What Are The Ethical Issues of Blockchain Technologies?

Published on: 11 July 2022
by Syrine Zghal

Blockchain technologies have been around for some years now and have enabled the advancement of digitalisation and the creation of a whole new world: the world of Metaverse and Web3.

In a previous article, we have covered the social impact of blockchain, which turned out to be quite positive. However, while Blockchain Technologies have not been adopted unanimously, there are some essential elements that one needs to bear in mind, such as the ethical issues that the use of blockchain raises. 

Blockchain ethics in organisations stem from the following blockchain technologies' goals: immutability, disintermediation, and automation. Immutability refers to the invulnerability of blockchain transactions to tampering. When the authority that is supposed to validate a transaction is decentralised, disintermediation occurs. Finally, automation refers to self-executing coded processes via smart contracts.

As with any nascent technology, the more we can understand about its potential upsides and downsides earlier in the process, the better prepared we will be in managing our use of it. And, as our sense of self-identity, as well as our legal liability, becomes ever more rooted in the digital world, the following points are important to take into account when harnessing the potential of blockchain.

Transparency is divisive when it comes to ethical considerations: people want it, yet do not wish to be victims of it

Transparency was something that everyone desired, the pleasure of having complete knowledge of processes and access to any information, at any time, and from any location.

It is true that it is a revolution, but one that also means everyone can now have access to your transactions and, in the future, to the digitalised files including all of your personal information. This is a contentious issue, and the question of which implications weigh heavier in the balance, transparency, or lack thereof, remains unanswered. 

To remedy the challenges mentioned above, e-wallet providers preserve the identities of participants through their credentials, making it nearly impossible to determine the identity of the person behind the wallet unless the blockchain is eventually shut down. Moreover, for user protection purposes, the Blockchain and the General Data Protection Regulation allow, under certain situations, the erasure of one's data. 

The obstacle that remains is the very nature of the blockchain prevents the full exercise of this right: all data are accessible to all parties. Reduced information availability on-chain, on the other side, means less information to employ in smart contracts, and hence less usefulness from the blockchain. Finally, while the concept of a private blockchain could assist in minimising complete data exposure, it is not completely decentralised; the data shared with the public are managed by a private administrator who can control who can join as a node, therefore affecting public trust in the service, among other reasons.

Accountability and responsibility: who is to blame for a potential breach?

The second aspect of blockchain governance is responsibility: specifically, whose fault would it be if something were to happen to a user or if the system were compromised? Would it be everyone's fault or nobody's? This is precisely why the blockchain differs from, say, regular financial services, or any centralised organisation; there is no ownership and thus no responsibility. 

What if a cyberattack were to happen?

An attack on a blockchain only requires hackers to take control of 51% of the mining power, and such attacks have been recorded during the last few years. Another recent example is the recent cyber-attack reported by CNBC on the blockchain bridge Horizon developed by crypto startup Harmony, where $ 100 million in crypto was stolen.

NFTs: one of many more ethical challenges of blockchain

Ethical considerations are not limited to crypto ethical issues. in the case of NFTs, as a buyer, you cannot be certain that the person selling it to you is not a fraud or impersonating someone else - unless the marketplace itself verifies the transaction.

Finally, from a regulatory standpoint there is no one to report to if an individual is hacked, if there is an issue with the server where the NFT is located, or if the same seller decides to produce a similar NFT and sell it again as a unique item.

Ownership: would it still be a viable concept?

Personal data are supposed to be the user’s property, but what if all interested persons or organisations have equal access to all data in the blockchain? What if they could create value-added services based on the open data? The concept of owning one’s own data would be affected. One can even question if the concept of ownership itself would still be meaningful.

Decentralisation versus reality: are blockchains decentralised?

Recent research indicates that blockchain is not as decentralised as was previously believed. In the year 2020, 85% of Bitcoin was held by 4.5 percent of Bitcoin holders. A June 2022 report published by Trail of Bits Inc., Are Blockchains Decentralized? Unintended Centralities in Distributed Ledgers, studies the reality of blockchain technology decentralisation. These are the points mentioned in the report that can allow us to question the decentralisation of a Distributed Ledger Technology, or DLT :

  1. The authoritative centrality: the minimum number of entities necessary to disrupt the system. The Nakamoto coefficient measures this central authority, and the closer this value is to one (1), the more centralised the system. In January of 2021, the Nakamoto coefficient for Ethereum was only two, and reached three in April 2022. For Bitcoin, however, “the Nakamoto coefficient is four, because taking control of the four largest mining pools would provide a hash rate sufficient to execute a 51% attack.”

  2. The consensus centrality: does a single entity (like a mining pool) control an excessive amount of the network’s hashing power? 

  3. The motivational centrality: how can players be discouraged from acting maliciously, if these actions are controlled and, moreover, if they can even be stopped?

  4. Topological centrality: how resilient is the consensus network to rupture and whether there is a key structure holding the network together.

  5. Network centrality: Are the nodes adequately, geographically spread, so that they are consistently distributed across the internet?

  6. Software centrality: how much does the security provided by the blockchain depend on the core software on which it is running and what would be the consequences of an error or the use of an old version of that software?

“21% of Bitcoin nodes are running an old version of the Bitcoin Core client that is known to be vulnerable.”

Frequently asked questions

Why should we start talking about blockchain ethics?

Unquestionably, blockchain is gaining importance in the digital age. Those who have not accepted it yet may need to in the coming years. Since the introduction of blockchain technologies incorporated ideals of decentralisation of finance, it appears more than vital to discuss the ethical issues of blockchain. Sustainability and ethics should go hand in hand. Ethical obstacles posed by blockchain have the potential to jeopardise its continuity and renown for sustainable impact.

What is Blockchain technology?

Blockchain technology is comparable to a digital ledger where transactions are recorded. The blockchain or distributed ledger is a network of blocks. The concept itself makes changing, hacking, or cheating the system difficult. The ledger where the transactions are recorded is duplicated and distributed across the whole blockchain network of computer systems. You can learn more about blockchain technologies, mining, and cryptocurrencies in our previous article.

The issues described above are just a few of the many that call into question the ethical side of blockchain technologies. Others occur on a daily basis, although we may be led to believe that some of them can be rectified while still allowing for the effective growth and use of Blockchain technologies. Therefore, caution is warranted when considering allowing blockchain into one’s daily life and activities, despite some interesting advantages we mentioned in our previous blockchain and crypto-related articles. You can enrich your knowledge by visiting our KnowESG crypto section.