Bond Rating Agency Moody's Warns on Risks of Private Blockchains

Rating agency Moody's has warned of several risks of private, centralized blockchains in a report for clients examining the pros and cons of the technology for financial firms.

Titled "Blockchain Improves Operational Efficiency for Securitizations, Amid New Risks," the April 25 report describes the basic features and promises of blockchain technology, explaining how businesses like banks can leverage it to their benefit.

In the document, seen by CoinDesk, Moody's emphasizes the difference in security between private and public blockchains, saying that consensus mechanisms in private chains may not be as strong as those seen in public chains, or may be absent altogether.

"Private/centralised blockchains are more exposed to fraud risk because system design and administration remains concentrated with one or few parties."

"Sound blockchain governance is key for risk management," the report continues.

In this case, private blockchains, where the governance and responsibility structure is clearer, win in Moody's view.

New kinds of risks are in fact posed by blockchain, Moody's argues.

"The securitization blockchain can rely on data provided by the lending blockchain, subject to checks and controls," according to the report.

"Without blockchain based land registers, efficiency gains on the asset side of a mortgage backed securitization transaction will remain limited."

Moody's has been monitoring blockchain technology for several years now.