Taking Inventory of Blockchain – Its Potential and Challenges

Distributed ledger technology has captured the imagination of the financial services industry because of its potential to address long-standing limitations of the current post-trade process. However, there are challenges that distributed ledgers must overcome before their potential to enhance the post-trade process can be realized.

In its recent white paper, Embracing Disruption – Tapping the Potential of Distributed Ledgers to Improve the Post-Trade Landscape, The Depository Trust & Clearing Corporation (DTCC), identified several limitations of distributed ledgers, including the fact that they do not:

• Improve upon existing data retrieval, inquiry, reporting or analytic tools.
• Allow data searching in a manner that is on par with modern databases.
• Provide high-speed access to data in the same manner as big data technology for analytics.
• Integrate with modern data management tools.
• Address the nonfunctional requirements of most processing systems.
• Support the ability to cancel or reverse a transaction.

For distributed ledgers to reach their full potential, all of the analytical and functional capabilities that currently exist in the current post-trade process will need to be integrated into the platform.

Opportunities for Distributed Ledgers

Despite these challenges, distributed ledger technology holds lots of promise. DTCC believes that a secure distributed ledger, with complete, traceable, transaction history for a set of assets that is shared and accessible only between trusted parties, could provide a significant improvement in some areas of today’s infrastructure.

Industry interest and research into this new platform has been quite high, but also generally uncoordinated up to now. As a result, without a centralized effort that utilizes consistent standards, the industry is at risk of repeating the past and creating countless new siloed solutions based on different standards and with significant reconciliation challenges – essentially a new system with the same challenges we face today. To avoid this, DTCC recommends the industry engage in a collaborative re-architecture of core processes and practices to ensure standardization. DTCC believes that the existing, regulated and trusted central authorities should play a leading role in introducing the standards, governance and technology to support distributed ledger implementations. These organizations, working in partnership with a wide range of the industry, can help ensure that new opportunities are in the best interests of post-trade processing and consistent with long-standing goals of mitigating risk, enhancing efficiencies and driving cost efficiencies for market participants.