر المختلفة المرتبطة باستخدام البلوك تشين وتطبيقاته ومن المتوقع أن يزيد
.استخدام وتبني تقنية البلوك تشين في المستقبل وقد تم اتباع نهج منظم للبحث للتوصل إلى أسئلة البحث
المحددة واإلجابة عليها

BLOCKCHAIN AND RISK MANAGEMENT
Acknowledgement
The research study has considerably helped me in improving my knowledge and ability. This has
been possible as the research project have helped me in facing the challenges and conquering
them. It would not have been possible for me to conduct the research without the significant
direction of my professors, companions and every one of who have added to this advancing
knowledge. I want to thank my supervisor Dr Maria Papadaki for helping me in my research
work as well as for giving their full support during the research study. I would also thank all the
participants within this study for giving their time and helping me out with the project. From the
support of people, I am inspired to work on further researches in this subject area. Finally, thank
you to my family members who always encouraged me. Thank You.

BLOCKCHAIN AND RISK MANAGEMENT
CONTENTS
CHAPTER 1: INTRODUCTION........................................................................................1
1.1. BACKGROUND OF THE RESEARCH STUDY...................................................1
1.2. AIMS OF THE STUDY...........................................................................................4
1.3. OBJECTIVES OF THE STUDY..............................................................................5
1.4. RESEARCH QUESTIONS......................................................................................5
1.5. RATIONALE OF THE STUDY..............................................................................6
1.5. SCOPE OF THE RESEARCH.................................................................................7
CHAPTER 2: LITERATURE REVIEW...........................................................................10
2.1. INTRODUCTION..................................................................................................10
2.2. THE CONCEPT OF BLOCKCHAIN....................................................................10
2.3. HISTORY OF BLOCKCHAIN TECHNOLOGY.................................................13
2.4. WORKING PRINCIPLE OF BLOCKCHAIN......................................................14
2.5. BENEFITS OF BLOCKCHAIN............................................................................16
2.6. BLOCKCHAIN ARCHITECTURE.......................................................................18
2.7. KEY CHARACTERISTICS OF BLOCKCHAIN.................................................19
2.8. CHALLENGES WITH BLOCKCHAIN...............................................................20
2.9. MAJOR RISKS WITH BLOCKCHAIN................................................................22
2.10. BLOCKCHAIN AND RISK MANAGEMENT..................................................29
2.10.1. RISK MANAGEMENT................................................................................30
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2.11. RISK MANAGEMENT IN BLOCKCHAIN.......................................................32
2.12. CHAPTER SUMMARY......................................................................................37
CHAPTER 3: METHODOLOGY.....................................................................................40
3.1. INTRODUCTION..................................................................................................40
3.2. RESEARCH ONION..............................................................................................40
3.2.1. FIRST LAYER OF RESEARCH ONION......................................................42
3.2.2. SECOND LAYER OF RESEARCH ONION.................................................43
3.2.3. THIRD LAYER OF RESEARCH ONION.....................................................44
3.2.4. FOURTH LAYER OF RESEARCH ONION.................................................44
3.2.5. FIFTH LAYER OF RESEARCH ONION......................................................45
3.2.6. SIXTH LAYER OF RESEARCH ONION.....................................................45
3.3. RESEARCH PHILOSOPHY..................................................................................46
3.3.1. DEFENSE OF SELECTING POSITIVISM PHILOSOPHY..........................47
3.4. RESEARCH APPROACH.....................................................................................47
3.4.1. DEFENSE FOR SELECTING DEDUCTIVE RESEARCH APPROACH....48
3.5. RESEARCH DESIGN............................................................................................48
3.5.1. DEFENSE FOR SELECTING DESCRIPTIVE RESEARCH DESIGN........49
3.6. DATA COLLECTION METHODOLOGY...........................................................50
3.7. DATA ANALYSIS METHODOLOGY................................................................51
3.8. POPULATION AND SAMPLE.............................................................................51
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3.9. ETHICAL CONSIDERATIONS............................................................................52
3.10. CONCEPTUAL FRAMEWORK.........................................................................53
3.11. RESEARCH HYPOTHESIS................................................................................54
3.12. CHAPTER SUMMARY......................................................................................54
CHAPTER 4: DATA ANALYSIS....................................................................................55
4.1. INTRODUCTION..................................................................................................55
4.2. ANALYSIS OF THE COLLECTED DATA.........................................................55
4.2.1. DEMOGRAPHIC DATA................................................................................56
4.2.2. DATA ANALYSIS OF THE DATA COLLECTED FROM SURVEY.........59
4.3. TEST OF RESEARCH HYPOTHESIS.................................................................81
4.4. CHAPTER SUMMARY........................................................................................82
CHAPTER 5: DISCUSSION............................................................................................84
5.1. INTRODUCTION..................................................................................................84
5.2. EFFECTIVENESS OF ENCRYPTION.................................................................85
5.3. EFFECTIVENESS OF DIGITAL SIGNATURE..................................................88
5.4. EFFECTIVENESS OF CRYPTOGRAPHY..........................................................90
5.5. EFFECTIVENESS OF EFFICIENT KEY MANAGEMENT...............................92
5.6. MITIGATING THE DATA VULNERABILITY RISKS......................................94
5.7. CHAPTER SUMMARY........................................................................................95
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CHAPTER 6: CONCLUSION AND RECOMMENDATION FOR FURTHER
RESEARCH..................................................................................................................................97
6.1. LINKING WITH THE OBJECTIVE.....................................................................98
6.2. RESEARCH LIMITATION.................................................................................101
6.3. RECOMMENDATIONS......................................................................................102
6.4. FUTURE RESEARCH.........................................................................................103
REFERENCES................................................................................................................105
APPENDIX......................................................................................................................114
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TABLE OF TABLES
Table 1: Demographic Data of Field of Work of the Respondents62
Table 2: Demographic Data about the experience of the respondents in their field of work64
Table 3: Representing the opinion about encryption being a risk mitigation approach65
Table 4: Representing the opinion about enforcing digital signature a Risk mitigation approach67
Table 5: Representing the response about the choice of a trusted vendor68
Table 6: Representing the opinion about Cryptography being useful to mitigate the operational and IT Risks69
Table 7: Representing the opinion about Cryptography being useful to mitigate the transactional privacy Risk71
Table 8: Representing the opinion about incident response plan being useful to mitigate business continuity
Risk72
Table 9: Representing the opinion about resource sharing plan being useful to mitigate the risk of untested
growth73
Table 10: Representing the opinion about standard control being useful to mitigate the risk of decentralization74
Table 11: Representing the opinion about data governance being useful in access control76
Table 12: Representing the opinion about efficient key management being useful in mitigating security Risk77
Table 13: Representing the response about the use of antivirus78
Table 14: Representing the opinion about trusted vendor being useful in mitigating supplier risk79
Table 15: Representing the opinion about cryptographic protocols being useful in mitigating consensus protocol
risk80
Table 16: Representing the rsponse about data quality validation82
Table 17: Response about the use of Private blockchain83
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TABLE OF FIGURES
Figure 1: Representing blockchain architecture27
Figure 2: Representing the Risks33
Figure 3: Representing the steps of Risk Management38
Figure 4: Representing the structure of a research onion48
Figure 5: Representing the conceptual framework60
Figure 6: Demographic Data of Field of Work of the Respondents63
Figure 7: Demographic Data about the experience of the respondents in their field of work64
Figure 8: Representing the opinion about encryption being a risk mitigation65
Figure 9: Representing the opinion about enforcing digital signature a Risk mitigation approach67
Figure 10: Representing the response about the choice of a trusted vendor68
Figure 11: Representing the opinion about Cryptography being useful to mitigate the operational and IT Risk70
Figure 12: Representing the opinion about Cryptography being useful to mitigate the transactional privacy
Risk71
Figure 13: Representing the opinion about incident response plan being useful to mitigate business continuity
Risk72
Figure 14: Representing the opinion about resource sharing plan being useful to mitigate the risk of untested
growth73
Figure 15: Representing the opinion about standard control being useful to mitigate the risk of
decentralization75
Figure 16: Representing the opinion about data governance being useful in access control76
Figure 17: Representing the opinion about efficient key management being useful in mitigating security Risk77
Figure 18: Representing the response about the use of antivirus78
Figure 19: Representing the opinion about trusted vendor being useful in mitigating supplier risk79
Figure 20: Representing the opinion about cryptographic protocols being useful in mitigating consensus protocol
risk81
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Figure 21: Representing the response about data quality validation82
Figure 22: Response about the use of Private Blockchain83
Figure 23: Response of the respondents85
Figure 24: Responses of the Respondents89
Figure 25: Responses of the Respondents91
Figure 26: Response of the Respondents93
Figure 27: Responses of the Respondents95
Figure 28: Responses of the Respondents97
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CHAPTER 1: INTRODUCTION
1.1. BACKGROUND OF THE RESEARCH STUDY
Blockchain is an ingenious invention and is an incorruptible digital ledger facilitating the
economic transactions that can be programmed for recording every sort of transactions. The
information that is held by blockchain technology mainly exists as a shared and continually
reconciled database (Swan 2015). Blockchain can therefore be described as digital ledger which
is associated with bitcoin and transaction with other cryptocurrencies. These transactions are
recorded in chronological order and can be accessed by public. Blockchain is a technology
behind bitcoin and other cryptocurrencies as it enables a user to share their ledger of transaction
through this technology. Each transaction in a blockchain is recorded in blocks and each block is
linked with the previous block thus forming a chain. These records or block of information gets
distributed to all the participants in a particular network thus making the transaction public
(Zyskind and Nathan 2015). One significant feature of blockchain technology is that the records
can be updated only by the consensus from the majority of the participants of the transaction and
therefore this is one of the most secure transactional processes. Bitcoin is one of the mostly used
applications of blockchain technology and has gained strong focus across the financial
institution. There are a number of factors that makes the technology of blockchain a leading one.
Blockchain transactions do not require any intermediaries, which make the technology quite cost
efficient (Kosbaet al. 2016). This in turn lowers the risk of corruption and in turn reduces the
transaction costs. The technology further supports real time data processing that increases the
transparency in each transaction. The blockchain transaction further ensures improved control as
it avoids data duplications. Every blockchain transaction ensure higher data security and data
encryption and therefore blockchain technology can be securely used in payments, settlements,
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capital market, smart contracts trade finance, digitization and record keeping. Blockchain
technology indeed has a bright future.
Blockchain functions as a distributed ledger that is responsible for maintaining a
permanent and tamper proof record associated with transactional data (Underwood 2016). This
decentralized database of blockchain is managed by the computers that belong to peer to peer
network and therefore each computer in a distributed network has to maintain a copy of the
digital ledger which prevents a single point failure (Iansiti and Lakhani 2017). These copies of
transaction are validated as well as updated simultaneously in order to eliminate the chances of
error. A blockchain is a distributed database of records and is a technology where each
transaction in the public ledger is verified (Pilkington 2016). Since the entered information of a
blockchain technology cannot be erased, blockchain is considered one of the leading
technologies of recent times. Blockchain establishes a system of distributed consensus in a
digital world (Crosbyet al. 2016). This technology opens the door for development of a scalable
and democratic digital economy. This is possible as blockchain contains a verifiable record of
each transaction. However, there are certain risks associated with the use of blockchain
technology that is needed to be evaluated.
There are certain technologies, that not only improves the speed or efficiency of a process
but also revolutionize an existing paradigm. Blockchain technology is a similar technology
where the data is secured with the help of encrypted blocks that are accessed via a peer to peer
network. Since the transactions are recorded in a distributed network instead of centralized
systems, there are very less chances of risk in the system (Peters and Panayi 2016). Blockchain
has a number of applications out of which the cryptocurrency is one of the most widely used
applications of blockchain (Walch 2015). It will therefore be interesting to observe the
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development and sophistication of this technology. Before that, it is necessary to understand and
manage the risks associated with the blockchain technology. The research will mainly highlight
the risk management process that will help in easier use and application of the technology.
Although the distributed network of blockchain looks quite promising to eliminate certain
existing risks in the transactional process, it does not guarantees the elimination of the new set of
risks from the system (Zhenget al. 2016). Since it is not possible to anticipate all the risks that are
associated with blockchain, risk management associated with the blockchain technology is
essential. There are a number of risks or certain causes of risks that is needed to be addressed in
order to ensure successful implementation of blockchain applications. These risks mainly arise
because blockchain is a decentralized technology and there are no intermediaries to handle a
particular risk or dispute the resolution in times of needs. The absence of an intermediary
controller might lead to accidental loss of the private keys which in turn might result in certain
irretrievable loss (Heires 2016). Furthermore, sourcing the blockchain technology might result in
a significant third party risk exposure and therefore, the process of risk management in
blockchain becomes a necessary need.
One of the essential aspects of scrutinizing the risk management process in blockchain is
scrutinizing the cryptocurrencies since it is one of the most widely used applications of
blockchain technology. The successful adoption and operation of a new technology like
blockchain require appropriate management of the risks associated with the technology. This
concept is particularly true when a distributed ledger like blockchain is in question. The
technology of distributed ledger has potential to be used as the backbone of many core platforms
in future and therefore, risk assessment and risk management for this technology is quite
essential (Iansiti and Lakhani 2017). Blockchain as a whole helps the organizations in
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minimizing the risks associated with a system and therefore it is essential to evaluate the risks
associated with this technology.
The security in the technology of blockchain can be ensured by properly plan methods
and technologies. The strategies of risks management in blockchain will be discussed and
evaluated in this research study. The need for risk management in blockchain is integral as it is
one of the leading technologies of recent times (Iansiti and Lakhani 2017). Furthermore the
blockchain technology is considered as a foundational technology for the future of risk
management. The research study will be evaluating the different causes of risks and will try to
find out the strategies that might help in risk management and mitigation of the risk.
1.2. AIMS OF THE STUDY
The research aims at analyzing the concept of blockchain technology and the risks
associated with this technology. Blockchain is expected to be one of the leading technologies in
future and is expected to form the base of secure transactions. It is therefore essential to identify
and understand the risks associated with the blockchain technology so that the proper use of
same can be established. However, in order to understand the risks associated with the system, it
is essential to understand the technology of blockchain and this research study aims at evaluating
the same. The research report further aims at identifying the different strategies of risk
management so that the identified risks can be eliminated. For that a primary research will be
performed as the research report aims at collection of primary data for analysis of the research
problem that is to be identified (Lindman, Tuunainen and Rossi 2017). The aim of the research is
to investigate the different features of blockchain technology in order to identify the risks that are
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associated with this blockchain. The research study will be performed according to the objectives
of the research that is identified in the following section.
1.3. OBJECTIVES OF THE STUDY
The objectives of this research report as identified are as follows-
1. To understand the technology of blockchain
2. To identify the risks associated with the blockchain technology.
3. To assess the risk management process in blockchain.
4. To recommend certain strategies to eliminate the risks associated with blockchain
technology.
