In today’s digital economy, in which almost everything can be digitized, it’s not hard to see why digital assets are growing in popularity. Investors see compelling reasons to add digital assets to their portfolio while organizations are seemingly digitizing their assets to expand funding opportunities.
But the rapid growth of digital assets has also raised other legitimate concerns such as the protection mechanisms of such assets. Failing to protect organization digital assets such as corporate shares and real estate can lead to serious consequences. While assets can be digitized with or without blockchain, many digital assets are increasingly being stored in the blockchain.
Blockchain offers greater security and controls allowing for secure management and distribution of digital assets. Given that digital assets are digital records of physical or non-physical assets, it is important to secure how they are handled and distributed. Organizations can also rely on blockchain traceability to guide financial reporting by making it easier to track usage rights and change in value.
However, the successful management of digital assets is largely dependent on the reliability of the blockchain network they exist on.
What is blockchain reliability?
The reliability of any blockchain is the ability of the network to effectively record a digital asset’s creation and its transfer in accordance with the intended purpose. Deloitte identifies five elements that constitute a reliable blockchain network. It must be:
- Initiated or observed through deployment services
- Agreed upon by the network with a consensus protocol
- Maintained on the distributed ledger by network enablers
- Cryptographically secure
- Supported by the community of developers
Without these control mechanisms in place, a blockchain network is considered vulnerable to breaking down, which means that it does not offer sufficient protection for digital assets.
How to achieve blockchain reliability
- Deployment services
Enhancing the internal controls of the network is the surest way of ensuring blockchain reliability. The deployment services—technology and service providers that allow participants to interact with digital assets—must have transparent representation on the blockchain. For example, it is important for providers of data or analytics services to provide accurate data to the network.
- Consensus protocol
Consensus protocol is also necessary to ensure that the blockchain network’s node operators will reach the same conclusion about the validity of transactions. In addition to the rules governing how transactions are validated, the consensus protocol should also incentivize members to participate while discouraging bad actors from infiltrating the network. Equally important is protecting the network against potential vulnerabilities by ensuring that the blockchain’s open-source code is free from errors or bugs.
- Network Enablers
As for network enablers, these are the blockchain node operators that perform the essential tasks of validating new blocks or mining on the network. While most node operators are honest and seek to support the reliability of the blockchain, it is vital to monitor their activities on the platform. Implementing security policies such as notarizing blocks or introducing penalty systems may also help, though these measures tend to reduce the speed of transaction processing. Therefore, the best to enhance the reliability of the network is to incentivize as many nodes as possible so that more node operators are participating.
- Network Security
Blockchains are unique secure because they use cryptography technology to protect data against unauthorized access or hacking. The only downside to this method is that it is impossible to reverse erroneous transactions or fix issues with smart contacts. Nevertheless, a reliable blockchain should have mechanisms that make it possible to recover unintended transactions through smart contracts.
- Community of developers
Having the support of a community is key for blockchain reliability. These may be individuals, groups, or organizations that come together to develop a blockchain network. This community is also responsible for promoting the blockchain, supporting users and node operators, organizing version updates, among other functions. The community is often organized around a non-profit foundation that provides governance over the blockchain. Examples include the IOTA Foundation, Ripple Foundation, Binance Foundation, etc. Nonetheless, keeping these foundations active and focused is just as important as the other elements discussed.
– Ray Battrick (Certified blockchain expert and FinTech copywriter)
Source: Business Blockchain HQ