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Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

FinTech Note | No. 1
(DLT) and Blockchain
Distributed Ledger Technology

© 2017 International Bank for Reconstruction and Development / the World Bank
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Table of Contents

Acknowledgments III
Glossary IV
Abbreviations and Acronyms V
Overview VII
Executive Summary IX
1. What is Distributed Ledger Technology (DLT) and How Does it Work? 1
2. How are DLT and Blockchain Related to Digital Currencies? 3
3. Key Features of DLT 5
4. Open/Permissionless Distributed Ledgers vs. Permissioned
Distributed Ledgers 11
5. Key Advantages of DLT 15
6. Challenges and Risks Related to DLT 17
7. Applications of DLT 21
DLT & Financial Inclusion 23
8. Smart Contracts 29
9. What are Governments, Development Organizations,
and Donors Doing in this Space? 33
10. How can DLT be Leveraged for World Bank Group Programs and
Projects in the Financial Sector? 37
Annex: The DAO Hack and Ethereum’s Forks 41
Endnotes 43

TABLE OF CONTENTS I

II DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .

and insights of other experts. The World Bank peer reviewers for this note were Stela Mocan (Lead IT Officer. and Helen Gradstein (Financial Sector Analyst. A special thanks goes to Aichin Lim Jones (Graphic Designer) for her work on the design. and graphics of this publication. This publication benefitted immensely from the participation. The team is especially grateful to the peer reviewers for their contributions. The external reviewers were Nicole Becher (Biplane Security/NYU Adjunct Instructor/New America Cyber Security Fellow) and David Mills (Federal Reserve Board of Governors). Finance & Markets) provided overall guidance. Finance & Markets). Douglas Pearce (Practice Manager. Margaret Miller (Lead Financial Sector Economist. Finance & Markets) provided helpful comments on an early draft of this note. Finance & Markets). ITS). Solvej Krause (Consultant. Simon Bell (Global Lead for SME Finance. Transport & ICT). ACKNOWLEDGMENTS III . layout. guidance. and Rosanna Chan (Economist. Finance & Markets).Acknowledgments This note was written by a team composed of Harish Natarajan (Lead Financial Sector Specialist. Finance & Markets).

such as HTTPS internet protocol. as defined above. Nodes are network participants in a distributed ledger network. A ‘blockchain’ is a particular type of data structure used in some distributed ledgers which stores and transmits data in packages called “blocks” that are connected to each other in a digital ‘chain’. the following definitions are used. Distributed ledgers’ (DLs) are a specific implementation of the broader category of ‘shared ledgers’. for example Bitcoin and ether. Glossary The terminology in this field is still evolving and universal definitions have not yet been formalized. which is simply a digital payment mechanism. It typically does not have intrinsic value but it is linked to an underlying asset. and synchronized across a distributed network of different network participants. Distributed Ledger Technology refers to a novel and fast-evolving approach to recording and sharing data across multiple data stores (or ledgers). For the purpose of this note. which consists of multiple ledgers maintained by a distributed network of nodes. shared. Blockchains employ cryptographic and algorithmic methods to record and synchronize data across a network in an immutable manner. distinct from e-money. which are simply defined as a shared record of data across different parties. A shared ledger can be a single ledger with layered permissions or a distributed ledger. which could be anything of value. Cryptocurrencies are a subset of digital currencies that rely on cryptographic techniques to achieve consensus. Public Key Cryptography is an asymmetric encryption scheme that uses two sets of keys: a public key that is widely disseminated and a private key that is only known to the owner. Public key cryptography can be used to create digital signatures and is used in a wide array of applications. Digital currencies are digital representations of value that are denominated in their own unit of account. A token is a representation of a digital asset. depending on whether network participants (nodes) need permission from any entity to make changes to the ledger. representing and denominated in fiat money. for authentication in critical applications and also in chip-based payment cards. IV GLOSSARY . Distributed ledgers are categorized as public or private depending on whether the ledgers can be accessed by anyone or only by the participating nodes in the network. This technology allows for transactions and data to be recorded. DLs are categorized as permissioned or permissionless.

Abbreviations and Acronyms AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism CDD Customer Due Dilegence DLT Distributed Ledger Technology DL Distributed Ledger KYC Know Your Customer FSP Financial Service Provider SWIFT Society for Worldwide Interbank Financial Telecommunication SME Small and Medium Enterprise B2B Business-to-Business B2P Business-to-Peer P2P Peer-to-Peer WBG World Bank Group ABBREVIATIONS AND ACRONYMS V .

VI DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .

including payments and financial infrastructures. shared. origins.Overview The financial sector is currently undergoing a major transformation. consumer and SME lending. challenges. the difference between ‘public’ and ‘private’ DLT. For example. Note that not all distributed ledgers necessarily employ blockchain technology. earlier blocks cannot retrospectively be altered by any network member (see figure 4 for a graphical representation of a blockchain’s structure). and other topics. a new digital currency transaction would be recorded and transmitted to a network in a data block. Finally. ‘InsureTech’. ‘Fintech’ developments are seen across all areas of the financial sector. and conversely. and key characteristics of DLT. This note outlines the mechanisms. Blockchains employ cryptographic and algorithmic methods to record and synchronize data across a network in an immutable manner. OVERVIEW VII . investment management. This technology allows for transactions and data to be recorded. This note on distributed ledger technology (DLT) and blockchains is part of a series of short notes that explore new trends and developments in Fintech and analyze their potential relevance for WBG activities. The confluence of ‘finance’ and ‘technology’ is often referred to as ‘Fintech’. this note proposes next steps for the World Bank to study and evaluate areas where DLT could potentially be integrated into World Bank financial sector operations. Forthcoming notes in this series will cover marketplace lending. and venture financing. What is DLT? What is a blockchain? DLT refers to a novel and fast-evolving approach to recording and sharing data across multiple data stores (or ledgers). relevant examples of DLT applications (with a focus on financial sector applications). and risks. and other stakeholders in this space. As the linear chain grows when new blocks are added. typically describing companies or innovations that employ new technologies to improve or innovate financial services. the technology’s main advantages. and synchronized across a distributed network of different network participants. insurance. thus producing a blockchain. multilateral organization. which is first validated by network members and then linked to an existing chain of blocks in an append-only manner. and a brief overview of activities by governments. A ‘blockchain’ is a particular type of data structure used in some distributed ledgers which stores and transmits data in packages called ‘blocks’ that are connected to each other in a digital ‘chain’. brought about by the rapid development and spread of new technologies. blockchain technology could be employed in different contexts.

VIII DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .

and institutional frameworks to DLT- based infrastructure. which lead to very different risk profiles. DLT applications will likely begin in areas without many legacy investments in automation. Distributed ledger systems can be open/permissionless or permissioned. operational security & cybersecurity. data privacy. For instance. The most commonly cited technological. particularly relevant for the area of financial markets infrastructures. there is no central owner who controls network access.Executive Summary Blockchain-based DLT. In permissionless systems. A further challenge. decentralized records of flow of commodities and materials across a supply chain by using trusted stakeholders to validate flows and movements. such as trade finance and syndicated loans in the financial sector. birth. operational arrangements. In permissioned systems. and there are fundamental differences between these two types. marriage and death records) or build tamper-proof. financial markets infrastructure in the securities markets. including decentralization and disintermediation. DLT is currently being explored to facilitate digital identity products (such as national ID. are the substantial costs related to migrating existing longstanding IT systems. greater transparency and easier auditability. Many industry observers note that due to these challenges. which was first applied as the underlying technology of the cryptocurrency Bitcoin. the technology is still evolving and may pose new risks and challenges. and automation and programmability. gains in speed and efficiency. and challenges in developing a legal and regulatory framework for DLT implementations. which can bring fundamental changes in roles and responsibilities of the stakeholders in the financial sector. transaction disputes & recourse frameworks. legal and regulatory challenges related to DLT concern scalability. interoperability. But potential applications of DLT are not limited to the financial sector. and in collateral registries. EXECUTIVE SUMMARY IX . many of which are yet to be resolved. has a variety of potential applications beyond the narrow realm of digital currencies and cryptocurrencies. DLT could have applications in cross-border payments. identity verification. All that is needed to join the network and add transactions to the ledger is a computer server with the relevant software. That said. Proponents of DLT typically highlight a number of potential advantages over traditional centralized ledgers and other types of shared ledgers. cost reductions.

