A distributed ledger is essentially an asset database that can be shared across a network of multiple sites, geographies or institutions. All participants within a network can have their own identical copy of the ledger. Any changes to the ledger are reflected in all copies in minutes, or in some cases, seconds. The assets can be financial, legal, physical or electronic. The security and accuracy of the assets stored in the ledger are maintained cryptographically through the use of ‘keys’ and signatures to control who can do what within the shared ledger. Entries can also be updated by one, some or all of the participants, according to rules agreed by the network.
Full report: Distributed Ledger Technology: Beyond Block chain – by the UK Government Office for Science.
The World Economic Forum’s analysis has yielded six key findings regarding the implications of distributed ledger technology (DLT) on the future of financial services:
- DLT has great potential to drive simplicity and efficiency through the establishment of new financial services infrastructure and processes.
- DLT is not a panacea; instead it should be viewed as one of many technologies that will form the foundation of next generation financial services infrastructure.
- Applications of DLT will differ by use case, each leveraging the technology in different ways for a diverse range of benefits.
- Digital Identity is a critical enabler to broaden applications to new verticals; Digital Fiat (legal tender), along with other emerging capabilities, has the ability to amplify benefits.
- The most impactful DLT applications will require deep collaboration between incumbents, innovators and regulators, adding complexity and delaying implementation.
- New financial services infrastructure built on DLT will redraw processes and call into question orthodoxies that are foundation to today’s business models.
The analyzed business use case are: a) Payments; b) Insurance; 3) Deposits and Lending; 4) Capital Raising; 5) Investment Management; and 5) Market Provisioning.
These key findings are explored in depth in the The future of financial infrastructure report, based on the use case deep-dives conducted across financial services.
Blockchain is an example of a distributed public ledger; that is, a shared record system for transactions. It’s been described as “a technology that allows people who don’t know each other to trust a shared record of events”.
The idea is that every party involved in a particular type of transaction holds a copy of the entire ledger; there are no centralized databases. Anyone can enter a transaction onto the system, and at regular intervals these transactions are batched together into “blocks.” The blocks are then formed into “chains” (hence the name) using cryptographic technology that provides high levels of security. The chronological chain of transactional information is created in such a way that each block that is added protects the information in the previous one.
Source: A beginner’s guide to blockchain by Gemalto