DTCC Connection

Mar 16, 2016 • DTCC Connection

Taking Inventory of Blockchain – Its Potential and Challenges

By Joseph King

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.

 

Current Infrastructure Challenges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

dtccdotcom