financial literacy and capability. where appropriate. the World Bank Group is not yet in example. a sound financial consumer protection framework. Understanding solutions which ensure that anonymous network the true potential of DLT for development objectives participants are incentivized to enforce accuracy of the requires not just research but also real-life applications ledger. The bulk of R&D resources for DLT are currently employing DLT to help reach development objectives devoted to improving financial infrastructure and in the financial sector requires the development and processes. to some solutions to development challenges in the financial degree permissioned DLs remove key benefits of sector and beyond. interoperability with traditional payment and financial services and infrastructure. but they require a central entity that regulates access. scalability. Therefore. among participants. which creates a potential target for cyberattacks. foster and system integrity of open. For issues. and there is significant potential for active promotion of critical accompanying elements. In addition to developing the technology itself. interface design. permissionless DLs their safe adoption while maintaining institutional is achieved through cryptographic and algorithmic neutrality towards private sector actors. and effective oversight. network members are pre-selected by an owner or That said. the technology is still at an early stage an administrator of the ledger who controls network of development and there is still a long way to go access and enforces the rules of the ledger. and legal and regulatory which vary significantly with different use cases. security. This is because security shape developments and. interoperability. this investment to be leveraged by development Important among these are: user-friendly application organizations for the benefit of developing countries. especially with regard to issues related to privacy. Given the potential for DLT to structure and institutional arrangements. However. X DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . the WBG can closely monitor and DLT’s most critical innovation. waiting for ‘perfect’ DLT solutions is Permissioned systems can also potentially fit more not necessarily an ideal approach for development easily into existing legal and regulatory frameworks organizations. without the need for barriers to entry or trust and trials. However. independent of specific contexts. permissioned systems are better at resolving a position to issue any general recommendations about issues related to identity verification and data privacy usability. There are advantages and disadvantages to both types. before its full potential can be realized.

1. 1.e. DLT refers to a novel and fast-evolving approach to recording and sharing data across multiple data stores (ledgers). append-only data structure that takes the form of a chain of so- called ‘transaction blocks’ – the blockchain – which serves the function of a ledger. such as email. WHAT IS DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND HOW DOES IT WORK? 1 . New additions to the database are initiated by one of the members (nodes). proposed a novel approach of transferring “funds” in the form of “Bitcoin” in a P2P manner. and internet telephony. Through this mechanism each change to the ledger is replicated across the entire network and each network member has a full. who creates a new “block” of data. Blockchain. a particular type of DLT. and all network participants collectively determine the block’s validity according to a pre-defined algorithmic validation method (‘consensus mechanism’). uses cryptographic and algorithmic methods to create and verify a continuously growing. The asset in question could be anything of value. One way to think about DLT is that it is simply a distributed database with certain specific properties (see section 3). as this requires ensuring that an asset is only transferred by its true owner and ensuring that the asset cannot be transferred more than once. i. Only after validation. no double-spend. which refers to a particular way of organizing and storing information and transactions. This approach can be used to record transactions on any asset which can be represented in a digital form. The underlying technology for Bitcoin outlined in Nakamoto’s paper was termed Blockchain. However. What is Distributed Ledger Technology (DLT) and How Does it Work? DLT comes on the heels of several peer-to-peer (P2P) technologies enabled by the internet. Subsequently. identical copy of the entire ledger at any point in time. In 2008. other ways of organizing information and transactions for asset transfers in a P2P manner were devised – leading to the term “Distributed Ledger Technology” (DLT) to refer to the broader category of technologies. internet-based transfers of asset ownership have long been elusive. Information about this new data block is then shared across the entire network. all participants add the new block to their respective ledgers. The transaction could be a change in the attribute of the asset or a transfer of ownership. which each have the exact same data records and are collectively maintained and controlled by a distributed network of computer servers. “Bitcoin: A Peer-to-Peer Electronic Cash System”. sharing music or other media files. which are called nodes. containing encrypted data so transaction details are not made public. for example containing several transaction records. See figure 1. a landmark paper written by an as yet unidentified person using the pseudonym Satoshi Nakamoto.

Figure 1: How Does Blockchain-Based DLT Work? 1. conversely.wsj. A shared ledger can be a single ledger with layered permissions or a distributed ledger which consists of multiple ledgers maintained by a distributed network of nodes. and specifically use the term blockchain only when referring to DLs that use a blockchain data structure.com/articles/dubai-aims-to-be-a-city-built-on-blockchain-1493086080 Two core attributes of a DLT-based infrastructure are: peer) and without the need for trust among counterparties. Member A creates new transaction block with a 1A transaction from member A to member B. Blockchain-based DLT systems take the form of an append. By Nikhil Lohade. New additions to the database are the entire network. 2.e. without the need for a central record-keeper (i. peer-to- Terminology The terminology in this field is still evolving and universal definitions have not yet been formalized. 24 April 2017. (i) ability to store. Through this mechanism each change to the ledger is replicated across the entire network and each network member has a full. ‘Distributed ledgers’ (DLs) are a specific implementation of the broader category of ‘shared ledgers’. 2 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . self-interested counterparties asset or token cannot be sent to multiple parties). “block” of data containing several transaction records. Wall Street Journal https://www. identical copy of the entire ledger at any point in time. (ii) ensure there is no ‘double-spend” (i. Only after validation. 1A 2E 3 B 2E 3 B 4 D 5 C 4 D 5 C 3. However. as defined above. the same digital form across different. Information about this new data block is then shared across only chain of data ‘blocks’. 1A 2E 3 B 4 D 5 C Source: Adapted from: “Dubai Aims to Be a City Built on Blockchain”. depending on whether network participants (nodes) need permission from any entity to make changes to the ledger. DLs are categorized as permissioned or permissionless. all participants add the new block to their respective ledgers.e. containing encrypted data so transaction initiated by one of the members (nodes). In this document. Not all distributed ledgers employ blockchains and. which are simply defined as a shared record of data across different parties. Blockchain is a particular mechanism or data structure that employs cryptography and algorithms to record data in an immutable manner. Distributed ledgers are categorized as public or private depending on whether the ledgers can be accessed by anyone or only by the participating nodes in the network. we are commonly using the term distributed ledgers (DLs). who creates a new details are not made public. the terms ‘blockchain technology’ and ‘distributed ledger technology’ are commonly used interchangeably. blockchain technology could be used in other contexts. record and exchange “information” in and. All network participants collectively determine the block’s validity according to a pre-defined algorithmic validation method (‘consensus mechanism’).

for example Bitcoin and ether. noted three specific characteristics of non-fiat digital currencies: 1) They are not backed by any underlying asset. can also use centralized ledgers.it was invented as the underlying technology of the cryptocurrency Bitcoin. having erased his entire online presence in 2011. writing under the pseudonym Satoshi Nakamoto. Before Bitcoin. HOW ARE DLT AND BLOCKCHAIN RELATED TO DIGITAL CURRENCIES? 3 . “Digital Currencies”. issued by central banks. similar to the digital transformations of music. DLT’s critical innovation in the context of digital currencies is that it provides a cryptographic solution for providing security and protecting system integrity in a decentralized ledger that is maintained by a network of anonymous participants without any need for trust across one or more institutions. Terminology Definitions in this field are still evolving and universal definitions are yet to emerge. digital currencies are digital representations of value that are denominated in their own unit of account. have zero intrinsic value.”1 Nakamoto has not been identified until this day. to avoid double-spending. A 2015 CPMI report. 2. emails. For the purposes of this note. 2) They are exchanged through distributed ledgers absent trust between partners and absent central record-keeping.as noted earlier . Blockchain technology for Bitcoin was designed to solve for the problem of “double- spending”. The inventor of Bitcoin. allowing any two willing parties to transact directly with each other without the need for a trusted third party. Note that digital fiat currencies. representing and denominated in fiat money. described the technology in a 2008 white paper as an “electronic payment system based on cryptographic proof instead of trust. How are DLT and Blockchain Related to Digital Currencies? DLT has been closely linked to digital currencies since its inception because . Cryptocurrencies are a subset of digital currencies that rely on cryptographic techniques to achieve consensus. which inhibited a full evolution of money into the digital world.2. distinct from e-money which is simply a digital payment mechanism. 3) As a result of the above two characteristics. they do not rely on specific institutional arrangements or intermediaries for peer-to-peer exchanges. and documents. a trusted central party was needed to validate transactions to ensure ownership of account and balance. and do not represent a liability on any institution.

