Page 19 - FIGI: Security Aspects of Distributed Ledger Technologies
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Ethereum added this ‘gas’ component to provide an   munity.’  Confusion can exist regarding who owns,
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            user-defined upper limit on the computational power   controls and can legally act and conduct business on
            desired in terms of the dApp being processed on the   behalf of a blockchain project.
            Ethereum blockchain.                                 In  many  public blockchains, management can
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                                                               tend to circulate among a small group of ‘core’
            4�5  Governance of DLTs and Inherent Risks         developers who are primary contributors to an open
            Decentralization is an underlying premise of block-  source project. Consensus mechanisms are used to
            chain technology  and can influence perception on   manage decentralized governance, such as the for-
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            how efforts should be governed.                    malization of Bitcoin Core’s voting process in its Bit-
               There is no standard model of ownership, organi-  coin Improvement Proposals.
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            zational structure, formalities or governance mech-  The risk though, especially with public blockchains,
            anisms for many (public) DLT projects. Criticisms   is that if the software development process is cen-
            of these models are often that they are partially if   tralized to a small number of developers, the system
            not fully centralized and parties to a transaction are   as  a whole could  not be considered decentralized,
            still dependent upon a trusted third-party interme-  even if mining was widely distributed and there were
            diary to conduct business. That is, even private and   thousands of nodes spread throughout the globe.  It
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            permissioned DL implementations are reliant to a   is not only the ‘blockchain participants’ and ‘cliques’
            large degree on the evolution of the public ‘mainent’   who undertake improvements to the underlying
            blockchain, for example Ethereum. 58               code which render the concept of decentralization
               DLTs which incorporate higher institutional trust   somewhat fuzzy, but also that to undertake many of
            and centralization (such as private and/or permis-  the public type trading of crypto-tokens, a level of
            sioned blockchains) more often include only one or   centralization is required, particularly through cen-
            a few parties and are handled in a more traditional   tralized) crypto trading exchanges. Some, but not all
            fashion                                            are directly regulated, but invariably all require the
               Challenges of governance are most readily appar-  identification of persons or entities doing trading
            ent with open source community-led blockchain      through the exchange.  Unlike Bitcoin,  Ethereum
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            projects  (such  as  Bitcoin)  which  did  not  originate   has to a large degree had more of a collegial evolu-
            under the umbrella of a formalized legal entity but   tion, using ERCs - Ethereum Request for Comment
            rather a project which is now of and for ‘the com-  – to make improvements to the Layer 1 main-net.
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            5  COMMERCIAL AND FINANCIAL USES CASES FOR DLTS



            5�1  Overview                                      5�2  Evolving Use Cases of Distributed Ledger Tech-
            In the financial industry, and in business networks   nologies
            generally, data and information currently mostly flow
            through centralized, trust-based, third-party systems   •  Financial: Clearing and settlement (C&S); Clear-
            such  as  financial  institutions,  clearing houses,  and   ing houses;  Correspondent banking; Credit pro-
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            other mediators of existing institutional arrange-   vision; Derisking ; Digital Fiat Currencies; Factor-
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            ments. These transfers can be inefficient, slow, costly,   ing; Insurance contracts; Interoperability between
            and vulnerable to manipulation, fraud and misuse.    banking and payment platforms; Remittances;
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            Bilateral and multilateral agreements are need-      Results-Based Disbursements; Share registries;
            ed,  which are typically recorded by the parties to   Shareholder voting ; Small medium enterprise
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            the agreements in different systems (ledgers). As    (SME) finance; Trade finance and factoring; Taxes 71
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            noted above, a number of blockchains and DLTs have   •  Financial Integrity: Electronic know your custom-
            emerged in recent years that aim to address these    er (e-KYC);  Identity (ID) systems
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            issues.  Each  may  have  its  own different  use  cases,   •  Legal: Notarization of data ; Property registration
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            offering benefits such as larger data capacities,   •  Utilitarian: Agricultural Value Chains; Food Sup-
            transparency of and access to the data on the block-  ply Management; Medical Tracing; Project Aid
            chain, or different consensus methods.               Monitoring; Supply Change management; Internet
                                                                 of Things (IoT)
                                                               •  Intellectual Property: Digital rights management

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