HKMA's Blockchain Guide Cautions Against Risks, Advocates Original Bitcoin Solution

The Hong Kong Monetary Authority (HKMA) issued guidance for banks on using blockchain technology, identifying potential risks and emphasizing the need for individualized assessments. While acknowledging the potential risks associated with public blockchains, such as untrustworthy validators and network forks, the HKMA highlighted the importance of mitigating these risks through measures such as zero-knowledge proofs and off-chain solutions. However, the opinion piece argues that many of these perceived risks are addressed by the original Bitcoin protocol's design, which includes identifiable validators, resistance to forks and 51% attacks, and high transaction capacity.

HKMA Guidance on Blockchain Technology: Mitigating Risks and Exploring the Original Bitcoin Solution

The Hong Kong Monetary Authority (HKMA) recently issued comprehensive guidance to banks on leveraging blockchain technology while emphasizing the importance of diligent risk assessment and mitigation strategies.

Key Risks Identified by HKMA

The HKMA highlighted several potential risks associated with public blockchain usage, including:

• Pseudonymous Validators: The reliance on unidentified validators can compromise trust and introduce potential security vulnerabilities.
• Malicious Actors: Bad actors can exploit blockchain vulnerabilities to gain unauthorized access to sensitive information.
• Network Forks: Blockchain forks can disrupt network operations and potentially lead to data loss or corruption.
• 51% Attacks: Malicious actors can take control of a blockchain network by acquiring a majority of computing power, enabling them to manipulate transactions or block access.
• Network Congestion: Surge in transaction volume can slow down network processing, potentially impacting business operations.
• Network Failure: System failures or disruptions can temporarily or permanently compromise network functionality, leading to data loss or service outages.

Mitigation Strategies

The HKMA emphasized the need for banks to implement robust risk management frameworks when exploring blockchain solutions. It recommended various mitigation measures, including:

• Zero-Knowledge Proofs (ZKPs): Using ZKPs can safeguard sensitive information by allowing users to prove knowledge of data without revealing it.
• Off-Chain Solutions: Storing sensitive information off-chain, such as on Overlay Networks, can reduce the risk of malicious access.

Original Bitcoin Protocol as a Comprehensive Solution

While reviewing the HKMA guidance, it becomes evident that many perceived risks of public blockchains stem from the flawed design and architecture of prevalent blockchain solutions in the market.

Interestingly, the original Bitcoin protocol, as envisioned by Satoshi Nakamoto, was purposefully designed to address monetary transfers and mitigate the risks identified by the HKMA.

Key Advantages of the Original Bitcoin Protocol

• Identifiable Validators: The proof-of-work consensus mechanism ensures that all nodes on the Bitcoin network are identifiable, eliminating the issue of pseudonymous validators and enhancing trust.
• Fork Resistance: The Bitcoin network's design inherently prevents forks, ensuring data integrity and continuity.
• 51% Attack Immunity: The Bitcoin network's decentralized nature makes it highly resistant to 51% attacks, ensuring the reliability of the blockchain.
• Scalability: With the implementation of Teranode, the Bitcoin network is capable of processing over one million transactions per second, addressing the concerns of network congestion.
• Data Inclusivity: The Bitcoin script and restored opcodes enable the recording of complex transactions, such as invoices, bills, and receipts, making it suitable for global commerce.

Conclusion

The HKMA's guidance on blockchain technology is a valuable resource for banks exploring the use of this transformative technology. However, it's essential to recognize that many perceived risks can be mitigated by embracing the original Bitcoin protocol.

With its robust design, identifiable validators, fork resistance, and scalability, the original Bitcoin protocol provides a comprehensive solution to the challenges identified by the HKMA. By leveraging this foundational technology, banks can fully harness the benefits of blockchain while ensuring the security and integrity of their systems.

As global monetary authorities continue to delve into the realm of blockchain technology, it is imperative to acknowledge the superiority of the original Bitcoin protocol and its ability to address the concerns raised by regulators. By embracing this fundamental solution, banks and other financial institutions can pave the way for a secure and innovative blockchain-driven future.