address. While Bitcoin was the original Several features of the Bitcoin blockchain have harmed application of DLT. section 7 for more details on DLT applications). However. who espouse a radical strand of activities. you lose all your money be anonymous. “Unlike HTML or HTTP. The Bitcoin blockchain was designed with the specific While the addresses linked to the transaction are intention of creating a digital currency that is free from known. there have not been any Bitcoin. (This is why the and industries surrounding bitcoin. This includes the lack of far beyond digital currencies (see section 7). in a distributed ledger that is visible to the public Traditional. concern is bitcoin’s data loss problem: if you lose your even though the identities of transacting partners can private key to your wallet. All Bitcoin transactions contain a wallet Despite its anti-authority origins. similar to email addresses. including selling of illegal drugs. 4 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . regulation of many of the bitcoin exchanges and the rise The anonymity offered for transacting rapidly online of ransomware computer malware that demands ransom attracted the attention of criminals and Bitcoin has paid in bitcoin to provide anonymity. centralized banking is much more resilient and it is possible to associate Bitcoin transactions to this. Law enforcement officials were successful Bitcoin was an ideological project from the start”2. rather than features term ‘pseudonymous’ is often used in the context of of DLT infrastructure. all Bitcoin transactions are recorded (see section 3 for an explanation for ‘private key’). the the cryptocurrency’s reputation and cause concerns for technology has a large number of potential applications governments and regulators. These are all features specific to applications with specific anonymous entities. To date. address. Another issue of been used for financing illicit activities. and the first to achieve scale. known related to Silk Road3. an online black market for illicit as “cypherpunks”. which can be create digital fiat currencies issued by central banks (see thought of as pseudonyms.) The anonymity provided by Bitcoin can serious integrity problems arising from the core bitcoin be compared to the anonymity provided by an email blockchain itself. DLT can also be used to address of the sender and the receiver. techno-libertarianism. similar to sending a message to an email of its network participants. in linking real world identities to the anonymous deeply embedded in the anti-censorship ideology of entity in the Bitcoin network in the case of the arrests the online community from which it emerged. the owners behind the addresses can remain government control and anonymizes the identities anonymous.

3.
Key Features of DLT

Single ledgers with layered permissions that are shared, accessed, and edited by a
network of vetted participants have existed for a long time but the concept of a de-
centralized, distributed and immutable ledger was realized for the first time through
DLT. Three features of DLT that are generally considered key to the technology are
outlined below: the distributed nature of the ledger, the consensus mechanism, and
cryptographic mechanisms.
It should also be emphasized that DLT is not one single, well-defined technology.
Instead, a plurality of blockchains and distributed ledgers are active or are under
development today and their designs and precise configurations vary depending on
the creators’ goals and the DL’s purpose and developmental stage.

Distributed Nature of the Ledger
Recordkeeping has always been a centralized process that requires trust in the record
keeper. The most important innovation of DLT is that control over the ledger does
not lie with any one entity but is with several or all network participants – depending
on the type of DL. This sets it apart from other technological developments such as
cloud computing or data replication, which are commonly used in existing shared
ledgers. De facto, this means that in a DL, no single entity in the network can amend
past data entries in the ledgers and no single entity can approve new additions to
the ledger. Instead, a pre-defined, decentralized consensus mechanism (see below)
is used to validate new data entries that are added to the blockchain and thus form
new entries in the ledger. There exists, at any point in time, only one version of the
ledger and each network participant owns a full and up-to-date copy of the entire
ledger. Every local addition to the ledger by a network participant is propagated to
all nodes. After validation is accepted, the new transaction is added to all respective
ledgers to ensure data consistency across the entire network.
This distributed feature of DLT allows self-interested participants in a peer-to-peer
network to collectively record verified data in their respective ledgers, for example
transaction records, without relying on a trusted central party. The removal of the
central party can increase speed and potentially remove costs and inefficiencies
associated with maintaining the ledger and subsequent reconciliations. Importantly,
it can also enhance security because there is no longer a single point of attack
in the entire network. To corrupt the ledger, an attacker has to gain control over

3. KEY FEATURES OF DLT 5

the majority of servers in the network; corrupting a but arbitrary condition is produced, specifically in the
single or several participants does not compromise the Bitcoin blockchain this is a certain number of leading
system’s integrity. zeros and the process of generating proof-of-work
is called “mining”. Solving this “proof-of-work”
However, security risks in the software application puzzle is a computationally difficult process and
layers built on top the DL can become additional there are no shortcuts, which means that any single
attack surfaces. Weaknesses in this layer can cause node in the network only has a diminutively small
losses to the users of a DL system, even when the core chance of generating the required proof-of-work
technology remains safe and secure. Notable examples without expending a vast amount of costly computing
that caused financial and reputational damages were resources. The Bitcoin system is calibrated such that
the hacks of Mt. Gox in Japan and Bitfinex.4 a valid proof-of-work is produced around every 10
minutes and in case two are created at exactly the
Consensus Mechanism same time, the protocol with the higher difficulty
The distributed nature of the DL requires the score is accepted as valid (“the longest chain”). Each
participants in the network (‘nodes’) to reach a “miner” that produces a valid proof-of-work in the
consensus regarding the validity of new data entries Bitcoin network receives Bitcoins as a reward (sort of
by following a set of rules. This is achieved through like a transaction fee), which serves as an economic
a consensus mechanism that is specified in the incentive to maintain system integrity. Therefore, the
algorithmic design of the DL and can vary depending large size of an open, permissionless systems is key
on its nature, purpose, and underlying asset. In a to its security. Network security is directly related
DL, in general any one of the nodes can propose an to having a large number of nodes in the system
addition of a new transaction to the ledger, however that are incentivized to validate new changes to the
there are implementations which propose specialized ledger accurately and establish a consensus across
roles for nodes where only some nodes can propose the network to ensure data consistency.
an addition. A consensus mechanism is necessary to
establish whether a particular transaction is legitimate The “proof of work” inflicts a significant
or not, using a predefined specific cryptographic computational cost on network participants for
validation method designated for this DL. The maintaining the DL (i.e. creating new data blocks
consensus mechanism is also important to handle and adding these blocks to the blockchain), which is
conflicts between multiple simultaneous competing only required in systems with distrusted participants.
entries - for example, different transactions on Estimates suggest that Bitcoin miners currently
same asset are proposed by different nodes. This consume electricity equivalent to Ireland’s electricity
mechanism ensures correct sequencing of transactions consumption5 and could reach Denmark’s level by
and prevents take-over by bad actors (in the case of 20206 (assuming the Bitcoin consensus mechanism
a permissionless DL). The consensus mechanism remains unchanged). According to one estimate, if the
and sequencing protect against the aforementioned Bitcoin network were to scale to the levels of usage of
double-spend problem. existing payment systems like Visa and MasterCard,
the electricity required would exceed current global
The Bitcoin blockchain uses “proof of work” to electricity consumption. However, this problem is
establish consensus in a global decentralized network, most pronounced for the Bitcoin blockchain. The DLT
a concept that was first developed as an anti-spamming system used by ether, a recently introduced digital
measure. In order to add a new block to the chain, currency by Ethereum, requires significantly less
which means adding a new set of data entries to the computing resources and the consensus mechanism is
ledger, a ‘proof of work’ protocol is required. This is a much faster.
computational challenge that is hard to solve (in terms
of computing power and processing time) but easy to Permissioned blockchains do not typically require
verify. The proof-of-work is generated by repeatedly difficult “proofs of work” as a consensus mechanism
running one-way cryptographic hashing algorithms for verifying transactions because network participants
until a string of numbers that satisfies a predefined are pre-selected and trusted. There are also other

6 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN

Figure 2: Distributed Ledger

Centralized Ledger
All parties reconcile their local databases with a
centralized electronic ledger that is maintained
and controlled by a trusted central party.

Distributed Ledger (permissionless)
Each node in a P2P network owns a full and
up-to-date copy of the entire ledger. Every
proposed local addition to the ledger by a
network participant is communicated across the
network to all nodes. Nodes collectively validate
the change through an algorithmic consensus
mechanism. After validation is accepted, the
new addition is added to all respective ledgers
to ensure data consistency across the entire
network.

Distributed Ledger (permissioned)
In a permissioned system, nodes need
permission from a central entity to access
the network and make changes to the ledger.
Access controls can include identity verification.

• The distributed feature of DLT allows self-interested participants in a P2P network to collectively record verified data
in a shared ledger without relying on a trusted central party.
• The removal of the central party can increase speed and remove costs and inefficiencies associated with maintaining
the ledger and subsequent reconciliations.
• It can also enhance security because there is no longer a single point of attack in the entire network.
• Permissioned systems can fit more easily into existing legal & regulatory frameworks and institutional arrangements.
However, to some degree, permissioned DLs remove key benefits of DLT’s most critical innovation, such as the lack of
need for a central party.