The above points are the identified objectives of the research project. Based on these
objectives, the research questions for this research study are formulated that will lead the project
in a particular direction.
1.4. RESEARCH QUESTIONS
The research questions that give an idea of the identified research problem that this
research project will address are as follows-
1. What is the technology behind blockchain?
2. What are the major risks associated with a blockchain?
3. What is the different risk mitigation approaches that can be employed to address the
different risks associated with blockchain?
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4. What are the strategies that can ensure secure use of blockchain technology?
1.5. RATIONALE OF THE STUDY
Blockchain is a new technology that is capable of revolutionizing the future of
transaction. Therefore it become essential to identify the risks associated with this technology so
that the mitigation of same becomes easier. Blockchains are of two types, which are permission-
less blockchain and permissioned blockchain. The permission-less blockchain allow any party to
participate in a network while that of a permissioned blockchain can only be formed by
consortiums or administrator who evaluates the participation of an entity in a blockchain
network. The risks in both permissioned and permission-less block chain is needed to be
evaluated and therefore this research project has been undertaken. Blockchain technologies in
recent times are appearing in a variety of commercial applications (Iansiti and Lakhani 2017). It
is expected that blockchain applications will be increasing in recent years and therefore, this
research project is justified as it will be unveiling the issues associated with the blockchain
applications. The use of Bitcoin which is one of the main technological innovations of
blockchain is expected to increase as well and therefore, it is essential to address the risks
associated with the blockchain and the application.
The research study evaluates the concept, feature and structure of blockchain technology.
The research project will be analyzing the various risks that a blockchain application might face
so that the strategies for eliminating those risks can be identified. The risk mitigation approaches
of blockchain technology will be evaluated in this research study.
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1.5. SCOPE OF THE RESEARCH
The entire research project is divided into a number of chapters for evaluating the
blockchain technology and the risks associated with the technology. Risk identification will be
followed by proposing certain risk mitigation approaches that will help in eliminating the
identifying risks. The overview and the brief content of each of the chapter of this research
project is discussed in the following paragraphs-
Chapter 1: Introduction- In this chapter, the topic of the research is proposed and brief
introduction of the topic, background, aims and objectives of the research topic is proposed in
this chapter. This chapter will be identifying the objectives of the research that will drive the
researcher to the right direction. This is an important chapter as it forms the basis of the entire
chapter as the objectives and the aims of the research will be identified in this chapter. This
chapter will provide an idea of the aims and objectives of the research to the readers. Structuring
the chapter to the best of knowledge of the researcher is essential in order to develop a clear base
for the research that will be conducted. The research will be based on the topic of blockchain and
risk management.
Chapter 2: Literature Review-The literature review chapter will be discussing and
analyzing the different theories associated with blockchain and risk management in blockchain.
The purpose of the literature review chapter is to place each work or theory in the context of
contribution to the detailed analysis of the identified research problem. This chapter will be
locating the research within the context of the existing literature so that understanding the
research problem is easier. The literature review chapter will be a great help of the researcher in
analyzing the concept of blockchain and risk management. This chapter will not only evaluate
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the concept of blockchain but will also identify the risks associated with the use and operation of
blockchain. The existing literature will be evaluated so that the gaps between the real life
implications and the theoretical evidences of the research study are assessed (Iansiti and Lakhani
2017). A detailed review of the literature will help the researcher in identifying and
understanding the issues and challenges in use and adoption of blockchain technology and its
different applications. The chapter provides a detailed understanding of the issues, features,
advantages and the challenges associated with the technology of blockchain. This chapter is one
of the most important chapters since it evaluates the previous researches that has been carried out
in this topic. Furthermore, it is important to incorporate the comprehensive review of the
researchers that have been performed in this field so that the future studies in this field are
evaluated. The literature review chapter will be evaluating the books, scholarly articles and
journals which are relevant to the topic of the research topic. Literature review is important to
identify the data sources that the previous researchers have used so that evaluation of the
research topic and the research problems become easier. Furthermore, the literature is important
to record the thoughts and experiences which would otherwise have been inaccessible to others
and therefore, this is an important chapter of the research project.
Chapter 3: Methodology- The research methodology chapter proposes the tools and
techniques that will be followed while performing the research in the topic of blockchain and
risk management. In this chapter the researcher identifies the process and method of data
collection. The purpose of research methodology is to inform proper action that will help in
conceptualizing the findings of the research in an appropriate manner. It is expected that a
research project will be of high quality and will be used to create or produce a knowledge that
will be applicable even outside the research setting and thus the research methodology chapter is
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an important consideration of the research. A primary research methodology will be followed in
this project and primary data will be collected by conducting surveys.
Chapter 4: Data Analysis- This chapter of the research project is one of the important
chapters of research project as this chapter provides the main findings of the research project.
This chapter provides the highlights of the collected data and the analyses the same in order to
find answers to the identified research questions. The chapter will help the researcher in
collecting relevant information that is required to channelize the entire research work in a
particular direction. The findings of this chapter will be discussed in details in the following
chapter.
Chapter 5: Discussion- this chapter will provide a discussion on the findings of the
previous chapter and the extent to which the undertaken research will be able to identify and
analyze the problems that have been identified. This is an important chapter of the research
project as it unveils the validity and the effectiveness of the research that has been performed.
Chapter 6: Conclusion and Recommendations for further research: This will be the
final chapter of the research project. This chapter will be concluding the findings of the research
and will link the objectives with the data obtained from the research. The chapter will provide
certain recommendations based on the obtained results of the research. The aim of this chapter is
to summarize the contents and the findings of the research project.
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CHAPTER 2: LITERATURE REVIEW
2.1. INTRODUCTION
The purpose of this chapter is to review the literature in the field of blockchain with an
aim of identifying the issues and risks in blockchain technology. This will help in developing the
base of the research as the literatures available in this field will be reviewed. Based on the
findings of this chapter, the different risks associated with the use of blockchain will be
identified. This would further help in collection of data for the research which will be performed
in the later section of this research paper. This chapter of the research paper discusses and
analyzes the different theories, principles and the concept associated with a blockchain
technology. Blockchain is an emerging concept and therefore the review and the findings of the
previous literature will help in understanding the concept of blockchain. Furthermore, it will
provide a preliminary idea of the different risks associated with the different applications of
blockchain. The literature review section of this research study will incorporate the current
knowledge of the researcher and previously published literature along with practical findings.
This will help in developing the base of the research topic.
2.2. THE CONCEPT OF BLOCKCHAIN
According to Scott(2016), Blockchain can be described as a digital ledger that deals with
the transactions that are made with bitcoin and other cryptocurrencies. As per its design,
blockchain is a decentralized technology used by a global network of computers that jointly
manages the bitcoin transactions. It can be considered as an undeniably ingenious invention since
the technology of blockchain created a new type of internet by allowing digital information to be
distributed among the members. One of the greatest applications of blockchain technology is
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bitcoin which is also referred to as digital gold. In the recent years, cryptocurrency has become a
buzz worthy topic both in industrial sector and in academics. One of the most successful
cryptocurrencies is bitcoin which reached a huge success as its capital market reaching 10 billion
dollars in 2016 (Zhenget al. 2017). With a data storage structure that is specifically designed to
operate with blockchain. Blockchain is a public ledger that stores all the transactional details in
list of blocks. The security of blockchain technology is ensured by asymmetric cryptography and
distributed consensus algorithm. The key characteristics of blockchain technology are
decentralization, anonymity, auditability and persistency. These characteristics make the
technology of blockchain effective and efficient.
Blockchain is an indestructible ledger (digital) of different economic transactions used
for recording financial as well as all the virtual transactions. The information that is held with
blockchain exists as a shared database so that the information is available to public. The
database of blockchain is not stored in a single location and therefore the records are truly public
and easily verifiable. Blockchain technology is similar to internet supported with the fact that has
certain built in robustness (Crosbyet al. 2016). The information is stored in form of blocks which
are linked with its previous blocks. Since different blocks of information are stored across a
network, the blockchain technology cannot be controlled by any single entity or authority and it
has no single point of failure.
It is observed that the blockchain network or technology as a whole is transparent and
incorruptible as it operates in a state of consensus where one automatically checks in with itself
in every ten minutes. This is a system of self auditing as the blockchain system reconciles each
and every transaction in an interval of ten minutes. Data transparency is embedded in the
network as the definition is public (Wright and De Filippi 2015). The data stored in the
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blockchain network cannot be corrupted and as altering any unit of information in blockchain is
difficult. This is particularly because it requires a huge amount of computing power. Although
theoretically it is possible, in practical, it is not most likely to happen. However, there are certain
risks associated with the blockchain technology which is needed to be identified.
It can therefore be observed that the blockchain technology redefines the process by
which the exchange sector operates, but also act in favor of the global financial economy as a
whole (Wright and De Filippi 2015). This is possible mainly because the blockchain technology
has an ability of optimizing the global infrastructure so that it can deal with the global issues
associated with the financial transactions, more effectively than the current system.
Blockchain has gained a huge popularity in a limited time mainly because it solves a
most basic problem of manipulation. This is possible because the network of computing nodes
make up the network of blockchain. Blockchain is a decentralized technology used by a global
network of computers that manages huge database of records including the records of bitcoin
transactions. Since the data is stored across a network, the technology of blockchain eliminates
the need of central management of the data. Technology of blockchain therefore provides digital
trust as the distributed network is committed to the transaction network’s recordkeeping and
security (Wright and De Filippi 2015). The transactions are secure and authentication is ensured
in each transaction. The structured data in the blockchain represents the financial ledger entry
that is capable of recording the transactions. Each transaction is needed to be signed digitally in
order to ensure that the authenticity of each transaction. In blockchain, the chain of growing
records is linked using cryptographic techniques that ensure the security and authenticity of each
transaction.
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2.3. HISTORY OF BLOCKCHAIN TECHNOLOGY
The most basic and primitive form of blockchain network was hash tree, which is also
known as Merkle tree. Ralph Merkle in the year 1979 had patented the data structure. In peer to
peer computing network, it is essential to validate data to make sure that nothing is altered or
changed during the transfer. The need to ensure that only true data is sent and to maintain the
integrity of the data to be shared, it was needed to create a secure chain of blocks. In the year
1991, the Merkle tree was able to create a secured chain of blocks containing a series of data
records. In this chain, the newest record contains the history of the entire chain of records. This is
how the blockchain was created. Followed by this, in the year 2008, Satoshi Nakamato has
conceptualized the technology of distributed blockchain. In this version of blockchain, a secure
history of data exchange is maintained. The transactions or data exchange is managed
autonomously without making use of any central authority and thus it became the backbone of
bitcoin.
In the year 2009, bitcoin was offered up to an open source community. Blockchain was
introduced with the invention of bitcoin which was although proposed in 2008, it was
implemented in the year 2009. The invention of blockchain for bitcoin solved the problem of
double spending without the need of a trusted authority or the central server. The technology of
blockchain was designed to make use of nodes agreement for transactions so that frauds in the
transactions can prevented. The network of blockchain and bitcoin orders each and every
transaction by putting them together in blocks. Each of the blocks of blockchain contains a
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definite amount of transactions which are link to the previous block. Thus blockchain emerged
rapidly as it provided an option of safe and secure transaction in form of blockchain.
2.4. WORKING PRINCIPLE OF BLOCKCHAIN
Blockchain technology is considered to be one of the best inventions since the invention
of internet. According to Mougayar(2016), this is particularly because the technology of
blockchain allows the exchange of value without the need of a central authority. Blockchain is
considered as a distributed ledger as the ledger file is not stored in any central entity or servers
(Wright and De Filippi 2015). Blockchain is considered to be secured and most trusted as the
blockchain keeps all the records of data exchanges. Furthermore, blockchain make use of a
distributed system that verifies each transaction. Only after proper verification of a transaction, a
new transaction can be added to a blockchain. The verified transaction in a blockchain is referred
to as a block. One a blockchain transaction is signed and verified, it cannot be altered (Atzori
2015). Blockchain keep records of all data exchanges as every time a transaction occurs the
transaction is to be signed. Both public and private key is involved in this verification process.
Apart from that, each verification includes a timestamp and a unique ID number. The anonymity
in each transaction come from the fact that the public key used in the transactions is a
randomized sequence of letters and numbers and therefore the real identity of a person is not
revealed.
Decentralization in blockchain makes it quite impervious to tampering, corruption and
censorship. It is practically indestructible since a bitcoin can possess over 35000 nodes in its P2P
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network which cannot be destroyed. Blockchain applications works for digital asset transaction
exchanged online. There are three major stages of a blockchain transaction which are validating
the entries, safeguarding the entries and preserving the historic records. The application of
bitcoin makes use of cryptographic proof. Each transaction in a blockchain network is protected
with the help of digital signature. This is the step that is required to verify the entries. In a
blockchain transaction, the entity that is receiving a digital signature verifies the proof of
ownership of the transaction (Lemieux 2016). In the next step, each transaction is broadcasted to
each and every node of bitcoin network, which is then recorded in public ledger for verification.
Therefore, the verification node of bitcoin has to ensure two things; one is that the spender
actually owns a cryptocurrency, which is verified with the digital signature on transaction. Apart
from that, it also ensure that the spender has sufficient cryptocurrency in his account or not
(Crosbyet al. 2016).
There are certain benefits of making use of a distributed network which can be well
understood by ‘if a tree falls in forest’ through experiment. In this experiment, if a tree falls in
the forest, with the cameras recording the fall, it can be certain that the tree fell. Similarly in the
blockchain technology, there are a number of validators that reach a consensus by witnessing the
same thing as at the same time (Wright and De Filippi 2015). Instead of cameras, mathematical
verifications are used. Since the size of the network is very large, security of the network can be
ensured quite easily.
Blockchain can be configured to work in a number of ways. One of the widely used
applications of blockchain is bitcoin. The blockchain transaction is a shared public ledger on
which the entire transaction of bitcoin relies on. The transaction in a blockchain technology
enables the buying and selling of any goods.
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2.5. BENEFITS OF BLOCKCHAIN
Blockchain has a number of benefits. The lack of requirement of central authority makes
it an ideal ledger. Furthermore, the computers verify the transactions that settle the need of
central authority for management of the transactions associated with blockchain. Furthermore,
the presence of digital signatures for verification make it more secure as in such case, fraud in
the system is reduced. The concept of blockchain therefore works well in tracking the movement
of assets making it more users effective.
The technology of blockchain offers the benefits of cost effectiveness and traceability.
Block chain is generally used to track the movement of goods and their origin. This helps in
bringing an altogether new level of transperancy to B2B ecosystem (Mainelli and Smith 2015).
