Accenture Financial Services CEO: Blockchain’s immutability is its worst enemy

Richard Lumb, CEO of financial services at Accenture, recently wrote in the New York Times that he believes the immutability of blockchain is one of its greatest strengths, but it could also prove to be one of its greatest limitations, as financial services sometimes require the undoing of certain activities.

Lum noted that the Bitcoin blockchain’s immutable record is in conflict with evolving privacy laws, such as those recently proposed in the European Union.

He also pointed to new U.S. laws that require personal financial data to be easily editable. He said immutability is becoming a serious problem with blockchain technology, a problem that also emerged in the recent The DAO incident.

Immutability: Pros and Cons

Bitcoin’s permanence has become key to building trust. But that same permanence may also limit its usefulness in financial services, where it offers little protection against human error and mischief. Financial services trade must balance permanence with real-world needs. Some things must be expunged from the record.

The EU’s General Data Protection Regulation will bring the question of Bitcoin’s immutability to the fore. These new regulations will affect all major financial institutions around the world, not just Europe.

Organizations that process personal data in Europe will have to comply with these privacy rules, and violations could result in fines of up to 4% of revenue. Accenture’s clients have asked the company to clarify how they will defend the right to be forgotten when using blockchain technology.

Legal requirements in the United States

The immutable nature of blockchain technology could also violate existing U.S. regulations, such as the Gramm-Leach-Bliley Act, Securities and Exchange Commission regulations requiring that personal financial data be easily edited, and the Fair Credit Reporting Act.

There is a lot of opposition in the blockchain community who question the immutability of blockchain. Many blockchain advocates, like the Internet pioneers who saw the network as a forum for cooperation and disdained e-commerce, have highly idealized the development of blockchain.

The immutability of blockchain became a problem when hackers executed smart contracts to steal more than $60 million worth of ether from The DAO. Many blockchain advocates believe that the hackers are entitled to the stolen assets because they exploited a programming vulnerability.

The DAO project leaders reached a consensus to split the code at a certain point before the transaction, after which many people were still using the stolen blockchain, which eventually led to the creation of ETC and Ethereum fell into a split state.

Challenges in the financial industry

Lum believes that if the financial services industry is to embrace blockchain technology, they cannot continue without correcting their mistakes. They cannot allow fraudsters to justify their actions at the height of their thinking.

He believes that smart contracts are susceptible to human error. Even the smartest IT architects will encounter situations where they need to reverse an action.

The financial industry must overcome this challenge in a way that preserves the benefits of blockchain.

Accenture is working with academics on a prototype that would allow blockchains to be amended or written to if needed, and the company is developing responsible governance models, which could involve working with regulators.

Lum believes that for blockchain to move beyond cryptocurrencies and lab experiments and into real and profitable deployments, the blockchain community must challenge traditional ideas about immutability.

Some netizens think:

“Cash, gold or other physical assets are also ‘irreversible’. If you transfer them and the recipient disappears or destroys them, then they are gone. Bitcoin is intended to be these physical assets, not ‘financial information’ or ‘bank accounts’. If people wanted revocable bank accounts, they would have had them long before Bitcoin.”