3. KEY FEATURES OF DLT 7

which means the originally generated hash. This message is from Alice. to the original message. A hash takes data of any size input binds the sender to the contents of the block. The hash output is a so-called ‘digest’ of a common method that is used in a wide array of other defined length which looks random and unrelated to the applications. for example proof-of-stake it is highly improbable for another input to have the which rewards seniority over computing power and same hash value.e. akin and computes a digital fingerprint similar to a human to a signature on a contract.7 Hashing also applies a time stamp require a proof of ownership of a certain asset. 1. in particular for the underlying transaction data. These transaction hashes are collated into a ‘transaction block’ that can contain any Cryptographic Hash Functions & Digital number of transactions but typically has a limited total Signatures size. computed again. This means authentication in critical applications and also in chip- that for one original input only one hash is possible and based payment cards. for original input but is in fact deterministic. which is a is changed. which original message. shared with him) to validate that the digital message was encrypted with Alice’s private key and that Alice is the 3. as when a hash is blockchain implementations. consensus mechanisms. sender of the message. Digital signatures are widely accepted as equivalent to physical signatures by law Figure 3: Public Key Cryptography for Digital Signatures Alice has two keys: a public key which she shares with Alice uses her private key to encrypt a “hash” of the digital the entire network and a private key which is only known message which is then propagated to the entire network. She signed it! Bob Alice’s Public Key 8 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . to Alice. The encrypted hash is called the “digital signature”. is “hashed”. a transaction record. 4. Original Message Alice Alice Digest Private Key Public Key Network participants receive the digital message with a Bob can then use Alice’s public key (which she has digital signature. DLT uses ‘public key fingerprint that cannot be changed unless the data itself cryptography’ for digital signatures. Each new data entry. 2. it will produce a different hash than i. such as HTTPS internet protocol. that a cryptographic hash function is applied to the The blocks are signed with a digital signature.8 The hash enables detection of any tampering of Cryptography is at the core of DLT.

BLOCK 1 BLOCK 2 BLOCK 3 BLOCK 4 BLOCK 5 00000o98v5 00000k2876 00000oj42x 00000o6pg7 TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION TRANSACTION Digital Signature Digital Signature Digital Signature Digital Signature Digital Signature 00000o98v5 00000k2876 00000oj42x 00000o6pg7 0000046sknk Cryptographic New. KEY FEATURES OF DLT 9 . information which cannot be changed. GENESIS chronological ordering of blocks in BLOCK the chain. of DLT. which is used for signing digital messages ‘genesis block’). and a digital signature of the hash this becomes progressively more difficult because all by the sender’s private key. a proof-of-work (or a different consensus block. chain is broadcast to the entire network and all nodes have an up-to-date copy of the entire blockchain. computational work. and public keys of the nodes are constantly competing for solving proof-of- sender and the intended recipient of the transaction. The process by which data is recorded in a blockchain-based distributed ledger is by forming Once a new block is added to the chain via a specified an append-only chain of ‘transaction blocks’ in consensus mechanism. a series of hashed digests of transaction public key is also used to identify the recipient. block 1 being the private key. a reference to the previous block which is public knowledge and is used for validating that determines the correct chronological ordering the identity of the sender of a digital message. In this figure. Network participants each have a existing blockchain (blocks 1-4. the chain cannot retroactively chronological order that contains hash digests of be changed and blocks cannot be deleted or amended the transactions (digital messages) to be added to without redoing the proof-of-work protocol for each the ledger. The of blocks.in many countries. work puzzles and adding new blocks to the chain. Figure 4 below depicts an example of a blockchain structure: The last block (block 5) was added to an Figure 4: Blockchain Structure Reference to the previous “block hash” that determines the correct. Each successful addition to the setting the chronological order of the chain. mechanism output). 3. This means that as the chain grows in length. and a public key of-work” protocol. This chain starts with the first-ever entry in the In doing this they only consider the transaction ledger (the ‘genesis block’) and each appended block blockchain that reflects the greatest amount of contains hashed information of the previous block. and a digital signature. block 5 represents the newest These three concepts help explain the fundamentals addition to this blockchain which updates the ledger. Each block contains a unique “proof- and only known by the individual user. unique “block hash” of proof-of-work the data in this protocol for this block which is block generated by solving a difficult proof-of-work puzzle.

10 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .

which regulate network access. Bitcoin and Ethereum are the most prominent examples of completely permissionless blockchains. DLT arrangements can be defined in terms of different dimensions: access to the network (open/closed) vs. without being pre-approved or vetted by any entity. in the case of a permissioned DL. This solves for a number of concerns governments and regulators have about permissionless distributed ledgers such as identity verification of network members. However. In reality. whom to license and regulate. which necessarily requires other participants to trust this entity. in general there is no need for an administrator for the execution of transactions. which is then replicated to other nodes. and there are fundamental differences between the two. All that is needed to join the network and add transactions to the ledger is a computer with the relevant software. even in permissioned DLs. typically do not require a computing power-intensive proof-of-work to verify transactions but rely on different algorithmic rules to establish consensus among members. In permissioned DLs. Open/Permissionless Distributed Ledgers vs. But it also reduces a chief advantage of permissionless blockchains: the ability to function without the need for any single entity playing a coordinating role. Permissioned Distributed Ledgers Distributed ledger systems can be open (permissionless) or permissioned. potentially even without any consensus mechanism.4. In permissioned DLs members are pre-selected by someone – an owner or an administrator of the ledger – who controls network access and sets the rules of the ledger. permissionless blockchains such as Bitcoin on one end of the spectrum and permissioned blockchains hosted by private entities on the other. which don’t regulate network access. and legal ownership of the ledger. In contrast. Permissioned DLs. this is not a binary categorization but the degree of openness and decentralization of distributed ledger systems falls on a spectrum with fully open. any node can propose an addition of a transaction. There is no central owner and identical copies of the ledger are distributed to all network participants. and the precise features vary from platform to platform. Many companies employ a hybrid approach where they provide the technology for permissioned networks to 4. the administrator bears the responsibility to ensure that the participants in the DL are reliable. there is no requirement of any trust between the participants and a complicated proof-of-work is hence used to generate consensus about ledger entries. In permissionless DLs. OPEN/PERMISSIONLESS DISTRIBUTED LEDGERS VS PERMISSIONED DISTRIBUTED LEDGERS 11 . where network participants can join or leave the network at will. roles within the network (restricted/unrestricted) – see taxonomy in Figure 5.

several public blockchains will continue to exist side- Ripple.shared Different degrees of openness and between all network members transparency of the ledger are possible Security Security through wide distribution in a large Security through access control combined scale network with DLT in smaller scale networks Speed Slower transaction processing restricts Faster transaction processing allows for transaction volume higher transaction volume Identity User identity anonymous or protected by Identity verification typically required by pseudonyms owner/administrator Consensus Difficult proof-of-work required as Variety of consensus mechanisms consensus mechanism possible (typically less difficult & less costly than proof-of-work in permissionless blockchains) Asset Typically: native cryptocurrencies. though only a handful have achieved scale still at an early stage of development and there are and a more advanced stage of development. A possible future scenario ledger. The technology is emerged. while others believe that permissionless (in terms of roles) distributed ledgers. both open DLs and permissioned public and private distributed ledger networks have DLs will have useful applications. over 600 different In all likelihood. permissioned access to information. Originally. the internet was an internet of the data is validated by all participants. has a permissioned ledger but by-side. Hyperledger Fabric be built on public blockchain infrastructure and thereby different future scenarios: some believe the industry restrict roles in a DLT system with open access. therefore information. only by a set of participants would be considered a democratizing access and storage of digital assets. ‘Public’ (open) Blockchains Permissioned Blockchains Central party No central owner or administrator Has some degree of external administration or control Access Anyone can join Only pre-selected participants can join the network Level of Trust Network members are not required to trust Higher degree of trust among members each other required (as collaboration among members could alter the ledger) Openness Ledger is open & transparent . for example. Most 12 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . A permissioned DLT where the data is validated of the blockchain could be an internet of value.9 will eventually converge to one worldwide public blockchain (akin to one worldwide internet) and Some industry players make a distinction between many different private blockchains (akin to many public/private (in terms of access) and permissioned/ different private intranets). private. Since Bitcoin’s start in 2009. Legal ownership Legal concerns over lack of ownership as Greater legal clarity over ownership as no legal entity owns or controls the ledger owner/administrator is typically a legal entity Examples Bitcoin. which had the effect of democratizing their system can be considered a public. Ethereum R3’s Corda. But Any asset implementations are possible where a token is used which can represent any asset. permissioned ledger.

