Dear Reader,
Welcome back to The Fintech Prompt. I hope you’ve had a great July thus far.
This week on the Newsletter, we’ll be discussing Distributed Ledger Technology and briefly looking at the Blockchain technology.
First things first, what is a Distributed Ledger (DL)?
A DL is a record storage database that generally keeps record of ownership of assets. It is distributed because it is shared and accessible by multiple people across different locations. The corollary of this is that data is not stored at one point, unlike the traditional centralised ledger that is predominantly used by the majority of companies, across different industries. However, it is important to note that a DL can be centralised or decentralised. A centralised DL is one that grants certain users particular rights whereas, a decentralised DL is one that grants equal rights to all users.
A major difference between a centralised DL and the traditional centralised ledger is that the former uses cryptography, which is the technology that underpins it. Cryptography involves the use of coding to secure computer networks, online systems, and digital data. Some characteristics and advantages of a DL include the following:
It provides more transparency and integrity in operations and transactions.
A DL may be permissioned or permission-less.
It is more secure and protected against hackers.
There isn’t one point of failure. Therefore, the failure of one node does not take down the entire system.
It allows for more efficiency.
Immutability of data: Although on one hand, this may aid transparency, it may also create the problem of correcting inaccurate data.
A major disadvantage of a Distributed Ledger is the cost involved to run it. In addition to this, there is also the lack of technical expertise in this area.
What are some uses of a Distributed Ledger Technology (DLT).
Cryptocurrency networks and transactions.
The creation and sale of Non-Fungible Tokens.
Smart Contracts.
What industries can DLT be applied in?
Health Services.
Energy.
Law
Trade finance
Public governance, etc.
Where does Blockchain fit in all of this?
Blockchain is a distributed ledger. Note however, that Blockchain is not synonymous with DL. In other words, although one may classify Blockchain as a type of distributed ledger, not all distributed ledgers employ the Blockchain technology.
In a more descriptive sense, the Blockchain technology is the underlying technology of the Bitcoin network. “A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger.”
Source: https://www.google.com/url?sa=i&url=https%3A%2F%2Fblogs.iadb.org%2Fcaribbean-dev-trends%2Fen%2Fblockchain-technology-explained-and-what-it-could-mean-for-the-caribbean%2F&psig=AOvVaw1y2VK3x7Mo-UnJWww3G9yA&ust=1627568708274000&source=images&cd=vfe&ved=2ahUKEwiLzvOG_IXyAhVE0oUKHaJYCjwQr4kDegUIARDLAQ
Is the Blockchain or DLT in general, regulated?
Blockchain and the DLT forms part of the nascent technology introduced in recent times. Due to its multiple uses, national and regional policy makers are currently researching the legal framework of DLTs with a view to create legal certainty.
What are your thoughts on DLTs in general? I’d like to know. I should also add that this will be the last Newsletter for this month; see you in August!
Yours truly,
Vivien.