Since blockchain helps in detecting the point of origin of a transaction, its application in business
enables the businessmen to carry out investigations in execution of certain necessary action.
Apart from this, it offers transactional and accounting benefits. Recording the
transactions with the help of blockchain technology helps in eliminating human error thus
protecting the data from tempering. This is possible as the blockchain records are verified every
time they are passed on from one node of blockchain to other.
Another significant application of blockchain technology is smart contract. The use of
smart contracts eliminates the need of time consuming contractual transactions. Transparency is
maintained in smart contracts that makes its implementation even more advantageous.
Blockchain technology makes it possible to seamlessly carry out a global transaction.
With the enhanced security feature, each and every transaction is encrypted and linked to the
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previous transactions. The improved traceability it is easier to deal with the products that are
traded through a complex supply chain.
The blockchain transaction further increases the speed and efficiency of a transaction.
The traditional paper based process is prone to human errors that require third party mediation.
Blockchain helps in streamlining and automating the different processes of blockchain,
transactions can be completed faster and more efficient. Furthermore, with the blockchain
technology, every member of the transaction has an access to the same information since it
becomes easier to trust each other without the need of intermediaries. Since blockchain is a
public ledger system, it records and validates every transaction that is made (Lemieux 2016).
This makes the technology of blockchain more secure and reliable.
Another important benefit of making use of blockchain technology is reduced cost. For
most of the business, reducing the cost of business becomes a priority and therefore, the use of
blockchain technology can work for the benefit of an organization. The decentralization
technology discard the need for any third party or the central authority of the system.
The industries that have successfully made use of blockchain technology include defense,
government, law, energy. Blockchain offer the benefit of secure data exchange by making the
process of data transfer easier. This is possible as all the transactions made in blockchain
technology is made by authorized miners.
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2.6. BLOCKCHAIN ARCHITECTURE
The blockchain is a sequence of blocks that stores a complete list of transactional records
like a conventional public ledger. In blockchain architecture, each block is connected with the
previous block. The first block is known as genesis and it does not have any parent block. The
following picture represents the architecture of blockchain-
Figure 1: Representing blockchain architecture
(Source: Lemieux 2016)
Blockchain is a sequence of blocks that records and holds a complete transactional lists
and records. The main composition of the architecture of blockchain is blocks of records linked
together. A block forms the current part of blockchain that record the most recent transactions.
The blocks are stored in the database of blockchain permanently. With the completion of each
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blocks of a blockchain, a new block is generated. All the blocks that are generated in blockchain
are linked in a appropriate chronological order linked by the hash of the previous block.
Therefore the entire copy of blockchain has a record of each and every bitcoin transaction that
has been executed ever.
Each block of a blockchain contains a block header and block body. A particular block
can be further divided into block version, Merkle tree root hash, timestamp, nBits, Nonce and
parent hash block. The body of the block is composed of a transaction counter and transactions.
The body of the block on the other hand consists of transaction counter. With asymmetric
cryptography, the blockchain transaction is secured.
2.7. KEY CHARACTERISTICS OF BLOCKCHAIN
The key characteristics of blockchain are technology is as follows-
1. Decentralization: In a centralized transaction system, each and every transaction is
needed to be approved through a central trusted agency. Consensus algorithm in blockchain is
used to maintain consistency of a transaction in a distributed network.
2. Persistency: This is one of the key characteristics of blockchain technology. With
persistency, the transactions can be validated quickly with the characteristic of persistency.
Blocks containing the invalid transaction can be discovered immediately with this characteristic
of persistency.
3. Anonymity: With the feature of anonymity, each user can interact with a blockchain
with a particular address that is generated, without actually revealing the real identity. However,
blockchain cannot guarantee the privacy preservation.
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Blockchain has received an increased momentum in a small time mainly because it
provides increased capacity, which is an important feature of blockchain technology. One of the
most remarkable things about the use of blockchain technology is that it increases the capacity of
the entire network. This is possible as a network of computers work together which offers a great
computing power which is not possible for fewer devices, Most importantly it provides a better
security to than any other technology.
2.8. CHALLENGES WITH BLOCKCHAIN
With the increase in the number of transaction, the entire blockchain becomes bulky.
Each blockchain node needs to store all transaction and validate them as well, which makes it
bulky. Therefore, a blockchain technology has scalability issues. However, there are a number of
efforts that are proposed in addressing the scalability problems of blockchain technology.
Storage optimization is an effort that is proposed to address the scalability problem.
Another issue that is associated with blockchain technology is privacy leakage. Although
the blockchain can preserve the amount of privacy with the use of public key and private key,
there is a risk of privacy. This is mainly because blockchain cannot guarantee the transactional
privacy of a system.
Another issue associated with the use of technology of blockchain is that the blockchain
is susceptible to the attack of different colluding selfish miners. In the process of selfish mining
strategy, the selfish miners keep their mind blocks without broadcasting.
Blockchain relies on encryption to provide the security and to establish a consensus
network as well. The users of blockchain have permission to write complex chain of algorithms
which requires a lot of computing power which can be costly. This is one of the main reasons
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behind the value of bitcoin. Improved security is essential to protect blockchain and its
application. Furthermore, the transaction costs in the bitcoin network is costly as it is seen that
there is some politically charged aspect of making use of bitcoin and blockchain network. This is
mainly because protocols of blockchains offer a good opportunity to digitize the governance
models. Furthermore, the miners are forming another type of incentivized governance models
giving rise to public disagreements among the different community sectors. These public
disagreements are considered to be one of the notable features of blockchain and involve
updating the protocol only when the majority of the users have given consent to it. Blockchain
indicates non territorial crypto-sessions that often challenge the economic position of
government and legacy firms. The entangling political economy is one of the politically charged
aspects of making use of blockchain technology.
The issues associated with the use of blockchain and its applications give rise to certain
amount of data security risks that are needed to be addressed. The following section of the
research paper discusses the risks to which the technology of blockchain or its applications are
exposed to. Furthermore, the technology of blockchain is quite complex and therefore making
use of the blockchain technology involves certain amount of risks as well. The network size of
blockchain is huge and therefore it is not much resistant to the bad actors. A large network of
users makes the network of blockchain vulnerable to attacks such as Man in the Middle attack.
Blockchain is prone to Man in the Middle attack mainly because the system relies on different
key agreement protocols and exchange of any type of secret key is vulnerable to attack.
It has been observed that blockchain network has an unavoidable security flaw in bitcoin.
If half of the computers working as nodes in blockchain tell a lie, it will be considered as truth.
This is mainly because there is no central control of authority. This type of attack is also known
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as 51% attack which was highlighted by Satoshi Nakamoto who is the inventor of bitcoin. The
occurrence of this security flaw is however very less.
The above discussed challenges and the risks associated with the blockchain and its
application gives rise to certain risks which is needed to be addressed.
2.9. MAJOR RISKS WITH BLOCKCHAIN
The issues associated with the use of blockchain technology gives rise to a number of risk
that is needed to be addressed. Blockchain has a good potential to revolutionize the process by
which a business is executed (Scott 2016). However, implementation of standard blockchain
technology requires a significant amount of investment and management of the risks. The risk
may arise with the lack of real world testing while the implementing the blockchain technology.
The blockchain transactions are considered to be secured as a consensus approach is
followed. The inherent security features although make blockchain resistant to attack, it does not
make them immune to attack. The security vulnerabilities associated with the blockchain
technology are discussed in the following paragraphs-
End Point Vulnerability: It is one of the most likely vulnerabilities associated with the
use of blockchain technology. Endpoint can be described as spaces where blockchain makes
connection with human. These endpoints are computers that the users of blockchain make use of.
It has been observed that the data of the blockchain is more vulnerable during its access as at that
time the data on that chain is most vulnerable. This is possible as in order to access the
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blockchain network, the shared distributed ledger need to share his credentials. These credentials
can be exposed by the present security vulnerabilities of the endpoint thus making it susceptible
to attack.
Security of Public and Private Key: The data in block chain is encrypted and therefore,
an access to the network of blockchain requires the use of both public and private keys. It is
practically impossible to access a data in blockchain network without the correct combination of
the public and private keys. This can be both strength and weakness of the technology of
blockchain and its application (Wanget al. 2017). This is because without the right combination
of public and private keys the data in the blockchain cannot be accessed. However, with the
correct knowledge of the keys, a hacker can easily access the data from the system (Byström
2016). There is no possibility of guessing the public and the private keys and therefore the only
way to get its access is by stealing them. This can be done by attacking the weakest point of a
blockchain network that is the endpoints.
Vendor Risks: There are certain risks associated with the blockchain integration
platforms and in payment processing. With the increase in adoption of the blockchain and its
application, the security risks in making use of third party blockchain applications and platforms
increases (Raval 2016). A threat from a blockchain vendor increases more with the use of
blockchain applications like smart contract. The entire operation of an organization can be at a
greater security risk as the vulnerability in blockchain network or in its applications like smart
contracts can be catastrophic (Morabito 2017). Furthermore, avoiding the vendor related
blockchain weakness might require a thorough venting of each and every vendor.
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Untested growth: The growth of the blockchain technology poses certain significant
security risks. The blockchains are large and it is susceptible to attack. With a drastic growth in
blockchain network, there is a risk of it being untested at a full scale. Although the blockchain
architectures are inherently scalable, there might be certain significant security issue that might
arise from organic expansion of blockchains.
Lack of Standards and Regulations: Lack of standards imposes a huge security risk on
the use of blockchain and its applications. The lack of standard protocols means that the
developers cannot benefit from the mistake of others. Furthermore, at some point of time, the
chain of blockchain is needed to be integrated as lack of standardization can result in increase of
the security risks in the blockchain.
The above discussed point gives an idea of the major security risks associated with the
use of blockchain technology (Aste, Tasca and Di Matteo 2017). Apart from this, the technology
of blockchain is associated with the privacy concerns. Since the blockchain technology is here to
stay it is essential to ensure proper risk management in blockchain.
The blockchain can be divided into two categories, which are permissionless blockchain
and permissioned blockchain. The technology of blockchain is further associated with a number
of risks in their current business processes. The risks are categorized into external risks and
internal risks. These risks are as follows-
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Figure 2: Representing the Risks
(Source: Mainelli and Smith 2015)
External Risk to Business
The external risks associated with blockchain that are needed to be addressed are as
follows -
Strategic Risks: There are certain strategic risks associated with the use and application
of blockchain. The different business strategies that are followed in the organizations have varied
level of risks. The peer reviewed nature of the blockchain application makes it more vulnerable
to attacks.
Business Continuity Risk: This is another significant risk associated with the use of
blockchain and its application. The business processes that are built on the blockchain network
make it more vulnerable to cyber attacks mainly because it is a payment processing system and
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hacking into the system will be beneficial to the attacks. In order address this risk, it is needed
for a firm to have a robust framework of business continuity and a governance framework to
mitigate the associated risks (Ølnes 2016). Since the blockchain technology shorten the duration
of the many business processes the business continuity plan that is to be proposed should account
for a considerably shorter incident response and recovery time.
Reputational Risk: The technology of blockchain involves working on a legacy
infrastructure. Any issues with the use of blockchain can result in poor experiences of the client
along with certain regulatory issues (deloitte.com. 2018). Blockchain is a part of core
infrastructure and it needs to work seamlessly with the legal infrastructure as well if
implemented. Failure in doing so might result in poor client experience along with the regulatory
issues.
Risk of information Security: The transactions associated with a blockchain network is
quite secure, it does not actually provide the guarantee of information security. Although the
presence of cryptographically sealed ledger prevents data corruption, the values stored in the
system might be susceptible to attack (deloitte.com. 2018). Therefore, information security is a
major risks associated with the use of blockchain technology. The information security risk is not
that prominent as of now since the advanced blockchain technology of blockchain provides
transactional security. Since the transactions are accessible by the public, there is a risk of
account takeover with a planned cyber security attack. The cyber security risks in blockchain still
exits and therefore it is needed to mitigate this risk.
Regulatory Risk: The technology of blockchain is associated with the regulatory risk
(deloitte.com. 2018). The regulatory risk might be associated with the application use case of
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blockchain technology associated with domestic and cross border transactions. The regulatory
risk arises mainly because there are certain uncertainties associated with the regulatory
requirements in blockchain applications.
Operational and IT Risks: With the increase in size of the blockchain, there are certain
operational and the IT risks associated with the blockchain technology (Scott 2016). The
technology concerns associated with the use of blockchain include speed, scalability and the
interface issues.
Contractual Risk: It is common to have different service level agreements between the
participating nodes in a blockchain network. This gives rise to the contractual risks associated
with the use of blockchain technology. This type of risk is associated with an application of
blockchain that is called smart contract. Smart contract can be described as a computerized
transaction protocol that executes the terms of a contract.
Supplier Risk: Firms that are making use of blockchain technologies are exposed to a
significant third party risks which are generally sourced from the external vendors. The supplier
risks are significant as blockchain enables peer to peer transfer of value without any supervision
of a central intermediary.
Apart from these major risks, it is essential to consider the value transfer risks which are
needed to be addressed as well. These risks are listed in the following section
Internal Risk to Business
The internal risks associated with blockchain that are needed to be addressed are as
follows -
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Consensus Protocol Risk: The value transfer in a blockchain network needs the use of
cryptographic protocols that arrives at a consensus among the participating nodes. A number of
cryptographic protocols are used in order to achieve a consensus among the nodes participating
in a blockchain transaction (Zhenget al. 2016). There are certain risks associated with these
protocols that are needed to be addressed.
Key Management Risks: The use of consensus protocol involves the use of public and
private keys. Both these keys are to be maintained and managed in a secure way in order to
prevent the accidental loss or left of the private key (deloitte.com. 2018). The key revocation is
managed by generating the key revocation certificate as soon as a key pair is created. Key
management is necessary to maintain integrity in blockchain transactions. In key revocation, the
public keys are permanently retired.
Data Confidentiality Risk: Although the transactions in the blockchain are secure there is
a risk of data confidentiality in blockchain technology. The consensus protocol of blockchain
ensures that all the participant of the transaction is able to view the transactions. In a
permissioned blockchain, these transactions can be easily stored in a hashed format so that the
contents of the network are not revealed (Noferet al. 2017). However, a meta data will always
remain available to the network participants. The monitoring of the metadata can easily reveal
the information stores in blockchain thus increases the data security risks.
These are the major risks associated with the use of blockchain technology. These risks
are associated with the technology of blockchain mainly because it operates in a peer to peer
framework (Yermack 2015). An effective risks management framework can help in addressing
and mitigating the risks that might be involved with blockchain technology.
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2.10. BLOCKCHAIN AND RISK MANAGEMENT
The different risk management theories and practices helps in analyzing the risks
associated with the use of blockchain. There are certain risks associated with the use of
blockchain environment. Evaluation of the previously published journals and literatures provides
an idea of the different techniques, processes and theories that are used for addressing the
different risks associated with the technology of blockchain.
