Distributed ledger technology (DLT), more commonly called “blockchain”, has captured the imaginations, and wallets, of the financial services ecosystem. DLT provides transaction immutability, which is a key requirement for eliminating the need for an enforcer of trust in the ecosystem. Tamper-proof distributed data enables an environment in which trust is not an issue and allows counterparties to operate with a single version of the truth.
- Traditionally, asset and transaction information was stored within physical books to independently reference previous actionsinternally and externally. As technologies advanced, physical books were translated into digital ledgers.
- Today, every FI maintains its own digital “book of record” repository.
- As a result, central intermediaries proliferate in the industry, providing unbiased reconciliation services to facilitate transactions between counterparties without requiring them to trust each other. For transactions executed internal to the organization, reconciliation is performed within lines of businesses.
DLT transformative potential
- At its core, DLT is a growing repository of transactions organized in chronological blocks where the technology intrinsically makes changes to previous transactions functionally impossible.
- DLT has been designed to replicate data among participating nodes in real time, ensuring all parties operate off of a single version of the truth at all times.
Financial services implications
- Challenges information silos between market participants and eliminates the need for inter-firm reconciliation.
- Disintermediates central intermediaries and reduces the fear of arbitrage within the ecosystem.
- Enables audit trailsto be established for assets and transactions with a significant reduction in disputes.
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