147 In permissioned distributed ledgers governance of the software is made

147 in permissioned distributed ledgers governance of

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147 In permissioned distributed ledgers, ‘governance of the software is made simpler by the fact that there is usually a proprietor with clear legal and technical authority over the code’ who determines ‘how the code is modified, and up to the users (often customers of the service) to decide whether they are comfortable with having the proprietor exercise authority over the software’. 148 In contrast, unpermissioned distributed ledgers ‘lack a central legal entity with formal responsibility over the system’ as ‘they are governed by ad hoc processes, usually centering on a handful of software developers who produce the system’s software code’. 149 Moreover, smart contract management can become an issue as such business models ‘substitute software code and software execution for legal contracts and legal contract execution’. 150 In reality, smart contracts are prone to any faults associated with code, in the sense that ‘the more complex a smart contract, the more prone to software errors it will be’. 151 In general, the function and security of smart contracts code depends on the author’s capabilities, and many template contracts available on the web are suspected to contain significant vulnerabilities to their operation. 152 The suggested good practices include the exercise by the institutions offering the DLT applications (or by employed third parties) (i) of penetration testings (at both the system and user levels) 153 and (ii) constant code review, as well as, (iii) the application of software development life cycles principles. 154 Cryptography and key management Most DLT implementations rely on cryptographically generated public and private keys to operate. Private keys are the direct means of authorizing activities from an account, and their loss, compromise and misuse to gain unauthorized access to the system could undermine any information or assets secured therein. 155 Moreover, ‘the ability to bind the identity of public keys . . . is also an important privacy-related aspect of digital signature arrangements in which users are subject to legal requirements’ (eg anti-money laundering compliance). 156 147 For example, the DAO attack. See ibid; Kaivanto and Prince (n 114); see Allen & Overy, Decentralized Autonomous Organizations (2016) 5 Organizations.pdf 4 accessed April 2017. 148 UK Government Office for Science (n 7). 149 ibid. 150 Kaivanto and Prince (n 114). 151 ENISA (n 23). 152 ibid. 153 UK Government Office for Science (n 7). 154 ENISA (n 23). 155 ibid. 156 Mills and others (n 2). Paul Klimos ± DLT evaluation in financial markets 213 Downloaded from by Monash University user on 25 September 2018
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Unfortunately, some of the key-generating software programs have been creating keys identified to be inherently weak (or intentionally weakened).
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