transactions for inclusion in the ledger. This role is not relate to the open access and the difficulty of identity required in a permissionless DLT. e. Further concerns by the financial sector performing notary functions. asset. network participants. ACCESS and use these group of network private ledger copies? participants ANYONE Permissioned Only a set of trusted public ledger. syndicated loans and trade finance. which could be anything of value. in its recent publication on DLT proposed an permissionless DL. e. In a (BIS). the system itself creates permissioned DLs as a technological solution to reducing new bitcoins based on specific rules.g.10 This is. this role is performed by a analytical framework for studying DLT applications decentralized consensus mechanism. A token is a costs and removing frictions in cross-border payments. It typically does not correspondent banking. permissionless blockchains due to the difficulty deciding who can access the network. The Committee on Payment and Market Infrastructures • Validator: This role involves validating requests (CPMI) of the Bank for International Settlements for addition of transactions in the ledger.g. which are heavy users of databases. however. Bitcoin. by consensus Permissionless mechanism public ledger. This could be used for performing different applications of DLT in the financial sector. a • Auditor: Allowed to view the ledger but not allowed generalized framework and is applicable for many to make changes. pg. audits and also be used by regulators and supervisors. in payments and settlements. verification in permissionless systems. Financial institutions network. In the Bitcoin blockchain. without need for trust. there is no are making significant investments into researching entity playing this role. clearing and settlements have intrinsic value but it is linked to the underlying processes. maintaining of complying with existing regulatory and compliance and administering dispute resolution rules and frameworks. 4. 19 blockchain applications (see below) are built on public • Proposer: This role involves proposing new blockchains – predominantly Bitcoin and Ethereum. representation of a digital asset. The framework proposes the following different non- exclusive roles for a node: Financial institutions. Figure 5: Distributed Ledger Taxonomy How many copies ONE Traditional ledger of the ledger are maintained by a there? central party MANY Who can access Only a trusted Permissioned. are thus far not showing much interest in • System administrator: This role involves open. which are often • Asset issuer: The nodes playing this role are at odds with existing business practices that require responsible for issuing new “tokens” used in the maintaining privacy of transactions. OPEN/PERMISSIONLESS DISTRIBUTED LEDGERS VS PERMISSIONED DISTRIBUTED LEDGERS 13 . Ethereum Source: Amended from Dave Birch (Consult Hyperion) in: UK Government Office for Science report “Distributed Ledger Technology: beyond block chain”. Ripple Who maintains by validation ROLES integrity of the ledger? Anyone.

Ethereum allows for a scripting language to exist on top of a blockchain. JP Morgan. Examples of DLs Bitcoin • Open/Permissionless • First and largest public blockchain • Records transactions of cryptocurrency Bitcoin • View transactions live here: https://blockchain. which enables construction of smart contracts. a consortium of over 70 financial institutions • Open-source • Focus on financial applications 14 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . Accenture. • The DAO used Ethereum (see Annex) Ripple • Permissioned • Focused on commercial cross-border and inter-bank payments • Offers alternative to correspondent banking • Raised $55 million in Series B funding in Q3 2016 Fabric (Hyperledger Project) • Permissioned • Open-source • Focused on helping financial institutions mitigate settlement risk and lower reconciliation costs • Collaboration between the Linux Foundation and over 80 financial and technological companies including IBM.info/ Ethereum • Open/Permissionless • Most popular blockchain for smart contracts (see section 8). CISCO Corda (R3 CEV) • Permissioned • Created by R3. DTCC.

This is referred to as “smart contracts” (see section 8). All network members have a full copy of the distributed ledger (which can be encrypted). has the potential to reduce fraud and eliminate reconciliation costs. it can create problems related to recourse mechanisms 5. better scalability and faster time to market. • Automation & programmability. DLT can provide an immutable and verifiable audit trail of transactions of any digital or physical asset. DLT enables programming pre-agreed conditions that are automatically executed once certain conditions hold. the result of the execution of the “smart contract” itself will take additional time to propagate and be reconciled in a traditional ledger system. • Greater transparency and easier auditability. This feature. which in some contexts can take upwards of a day. but the design of centralized ledger systems requires such actions to be implemented only after the concerned parties have agreed to the underlying transaction as recorded in the central system. removing the need for an intermediary or central authority who controls the ledger. • Immutability & verifiability. in a DL. Changes can only be made when consensus is established and they are propagated across the entire network in real-time. distributed ledgers can potentially have a number of advantages over traditional centralized ledgers and other types of shared ledgers. Key Advantages of DLT In the right context. • Decentralization and disintermediation. KEY ADVANTAGES OF DLT 15 . This can translate into lower costs. for example invoices that pay themselves when a shipment arrives or share certificates which automatically send owners dividends or cash-for-work programs that pay beneficiaries out once the contracted work is completed. Also. Smart contracts can be done in traditional centralized ledger systems as well. In contrast.5. While in most cases. though generalizations are difficult because of the large variety of designs and specifications that permissioned and permissionless blockchains can have. The most important potential advantages of DLT are listed below. DLT enables direct transfers of digital value or tokens between two counterparties and decentralized record-keeping. immutability is desirable. combined with the lack of a central authority or limited involvement of a central authority. as both have the same record of the transaction. the counterparties by definition agree the moment the transaction is completed.

does not mean that a countervailing specific contexts. for example in payment card the difference between DLT-based approaches and systems. In however. DLT offers the potential for conditions. if the system fails. All controversial as immutability is seen as one of the transactions pertaining to the collateral are processed core advantages of the first blockchains. a DLT-based design approach can transaction to annul a disputed transaction cannot provide many of the benefits discussed above. and establish rules and procedures. faster processing. This platform is created the potential of increasing speed and lowering using standardized software applications developed inefficiencies by removing or reducing frictions in for the specific business need or developed bespoke. recently filed a patent for a cryptographic solution centralized approaches requires a central entity to that would allow an administrator to ‘unlock’ units setup a dedicated platform. this case still remain. at the administrator level are very minimal. in alternative design approaches. the role of alone around $15-20 billion per year. DLT has the very minimal. with embedded. But in contrast to the centralized ledger technology could save the financial industry entity in a traditional implementation. as well as reductions in frictions that establishes participation criteria and onboards and fraud. a peer-to-peer basis. the processing load is spread across all participants. however. Additional sources of counterparties.11 the administrator in a DLT-based system would be • Enhanced cybersecurity resilience. features by removing intermediaries and automating transactions involving collateral that are exchanged on processes. There is no need for reconciliation as DLT-based systems by need to setup any centralized system and the business definition contain the “shared truth” and hence there rules pertaining to a particular collateral can be is no need to reconcile one version of “truth” with tailored based on the specific agreement between that of one’s counterparties. Immutability of the ledger. cost reduction could be lower infrastructure costs for In a permissioned DL. such as date of release and rules pertaining significant cost reductions due to removing the to failure to repay an underlying loan. approaches that can be used for similar purposes. in contrast. and greater scalability potential. The be created. distributed new participants. This makes possible a greater deal of automation. 16 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . though this is highly criteria. This is in line with how dispute below example for a collateral registry helps illustrate resolution works. centralized design the counterparties. and Fundamentally. Setting up a new collateral protection against different types of cyber attacks registry using a DLT-based approach can potentially because of its distributed nature. on this platform and all business actions are triggered • Gains in speed and efficiency. The original record would. pre-determined • Cost reductions. which removes be faster and more scalable as the resources needed the single point of attack. there can be an administrator maintaining a DL. DLT is an alternative design approach the business logic for collateral transactions can be that allows for a decentralized business and operational tailored and customized based on the specific needs of model when compared to existing. Business actions can be event-driven potential to provide a more resilient system than and can be triggered without any need for additional traditional centralized databases and offer better external interventions. According to some estimates. Two MIT researchers have Establishing a collateral registry using existing. transactions or in clearing and settlement processes A DLT-based approach. DLT offers by the centralized platform. establish membership in a blockchain and edit them.

