Target IAS

Distributed Ledger Technology (DLT)

 Distributed ledger technology (DLT) is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data storage or administration functionality.

In a distributed ledger, each node processes and verifies every item, thereby generating a record of each item and creating a consensus on each item's veracity. A distributed ledger can be used to record static data, such as a registry, and dynamic data, i.e., transactions.

This computer architecture represents a significant revolution in record-keeping by changing how information is gathered and communicated.

Origins of ledgers

Ledgers -- which are essentially a record of transactions and similar data -- have existed for millennia in paper form. They became digitized with the rise of computers in the late 20^th century, although computerized ledgers generally mirrored what once existed on paper.

However, throughout history, a central authority needed to validate the authenticity of the transactions recorded in the ledgers. For example, banks need to verify financial transactions.

Now, 21^st century technology has enabled the next step in record-keeping with cryptography, advanced algorithms, stronger compute power and near-ubiquitous computational power, making the distributed ledger an increasingly viable form of record-keeping.

Distributed ledger implementations

Blockchain, which bundles transactions into blocks that are chained together, and then broadcasts them to the nodes in the network, is probably the best-known type of distributed ledger technology. It powers bitcoin, the digital currency created in 2009. Bitcoin is also known as being a peer-to-peer network.

Other entities using blockchain include Overstock.com, the online retailer based in Salt Lake City that delivered a first when it traded stock on a blockchain-based platform in December 2016.

Why they're important?

Distributed ledger technologies have the potential to speed transactions because they remove the need for a central authority or middleman. Similarly, distributed ledgers have the potential to reduce costs of transactions.

Experts also believe that a distributed ledger technology is much more secure because each node of the network holds records, thereby creating a system that's more difficult to manipulate or successfully attack.

Many also consider a distributed ledger a much more transparent way of handling records because the information is shared, and thereby witnessed across a network, which also makes a successful cyberattack much more unlikely.        

Distributed ledger benefits

Much of the early interest in distributed ledger technology has been around its application in financial transactions. That's understandable, considering that the cryptocurrency bitcoin gained worldwide use, while also simultaneously proving that DLT can, indeed, work. Banks and other finance-related institutions became early innovators in this space, as well.

However, DLT proponents say digital ledgers can be used in multiple areas, including government and business dealings, in addition to financial transactions. Experts believe digital ledgers can be used in tax collection, property deed transfers, social benefits distribution and even voting procedures. They also say DLT can be used to process and execute legal documents and other similar exchanges.

Some believe that individuals can use this technology to hold and better control personal information, and then selectively share pieces of those records when needed; use cases here include individual medical records and corporate supply chains.

Additionally, proponents say digital ledgers can help better track intellectual property rights and ownership for art, commodities, music, film and more.

The future of distributed ledger technology

Whether distributed ledger technologies, such as blockchain, will revolutionize how governments, institutions and industries work is an open question. Articles in the academic and financial press have questioned whether distributed ledger technologies as they exist now are sufficiently reliable to put into wide-scale use. Issues include the paucity of regulations for this new form of exchange and security concerns.

 Article 2:-

 Blockchain & Distributed Ledger Technology

The rapid development and spread of new technologies has been significantly transforming the financial sector.

The World Bank Group published the first fintech note that looks at Distributed Ledger Technology and Blockchain, and analyzes its potential relevance for international development.

Fintech -- a relatively newly-coined term which combines 'finance' and 'technology' -- describes companies or innovations that use new technologies to improve or innovate financial services.

What is a blockchain and a distributed ledger?

Distributed ledgers (DL) use independent computers -- referred to as nodes -- to record, share and synchronize transactions in their respective electronic ledgers, instead of keeping data centralized as in a traditional ledger.

Blockchain is one type of a distributed ledger.

Blockchain and distributed ledgers are the building block of “internet of value” that enable economic interactions and transfer “value” peer-to-peer, without a need for a centrally coordinating entity. “Value” refers to any record of ownership of asset – money, securities, land titles, etc.

Why is this technology important?

Distributed ledger technology (DLT) could fundamentally change the financial sector, making it more efficient, resilient and reliable.

This could address persistent challenges and change roles of financial sector stakeholders. It could also potentially transform various sectors such as manufacturing, government financial management systems and clean energy.

How will this technology affect international development efforts?

Since this technology is still nascent, the World Bank Group doesn’t have general recommendations about its use for international development. 

However, the World Bank Group is in dialogue with standard-setting bodies, governments, central banks and other stakeholders to monitor, research and pilot applications based on blockchain and DLT.

Would it be better to wait for the technology to mature?

Waiting for “perfect” DLT solutions could mean missing an opportunity to help shape it. To understand how DLT can address challenges in the financial sector, we need both research and real-life applications and pilots.

What else needs to be addressed in light of this disruptive technology?

Just as with the advent of any new technology that disrupts an industry, countries will need to review and resolve various related legal, regulatory and technological issues, including consumer protection, financial integrity concerns, speed of transactions, and environmental footprint.

Where do you see first distribute ledger applications to take off?

DLT applications will likely be incremental, and will likely first replace processes and activities that are still manual and inefficient. These include reference data maintenance in payment and settlement systems, trade finance, syndicated loans, and tracking provenance of agricultural products and commodities, their subsequent sale or use as financing collateral. 

Eventually, DLT could increase efficiency and lower remittance costs, and potentially improve access to finance for unbanked populations, who are currently outside the traditional financial system.