A contingency theory of risk management is found to be effective for managing the risks
associated with the blockchain technology (Walch 2017). This is because the contingency
approach of risk management primarily focuses on the elimination of the components
contributing to the risks. There are a number of risks associated with the use of the technology of
blockchain. The technology of blockchain is exposed to a number of risks that are needed to be
managed. The strategic risks can be managed by the differences in the issues associated with the
use of smart contracts.
The concept of risk management has become a significant consideration in both
government and private sector. Risk management is an integral part in application of blockchain
technology (Heires 2016). It is needed as well since with the increase in the use of blockchain
and its applications, it becomes essential to identify and mitigate any risks associated with it. In
the contingency theory of risk management, a senior management of an organization takes the
charge of analyzing, identifying and mitigating the identified risks.
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2.10.1. RISK MANAGEMENT
Risk Management is a process of identification, evaluation and prioritization of the risks
so that the issues associated with the technology and application of blockchain can be evaluated.
The aim of this research project is to identify and evaluate the risks associated with the
technology of blockchain. The process of risk management is represented in the following
picture-
Figure 3: Representing the steps of Risk Management
(Source: Lam 2014)
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The first step of risk management is identification of risk. There are a number of risks
associated with the technology of blockchain, one of which is the risk of privacy and
confidentiality (Zhenget al. 2016). There is a considerable risk associated with the public and the
private key that is used to encrypt the blocks of a blockchain. Any organization making use of
blockchain or its application should identify these risks associated with the use of the
technology.
After successful and accurate identification of all the risks associated with the blockchain
technology and its application, it is essential to access the risk. Risk assessment is considered to
be a significant process of risk management as it helps in prioritizing the risks (Tapscott and
Tapscott 2017). The risk with high priority and severity should be addressed first followed by the
risks with low priority. The priority is set on basis of the severity and impact of the risks that are
making use of blockchain and its application in the organizations.
The process of risk assessment is followed by the process of controlling the risk. A set of
risk mitigation approaches is proposed against the identified risks in order to eliminate the risk.
The application of blockchain technology although is considered to be secure, it is essential to
address the possible risks that the technology might face. With the increase in size of the
blockchain, the risks associated with the technology increases as well (Lindman, Tuunainen and
Rossi 2017). This research project will be identifying the different risks associated with a
blockchain technology and will enforce adequate control in order to reduce the effect of the risk
on use of blockchain and its application (Mainelli and Milne 2016). The risk control stage
therefore holds an important place in the risk management process.
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After enforcing the control of the project, it is essential to review whether the controls
that has been proposed for the project has been effective or not (Zhenget al. 2016). The
measurement of the risk control and reviewing it therefore becomes a necessary process of risk
management.
These are the necessary steps of risk management which will be followed in ensuring that
the blockchain technology and the applications of blockchain can be used without any risks.
2.11. RISK MANAGEMENT IN BLOCKCHAIN
The technology of blockchain has a wide array of applications. The major use of
blockchain lies in the use of cryptocurrencies. Cryptocurrencies exist in electronic and digital
form and therefore it is known as digital currency. Since it exists in digital form, it can be
exposed to a number of cyber security risks. Use of cryptocurrencies is convenient, simple and
easy quite contrast to centralized economy (Morabito 2017). In centralized economical system, a
central authority or central bank controls the monetary base and transaction of money. On the
other hand, the decentralized monetary system does not have any central authority to control the
monetary base. The peer to peer network of nodes creates the currency and is controlled by
algorithms.
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The use of most of the blockchain applications require the owning of linked digital
currency. The hacking of a blockchain transaction can actually lead to the bankruptcy of an
organization (Kakavand, Kost De Sevres and Chilton 2017). This is the reason behind the
increasing need and importance of risk management in blockchain. Furthermore, with the
increase in demand and use of blockchain and cryptocurrencies, it is possible that more
organization will be looking for opportunities for participating in blockchain related activities
(Shrieret al. 2016). Different financial and technical companies are looking forward to make a
use of blockchain technology to verify the trading of gold thus digitizing the gold market. This
can possibly increase the transparency and speed of gold trading thereby reducing its costs as
well.
However, in order to make a correct use of blockchain technology, the banks or the
organization need to understand the different risks associated with the blockchain technology and
should manage those risks as well (Yeoh 2017). This is necessary as the blockchain will not only
work as an application but will also be a significant component of the infrastructure of the
organization. Although the distributed nature of blockchain reduces the security risks associated,
it cannot guarantee the elimination or not introduction of a completely new set of risk. The risks
that a blockchain technology can possibly face will be because of certain situations, which are
discussed as follows-
1. There are no intermediaries associated with the handling of the risk or dispute
resolution, which is a major risks associated with blockchain technology. The absence of any
controller might result in accidental loss of the private keys thus causing an irretrievable loss.
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2. Secondly, sourcing blockchain technology from the vendors might often result in the
third party risk exposure which should be mitigated.
3. Furthermore, in the nascent stage of blockchain, there are uncertainties regarding the
regulatory requirements, resulting in regulatory risks.
An appropriate scrutinizing of the cryptocurrencies unveils a number of issues and risks
associated with the technology of blockchain (Zhao, Fan and Yan 2016). One of such significant
issues is tax status. However, certain countries have already worked on this issue. Switzerland
has categorized Bitcoin as a foreign currency (Imbaultet al. 2017). On the other hand, Italy has a
policy of zero taxation on the use of cryptocurrencies. Russia is trying to develop a framework
for regulation and taxation of cryptocurrencies (Raval 2016). However, countries like China have
already banned the exchange of cryptocurrency in domestic market. Apart from the taxation
issues, there are a number of other issues associated with the blockchain technology that makes
the process of risks management mandatory.
There are certain challenges of risk management in blockchain. With the presence of
risks such as uncertain regulatory status along with the issue in control, security and privacy,
there exists a huge need of managing such risks in an effective manner.
The risk management processes that should be followed in the organizations that are
making use of blockchain technology are as follows-
The use of blockchain technology indicates the requirement of significant changes to the
existing tools and system. In order to participate in this transition and to avoid any possible risks
it is essential for the companies to strategize the transition as a part of the risk management
process (Kosbaet al. 2016). The technology of blockchain involves a complete shift to a
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decentralized network and therefore development of the strategies is essential for mitigation of
any risks associated with the blockchain technology and its adoption. The adoption of blockchain
technology is most likely to increase since it has an ability to shape the financial sector as it is a
cost effective alternative.
Apart from the risk of adoption, there are certain other risks associated with the use of
blockchain and its technology. There are certain legal risks associated with the use of
cryptocurrencies (Malinova and Park 2017). This is a major risk that is needed to be managed.
The technology of blockchain has an ability to cross the jurisdictional boundaries as the nodes of
blockchain can be located from anywhere in the world. This in turn gives rise to complex
jurisdictional issues related to contractual relationships that needs careful consideration
(Lindman, Tuunainen and Rossi 2017). Even in the simplest level, each blockchain transaction
can fall under the jurisdiction of the location of its nodes, resulting in the need of blockchain to
be compliant with an unwieldy number of regulatory regimes and legal issues. The legal issue
can therefore be termed as a major issue associated with the use and adoption of blockchain
technology and thus becomes an essential part of risk management process.
There are certain performance challenges associated with the use and adoption of
blockchain. The database of blockchain is growing rapidly in size with the addition of new
transactions every second (Davidson, De Filippi and Potts 2016). This gives rise to certain
performance challenges which is needed to be addressed. The willingness of vendors to offer
performance assurance depends on three major criteria. These criteria include their risk and
reward profile, the delivery model of the services provided by them and the factor of accepting
the liability of a number of customers.
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There are a number of different risks associated with blockchain technology mainly
because of its complexity and manner of operation (Zhenget al. 2016). One of the major issues
associated with the use of a public blockchain is its inability to be controlled or stop its
functioning (Hullet al. 2016). Therefore, lack of control is a major issue associated with the use
of public blockchain. However, this issue is not associated with private blockchain. There must
be an attribution of risk and liability associated with the technology of blockchain.
As a risk management approach is it essential to evaluate whether an organization is
prepared for the new risks that is posed by a blockchain framework (Frantz and Nowostawski
2016). The successful adoption of the technology of blockchain is dependent of the appropriate
risk management process (Porruet al. 2017). Blockchain will enable business to make the
transfer of data more quickly and securely. However, there is no greater risk than the global
economy in coming years.
The risks management activities that is recommended to an organization that will be
making use of blockchain technology are as follows-
It is essential to access the firm’s activity to date in order to understand the technology
department of the institution (Yli-Huumoet al. 2016). This will help in identifying the different
risks associated with the use and adoption of blockchain technology.
It is furthermore essential to stay plugged in. The regular updates will help in easier
identification of the risks and management of those risks. Apart from that it is essential to
monitor the insurance market’s response in order to develop appropriate strategies of risks
management (Lam 2014). With the possibility of data security and privacy risk, it is essential to
ensure network security for the internal network of the organization.
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There are certain steps that can help in mitigation of the risks associated with the project.
For example, in order to mitigate the end point vulnerability, encryption method can be enforced.
Similarly the contractual risks can be mitigating by making the digital signature compulsory in
each transaction (Zhenget al. 2016).. Cryptography is another chosen method for addressing the
IT and operational risks. Resource sharing is an approach that can be used for mitigation of the
risk of untested growth.
Therefore it can be said that risk management in blockchain is essential since the
adoption and use of blockchain technology is likely to increase in the recent years. In order to
manage the risks associated with the technology of blockchain, it is essential for the
organizations to establish a robust risk management strategy and governance framework in order
to eliminate the associated risk (Wright and De Filippi 2015). The technology of blockchain is
considered to be secured with a lesser number of risks in consideration to a centralized authority.
Therefore, it is considered to be secure for adoption. The most important risk management
strategies associated with the use and adoption of blockchain is securing the blockchain
transaction on basis of cryptography, encryption, digital signature and efficient key management
(Zhenget al. 2016). However, it is essential to develop certain strategies of risk management that
will help in easy identification of the causes of the risks. Certain strategies of risk management is
needed to be set so that the organization can easily identify and manage the risks associated with
the technology of blockchain and issues associated with the use and adoption of blockchain
technology. These strategies might relate to the use of in house designing of the blockchain
network, if an organization plans to implement the same in their business processes. However,
the effectiveness of each of the risk mitigation approaches is needed to be evaluated.
2.12. CHAPTER SUMMARY
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Literature review is an important section of the research papers as it evaluates the
previous research papers. The previously published literatures have provided a good idea of the
technology of blockchain and the risks associated with the blockchain technology. The contents
of this section relate to the research objectives and provide an idea of the research which will be
conducted in the topic. The section of the research paper provides a brief idea of the technology
of blockchain and the need for managing the risks associated with the technology of blockchain.
This is because the successful adoption and operation of blockchain technology is often
associated with the appropriate risk management. Since the adoption of blockchain technology
will add to the core infrastructure of an organization, the identification and the management of
the risks associated with is it is essential. This section of the research paper gives a clear idea of
the technology behind blockchain and the benefits of making use of blockchain technology.
Along with the number of benefits there are certain issues associated with the use of blockchain
technology. This section of the research paper identifies the issues and the risks that the
technology of blockchain might face.
The technology of blockchain is considered to be one of the most secure forms of
transaction. This is mainly because it follows a consensus protocol of self checking each
transaction. The adoption and use of technology of blockchain is likely to increase as the services
provided by blockchain are quite efficient. Along with this, the absence of any intermediary and
its decentralization nature adds in to the benefits of blockchain.
As the technology of blockchain continues to mature, the risk practitioners across the
sectors are quite excited about its promise to offer maximum services to the organizations
making use of blockchain technology. Although blockchain technology is secure, there are
certain issues associated with it which this chapter identifies. In order to mitigate the risks
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associated with the blockchain technology, it is essential for the firms to understand the business
processes of blockchain in order to mitigate the risks associated with blockchain. Blockchain fall
under two types, the permissionless and permissioned blockchain chain. Regardless of the type
of blockchain, it is essential to identify and mitigate the risks associated with the technology of
blockchain. A number of risks have been identified in context to blockchain which include
strategic risk, business continuity risk, reputational risk, information security risk and so on. The
risk management approach that has been proposed for management of the risks associated with
blockchain is development of certain risk mitigation strategies that will help in managing and
mitigating the risk.
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CHAPTER 3: METHODOLOGY
3.1. INTRODUCTION
The section of the research study will help in identifying the different tools and
techniques that will be used for collection and analysis of the collected data. A specific research
method should be undertaken by a researcher so that the identified objectives of the research
study are fulfilled. This is necessary as a particular research essentially includes a process of
information accumulation and analysis of the accumulated information. Research methodology
therefore refers to a collection of different tools, techniques and processes that are needed for
gathering the information necessary for conducting a particular research. The research
methodology will not only be evaluating the different techniques of data collection but will also
provide a complete understanding of the methods being adopted. Identifying the research
methods is essential for understanding the approach of the research. This chapter of the research
study will provide a detailed insight of the theories and the methods that will be used for
conducting the research study. The chapter will be discussing the research onion that was
developed by Saunders in 2007. It provides an effective progression or idea through which a
research methodology can be designed. Research methodology finds its use in a variety of
context and a research study is undertaken with an aim of evaluating the risks associated with
blockchain. The techniques, methods and the philosophy along with the data collection
techniques are discussed in following section.
3.2. RESEARCH ONION
The different stages or phases of a research are illustrated in research onion. Research
onion is used both for academic and scientific (Al 2013). Similar to the peeling of onion, a
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researcher go from the outer layer to the inner layer of a research onion to identify the tools,
techniques and the methods that will be used in the research study. The following picture
represents the structure of research onion.
Figure 4: Representing the structure of a research onion
(Source: Sahay 2016)
Academic or scientific researchers are generally designed in order to find an answer to a
specific question. Most of the researchers design a research in order to answer a specific question
and therefore it is essential for the researchers to identify the type of data that will be required in
order to find an answer to the specific problem (Saunders, Lewis and Thornhill, 2009). The
research onion further helps indentifying the tools and the techniques that should be undertaken
in order to address a specific problem.
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The outermost layer of the research study talks about the philosophy of the research.
Choosing an effective research philosophy is essential to route the research in a specific
direction. The next layer gives an idea of the different research approaches that is essential for a
research. The next layer of research onion gives an idea of the different research strategy.
Choosing a particular and appropriate research strategy is essential as it ascertains the process
and the techniques that will be used for the research study. Following the research strategy, the
other layers of the research onion provides an idea of the techniques and the procedure of
research study. Each phase of the onion will be evaluated in the following sections.
