Distributed Ledger Technology

What is a distributed ledger?

Ledgers have been at the center of accounting and commerce for thousands of years as a means to record a variety of items, including assets such as money and property. Over that time, the only noteworthy innovation has been the transition from paper to digital recording of rights and obligations. Fast forward to today, and the advent of distributed ledgers with characteristics such as enhanced transparency, integrity and security, and opportunities that far surpass the capabilities offered by traditional paper-based ledgers.

A distributed ledger is an asset database shared across a network of entities which can be updated independently, but concurrently, by each participant (or node) in a large network. Records are not communicated to various nodes by a single, central authority, but are instead independently constructed and held in an exact copy by each node. All participants within a network have their own, identical copy of the ledger. The security and accuracy of the assets stored within the ledger are maintained cryptographically through the use of keys and digital signatures to control what each participant can do within the shared ledger. Blockchain is one example of a distributed ledger; it organizes data into blocks, which are chained together in an “append-only” mode.

Benefits of the technology

There are several benefits to using distributed ledger technology (DLT).

Visibility and transparency

When there are multiple parties involved in a transaction, all parties have visibility into that transaction (either all, or a portion of it). The parties to the transaction are able to see the entire transaction history, providing comprehensive auditability.

Auditability and traceability

DLT keeps a full history of who has owned the asset(s) in the past, who had access to the information, and who currently owns it.

Automation and efficiency

When there are multiple parties involved in a deal and each party has to fulfill a responsibility before the next party can perform its part (i.e. a service-level agreement), the technology can be used to automatically trigger events for the next part as certain tasks are completed.


DLT leverages technological tools such as cryptography and digital signatures to prevent confirmed transactions from being modified after posting.

How can you use it?

Distributed ledger technologies have vast potential to benefit business in a variety of sectors. According to a 2017 industry survey conducted by Deloitte, 36% of financial services firms with over $500 million in revenues planned to implement DLT-related projects by the end of 2017. DLT can help organizations transfer and track funds, deliver benefits, issue official documents, update asset registries, and ensure the integrity of records and services. The technologies can help produce faster settlement times, lower collateral requirements and reduce counterparty risk, and promote greater transparency for regulatory reporting in capital markets. By removing the need for a central authority through decentralization of records into a shared digital ledger, distributed ledger technology could potentially lead to cheaper, faster financial transfers.

DLT is expected to highly reorganize the financial industry, particularly activities such as securities and stock trading, trade finance, and federated identity management. As an example, trade finance generally involves multiple parties across various parts of a deal to complete their portion before funding events occur. When these deals are executed internationally or as part of large deals, there can be a vast number of intermediaries involved in validating that each party to the deal has met their obligations under the contract. In March 2017, global shipping giant Maersk struck a joint venture deal with IBM, a leading enterprise provider of blockchain, to use blockchain technology to digitize global trade processing, introduce a new form of command and consent into the flow of information, and empower multiple trading partners to collaborate and establish a single, shared view of a transaction without compromising details, privacy or confidentiality. That’s powerful!

Before you implement – a five-step approach

Uptake and implementation of DLT applications will most likely be incremental initially, replacing current processes and activities that are manual and inefficient. If you are thinking about applying DLT to the practices at your organization, consider this five step approach:

  1. Education and Training: Start with education and training. Gain an understanding of DLT, what it does, and what the pros and cons are related to implementation. Consider applications in areas such as privacy and transaction control that are inherently risky to your business.
  2. Determine Relevant Use Cases: Gain an understanding of your business needs. Evaluate your current processes and identify opportunities for improvement and greater efficiencies. For instance, do you have any product workflows with dependencies related to various third parties? What is the specific problem or problems you are trying to solve? How may DLT be able to address those problems? Are there potential “side-effects” to other downstream processes with the implementation of DLT?
  3. Evaluate Roadblocks: As part of planning a DLT-based solution for your use case, determine if you will have access to the necessary resources (developers, infrastructure, vendor support, etc.); whether the anticipated participants in the use case, such as customers and third parties, will have adequate knowledge to participate; and whether there are any regulatory compliance considerations.
  4. Pilot the Technology: If you have identified a legitimate business need, determined that roadblocks can be addressed and wish to implement DLT, establish a pilot program. For instance, consider a pilot that would address a portion of the loan underwriting workflow. Test the DLT in parallel with the current business process to help ensure continuity in the event any issues arise with implementation. Evaluate if and how DLT is working to address your needs and promote efficiency.
  5. Go Live: If your pilot program is successful and you have worked through any issues or bugs, go live with the technology. Establish monitoring controls to continually evaluate the process.

If you have any questions on using DLT at your financial institution, please reach out to Patrick Morin or your BNN advisor at 800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

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