) This problem. CHALLENGES AND RISKS RELATED TO DLT 17 . which removes many of the benefits from the distributed. a subject of controversy in the bitcoin community. less transparent platform. 6. can only process between 4-7 transactions per second due to the limitation of the block size at one megabyte. However. for example. permissioned blockchains have greater capacity and can process higher transaction volumes but these lack global scale and come at the expense of a more centralized. there are several challenges related to migrating existing financial and payments infrastructure to DLT. In addition. availability of standardized hardware and software applications. both in terms of transaction volume and speed of verifications. as well as financial sector players like Visa and MasterCard have started developing DLT products and services. however. and regulatory challenges related to DLT are listed below: Technological Challenges • Bleeding Edge/Lack of Maturity. legal. could be resolved over time and is most pronounced in the Bitcoin system. which could eventually provide the same level of trust and confidence as traditional IT systems offer today. • Scalability and Transaction Speed. Bitcoin. Current iterations of permissionless distributed ledgers face issues related to scalability of blockchains. The most commonly cited technological. DLT remains at an early stage of development and there are still serious concerns about the robustness and resilience of DLT especially for large volume transactions. such as central counterparties and securities settlement systems. it is still unclear which DLT applications will actually deliver advantages over existing technological solutions and it is likely that overall gains will be incremental rather than sweeping in the medium term. Other permissionless DLT systems like Ethereum report higher transaction throughputs. For the time being. and also ample supply of skilled professionals. Challenges and Risks related to DLT The technology is still evolving and many regulatory and legal issues are yet to be resolved. Existing permissionless blockchains have limited transaction speed. worsening the risks of forking. In addition. large traditional IT players like IBM and Microsoft. open nature of public DLT systems.6. (Block size could be increased but bigger blocks would take longer to propagate through the network. due to the significant coordination and collaboration required within the ecosystem.

show that traditional cyberattack techniques can • using existing industry standard software tools. Statistics show that there infrastructures and other regulated entities. the technology at the core of the Bitcoin blockchain and other DLT • supporting a variety of consensus models. systems has – until the time of publication – never including one approach of just having the been compromised. The absence of a centralized infrastructure and a central entity leads to These frameworks. CORDA is specifically forks (see annex) and proposals for changes focused on the financial sector whereas in Bitcoin’s protocol show how difficult and Hyperledger seeks to provide a broader framework contentious it is to reach decisions on critical with initial applications proposed for the financial changes in DLT infrastructure. be successfully applied to DLT systems as well (see annex). Different DLT nature of the ledger and the presumption that systems will need to be interoperable with other attackers will not be successful in changing the ledgers and integrated with existing systems if algorithms that determine the core rules of the they are to be introduced at scale into the financial DLT system. Network security relies on the distributed but depending on the nature of the particular DLT 18 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .12 context of permissionless DLT. These blockchain critically depends on the robustness two frameworks are an effort to address specific of the underlying network. A possible attack on a permissionless. it is often unclear Failures such as the DAO attack on the Ethereum to whom governance arrangements apply. explore using concerns about ensuring effective governance of DL approaches within prevailing business and the overall infrastructure. There are efforts underway to develop consensus. regulators have historically relied on instituting • Cybersecurity. • Interoperability and Integration. In the are around 15-50 bugs per 1000 lines of code. noting that while successful hacks have occurred and at the access interfaces to DLT. In addition. and then in a peer-to-peer manner. No software is immune from effective governance arrangements on central technical vulnerabilities. The assumption that no entity – now or DL frameworks specifically for the financial in the future – could command more than half of sector. need for validating succeeds in multiplying until the majority of identity of counterparties. notably the CORDA framework by R3 the computing power of all servers on a particular CEV and Fabric by Hyperledger project. • Governance. The applications that requirements raised by industry practitioners in are written to interface with these DL’s need areas such as: to be carefully reviewed and monitored. control? Also. In the blockchain have shown that any weaknesses in case of permissioned DLT. need for regulators to have access computing like quantum computing render today’s to transactions. Financial sector sector and for supply chain management. obtains identity credentials. The cases of Ethereum regulatory practices. 51% of a network’s computing power and can ordination and collaboration and require significant effectively lie to the network by manipulating expenses. the administrator can smart contracts can be exploited to create undesired be subject to specific governance arrangements. network participants are under the attacker’s • limiting visibility of transactions on a need-to. in essence. Despite these concerns. effects. system. What if an attacker gains access to a permissionless • allowing transactions between counterparties system. transacting counterparties participate in the consensus. the cost of integrating DLT distributed ledger with consensus mechanism is into financial infrastructures like payment and the “51% attack” where a bad actor takes over settlement systems will require industry wide co. what if future developments in know basis. it is worth • interfaces between multiple distributed ledgers. cryptographic methods trivial to break? Recent incidents of standard Distributed Denial of Service • ensuring equivalence between smart contracts (DDoS) attacks on multiple Ethereum nodes and actual legal prose.

In other cases. meaning that the software upgrade has introduced a new rule which is not considered valid until a node upgrades. Permissioned • Legal Clarity over Ownership and Jurisdiction: DLT systems solve for this problem because In payment and settlement systems. transaction times if users verify more information to comply with KYC requirements. forks can resolve on their own. system.13 There exist three general types of forks: • An accidental fork can occur if platform updates are accidentally incompatible with the previous code. this is in fact how the dispute resolution 6. meaning that nodes begin using two different versions of the software until the incompatibilities are fixed. but regulations. • A hard-fork is not backward-compatible. These concerns could be addressed more straight-forward as there is usually an by integrating a reversal transaction framework. forks that remain unresolved can create two competing blockchain histories.14 • A soft-fork is backward-compatible. DLT systems will need to comply with among network participants. cross-border DL systems in terms of the jurisdiction of the underlying data and transactions. Most permissionless DLT Regulatory vetting and development of industry systems disguise the identity of network members standards are necessary but are still in very early by using public key encryption. CHALLENGES AND RISKS RELATED TO DLT 19 . which will make development phases. The Basics of Forks Forks arise when the blockchain in a distributed ledger splits into two competing paths forward which then need to be resolved. where the blocksize was increased to allow for more transactions to be processed. In many cases. Many exchanges. there are concerns about CFT compliance of all network participants. administrator or owner of the system that can which will have the effect of a separate transaction be subject to regulation or existing regulatory being initiated to returning rights to the underlying frameworks for outsourcing arrangements could digital asset back to the original sender. there are particularly complicated as no legal entity is in concerns about how transaction disputes will be control of the distributed ledger. Bit Cash was a hard fork of Bitcoin in the Summer of 2017. but the reverse does not hold true: blocks mined by non-upgraded nodes are not valid to upgraded nodes. there are network access is controlled and identity specific concerns related to how the “point of verification of the participant is typically required finality” of a transaction would be defined in a DL for the vetting process. In addition. Regulating • Recourse Mechanisms: As a defining characteristic open. In this case. permissioned ledgers is comparatively will be voided. for example to emerge – see section 9 for further details on Coinbase. in particular how erroneous transactions private. forks occur quite regularly as a by-product of the distributed consensus mechanism and are quickly resolved when additional blocks are added to one block while the other block is abandoned by the entire network. the administrator may not in all cases have • KYC & CDD: For adoption in the financial adequate means to enforce these arrangements system. they can choose not to upgrade to the new consensus and instead continue trading on the original (pre-fork) blockchain using the old software – creating a divergence of the cryptocurrency (like in the case of Ethereum Classic and Ethereum One or Core – see section 8 and annex). Regulation of resolved. in the case of Bitcoin.15 (This encourages all nodes to upgrade their software). Know-Your-Customer (KYC) and Customer Due Diligence (CDD) requirements in Anti-Money Legal and Regulatory Challenges Laundering/Combating the Financing of Terrorism • Regulatory Vetting and Industry Standards: (AML/CFT) regulations. permissionless distributed ledger systems is of distributed ledgers is immutability. and would allow transactions with targeted regulatory frameworks for DLT are yet un-vetted parties. (As noted be used. earlier. if members of the community of nodes do not agree with the new rules. which could require AML/ environment. are offering quicker verification and activities by regulators and standard-setting bodies. For instance. Some regulators around the it difficult to comply with existing AML/CFT world are actively studying the technology. meaning that the blocks mined by nodes using upgraded software are considered valid by nodes that have not upgraded their software.