3.2.1. FIRST LAYER OF RESEARCH ONION
The first layer of research onion gives an idea of the philosophical stances associated
with a research. Research philosophy gives a structure and guidance for performing the research
study. With research philosophy, it is possible for a researcher to get aware of the different
processes of gathering and analyzing research information which is an essential need of a finite
research. This layer gives an idea of six philosophical instances which include objectivism,
constructivism, positivism, realism, interpretivism and pragmatism. The objectivism research
philosophy gives an idea of the different social phenomenon which might be useful for a
research. It helps in learning the different meanings of social phenomenon that may have on the
social workers (Alvesson and Sandberg 2013). The constructivism is just the opposite of
objectivism and it establishes that the social actors are responsible for creating a social
phenomenon and that the social phenomenon may not have any impact on the social actors. The
research philosophy of positivism is completely different from objectivism and constructivism.
The positivism research approach helps in developing such research questions and hypothesis
that can be easily tested. In the positivism research approach the researchers might find same
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outcome and it gives importance to quantitative results. The realism research philosophy on the
other hand indicates that every theory can be revised. It establishes the fact that one cannot find
reality without any continuous research (Saunders, Lewis and Thornhill, 2009). The realism
philosophy promotes the fact that a researcher should not hesitate on using the new research
methods. The realism research philosophy however, enables a researcher to work with a number
of research methods. The interpretivism research approach helps in interpreting the possible
ways through which people generally participate in social and cultural life (Brown and Stowers
2013). The interpretivism research methods helps in interpreting the different ways through
which people mainly participate in the social and cultural life. The pragmatism research
philosophy on the other hand establishes the fact that constructivism and objectivism research
philosophy are the ideal ways of conducting a research. For this research, positivism research
philosophy has been chosen.
3.2.2. SECOND LAYER OF RESEARCH ONION
The second layer of research onion includes the different research approaches that a
researcher might choose to work on a research project. There are mainly two types of research
approaches, which are deductive and Inductive. In a deductive research approach the aim of the
researcher is to find answer to the questions associated with the research (Saunders, Lewis and
Thornhill, 2009). The objective of a deductive research approach is to come up with an option of
yes or no in response to the research question. Apart from that, in the deductive research
methodology, the theories of the research question are scanned to gather the data that will in
finding an answer to the research question.
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The inductive research approach on the other hand helps in creation of own theory and
thus when the inductive research approach is undertaken for a research, the research onion works
in a complete opposite way in comparison to the deductive research methods (Sahay 2016). In
inductive research approach, the hierarchy of the research runs from research question to
research observation. The inductive research method works on the observation, description and
analysis of the problem which in turn helps in developing a new theory at the end of the research.
The inductive research methodology is therefore used in the researches that have no big
requirements. In this particular research, the deductive research approach is used.
3.2.3. THIRD LAYER OF RESEARCH ONION
The third layer of research onion discusses the different strategies that can be used in a
research study. The different strategies of the research study that can be followed involves
experiment, survey, case study and so on. In academic research, survey and experiments and
interviews are mainly used for primary research while that for secondary research the strategy of
case study might be used as well.
3.2.4. FOURTH LAYER OF RESEARCH ONION
The fourth layer of research onion sheds light to the different ways of performing a
qualitative and a quantitative research. This section of research onion ensures whether the
qualitative and the quantitative research methods are to be used in the research or whether any
one method of the research will be fine. This section of research onion further gives an idea
about the frequency of making use of qualitative and quantitative research method in case a
mixed research method is chosen for the research study. This layer gives an idea of the different
methods of research study, which are mono method, mixed method and multi-method. In the
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mono method of research study the researcher mainly gathers only one type of information from
the qualitative and quantitative research method. This can be determined in relation to the
identified research strategy and philosophy of the research.
The mixed method of research involves both qualitative and quantitative methods for the
study purpose (Sahay 2016). This method can be used for gathering as well as for analyzing the
collected data. It is possible to combine both the research methods if the research objectives have
a requirement for it.
The multi method of research makes use of both qualitative and quantitative data in the
research but the focus mainly stays on one source only. This helps in analyzing the data in a
particular point of view.
3.2.5. FIFTH LAYER OF RESEARCH ONION
This layer of research mainly deals with two time horizon methods. One of the methods
is cross sectional while the other method is longitudinal (Saunders, Lewis and Thornhill, 2009).
The cross sectional time horizon method can be used for conducting a short time study while that
of longitudinal time horizon is used for doing a long term study.
In cross sectional research, both qualitative and quantitative research method is used. In
Longitudinal research method, both qualitative and quantitative research methods are used.
3.2.6. SIXTH LAYER OF RESEARCH ONION
This layer of research onion provides an idea of the different methods of data collection
and analysis. This particular section of the research onion helps in deciding the questionnaire
content and the sample groups. It helps in identifying the different questions in the interviews or
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in online surveys (Sahay 2016). However, the philosophical stances, strategies choices and time
horizons determine the data collection and analysis methods.
According to the phases of research onion the techniques, methods and the research
philosophy that will be used in this particular research study is evaluated in the following
sections.
3.3. RESEARCH PHILOSOPHY
Research philosophy is essential in a research study as it helps in identification and
building of data and information that can be used for directing an examination. The research
philosophy furthermore evaluates the appropriateness in choosing a particular process and
procedure that is required for undertaking a research (Chandra and Sharma 2013). The different
types of research philosophies are discussed in the research onion section of the research study.
The use of pragmatism research philosophy includes the use of logical techniques for
assessing the different information that will be used for the research. The use of this philosophy
therefore permits an examiner in breaking down the theme of the examination (Eaton 2013). The
use of positivism research philosophy permits a researcher in making use of rationale in a logical
way for evaluating the different fundamental information that has been collected for the research.
Interpretivism research philosophy helps in interpreting the activities of the people and the
participants of the research (Saunders, Lewis and Thornhill, 2009). The realism research
philosophy on the other hand establishes the fact that one cannot find the realty of the research
without continuous research. These four are the main research philosophies that are used in an
academic research. For this particular research the researcher has chosen a positivism philosophy
for conducting the research study.
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3.3.1. DEFENSE OF SELECTING POSITIVISM PHILOSOPHY
A positivism research philosophy is chosen for the research study. The researcher has
chosen this approach as utilization of the positivism approach permits a researcher in uncovering
shrouded data. Furthermore, the positivism philosophy permits the researchers to test different
research questions and research hypothesis. The use of positivism research philosophy is
therefore appropriate for the research study. The researcher did not consider the interpretivism
and the pragmatism approach of the research as the research has a restricted time. Furthermore,
the use of positivism research approach limits the research study only in the investigation and the
information translation phase.
3.4. RESEARCH APPROACH
As discussed in the research onion section, the research approach can be mainly of two
types, the inductive approach and the deductive approach. Deductive research approach is mainly
used in the research studies that deal with the dissection of past hypothesis set by previous
researchers. The use of inductive research approach on the other hand involves search of the data
or searching the answers to the research question following a particular pattern or observation
thus resulting in development of a new theory (Leedy and Ormrod 2013). The significant
difference between the two research approaches is that the inductive approach is mainly
concerned with the generation of a new theory from the available and analyzed data while that of
the deductive approach encourages a researcher to make use of past theories for conducting a
research (Mitchell and Jolley 2013). The use of deductive research methodology enables a
researcher in conducting a research study is a legitimate way. While the use of inductive
approach of research generally gives rise to new speculations and new theories associated with
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the research problem. The researcher has chosen to make use of deductive research approach in
this research study.
3.4.1. DEFENSE FOR SELECTING DEDUCTIVE RESEARCH APPROACH
A deductive research approach is identifed for this research as it makes use of the
available theories to scan a particular research question. The deductive research approach helps
in gathering the data that is required for answering the identified research question. The
deductive research approach further helps in collection of the data that is essential for performing
a research project. The researcher has mainly chosen the deductive approach for directing the
research study towards the recognizable key factors that effects the change in the research
process. The use of the deductive research approach is justified since it helps in analyzing the
different factors that contributes to the issues and the risks associated with the use of blockchain
and its applications. The use of the deductive research approach will further enable the
researcher in making use of the past idea and the speculations associated with this particular
research. Therefore the choice of deductive research approach for this particular research study is
justified.
3.5. RESEARCH DESIGN
For ensuring successful collection of data, it is essential to formulate a particular research
design that will enable a researcher in investigating the information that is gathered from the
different project source. The research design therefore enables a researcher in performing a
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research in a correct manner (Novikov and Novikov 2013). A particular research design ensures
that the research is conducted in a particular fashion with the help of the available research
information. The different types of research design are descriptive, exploratory and explanatory
research design technique (Salaberry and Comajoan 2013). The aim of exploratory research
design is to study the different aspects and the contexts of the area under research. On the other
hand, the exploratory research design assures that the conclusive research solutions are addressed
in the end of the research. The exploratory research therefore explores the different research
questions with a view of understanding the existing research problem. This type of research
design is mainly chosen for the research studies where the research problem is not clearly
defined (Thomas 2013). The exploratory research design therefore does not im in providing a
conclusive evidence of the research problem.
The use of descriptive research design on the other hand describes the different
characteristics of a subject of the research (Uprichard 2013.). In the descriptive research design,
the participants are depicted and analyzed in an accurate manner and thus the researcher has
chosen the descriptive research design for the research study.
3.5.1. DEFENSE FOR SELECTING DESCRIPTIVE RESEARCH DESIGN
The Researcher has developed a clear research plan for conducting a primary research
and analysis of the collected data. The descriptive research design helped the researcher in
making use of logical approach in analyzing and deducing the collected information. The
descriptive research design is considered to be an innovative tool that the researcher makes use
of for performing the qualitative and the quantitative research. Along with the appropriate
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research plan, the choice of the descriptive research design has helped the researcher in proper
analysis of the collected data.
3.6. DATA COLLECTION METHODOLOGY
Data is a term that is specific to an information set. A set of information is necessary to
understand the problems identified in a research and it further helps in analyzing the significant
aspects of a particular research work (Bryman and Bell 2015). The data collection strategy of any
research study is mainly classified into two types, which are primary data collection method and
secondary data collection method (Brannen 2017).
Primary Data Collection: The primary data collection methodology incorporates a
collection of information from the sources having a firsthand knowledge about the identified
problem or the topic being researched (Ritchieet al. 2013). Primary data is mainly gathered by a
number of approaches that include interviews, observation and surveys. Interviewing the
operational personnel and the experts can be effectively used for conducting a research.
Interviews are generally conducted through a telephonic process and by meeting direct
respondents. However, the most widely used method for collection of the data includes survey.
Online surveys are mostly used for gathering and collecting the primary data that will be used for
the research.
Secondary Data Collection: The secondary data collection method mainly refers to the
process of collection of data from the secondary sources (Mayer 2015). This includes the
information that has been published in books, scholarly articles and in the research papers. One
of the advantages of making use of secondary research method is that a huge amount of
information is already available on the field of research.
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The researcher has chosen a primary data collection methodology for the research study.
For collection of primary data, a questionnaire has been designed with close ended questions.
The questions were based on the mitigation approaches of the risks that have been identified in
the literature review section of the research study. The data analysis method for the research is
discussed in the following section.
3.7. DATA ANALYSIS METHODOLOGY
There are mainly two types of data analysis methodologies that are followed in an
academic research. These are qualitative data analysis and quantitative data analysis.
The qualitative data analysis is associated with a range of processes and procedures that
evaluates the non numeric information of the data collected (Smith 2015). There are mainly five
categories into which the qualitative data can be analyzed (Jensen 2013). These include content
analysis, narrative analysis, discourse analysis, framework analysis and grounded theory
(Eriksson and Kovalainen 2015).
Quantitative data analysis on the other hand involves mathematical calculation of the
collected data (Edson, Henning and Sankaran 2016). Excel spreadsheets and SPSS are two of the
most commonly used tools of quantitative data analysis.
In order to evaluate the risks associated with the use of blockchain and its application, an
online survey will be conducted. The collected data will undergo quantitative data analysis as it
will enable the researcher to collect and analyze an accurate data that can be used in the research.
3.8. POPULATION AND SAMPLE
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The research will be considering the use of online survey based on a set questionnaire to
collect the information associated with the research and the risk mitigation approaches of the
research. For this, more than 80 respondents were approached to attend the survey so that data
about the mitigation process of the identified risks can be obtained. The respondents of the
survey mainly include Blockchain Developer, Network Security Officer, Blockchain Architect,
Information Security Officer and others.
3.9. ETHICAL CONSIDERATIONS
Since the research will be considering a primary data collection technique, certain
research considerations should be enforced. There are several fundamental guidelines associated
with a research which are needed to be followed while performing the research. These are
discussed as follows (Cacciattolo 2015)-
1. Respect and safety of the respondents will be first and foremost priority for the
researcher.
2. It is essential to obtain the permission of the participants before proceeding with the
process of data collection (Connelly 2014).
3. The anonymity of the respondents participating in the survey should be maintained.
4. The transparency in the collected data should be maintained and misquoting the
collected data should be prohibited in the research.
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3.10. CONCEPTUAL FRAMEWORK
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Figure 5: Representing the conceptual framework
(Source: created by author)
3.11. RESEARCH HYPOTHESIS
On basis of the research question, the following research hypothesis is established.
Null Hypothesis (H0): There are no such mitigation approaches that can completely mitigate the
risk in blockchain
Alternative Hypothesis (H1): The Identified mitigation approach can possibly mitigate the
identified risks in blockchain.
3.12. CHAPTER SUMMARY
This chapter of the research study provides an idea of the different tools and techniques
that will be used in the research. This chapter of the research paper gives an idea of research
onion and explains its use in conducting the research. The research about the risks associated
with a blockchain will involve the use of positivism research philosophy along with a descriptive
research design. A deductive approach is chosen for the research in order to find the answers to
the set research questions. Choice of appropriate tools and techniques ensure accurate analysis of
data. The researcher will be collecting a primary data for the research and will embark on a
quantitative data analysis. The chapter furthermore gives an idea of the ethical considerations
associated with a research study.
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CHAPTER 4: DATA ANALYSIS
4.1. INTRODUCTION
The different risks that are associated with blockchain are identified in the literature
review section. Based on the risk mitigation approaches that are identified, a survey has been
done with 80 respondents to check whether the identified risk mitigation approaches for the risks
in the blockchain are viable or not. The different risk mitigation approaches that have been
proposed for mitigation of the risks associated with blockchain include encryption, use of digital
signature, choosing a trusted vendor, cryptography, shorter incident response plan and by
enforcement of standardized control, management of public and private keys and so on. Certain
strategies are proposed as well in order to reduce the data vulnerabilities associated with
blockchain. These are certain basic steps that can be taken for mitigation of the risks. In this
section of research project the collected data will undergo quantitative analysis in order to assess
the viability of the proposed solution and to identify the mitigation approach that will be best
suited for accessing the problem. With the help of graphs and charts in the collected data will be
analyzed to determine the viability of the option. The use of Blockchain has seen an exponential
increase and therefore the risks in blockchain increases as well. This is one important section of
the research report as it will analyze the collected data and will help finding an answer to the
problem identified. The survey has acquired mixed reaction on the mitigation approaches that
have been chosen for mitigation of the risks associated with the technology of blockchain.
