Opportunities And Risks Of Blockchain

Focused to technical and legal issues...

Blockchain technologies are touted as one of the most significant technical innovations in digitalization of asset ownership. Blockchain has been demonstrated to be a versatile programmable platform for managing contracts and ownership and providing an audit trail that cannot be easily tampered with, but can be distributed in real time. Pervasive market penetration of novel cloud-connected mobile devices - including wearables - in combination with cloud-based data storage and analytics enable new types of distributed payment and transaction platforms that can be built as an overlay on top of traditional financial services and banking systems.

In extreme cases – as with distributed cryptocurrencies – not even a trusted third party such as a central bank is required. These novel transaction and payment platforms allow for the development of a range of innovative financial instruments, such as micro-payments, peer-topeer lending or non-regulated money enabling banking for the about 2.5 billion “non-banking” population, while at the same time they can potentially simplify and lower the cost of transactions for example in crossborder payments. Any digital representation of money is relative to the underlying computing technology and the digital payments we have seen so far have reflected a transactional computing model of manipulating rather stable entities. Thus, the current transformation is related to “money” and “cash” adapting to the decentralized nature of computing, which allow for different industrial and societal trust arrangements, for example distributed peerless and anonymous international money transfer services and even marriages based on smart contracts.

These decentralized platforms offer new possibilities for anonymity, as they offer a vision of anonymous digital currencies, which can be a bit exaggerated. At the same time, these platforms also challenge the existing identity management systems and suggest new ones. To better understand these opportunities and challenges, research on mitigating risks and leveraging opportunities of digitalization and decentralization of payment platforms enabled by blockchain technologies is clearly called for. We also need deeper theoretical understanding of both how these platforms and services are designed, developed and organized, as well what is acceptable for users and how they perceive trust in the digital and decentralized world.

So far, the studies on the fairly recently introduced blockchain technology have predominantly focused on technology issues; aimed at addressing different technical challenges that such distributed systems pose. Another main research area has been the legal frameworks and their applicability. Now as the number of users of services based is increasing, more research on payment and asset management systems and service platforms in the disciplines of Information Systems and Management is called for. In what follows we first review the key literature that has addressed blockchain technology so far. We also provide a review on the essential literature on digitization of payments and payment platforms as the primary context for utilization of blockchain technologies. We will then identify a research gap by pinpointing where our understanding is still underdeveloped.

As our main contribution, we outline a more holistic research agenda for studying the development and utilization of blockchain technology, with particular emphasis on digital payments and payment platforms. Furthermore, we suggest possible research problem areas and derived research questions for IS researchers to seek answers to.

Key definitions...

Digital payments are simply payments that are conducted through digital means, for example as near field communication transactions between electronic wallet and a cash register, or through digital money. Consequently digital platform is “a proprietary or open modular layered technological architecture that support efficient development of innovative derivatives, which are embedded in a business or social context.” Blockchain can be seen as one such platform.

Blockchain technology is a sequential distributed database where the entire earlier transaction history is stored and shared in a (block) chain in a public ledger. Blockchains are normally used with cryptocurrencies i.e. currencies that use public-key cryptography as security measure and to prevent counterfeiting transactions. Blockchain can be seen both as a technical and as an economic innovation. As a technical innovation, it is a new version of database transaction technology especially for decentralized environments of limited or imperfect trust. As an economic innovation it offers novel tools to any problem domain where there exists a need for a reliable record of transactions – a ledger - in a decentralized environment where not all parties, whether humans or machines can be fully trusted.


Bitcoin is the initial distributed transaction system (bitcoin protocol) and a coupled currency (bitcoin as an unit of account). Bitcoin “infrastructure” consists of network of users, who have a client software running on their computer. Bitcoin was first suggested in 2008 and implemented as an open source project in 2009 by a person - or a group - calling himself or themselves Satoshi Nakamoto.

Initial application of blockchain technology is the original public ledger of bitcoin, which has later inspired other implementations called altchains. These kinds of networks also provide trust-based services that are not limited to currency transactions: Bitnation.co – decentralized “Non-Geographically Contingent Governance Service Aggregators” offering a “full range of services traditionally done by governments” with blockchain as its core technology - even aims ambitiously to become a future legislative entity. The idea of the bitcoin system is that the entire earlier transaction history is verified by solving a cryptographic computation.

This “work” – or computation time is extremely difficult to fake. This method is called “proof-of-work” (PoW). In a process called mining, blocks are created in about 10 minutes each, after which the solvers of the computation challenges are rewarded currency. Users of the system use the bitcoin protocol to send and receive payments to “wallets”, which are anonymous. Bitcoin protocol verifies each transaction. Bitcoin protocol development is an open source project supported by the Bitcoin Foundation, and the development efforts are supported by a global community of developers and entrepreneurs.

Lack of faith on established financial institutions, largely fueled by the financial meltdown of 2008 has been established as one of the main drivers for development and proliferation of Bitcoin). Another identified driver is the aim at frictionless payment systems. One prevailing question is whether Bitcoin should be understood primarily as a financial asset or as a system of payments. If it is seen primarily as a financial asset, then the key issue is its financial performance and returns it provides as an asset. If it considered mostly as a payment system, key is then its scalability for very large transaction volumes.

Brezo and Bringas analyzed different risks related to Bitcoin and found that systems such as Bitcoin are quite vulnerable to speculation and misinformation. It has been contemplated that that the lack of coordination entity (e.g. central bank) is at the same time a strength and a weakness of this kind of decentralized payment and trust infrastructure, as there is less inertia to try new ideas, but users’ trust on the platform can rapidly erode, if for example forks occur in the development, as is currently happening in the case of Bitcoin. In the area of open source research , different meanings of forks have been investigated, but forks usually refer to a situation where the developer community disagrees on the development roadmap (or other focal issues) and this results in a situation where several different competing versions of the code base are in use. In most open source projects forks are seen both as a safeguard of openness and as detrimental to the development efforts if they dilute contributions. Bitcoin continues to capture the interest of academics, practitioners and the public, and the uncertainties resulting from its decentralized nature as well as wide misconceptions surrounding it render Bitcoin an excellent target for academic enquiry.