) This • Privacy: In permissionless ledgers. Another power are used up for “mining”. 20 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . process currently works in payment card systems Other Challenges and also in electronic funds transfer systems. though they can be to initiate reversals in specific circumstances. this role is expected footprint as vast amounts of computing processing to be automated through smart contracts. Traditionally. • Environmental costs. the identity of the participant can or erroneous transactions could lead to issues with be inferred based on transaction patterns or other accessing funds. Union Pay and other of the issues which CORDA and Fabric propose to payment card brands. In Without such a framework in place. encrypted and the identity of the user is hidden. In permissionless DLs. MasterCard. (Electronic Payments Association) for electronic funds transfers in the US. use proof-of-work protocols. (This concern concern relates to the question over liability for mainly applies to permissionless blockchains that losses arising from weaknesses in underlying DLT. incomplete certain contexts. In permissioned DLs.) This concern is easier to address in permissioned DL systems than in permissionless systems. however. such as Bitcoin would. Permissioned DLs encounter the same of a rules framework is managed by a central issue. the administration markers. require the existence of some and Ethereum. all transactions are open and visible overall rules framework which can be invoked to all network members. or entities like NACHA address in their design. This is one of the key concerns of applying entity – often referred to as a ‘scheme owner’ – for DLT to financial market infrastructures and it is one example Visa. Using proof-of-work as a this role can be played by the administrator of the consensus mechanism creates a large electricity DL.

17 DLT could disrupt the way stocks are issued and traded.19 • The Tokyo Stock Exchange and IBM are testing blockchain for recording trades in low-transaction markets. at least half of the top 30 banks were engaging in blockchain proofs of concept.16 Stock exchanges around the world are also investigating and testing DLT to improve securities trading platforms. There is particularly strong interest in DLT in the financial sector: at the time of publication. NYSE. are exploring using DLT to improve clearing and settlement processes.7. a Korean blockchain start-up. R3 CEV. the US Securities Exchange Commission approved a plan by Overstock. had over 100 members. including NASDAQ. while the open source consortium Hyperledger included more than 170 diverse organizations. Blocko’s CEO described this as the “first example” of how blockchain could be 7. permissioned blockchain to solve industry-specific enterprise solutions. called Korea Startup Market (KSM) in partnership with Blocko. one of the largest blockchain R&D consortiums for financial institutions. and trade associations. regulators. mostly Bitcoin and Ethereum. The two biggest trends in the development of blockchain applications are: 1) commercial Fintech start-ups are developing digital applications for a variety of purposes that utilize the public blockchain infrastructure. • The Australian Stock Exchange and Digital Asset Holdings. a start-up. and – in the long term – potentially replace existing trading platforms run by stock exchanges. and LSE. Applications that are written on a public blockchain utilize the blockchain infrastructure but they can be distinct from the underlying cryptocurrency (for example Bitcoin) or have a notional value of cryptocurrency tagged to it as a digital representation of the underlying asset. • In December 2015. including banks. APPLICATIONS OF DLT 21 . Applications of DLT DLT has a breadth of potential applications beyond cryptocurrencies in the financial sector and in a wide variety of other industries. and 2) industry consortiums are forming to research and develop private.18 • Germany’s central bank and stock exchange “Deutsche Börse” built a new blockchain prototype for digital asset trading.com to issue company stock via the Bitcoin blockchain. • South Korea’s securities exchange (Korea Exchange KRX) has launched a blockchain-based market for equity shares in startups.

• Tracking distribution and expenditure of aid money 22 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .20 and settlement services for securities’ transactions. marriage & death certificates Trade & Commerce • Supply chain management (management of inventory and disputes) • Product provenance & authenticity (e. vaccinations. artworks. clearance & settlement • International remittances and cross-border payments (alternative to correspondent banking) • Foreign exchange • Micropayments Financial Services • Capital markets: digital issuance.g. criminal records • Reducing fraud and error in government payments • Reducing tax fraud • Protection of critical infrastructure against cyberattacks Healthcare • Electronic medical records Humanitarian & Aid • Tracking delivery & distribution of food. used in the domestic over-the-counter stock market. crop finance and warehouse receipts • Provenance of cash crops • Safety net programs related to delivery of seeds. Overview of Potential DLT Applications (at varying stages of development) Financial Sector Applications Money & Payments • Digital currencies • Payment authorization. fertilizers and other agricultural inputs Governance • E-voting systems • E-Residence • Government record-keeping. trading & settlements of securities & Infrastructure • Commodities trading (beyond payments) • Notarization services (e. the main bookkeeper providing clearing other assets.g. or geographies providers DLT-based applications in other sectors Identity • Digital identity platforms22 • Storing personal records: birth. e. • The Depository Trust and Clearing Corporation which could encourage similar developments for (DTCC). for mortgages) • Collateral registries • Movable asset registries • Syndicated loans • Crowdfunding (as initial coin offerings) • Insurance (in combination with smart contracts) for automating insurance payouts and validation of occurrence of insured event Collateral registries • Land registries. diamonds) • Trade finance • Post-trade processing • Rewards & loyalty programs • Invoice management • Intellectual property registration • Internet of Things Agriculture • Financial services in the agricultural sector like insurance. property titles & other collateral registries and ownership registers Internal systems • Replacing internal ledgers maintained by large. medications.g. pharmaceuticals. subsidiaries. multinational financial service providers of financial service that record information across different departments. etc.

or ease. especially in the cross-border. (MTOs) like Western Union and others. In faster disbursement and settle aggregated amounts the near-to-medium term. through a series of face uncertainty. many of the benefits and periodically.21 to transaction fees at three different points in the process: fees charged by the sending institution. underserved populations are: Examples • Cross-border Payments and Remittances Ripple. verifiable ID systems for KYC and banking network. each charging their of financial sector players and infrastructures. efficiency gains of DLT are likely to be reaped by non-bank payment service providers. DLT has apparent potential to enhance for the inter-bank. cross-border payments. fees DLT & Financial Inclusion charged by the receiving institution. inter- • Deficient payment and credit infrastructures bank leg of the transaction. DLT can remove inefficiencies in other eligibility and due diligence requirements the current system and offers potential for significant cost reductions. However. Focuses on commercial cross-border and inter-bank • Digital Identity Systems payments combined with cross-currency funds • Asset Registries settlement. But in the medium-to-long term. high costs. Ripple allows for a move away from establishing upfront correspondent banking • Digital Currencies relationships towards a more dynamic approach. which currency. and fees charged As noted earlier. APPLICATIONS OF DLT 23 . resilience and reliability for a variety through several intermediaries. By lowering settlement • Incomplete secured transaction frameworks and costs and increasing efficiency of inter-bank and collateral registries cross-border transfers. such as Money Transfer Operators challenges to enhancing access to financial services.23 • Affordability of financial products and services By creating a distributed network for cross-currency funds settlement that replaces the correspondent • Lack of robust. This approach involves identifying a “path” for the flow Cross-border Payments and Remittances of funds from a sender in a particular currency to a Individuals and SMEs in developing economies receiver in a particular currency. DLT can also allow for new approaches to Selected examples of applications of DLT that could correspondent banking. has partnered with IBM and two blockchain without a central clearing system. the cross-border funds leg potential to expand financial inclusion by addressing has not seen much innovation and in particular the the following barriers to access to finance. could help address. This own fee). in specific foreign exchange fees continue to be a large portion country contexts: of the remittance fees – around 20% of the total cost. some of the long-standing Non-bank players. DLT could potentially help in bringing down the price of remittances even • Impact of de-risking on international remittances further. and long delays in participating institutions that offer services for that making inter-bank. DLT holds receiving legs. Tie-ups between financial institutions. to such services for smaller remittances companies. which can potentially be part lead to greater financial access and inclusion for of a solution framework for addressing de-risking. barriers to bringing unbanked and excluded institutions at the receiving institutions to enable populations into the financial system persist. cross-border transfer (this could be efficiencies. 7. have developed Despite strong progress in expanding financial proprietary frameworks involving prefunding at agent inclusion. and MTOs start-ups and financial institutions in the developed have brought increased efficiency in the sending and world. This can lead to better discovery of prices for are currently typically conducted across a network foreign exchange transactions and expanding access of correspondent banks or money transfer providers. payments through correspondent banking channels based software for post-trade processing of credit are restricted to banks’ business hours and are subject default swaps. Cross-border startups – Axoni and R3 – to develop a blockchain.