4.2. ANALYSIS OF THE COLLECTED DATA
The literature review section of the research project has identified different risk
mitigation approaches for the identified risk. Based on certain major mitigation approaches a
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questionnaire had been prepared to collect data about the opinion of the respondents regarding
the viability of the mitigation approaches that has been identified against the major identified
risks associated with the project. The respondents are chosen from a group of people who have
an experience in working with blockchain and security. The opinions of these members are
collected to assess the risk management process in blockchain.
4.2.1. DEMOGRAPHIC DATA
A total of 80 respondents are chosen for the analysis and data about their field of work
has been collected. The table below represents the detailed field of work of the respondents of
the survey. The table below represents the details of the respondents in the survey.
Row Labels Count of What is your Field of Work?
Blockchain Architect 16
Blockchain Developer 9
Risk Manager 15
Network Security Officer 29
Testing Engineer 11
Grand Total 80
Table 1: Demographic Data of Field of Work of the Respondents
From the above table, it is clear that the majority of the respondents of the survey have a
work experience in the field of Network security officer. The responses have been collected from
the individuals having a firsthand knowledge about the risks and the issues in blockchain. . The
Chart below represents the percentage of the respondents in each category.
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Blockchain
Architect Blockchain
Developer Network
Security
Officer
Risk Manager Testing
Engineer
0
5
10
15
20
25
30
35
Distribution of Field of Work
Field of Work
Frequency
Figure 6: Demographic Data of Field of Work of the Respondents
(Source: Data Based)
As a part of the demographic data that has been collected during the survey, the
experience of each of the respondents in their field of work is identified. The table below
represents the field of work of each respondent of the survey.
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Row Labels Count of What is your Work Experience in this Field?
0-2 Years 7
3-5 Years 58
More than 5
Years 15
Grand Total 80
Table 2: Demographic Data about the experience of the respondents in their field of
work
From the above table it can be concluded that all the respondents have a significant
experience in the field of blockchain and therefore these respondents are suitable to access the
risk mitigation approaches that has been identified against the different risks associated with the
project. The chart below represents the distribution of the work experiences of the respondents.
0-2 years
9%
3-5 years
73%
More than 5 years
19%
Total
Figure 7: Demographic Data about the experience of the respondents in their field of
work
(Source: Data Based)
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From the above chart, it can be seen that almost 72 percent of the respondents of the
survey has at least 3 years of experience. The following section of the research report analyses
the collected data to evaluate whether the proposed risk mitigation approaches are viable or not.
4.2.2. DATA ANALYSIS OF THE DATA COLLECTED FROM SURVEY
The respondents were asked to opine about the use of encryption in mitigation of the end
point vulnerability risk in blockchain. Majority of the respondents have agreed that encryption is
indeed a good approach for mitigation of the end point vulnerability in blockchain.
Frequency Percentage
Strongly
Disagree
5 6.3 %
Disagree 5 6.3%
Neutral 12 15.00%
Agree 56 70
Strongly Agree 2 2.5%
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Table 3: Representing the opinion about encryption being a risk mitigation
approach
Strongly
Agree Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
Encryption is appropriate to
mitigate end point vulnerability
Figure 8: Representing the opinion about encryption being a risk mitigation
(Source: Data Based)
From the above data it can be deciphered that the majority of the respondents have agreed
with the fact that encryption can be used for addressing the end point vulnerability risk
associated with blockchain. Encryption is one of the important characteristic of blockchain
technology. The security method of blockchain makes use of encryption. The use of public key
and private key is common for encryption and decryption in a blockchain transaction. This might
be the reason behind the denial of this mitigation approach for the end point vulnerability risk in
blockchain. Since about 70 % of the respondents have agreed to the fact that encryption is a good
risk mitigation approach, it is clear that this strategy is here to stay. Blockchain have been
making use of encryption as an integral risk mitigation approach and therefore this approach is
appropriate for mitigation of the end point vulnerability risk.
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The respondents were further asked to opine about the use of digital signature as a
mitigation approach for mitigation of the contractual risks associated with blockchain. For
example, in one of the applications of blockchain, which is smart contract, a significant
transactional risk arises mainly because the transactions in smart contracts cannot be reversed.
Frequency Percentage
Strongly
Disagree
2 2.5%
Disagree 5 6.3%
Neutral 15 18.8%
Agree 55 68.8%
Strongly Agree 3 3.8%
Table 4: Representing the opinion about enforcing digital signature a Risk
mitigation approach
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Strongly Agreee Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
Contractual Risks can be mitigated by
enforcing the need of digital signature
during operation of smart contract
Figure 9: Representing the opinion about enforcing digital signature a Risk mitigation
approach
(Source: Data Based)
If it can be enforced that every transaction in a smart contract should incorporate the use
of digital signature, the risks of illegal transactions can be mitigated. However, it is seen that
almost 19% of the respondents chose to remain neutral in this topic. This gives rise to the
dilemma that whether the use of digital signature alone can mitigate the serious contractual risks
that are associated with blockchain. Digital signatures are used in majority of the digital
transactions and therefore certain other risk mitigation approaches are needed to be identified for
mitigating the risks associated with transactions in different application of blockchain, mainly
smart contract.
The respondents are asked if the supplier risks can be mitigated by choosing a trusted
cloud vendor. The table below discusses the responses obtained from the respondents.
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Frequency Percentage
Strongly
Disagree
3 3.7%
Disagree 5 6.3%
Neutral 15 18.8%
Agree 54 65.7%
Strongly Agree 3 3.7%
Table 5: Representing the response about the choice of a trusted vendor
Strongly Agree Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
Supplier risk can be mitigated by
choosing a trusted cloud vendor
Figure 10: Representing the response about the choice of a trusted vendor
(Source: Data Based)
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The respondents were asked to opine about cryptography being one of the significant
mitigation approach for the operational and the IT risks. The data obtained are represented in
the following table-
Frequency Percentage
Strongly
Disagree
4 5%
Disagree 6 7.5%
Neutral 12 15%
Agree 53 66.3%
Strongly Agree 5 6.3%
Table 6: Representing the opinion about Cryptography being useful to mitigate the
operational and IT Risks
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Storongly
Agree Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
cryptography will be useful for
mitigation of the operational
and IT risks
Figure 11: Representing the opinion about Cryptography being useful to mitigate the
operational and IT Risk
(Source: Data Based)
It can be seen that majority of the respondents have agreed on the fact that cryptography
can be used to mitigate the operational and IT risks associated with the use of Blockchain. Few
of the respondents also disagreed with the same but the count of it is negligible. Cryptography
can mitigate a number of risks associated with blockchain and therefore it can be considered as a
significant risk mitigation approach
Cryptographic keys can be used for mitigation of certain other risks associated with
blockchain which include the transactional privacy leakage risk. The respondents were asked to
opine about the same. The table and the chart below gives an idea of the responses obtained from
the survey.
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Frequency Percentage
Strongly
Disagree
6 7.5%
Disagree 7 8.8%
Neutral 14 17.5%
Agree 51 63.7%
Strongly Agree 2 2.5%
Table 7:Representing the opinion about Cryptography being useful to mitigate the
transactional privacy Risk
Strongly Agree Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
Transaction privacy leakage risk can
be mitigated by proper protection
of the cryptographic keys
Figure 12: Representing the opinion about Cryptography being useful to mitigate the
transactional privacy Risk
(Source: Data Based)
From the obtained data, it can be concluded that the use of cryptographic keys is a valid
risk mitigation approach that can be used for mitigation of the transactional privacy leakage risk.
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The respondents were asked to opine about the use of incident response plan that can act
in a quick manner to mitigate the business continuity risks associated with blockchain at the
time of a disaster. The data obtained are represented as follows-
Frequency Percentage
Strongly
Disagree
5 6.30%
Disagree 9 11.30%
Neutral 14 17.50%
Agree 48 60.00%
Strongly Agree 4 5.00%
Table 8: Representing the opinion about incident response plan being useful to
mitigate business continuity Risk
Strongly
Agree Agree Neutral Disagree Strongly
Disagree
0
20
40
60
Use of a shorter incident response
plan can help in mitigating the
business continuity risk
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Figure 13:Representing the opinion about incident response plan being useful to
mitigate business continuity Risk
(Source: Data Based)
From the data statistics, it can be observed that majority of the respondents can agree to
the fact that this plan can help in mitigation of the business continuity risk. However, it is seen
that 14 respondents out of 80 respondents have chosen not to comment about the mitigation
approach. However, as it is seen that majority of the respondents are agreeing to the fact that
shorter incident response plan can help in mitigation of the business continuity risk.
It is seen that untested growth is a major risk associated with the blockchain as it can give
rise to a number of other issues. The respondents of the survey are therefore asked to opine about
the use of resource sharing as a mitigation approach for the risk of untested growth in
blockchain. Their responses are as follows-
Frequency Percentage
Strongly
Disagree
5 6.30%
Disagree 8 10.00%
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Neutral 19 23.75%
Agree 48 60.00%
Strongly Agree 3 3.80%
Table 9: Representing the opinion about resource sharing plan being useful to
mitigate the risk of untested growth
Strongly
Agree Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
Resource sharing can help in
addressing the issues of
untested growth in blockchain
Figure 14: Representing the opinion about resource sharing plan being useful to
mitigate the risk of untested growth
(Source: Data Based)
From the above chart, it can be seen that resource sharing can be used for addressing the
different issues associated with the untested growth of blockchain. Resource sharing is a concept
that enables multiple users to make use of a particular resource. The feasibility of the use of
resource sharing to deal with the problem of untested growth in blockchain should be tested. In
this survey, majority of the respondents found this approach to be a possible mitigation approach
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of the risk. However, a large percentage of the respondents have been seen to stay neutral about
the topic and therefore the feasibility about making use of resource sharing should be checked.
The respondents were asked to opine about making use of standardized control in
mitigation of the risk of decentralization and their responses are as follows-
Frequency Percentage
Strongly
Disagree
3 3.70%
Disagree 5 6.30%
Neutral 16 20.00%
Agree 53 66.30%
Strongly Agree 3 3.8%
Table 10: Representing the opinion about standard control being useful to mitigate
the risk of decentralization
Strongly Agree Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
Enforcing a standardized control
can mitigate the risks arising from
decentralization
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Figure 15:Representing the opinion about standard control being useful to mitigate the
risk of decentralization
(Source: Data Based)
From the above data it can be seen that majority of the respondents have agreed to the
fact that standardized control can be enforced in mitigating the risks associated with the
decentralized nature of blockchain. A standardized control can be used as a mitigation approach
for the risk and should be enforced as well.
The respondents were asked to opine about the use of data governance policies in access
control. The responses of the survey are as follows-
Frequency Percentage
Strongly Disagree 5 6.30%
Disagree 6 7.50%
Neutral 13 16.20%
Agree 51 63.70%
Strongly Agree 5 6.30%
Table 11: Representing the opinion about data governance being useful in access
control
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Strongly
Agree Agree Neutral Disagree Strongly
Disagree
0
20
40
60
Effective data governance
policies can help in access
control
Figure 16:Representing the opinion about data governance being useful in access
control
(Source: Data Based)
From the above data it can be concluded that the use of effective data governance policies
that help in access control, which is one of the significant risk mitigation approach in blockchain.
The respondents were asked to opine about the use of efficient key management in
mitigation of the security risks associated with the use of blockchain. The responses that has
been obtained are as follows-
Frequency Percentage
Strongly
Disagree
3 3.7%
Disagree 6 7.5%
Neutral 13 16.25%
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Agree 55 68.8%
Strongly Agree 3 3.8%
Table 12: Representing the opinion about efficient key management being useful in
mitigating security Risk
Strongly
Agree Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
Efficient key management can
help in mitigation of the security
risks
Figure 17:Representing the opinion about efficient key management being useful in
mitigating security Risk
(Source: Data Based)
The data about the use of efficient key management as a mitigation approach of certain
security risks associated with blockchain clearly depicts that majority of the respondents have
agreed on the fact that efficient key management can be considered as a mitigation approach for
certain security risks. There are very less percentage of the respondents who disagreed to the fact
that efficient key management can be used for mitigation of the security risks associated with the
use of blockchain and blockchain applications.
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On evaluating the use of public and private cryptographic keys, it has been observed that
the use of good anti-virus can help in mitigation of the risks associated with blockchain and risk
management.
Frequency Percentage
Strongly Disagree 2 2.5%
Disagree 4 5%
Neutral 11 13.8%
Agree 58 72.5%
Strongly Agree 5 6.3%
Table 13: Representing the response about the use of antivirus
Strongly
Agree Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
70
Use of good antivirus in the digital
devices associated with
blockchain can help in efficient
key management
Figure 18:Representing the response about the use of antivirus
(Source: Data Based)
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The respondents were asked to provide their opinion about the use of trusted vendor for
mitigation of the supplier risks and their responses are represented below-
Frequency Percentage
Strongly Disagree 2 2.5%
Disagree 6 7.5%
Neutral 16 20%
Agree 52 65%
Strongly Agree 4 5%
Table 14: Representing the opinion about trusted vendor being useful in mitigating
supplier risk
Strongly Agree Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
Supplier risk can be mitigated by
choosing a trusted vendor
Figure 19:Representing the opinion about trusted vendor being useful in mitigating
supplier risk
(Source: Data Based)
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From the data above it can be observed that more than 60% of the respondents have
agreed on the fact that the choice of a trusted vendor can help in mitigation of the supplier risks
associated with blockchain. This is however subjective and a further more research is necessary
in this field to understand how this mitigation approach can be used for mitigation of the supplier
risks.
The respondents were asked to opine about the use of cryptographic protocols to address
the consensus protocol risks. The reposes are as follows-
Frequency Percentage
Strongly Disagree 5 6.3%
Disagree 6 7.5%
Neutral 17 21.3%
Agree 49 61.3%
Strongly Agree 3 3.8%
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Table 15:Representing the opinion about cryptographic protocols being useful in
mitigating consensus protocol risk
Strongly Agree Agree Neutral Disagree Strongly
Disagree
0
20
40
60
Consensus protocol risks can be
mitigated by enforcing cryptographic
protocols
Figure 20:Representing the opinion about cryptographic protocols being useful in
mitigating consensus protocol risk
(Source: Data Based)
As majority of the respondents have agreed to the fact that the consensus protocol risks
can be mitigated by the use of cryptographic protocols, this can be considered as a valid risk
mitigation approach. However, since a large portion of the respondents have chose to remain
neutral about the topic, it can be said that further researches in this field is necessary to ensure
that cryptographic methods can be used for addressing the consensus protocol risks.
