Analyzing Risks of Implementing Blockchain in Finance

This report investigates the risks associated with the implementation of blockchain technology within the finance industry. It begins by defining blockchain and highlighting its growing market presence, emphasizing its role in digital currency transfers and distributed ledger technology. The report then delves into specific risks, including regulatory and governance challenges stemming from a lack of clarity and weak frameworks. Privacy and security threats are discussed, focusing on the vulnerability of financial data to hacking and data breaches due to shared databases. The report also examines behavioral and transactional risks, such as investor losses and the absence of third-party oversight. The conclusion underscores the need for addressing these risks to ensure the secure and effective use of blockchain in finance, referencing the technology's origins in Bitcoin and its increasing adoption by financial institutions. The report suggests potential solutions, such as the adoption of Big Data technology, to minimize these risks.

Running head: RISK OF IMPLEMENTING BLOCK CHAIN IN THE FINANCE INDUSTRY
Risk of implementing block chain in the finance industry
Name of the student
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Author’s note

Table of Contents
Introduction......................................................................................................................................3
Blockchain technology....................................................................................................................3
Risks and Threats.............................................................................................................................5
Regulatory and governance.........................................................................................................5
Privacy and Security....................................................................................................................5
Behavioural and transactional risks.............................................................................................5
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

Introduction
Blockchain technologies are the emerging technologies in the word. The market of the
blockchain technology has been rising in the market at a decent speed. However, there are
various risks involved in the technology.
This report focuses on identifying the risk involved in the blockchain technologies in the
finance industry. The report outlines the risks assessment procedure in the finance industry. A
risk assessment procedure has been discussed in the report for mitigating these issues in the
finance industry due to blockchain technology.
Blockchain technology
According to Zheng, Xie and Wang (2016), blockchain is a digital innovation in the
market that is using the concept of the cryptography, networking, data management and
incentive mechanism in order to maintain the financial database of different companies in the
market. This technology has helped in initiating digital currency transfer between parties.
Blockchain has been originated from the bitcoins digital currency. This technology has been
implemented in the finance industry in recent years.

Figure 1: Blockchain Market in 2017
(Source: Lindman, Tuunainen and Rossi 2017)
The market of the blockchain has been rising all over the world due to its capability of
digital transfer of virtual currency. As commented by Guo and Liang (2016), blockchain has
been regarded as the distributed ledger technology (DLT) that helps in distributing financial
assets between parties. As argued by Crosby et al. (2016), this technology has been credited
with the highest risks involvement of the finance industry. The virtual currency has no record in
the database and a third party vendor to store the information of the parties. According to a
survey, over 90 corporations have implemented filed more than 2500 patents against blockchain
technology all over the world.

Risks and Threats
Regulatory and governance
As commented by Lindman, Tuunainen and Rossi (2017), there is a lack of regulatory
clarity in the blockchain technology. The regulatory framework of the block Chain technology
has been weak including the private network of the parties. The privacy of the parties included in
the blockchain technology has been facing various security breaches over the internet. The
hackers all over the world are targeting these online transfers of digital currency among the
parties. The counter Clearing house and Product (CCP) has been regulating these transaction al
over the world. However, these organizations are not safe for the online transaction of digital
currency.
Privacy and Security
As commented by Swan (2015), the use of the block chains haes been emerging all over
the world. The privacy and security of the financial documents and assets have not been
maintained by the technology. There have been numerous cases of hacking and data breaching
over the internet that has been reported. Blockchain uses a shared database that contains all data
and information of various parties. As commented by Mougayar (2016), this technology provides
a high-speed transfer of digital currency. Crosby et al. (2016) argued that, this concept has
minimized privacy and security of data and information of the parties involved in the contract.
Therefore, this technology has high-level risks in the finance industry.
Behavioural and transactional risks
As commented by Lindman, Tuunainen and Rossi (2017), transactions in the blockchain
technology have been a huge risks for the investors. The finance industry has been facing a lot of

loss in the market due not the technology. However, According to me, blockchain need to use a
centralized database instead of the shared database. The firewall of the technology has been
weak. This has caused the variety of cyber-attacks in the database. The lack of the third party
investors has created problems for the investors, as there is no part for tracking their financial
assets.
As commented by Guo and Liang (2016), blockchain is not storing the Big Data
technology. According to me, adoption of Big Data technology might help in minimizing these
risks and threats in the blockchain. The massive redundancy of the technology has been creating
issues in the security of financial data and information of the companies. As commented by
Swan (2015), instead of storing data on the blockchain, a metadata can be created for
maintaining the record of the parties involved. As commented by Guo and Liang (2016), this can
ensure an integrity checking if the data and information provided in the metadata.
Conclusion
It can be concluded that the use of the blockchain technology has helped in increasing the
speed of transaction all over the world. However, it has created various risks and threats in the
transaction that have been discussed in the report. The use of blockchain technology has been
originated from the bitcoins. The market of the Bitcoins has been adopted by various financial
companies in the world.

References
Crosby, M., Pattanayak, P., Verma, S. and Kalyanaraman, V., 2016. Blockchain technology:
Beyond bitcoin. Applied Innovation, 2, pp.6-10.
Guo, Y. and Liang, C., 2016. Blockchain application and outlook in the banking
industry. Financial Innovation, 2(1), p.24.
Lindman, J., Tuunainen, V.K. and Rossi, M., 2017. Opportunities and risks of Blockchain
Technologies–a research agenda.
Mougayar, W., 2016. The business blockchain: promise, practice, and application of the next
Internet technology. John Wiley & Sons.
Swan, M., 2015. Blockchain: Blueprint for a new economy. " O'Reilly Media, Inc.".
Zheng, Z., Xie, S., Dai, H.N. and Wang, H., 2016. Blockchain challenges and opportunities: A
survey. Work Pap.–2016.