Page 143 - ITU-T Focus Group Digital Financial Services – Technology, innovation and competition

ITU-T Focus Group Digital Financial Services
Technology, Innovation and Competition

Executive summary

Distributed ledger technology (DLT) is a new type of secure database or ledger for keeping track of who owns
a financial, physical, or electronic asset, but without the need for a centralized controller of this data. Instead,
the data is shared in a peer-to-peer manner across multiple sites, countries, or institutions.

DLT has the potential to speed up and reduce the cost of transactions, give individuals more control over their
personal data, reduce or remove the need for costly intermediaries, provide secure ‘smart’ legal contracts that
execute without user intervention, bolster data security by providing almost real-time evidence of tampering,
and revolutionize regulatory compliance.

A prime example of DLT is called blockchain technology. All blockchains operate by taking a number of records
and putting them in a block and then chaining that block to the next block using a cryptographic signature.
While the data (blocks) are stored one after the other in a continuous ledger, they can only be added when the
participants reach a quorum (consensus) over their validity. Each record is time/date stamped and provided
with a unique cryptographic signature, which is designed to ensure the authenticity and integrity of the ledger.
This distributed design eliminates the need for a central authority or intermediary to process, validate, or
authenticate transactions and data.

The manner in which consensus for proposed changes to the ledger is reached defines the type of blockchain.
The process may be permissionless or permissioned. Some may be public or private and may allow only certain
people to view all or subsets of the data on a blockchain. These ledgers are similarly designed for rapid detection
of unauthorized changes to the data.
Thus, the study sets out to detail: The evolution of DLT; its numerous strengths and weaknesses; the varied
commercial and public-good applications that have been identified; the implications of the disintermediation of
traditional centralized controllers of data; concerns in respect of the technology designs and their consistency;
issues in implementation and usage; security of DLTs; validity of the information placed on a blockchain; and
the spectrum of evolving legal and regulatory challenges and uncertainties around DLT. Therefore, the use of
emerging ‘regulatory sandbox’ tools employed by regulators to allow testing of DLTs in a controlled way, with
clear consumer protection and implementation and exit windows, are also explored.

The study also investigates some applications that may be particularly useful for financial inclusion, including:
remittances; developing new identity systems; interoperability between digital financial services (DFS) and
banking platforms; innovative, self-executing ‘smart contracts’; micro-insurance uses; clearing and settlement
(C&S) in payment systems; credit provision; and property and land registration.

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