As discussed in the literature review section of the research report, there are a number of
vulnerabilities associated with the use of blockchain. The respondents were asked to opine about
different risk mitigation strategies that can considerably reduce vulnerabilities in blockchain.
These mitigation approaches include validation of data quality, careful network design, security
of the private key of the user and use of permissioned blockchain. On an average, it is found out
that almost 65% of the respondents have agreed to the fact these approaches can considerably
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reduce the vulnerabilities associated with blockchain. The data below represents the response of
the respondents on the question about the use of data quality validation as a risk mitigation
approach in blockchain.
Frequency Percentage
Strongly Disagree 4 5%
Disagree 4 5%
Neutral 17 21.3%
Agree 53 66.3%
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Strongly Agree 4 5%
Table 16: Representing the rsponse about data quality validation
Strongly Agree Agree Neutral Disagree Strongly
Disagree
0
20
40
60
Validation of the data quality
before it enters the blockchain can
reduce the vulnerabilities in
blockchain
Figure 21:Representing the response about data quality validation
(Source: Data Based)
From the above chart it can be concluded that validation of the data quality can mitigate
the risks associated with blockchain.
The use of private blockchain network is effective another sector as well. The use of
private blockchain considerably reduces the vulnerabilities in blockchain and therefore the use of
private blockchain network can reduce the reputational risks as well. The respondents were asked
to opine about the use of private blockchain in mitigation of the reputational risks associated
with blockchain. The table below represents the response as obtained from the respondents of the
survey.
Frequency Percentage
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Strongly Disagree 4 5%
Disagree 3 3.7%
Neutral 16 20%
Agree 53 66.3%
Strongly Agree 4 5%
Table 17: Response about the use of Private blockchain
Figure 22: Response about the use of Private Blockchain
(Source: Data Based)
From the above data it is seen that majority of the respondents have agreed on the fact
that use of private blockchain can eliminate the chances of reputational risk in blockchain.
However, there can be a number of reason behind the reputational risk and therefore, further
researches in this field is necessary to ensure that the reputational risks can be managed by
making use of private blockchain network.
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Apart from this, the respondents of the survey were asked about risk control in the initial
stages of deployment. It can be a major risk management approach associated with blockchain. It
is seen that majority of the respondents have agreed to the fact that secure deployment, reduction
in use of open-source blockchain and in house designing of blockchain can mitigate several risks
associated with blockchain. The viability of each of these approaches is discussed in the
following section.
These are the major risk mitigation approaches that have been identified and the analysis
is based on some major approaches. However, an elaborate research is necessary in each of these
fields to understand the viability of the risk mitigation approach. As of now, it can be said that
the use of strong cryptographic protocols can help in mitigation of a number of risks.
4.3. TEST OF RESEARCH HYPOTHESIS
From the analysis of the collected data, it has been observed that majority of the
respondents have agreed to the fact that the chosen mitigation approaches can possibly mitigate
the identified risks in blockchain. From the analysis of the collected data from the survey, it is
seen that only a smaller portion of the population has disagreed to the appropriateness and
effectiveness of the mitigation approaches that has been chosen for the research study. Thus it is
being observed that the research study follows the alternative hypothesis of the research.
The Figure below represents the response of the respondents about the one of the risk
mitigation approach of blockchain.
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Strongly
Agree Agree Neutral Disagree Strongly
Disagree
0
10
20
30
40
50
60
Encryption is appropriate to
mitigate end point vulnerability
Figure 23: Response of the respondents
(Source: Data Based)
As seen in the picture above, the percentage of the respondents who have disagreed to the
chosen mitigation approach is quite less. The responses have been quite similar for the other
mitigation approaches that have been chosen for the research. Thus it is observed that the
research is following the alternative hypothesis.
4.4. CHAPTER SUMMARY
This is one of the most important sections of the research report as it analyses the chosen
approaches of risks mitigation and assess the risk management process in blockchain. The
blockchain transactions are generally quite secure and therefore the number of risks associated
with blockchain is quite less in comparison to a centralized structure. Certain risks that are
associated with blockchain have been identified in the literature review section and the
mitigation approach for some of the major risks associated with the blockchain is analyzed. It is
seen that the mitigation approaches that have been proposed are quite viable; however, further
research in this field in necessary in order to understand the process of enforcing the identified
mitigation approaches and to mitigate any such risk that might endanger a transaction or the
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owner of blockchain. In short, this chapter analyses the viability of the identified risk mitigation
approaches.
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CHAPTER 5: DISCUSSION
5.1. INTRODUCTION
The primary data that is being collected has undergone a quantitative analysis to
determine whether the risk mitigation approaches that have been identified in the extensive
literature review section holds true. Data has been collected from varied sources by the method
of survey and the data is analyzed based on the responses of the individuals. The previous
chapter of the research study illustrated the responses of respondents of the survey to identify
whether the chosen approach will help in mitigation of the identified risks associated with
blockchain. A mixed response has been obtained from the respondents and the primary reason
behind that might be the fact that the respondents might not have faced those risks in operation
of blockchain. This is possible as blockchain is considered to be one the most secure method of
transactions. This chapter of the research project aims in discussing the effectiveness of each of
identified approaches of risk mitigation in blockchain. The risks that are identified in the
literature review section of research study are obtained from an extensive search of the findings
from previously published journals. The mitigation approaches that have been identified are
obtained from the previously published journals as well. The online survey that has been
performed aimed in checking whether the proposed mitigation approaches will actually help in
mitigation of a particular risk if that case arises. The discussion about the effectiveness of some
of the most important risk mitigation approaches such as encryption, cryptography, digital
signature and key management is illustrated in the following sections.
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5.2. EFFECTIVENESS OF ENCRYPTION
The effectiveness of encryption as a risk management or mitigation approach in
blockchain is true since blockchain make use of encryption as a major protocol (Zyskind and
Nathan 2015). There is no denying the fact that the security method in blockchain makes use of
the encryption technology in order to secure each block of the blockchain. Encryption in
blockchain prevents misuse of sensitive information that is being shared via blockchain
transaction (Cachin 2016). The use of encryption as a security method further ensures that the
information that is being stored or shared in a blockchain is not forged.
The ledger of blockchain records each and every transaction taking place in the
blockchain and each transaction needs to be get verified (Wright and De Filippi 2015). The
transactions can be verified by anyone who is present in that particular blockchain network. Thus
every blockchain transaction and encryption securely works on basis of mathematics aligned
with a mining network (Kishigamiet al., 2015). The encryption method associated with the use
and verification of a blockchain transaction is considered to be secure since a particular
transaction in blockchain is verified by solving an algorithm. Another characteristic of
blockchain that makes it a secure transaction system is that once a transaction is added in a
blockchain network, it cannot be changed.
The high level mathematical algorithms used in securing the transactions in a blockchain
makes the use of encryption as one of the most secure and the easiest way of safeguarding the
sensitive and the confidential information associated with the use of blockchain (Liet al. 2017).
Encryption of the transactions and the information stored in blockchain ensures that a particular
information can be accessed by an authorized person only and will not be misused. However, the
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effectiveness of encryption is mitigation of end point vulnerability in blockchain should be
reviewed.
The end points of the blockchain can be described as the point where a human and the
blockchain meet. The end point vulnerability risk in blockchain indicates that the point during
which a human makes a contact with blockchain. At this point, the risk of the confidential
information of blockchain being forged or misused is the highest and therefore end point
vulnerability is considered to be one of the most significant risks associated with blockchain. As
a mitigation approach to the end point vulnerability of the risk, encryption is proposed to be the
only solution. The use of public key and private key is definitely capable of mitigation of this
risks as it will limit the use and access of the data only to authorized individual that is, the
individual who have an access to the private key required for decryption of a particular encrypted
data in a blockchain network. From the response that has been obtained from the online survey it
is seen that majority of the respondent has chosen encryption to be one of the most secure
approaches of managing the risks associated with end point vulnerability in blockchain (Kosbaet
al. 2016). The picture below represents the responses in a chart form-
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Figure 24: Responses of the Respondents
(Source: Data based)
However, it is also seen a group of people have disagreed to this risk management
approach. While researching further about the reason behind such disagreement, it is found out
that the disagreement might be a cause of the issues associated with the use of encryption keys.
In a blockchain transaction, an encrypted data can only be decrypted with the use of a private key
and in any case if the private key is lost, the user will never be able to get an access to the
transaction which is one disadvantage of making use of private key in a transaction. This might
be one primary reason behind the disagreement of a group of respondents regarding the use of
encryption in mitigation of the end point vulnerability in blockchain (Watanabeet al. 2015).
However, since encryption is used as one of the standard methods in mitigation of the risks in
blockchain and is one of the most essential characteristics of blockchain, the recommendation of
making use of encryption in mitigation of the end point vulnerability risk in blockchain is
justified.
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5.3. EFFECTIVENESS OF DIGITAL SIGNATURE
Digital signature can be described as a digital code that is generally attached to a
electronically transmitted document to verify the authenticity of the document. It would be
interesting to evaluate whether the use of digital signature can actually mitigate the presence of
contractual risk in a blockchain transaction (Zyskind and Nathan 2015). An extensive literature
search pin points the fact that each and every transaction in blockchain has to be verified by the
electronic signature of the sender. The existence of blockchain is null without the use of hashing
or digital signature. Therefore the recommendation of making use of digital signature in
mitigation of the contractual risks associated with the use of blockchain is justified. The use of
digital signature allows non repudiation which confirms that the individual having an access to
the private key of the encryption will only be allowed to access particular information. The use
of digital signature in a blockchain transaction ensures that the transactions are conducted by the
rightful owners only (Backet al. 2014). Thus it can be said that every transactions in a
blockchain can greatly be benefitted by the use of digital signature. With the increasing use of
digital signatures in electronic transaction, the digital signature has become considerably more
secure by adding different cryptographic functionalities in digital signatures (Zhenget al. 2016).
The use of advanced electronic signatures in contractual transaction of blockchain is therefore
considered to be one justified recommendation (Aitzhan and Svetinovic 2018). The respondents
of the survey were asked about the effectiveness of making use of digital signatures in the
management of the contractual risks associated with blockchain. The responses that has been
obtained is represented in the following chart-
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Figure 25: Responses of the Respondents
(Source: Data based)
From the above chart, it is observed that majority of the respondents have agreed to the
fact that use of digital signatures can actually help in mitigation of the mentioned risk. The
disagreement of some of the respondents comes from the fact that blockchain needs high level of
security as mostly; the confidential information is generally stored in a blockchain (Linet al.
2018). However, although blockchain might be seemingly complex or complication, the
architecture of blockchain is quite simple (Aitzhan and Svetinovic 2018). In order to create a
fresh transaction in blockchain, a hash of the previous transaction is recorded where the public
key of the recipient of the transaction is used in the process of encryption along with the private
key of the signer of the digital signature. Thus the signer needs to have an access to the private
key in order to participate in a transaction (Linet al. 2018). One of the advantages of making use
of blockchain is that once a data is entered, it cannot be edited. The use of digital technology in
blockchain works on a number of properties, which are log replication, provable value chain,
public key cryptography and decentralized transaction ledger. Thus digital signatures and
blockchain can easily work together as the use of digital signature has become the key control in
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a number of organizations (Kiktenkoet al. 2018). The advanced digital signature furthermore
relies on the use of complex mathematical algorithms in providing the much needed authenticity
and protection of data against forgery. Thus the recommendation of making use of digital
signature as a risk mitigation approach for mitigation of the contractual risks associated with the
use of blockchain.
5.4. EFFECTIVENESS OF CRYPTOGRAPHY
Cryptography is a process that enables storage and transmission of data in a certain form
so that only the authorized individuals are able to read the data. It is synonymous to encryption.
The use of cryptography blockchain transactions is not a new concept as the original protocol of
Bitcoin Blockchain had introduced the concept of crytoeconomics in creation of a robust and
fault tolerant blockchain network (Singh and Singh 2016). Cryptography can be used for
preserving the privacy as well as transparency in a blockchain transaction. The use of
cryptography is mainly seen in permisionless blockchain such as Bitcoin, Ethereum and similar
other protocols and applications of blockchain. The aim of making use of cryptography in
mitigation of the Information technology risks associated with the use of blockchain is to make
sure that a network of actors even if they do not trust each other reach over a particular
consensus protocol. When the respondents in the survey that has been undertaken were asked
about the use of cryptography as a risk mitigation approach, a majorly positive response has been
obtained. The response is illustrated in the following chart.
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Figure 26: Response of the Respondents
(Source: Data Based)
As seen in the above chart, majority of the respondents have provided a positive view on
the use of cryptography as the major risk mitigation approach for different operational and the IT
risks associated with the use of blockchain. Bitcoin, one of the most widely used applications of
blockchain make use of public key cryptography for a secure transaction. In public key
cryptography, both the public key and the private key are used in a transaction. Although
cryptography is quite similar to encryption, cryptography does not simply incorporate the
encryption and decryption of the messages (Hari and Lakshman 2016). The different
cryptographic algorithms that are used in a blockchain or more precisely, in a bitcoin transaction
are designed around a wide range of computational hardness assumption. In this case, even if it is
theoretically possible to break such cryptographic protocol, it is practically impossible to actually
break it.
However, it must be kept in mind that the excessive use and growth of different
cryptographic protocols have given rise to a number of legal issues (Halpin and Piekarska 2017).
This is particularly because cryptography has a potential to be used for espionage and sedition.
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Nevertheless, the use of cryptography in blockchain and its applications provides a much needed
security and therefore it can be considered as one of the efficient ways of securing a blockchain
transaction. The use of public key encryption is considerably better for securing a blockchain
transaction.
5.5. EFFECTIVENESS OF EFFICIENT KEY MANAGEMENT
Since encryption is an inseparable part of blockchain, there are certain issues associated
with the inefficient management of the keys in blockchain. These issues give rise to certain risks
that are needed to be mitigated (Halpin and Piekarska 2017). Therefore efficient key
management is considered to be one of the most important risk management approaches
associated with the use of blockchain. The respondents of the survey were asked to give their
views on considering efficient key management as one of the risk mitigation approaches in
blockchain. The response of the respondents is represented in the following chart.
Figure 27: Responses of the Respondents
(Source: Data based)
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From the above chart, it can be deduced that majority of the respondents have agreed to
the fact that efficient key management can rightly help in management of the security risks in
blockchain. Mostly, the blockchain transactions and encrypted and decrypted with the public and
private key respectively. The need for management of the key is considerably huge in blockchain
as any issue with either of the public or the private key can make an entire transaction void and
therefore it is utmost necessary to consider the need of key management in a blockchain
transaction.
