Another Revolution Has Begun
Blockchain technology has come to stay and is being rapidly adopted by large enterprise globally. By 2025, most successful stock exchanges will have adapted their business model to exploit the potential of DLT. We enable our clients issue or transfer blockchain tokens, and write, read or analyse data on appropriate platforms by connecting your platform to either generic or bespoke infrastructure using simplified processes and APIs
DLT Brings Benefits
In the right context, distributed ledgers can potentially have a number of advantages over traditional centralized ledgers and other types of shared ledgers. The most important potential advantages of DLT are listed below, though generalizations are difficult because of the large variety of designs and specifications that permissioned and permission-less blockchains can have.
Decentralization and Disintermediation.
DLT enables direct transfers of digital value or tokens between two counterparties and decentralized record-keeping, removing the need for an intermediary or central authority who controls the ledger.
This can translate into lower costs, better scalability and faster time to market.
Greater Transparency and Easier Auditability.
All network members have a full copy of the distributed ledger (which can be encrypted). Changes can only be made when consensus is established and they are propagated across the entire network in real-time. This feature, combined with the lack of a central authority or limited involvement of a central authority, has the potential to reduce fraud and eliminate reconciliation costs.
Automation & Programmability.
DLT enables programming pre-agreed conditions that are automatically executed once certain conditions hold. This is referred to as “smart contracts” (see section 8), for example invoices that pay themselves when a shipment arrives or share certificates which automaticallysend owners dividends or cash-for-work programs that pay beneficiaries out once the contracted work is completed. Smart contracts can be done in traditional centralized ledger systems as well, but the design of centralized ledger systems requires such actions to be implemented only after the concerned parties have agreed to the underlying transaction as recorded in the central system, which in some contexts can take upwards of a day. In contrast, in a DL, the counterparties by definition agree the moment the transaction is completed, as both have the same record of the transaction. Also, the result of the execution of the “smart contract” itself will take additional time to propagate and be reconciled in a traditional ledger system.
Immutability & Verifiability.
DLT can provide an immutable and verifiable audit trail of transactions of any digital or physical asset. While in most cases, immutability is desirable, it can create problems related to recourse mechanisms if the system fails. Immutability of the ledger, however, does not mean that a countervailing transaction to annul a disputed transaction cannot be created. This is in line with how dispute resolution works, for example in payment card systems. The original record would, however, in this case still remain. Two MIT researchers have recently filed a patent for a cryptographic solution that would allow an administrator to ‘unlock’ units in a blockchain and edit them, though this is highly controversial as immutability is seen as one of the core advantages of the first blockchains.
Gains in Speed and Efficiency.
DLT offers the potential of increasing speed and lowering inefficiencies by removing or reducing frictions in transactions or in clearing and settlement processes by removing intermediaries and automating processes.
Cost Reductions.
DLT offers the potential for significant cost reductions due to removing the need for reconciliation as DLT-based systems by definition contain the “shared truth” and hence there is no need to reconcile one version of “truth” with that of one’s counterparties. Additional sources of cost reduction could be lower infrastructure costs for maintaining a DL, as well as reductions in frictions and fraud. According to some estimates, distributed ledger technology could save the financial industry alone around $15-20 billion per year.
Enhanced Cybersecurity Resilience.
DLT has the potential to provide a more resilient system than traditional centralized databases and offer better protection against different types of cyber attacks because of its distributed nature, which removes the single point of attack. Fundamentally, DLT is an alternative design approach that allows for a decentralized business and operational model when compared to existing, centralized design approaches that can be used for similar purposes.
This makes possible a greater deal of automation, faster processing, and greater scalability potential. In specific contexts, a DLT-based design approach can provide many of the benefits discussed above. The below example for a collateral registry helps illustrate the difference between DLT-based approaches and alternative design approaches.
Establishing a collateral registry using existing, centralized approaches requires a central entity to setup a dedicated platform, establish membership criteria, and establish rules and procedures. All transactions pertaining to the collateral are processed on this platform and all business actions are triggered by the centralized platform. This platform is created using standardized software applications developed for the specific business need or developed bespoke.
A DLT-based approach, in contrast, features transactions involving collateral that are exchanged on a peer-to-peer basis, with embedded, pre-determined conditions, such as date of release and rules pertaining to failure to repay an underlying loan. There is no need to setup any centralized system and the business rules pertaining to a particular collateral can be tailored based on the specific agreement between counterparties.
In a permissioned DL, there can be an administrator that establishes participation criteria and onboards new participants. But in contrast to the centralized entity in a traditional implementation, the role of the administrator in a DLT-based system would be very minimal. Business actions can be event-driven and can be triggered without any need for additional external interventions. Setting up a new collateral registry using a DLT-based approach can potentially be faster and more scalable as the resources needed at the administrator level are very minimal, the processing load is spread across all participants, and the business logic for collateral transactions can be tailored and customized based on the specific needs of the counterparties.
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