The term key management can be defined as the use of cryptographic keys that are used
in a cryptosystem. The term key management is an umbrella term that encompasses the
generation, exchange and the storage of the keys that are used in a cryptographic transaction,
precisely, the public key and the private key (Halpin and Piekarska 2017). Key management is
an essential aspect of the encryption that is taking place in a blockchain transaction. It can surely
mitigate a number of security risks associated with the use of blockchain and therefore the
recommendation of the researcher to make use of efficient key management as a risk
management approach in blockchain is justified. However, from the chart in figure 18, it is also
seen that a group of the respondents have disagreed to the fact that efficient key management can
be used as a risk management approach in blockchain (Halpin and Piekarska 2017). This can be
possibly because the term “key management” is quite broad in its aspect and does not precisely
mentions what sort of key management techniques should be employed in management of the
various security risks in blockchain and the fact that there are a large number of security risks in
blockchain as well which may not be mitigated by simple management of the keys associated
with a blockchain transaction. Therefore, in this context, a proper definition of the security risks
was necessary.
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5.6. MITIGATING THE DATA VULNERABILITY RISKS
There is a number of data vulnerability Risks associated with the use of blockchain which
is needed to be mitigated. A number of risks mitigation approaches has been proposed that can
eliminate the data vulnerability risks. It is seen that in a blockchain network it is needed to check
the data quality before the data can be used in blockchain. A survey has been conducted where
the respondents were asked to opine about the restriction of data upload in public blockchain for
reduction of the security risks associated with a blockchain network. The respondents agreed to
the fact that it is indeed beneficial to enforce proper quality checks before data upload in
blockchain in order to reduce the data vulnerability risk.
With the increase in the use of blockchain, it is essential to implement an effective
network design in order to eliminate certain vulnerabilities sin the blockchain network. When the
respondents were asked to opine about the effectiveness of careful network design in elimination
of the vulnerabilities in blockchain, majority of them have agreed to the fact that it is indeed a
good option. The picture below represents the responses of the respondents when asked about the
same.
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Figure 28: Responses of the Respondents
(Source: Data based)
Along with the careful network design, it is necessary to ensure that the private key of the
user is properly secured. Thus it can be said that a combination of a number of risk mitigation
approaches can help in addressing the vulnerabilities in a blockchain network. The secure
implementation of a blockchain network in an organization can eliminate the data security risks
associated with blockchain. The organizations are therefore recommended to design the
blockchain network in-house in order to mitigate the data security risks in blockchain.
5.7. CHAPTER SUMMARY
This chapter proves to one of the most vital chapters of research study. This is
particularly because it discusses three primary risk management techniques of blockchain that
have been identified on the literature review section. The researcher analyzes the information
collected in the literature review section and the information obtained from the collection of
primary data to evaluate whether the proposed methodology will actually work in management
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of the different risks associated with blockchain. It has been observed that all the three methods,
encryption, cryptography and key management are capable of mitigation of certain risks
associated with blockchain. End point vulnerability is one of the most significant risks in
blockchain and the primary risks mitigation approach that has been proposed for managing this
risk is the use of encryption. Similarly the use of cryptography coupled with an efficient key
management process can help in mitigation of a number of security risks associated with the use
of blockchain and its applications. The use of digital signature and encryption is quite common
in a blockchain and its associated transactions. The chapter further discusses about the
effectiveness of the mitigation approaches that have been proposed by the researcher to mitigate
the vulnerabilities associated with the blockchain. It has been observed that if the organizations
that plan to make use of blockchain in their daily business can opt of in house designing of the
same, it might help in mitigation of a number of risks associated with the blockchain network.
However, it is recommended that before implementation of the blockchain, appropriate risk
management is necessary to identify the risks that might affect the implementation process.
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CHAPTER 6: CONCLUSION AND RECOMMENDATION FOR FURTHER
RESEARCH
Blockchain is one of the evolving or emerging concepts. A research has been undertaken in order
to evaluate the blockchain concept, its risks and the mitigation techniques of the risks associated
with the use of blockchain. The research has mainly highlighted the system and application risk
management process associated with blockchain technology so that the implementation and use
of blockchain technology becomes easier. The entire research has been divided into a number of
subsections for better understanding of the each stages of research. The research in the field of
blockchain is necessary as it is an emerging technology. The researcher has embarked on an
extensive literature search in identification of the different issues associated with the blockchain.
Since blockchain is a new technology, the successful adoption and operation of this new
technology mainly depends on the management of the different risks associated with the
technology of blockchain. The research mainly focused on the system risk management process
that helped in identifying and accessing the risks associated with the blockchain technology. In
future majority of the business organizations will be making use of blockchain in their
transactions as it is considered to be one of the most secure options of information delivery.
Therefore, it is essential to research about the different risks in blockchain and the mitigation
techniques of the technology of blockchain. The successful adoption and the operation of
blockchain mostly depend on the appropriate management of the risks and the issues. The
researcher has done an extensive literature review to understand the structure and concepts of
blockchain and to identify the different issues and the challenges that the users of blockchain
might face. The risk practitioners across the different business sectors are working on the
identification of the issues and the risks associated with the use of blockchain. Along with the
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secondary data collection through an extensive literature review, the researcher has involved in
collection of primary data and that data is analyzed to understand the effectiveness of the risk
mitigation approaches. The different risks associated with the use of blockchain include end
point vulnerability risks, contractual risks, supplier risks, information security risks as so on. The
survey that has been conducted takes the opinion of the respondents about the effectiveness of
the identified risk mitigation approaches in mitigation of the vulnerabilities associate with
network design and implementation. From the results of the survey, it has been found out that
majority of respondents have agreed to the fact that in house designing and careful network
design can possibly mitigate the vulnerabilities associated with the implementation of blockchain
in different organizations.
6.1. LINKING WITH THE OBJECTIVE
The objectives of the project were to understand the technology of blockchain along with
the identification of the different risks and issues associated with blockchain technology. The
research further aimed in assessing the risks associated with the blockchain technology and to
recommend certain risks mitigation approach that will help in mitigation of the identified risks.
While understanding the different concepts of blockchain, the researcher has embarked
on an extensive literature search. The literature review section of the research study is one of the
most important chapters of this research study. Identification and understanding of all the
concepts and the characteristics of blockchain technology considerably helped the researcher in
understanding and identifying different risks and issues associated with the use of blockchain
technology. The researcher further identified the different issues and the risks associated with the
blockchain technology thus fulfilling two of the most important objectives of the project.
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Another objective of the project was to access the different risk mitigation approaches to
eliminate the risks and the issues associated with blockchain. Thus is can be said that apart from
identification of the different risks and issues associated with the blockchain technology, the
researcher have also identified the different approaches by which the identified risks can be
mitigated. The risk mitigation approaches are identified from an extensive literature search.
The researcher, in order to recommend the strategies or the risk mitigation approaches to
mitigate the identified risks, has embarked on a primary data collection and quantitative analysis
of the data to identify the most appropriate approach of risk mitigation. The primary data
collection was done by surveying 80 respondents who are associated with blockchain and has an
experience in the field of blockchain. With the increasing use of blockchain in the different
business processes, it becomes essential to identify the risks associated with the use of
blockchain. Blockchain is the backbone of many different applications that is based on
blockchain and hence it is necessary to identify the risks and the issues in blockchain. The
different nature of the blockchain transactions has a number of risks that has been identified in
the literature review section of the research study. The primary data is collected with an aim of
identifying the most appropriate risk mitigation approach. The researcher has been successful in
the research and the identified objectives of the research are addressed as well. The research aim
that was set by the researcher were fulfilled as the researcher was able to identify the risks, assess
the process of risk management and mitigation in blockchain and was able to identify the most
significant risks mitigation approaches for mitigation of the most common risks and the issues
associated with blockchain. The four most important risks mitigation approaches that is
identified for the project include the use of encryption, cryptography, digital signature and
efficient key management. The data analysis along with the discussion chapter of the research
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study is important as it helps in analyzing the identified approaches of risks mitigation in
blockchain. The discussion chapter is important as it recommended the most important risks
mitigation strategies of blockchain. The four recommended approaches will theoretically help in
elimination of the different risks that is associated with the use of blockchain and with the use of
different applications of blockchain including bitcoin and smart contracts.
Objective 1:To understand the technology of blockchain
The research project aimed in understanding the technology of blockchain. With an extensive
literature search and review of the literature, this objective of the research was fulfilled. In the
literature review section of the research report, the concept, history and the technology of
blockchain has been discussed in detail to understand the technology of blockchain.
Objective 2:To identify the risks associated with the blockchain technology
The research project aimed in identification of the different risks associated with the technology
of blockchain. The literature review chapter of the research report identifies the different risks
associated with blockchain and its application. Identification of the risks associated with the
blockchain technology was essential to identify the mitigation approaches to be used in primary
data collection and analysis.
Objective 3:To assess the risk management process in blockchain
The research project aimed in identification of the different risk mitigation approaches associated
with the risk mitigation in blockchain. In the literature review section, the mitigation approaches
of the risks in blockchain are identified. The identified risks are mainly the system risks,
elimination of which is essential for improved use and implementation of blockchain technology.
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The effectiveness of the risk mitigation approaches is further discussed in the data analysis
chapter.
Objective 4:To recommend certain strategies to eliminate the risks associated with blockchain
technology
The project aimed in identification risk mitigation approaches which will be appropriate for
mitigation of the risks associated with the blockchain technology. The data analysis and the
discussion chapter evaluate the risk mitigation approaches that are appropriate in mitigation of
the identified risk in blockchain. The discussion chapter recommends the most effective risk
mitigation approaches for blockchain.
6.2. RESEARCH LIMITATION
The research aimed in analyzing the characteristics and the features of blockchain. The
architecture and the working principle of the blockchain is discussed in the research. The
objective of this research project was to identify the different risks and the issues associated with
use of blockchain and its application. The researcher was able to identify the risks and the
different risk mitigation approaches in blockchain. A primary data collection and analysis of the
collected data was carried out by the researcher to assess the effectiveness of the identified risk
mitigation approaches. However, there are certain limitations associated with the research project
which are discussed in the following paragraphs-
The researcher has mainly focused on the most significant risks associated with
blockchain and their mitigation approaches. However, there are certain other risks associated
with the use of blockchain that were needed to be identified as well. Similarly there was a
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limitation with the risk mitigation approaches that has been identified and evaluated in this
research study.
Another limitation with this research project is that it was executed in a limited timeframe
and with a limited number of respondents. A wider approach would have helped in collection
and analysis of a more appropriate data. Therefore apart from the time constraint, constrain in the
risks mitigation approaches identified in the research study is another major limitation of the
project.
The research was implemented with an aim of identification of the different issues
associated with blockchain and management of the risks associated with a blockchain
technology.
6.3. RECOMMENDATIONS
Certain recommendations for the research study are as follows-
1. A wider audience base should have been used inform the research project
2. For mitigation of the different risks associated with blockchain, the organization making
use of the blockchain and its application should ensure that the risks and the issues
associated with the use of blockchain are correctly identified and mitigated.
3. Blockchain is considered to be a secure technology; however this should not be
misinterpreted as there are certain issues associated with the use of blockchain and its
application. The research identified few of such issues and recommended the mitigation
approaches of the research as well.
4. The supplier risks associated with the blockchain is although hard to mitigate, the need
for management of such risk in high. Therefore, it is needed to understand the risk
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mitigation approach for mitigation of the supplier risks associated with the use and
adoption of blockchain.
5. Further researches in the field of blockchain are necessary for identification of the
various other risks and issues associated with the use of blockchain. The mitigation
approaches that have been identified in the project should be more appropriate. Further
researchers in this field are necessary as the current research has a number of limitations.
There is scope of further researchers in this field and therefore it is necessary.
6.4. FUTURE RESEARCH
The researcher has performed a research on the topic of blockchain and risk management.
However, blockchain is a broad concept and a significant research in the field of blockchain is
further necessary. Further researches can be conducted in order increase the effectiveness of the
other approaches of risk mitigation in this field. The effectiveness of the four chosen risks
mitigation approaches have been highlighted in the research project and therefore, there is a
scope for future research in this filed in assessing the risk mitigation process.
The process, tools and the techniques that have been utilized in this research project
could be further improved. The primary research could have been more accurate. In future
research in this field, along with the online survey that has been conducted for the research, an
interview with a group of the experts can be also performed to have a more accurate data set.
This is mainly because there are certain legal obligations associated with the collection of data
from the survey and there are certain limitations as well, which can be eliminated in interview.
Along with interview and survey, observation of the trends in blockchain can help in easier
identification of the risks and the issues associated with blockchain. The future research will
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further help in accurate identification of the different risk mitigation approaches associated with
the risks in blockchain. The need for management of the different issues associated with the
blockchain is huge since different business organization is making use of the blockchain in
transactions. The use of blockchain applications will be increasing in no time and thus this
research study will provide an idea about the technology of blockchain and the risks associated
with blockchain.
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BLOCKCHAIN AND RISK MANAGEMENT
APPENDIX
Blockchain and Risk Management Survey
The following questions have been made as a part of British University in Dubai (BUiD) requirements to
achieve MSc degree in Project Management. Filling this survey will not hold any obligation for the filler
or its organization and the results of will be used for the scientific researches purposes only.
This study aim to identify the different concepts of blockchain, which helps in identification of the
different risks and the risk mitigation approaches, associated with blockchain technology.
Section A
Questions Demographic Questions
1. Field of Work
□ Blockchain Developer
□ Network Security Officer
□ Blockchain Architect
□ Risk Manager
□ others
1. Number of years’ experience
□ 0-2 years
□ 3-5 years
□ more than 5 years
Section B
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BLOCKCHAIN AND RISK MANAGEMENT
Questions Please rate the Risk mitigation Approaches in Blockchain
1. Do you agree that encryption
is appropriate to mitigate end
point vulnerability?
2. Do you agree that Contractual
Risks can be mitigated by
enforcing the need of digital
signature during operation of
smart contract?
3. Do you agree that the
supplier risk can be mitigated by
choosing a trusted cloud vendor?
4. Do you agree that
cryptography will be useful for
mitigation of the operational and
IT risks?
5. Do You agree that the
transaction privacy leakage risk
can be mitigated by proper
protection of the cryptographic
keys?
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BLOCKCHAIN AND RISK MANAGEMENT
Questions Please rate the Risk mitigation Approaches in Blockchain
6. Do you agree that the use of a
shorter incident response plan
can help in mitigating the
business continuity risk?
7. Do you agree that resource
sharing can help in addressing
the issues of untested growth in
blockchain?
8. Do you agree that enforcing a
standardized control can
mitigate the risks arising from
decentralization?
9. Do You agree that effective
data governance policies can
help in access control?
10. Do you agree that efficient
key management can help in
mitigation of the security risks?
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