Offers instant P2P money widespread acceptance of digital identity products transfers with no transaction fees among government agencies and service providers through Abra’s network. other cryptocurrencies like BTC (Bitcoin) other official bodies) would. In addition. automated registrations for online purchases. In government regimes. Under some is confirmed. structured as a Conflict and Violence affected contexts (FCV) where network described above. optimized for mobile. and cost of remittances. is in the process of developing solutions for use cases Tanzania. Globally. and eradicate frictions caused by are testing the BanQu digital identity in a number the Caribbean’s fragmented currency systems. including biometrics. at police road stops. such as IBM announced a blockchain project with Singapore birth certificates and marriage certificates. Once identity verification by respective government agencies. Abra is available globally and supports over 50 currencies. or health records in providers to address KYC challenges and more rapidly a way that is secure and verifiable. only the recipient’s phone number. in most cases. especially permissionless blockchains. Blockchain company BanQu provides an launched a digital fiat currency of the Barbadian dollar “economic identity” to people by storing identity and on the Bitcoin blockchain in February 2016. fixing supply chain Digital Identity Systems leakages in the delivery of medications and vaccines.g. Uganda) and China. reduce humanitarian space and developing countries. state institutions (or addition. no bank account is required to conduct a cross. legal and regulatory with physical bank tellers. which is to release to third parties. Shanghai Huarui bank recently announced that it is working on a remittance product using Ripple for the While digital identity systems that use DLT can USA-China corridor.be particularly valuable in Fragile Ripple also operates its own exchange. Nigeria. This could – under some actively traded on several cryptocurrency exchanges. Examples ShoCard. Due to the existence of frameworks need to be developed or revised to tellers. Palo-Alto-based ShoCard is a digital Bitpesa. Barbados-based blockchain company that started age and address. proof of Bitt. for being unbanked in 2014. African importers for paying Chinese suppliers. guarantee data privacy standards for ID applications border payment.24 potentially solve for problems related to data ownership and storing identity data. It uses Bitcoin for the such as identity verification.25 Offers cross-border identity card. KYCK! will enter the customer’s implementations. As of 2017. in which the top currencies there is weak institutional capacity and/or volatile actively exchanged are CNY. They have a focus on the CARICOM region to reduce settlement times. Ripple has its own cryptocurrency. as the Caribbean’s first bitcoin exchange company and BanQu. on create a unified financial settlement network for the the Ethereum blockchain. of projects including for providing a digital identity to Syrian refugees in Amman. circumstances . rather than blockchain ‘Fabric’. USD. 18% of unbanked individuals cite lack and implementing micro crop insurance through smart of ID-related documentation as one of the reasons contracts. remain and ETH (ether) are also actively exchanged. The necessary as authenticating bodies of the identity data. Their DLT is that it allows for a system in which personal project will be tested and built on the Hyperledger data could be owned by individuals. One advantage of on-board customers in a secure environment. financial services credentialing. The company between several African countries (Kenya.26 DLT can be used to record and store ID-related documents. including at airports cross-border leg and has gained traction among some and call centers. in addition to Bitcoin.27 24 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . JPY and EUR. However. that use DLT. that stores ID payments for businesses and individuals information on the Bitcoin blockchain. Plans to other critical information. but also fintech startup KYCK! to enable financial services transaction histories. combining cryptocurrency remains a challenge. XRP. e. achieving Abra. individuals could decide which information into current bank-based checks or a third- selected parts of their digital personal data they chose party KYCK! system before account on-boarding. land titles.

The plan is to asset registers) mean that lack of proof of collateral create a private blockchain tailored for property can be a significant obstacle to eligibility for credit rights registration that is anchored to the public in many countries. the CPMI’s taxonomy for money and exchange weather condition and fertilizer use.30 thereby reducing the risk of improper tampering due to corruption and political favoritism. effective. while central bank-issued digital fiat centralized system. (ii) they There are potential applications of DLT for creating use DLT as the underlying mechanism for transfers reliable records of provenance of raw materials in a peer-to-peer manner. London-based blockchain start-up more decentralized and therefore potentially quicker Everledger launched a global diamond certification way of building asset registries by using civil society and tracking system on blockchain. framework. thereby raising profitability. This could boost the pricing power of the farmer and In recent years. financiers and other stakeholders.. The underlying assets could also be moveable assets like inventories Digital Currencies and assets in a warehouse (with appropriate tagging The definition for the term digital currencies is still mechanisms). and (iii) they do not rely on notably agricultural inputs and commodities. Ubitquity and the World Bank Traditionally. The of central bank-issued digital currencies that use number of parties which need to see a consistent set fiat currency as the underlying “asset” in the above of information could be dynamic in these contexts. DLT could make possible a • Everledger. mechanisms. A 2015 report by the CPMI. asset registries are managed in a co-authored a white paper on blockchain applications centralized manner. With additional services enabled for land administration for a World Bank conference on top for validating ownership. they are immutable and verifiable.000 diamonds recorded on the and record them on a DL.28 have a title that is legal. The excluded populations warrants further research and Republic of Georgia’s National Agency of Public exploration. the value is instead determined by demand and supply. the underlying asset has no intrinsic value. etc. currencies are referenced in section 9.29 existence of liens. APPLICATIONS OF DLT 25 . identified three credit worthiness and thus open up more avenues for key characteristics of (non-fiat) digital currencies: (i) accessing credit.Asset Registries Bitcoin mining company) and Peruvian economist Incomplete secured transaction frameworks and the Hernando de Soto in April 2016 to design and pilot absence of reliable asset registers (including movable a blockchain land titling project. for insurers. in specific institutional arrangements or intermediaries combination with other technologies like geo-tagging for peer-to-peer exchanges. Once they are recorded on a Everledger blockchain enabling reliable records public blockchain. and illustrates the key differences from a particular farm with specific farming practices between digital currencies and e-money. Only two billion people globally Bitcoin blockchain. Applications that combine e-money and Registry announced a partnership with Bitfury (a mobile money frameworks with DLT-based digital 7.31 Figure 6 depicts and recording of specific metrics like soil quality.3 tillion globally. and passed through a specific set of intermediaries. US-based blockchain start-up Ubitquity their control over an asset and Peruvian economist launched a real estate platform on the Bitcoin Hernando de Soto estimates that the value of this blockchain for the tracking of ownership of real “dead capital” totals $9. and public regarding • Ubitquity. As an example. estate titles in the US. This section discusses non-fiat digital making it difficult to administer this in a traditional currencies. Examples The potential of digital currencies to lower barriers to entry into the financial system for unbanked and • Republic of Georgia’s Land Titling Project. There are and other trusted stakeholders to validate ownership currently 980. which explains where e-money and an international bulk purchaser of cocoa could reliably digital currencies could be placed in relation to other ascertain that a particular batch of cocoa beans came types of money. there has been much discussion the intermediaries. checking for on land and poverty in March 2016. which can thereby be used to enhance evolving.

and DLT has the potential to enhance deposit insurance agencies. many currency. such as bank branches digital currencies are also currently not covered by or agents. DLT is unlikely to fully replace any existing particular concerns related to consumer protection financial infrastructure. This.. or credit in a bank discussions of digital currencies assume the existence account. The value of digital currencies is determined by often at zero cost. pg. institutions. shells) Central bank Privately money The Commercial bank Legally recognised Digital currencies Asset issued notes (eg “money” money E-money (e-money issued by Cash (notes Central in a narrow Decentralized certain local and coins) bank sense) Centrally or automatic authorities) deposits issued insurance E-money exchange mechanisms: Traditional centralized FMIs (large peer-to-peer exchange is Decentralized Peer-to-peer physical exchange value and retail payment systems. currencies that require further attention before large- scale adoption becomes a realistic option. Further. and protocols and 26 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . This is combined with using mobile demand and supply and can therefore exhibit wide phones as the access mechanism and using agents fluctuations. 6 currencies for inter-bank transfers could be especially and AML/CFT. efficiencies.. possible but a trusted third party payment The (no specific infrastructure including card schemes. Bank for International Settlements. such as e-money. November 2015. between payer and payee without any intermediaries. e.) is also needed (eg to avoid mechanisms Exchange is needed) double-spending mechanism (peer-to-peer Alternative bilteral arrangements (eg electronic Mechanism is centralized and is similar to correspondent banking) traditional FMIs exchange) Peer-to-peer Need for a trusted third party or a “chain of trust” Peer-to-peer Source: ‘Digital Currencies’. Figure 6: CPMI Taxonomy of Money and Exchange Mechanisms Physical Electronic Potential substitutes for Money in a traditional sense Potential substitutes for physical money (denominated in a sovereign currency) non-physical money Physical tokens E-money (broad sense) (beads.g. Similar to cash. It is likely that costs will be incurred at the of a complete ecosystem where this digital currency point of converting digital currency into fiat currency. CPMI. There are Currently. cash. there are regulatory however. is already widely accepted and therefore there is no need to convert digital currency to fiat currency. The efficiency gains are mainly derived and law enforcement agencies do not systematically from using the digital currency as the transfer medium follow up cases of fraud involving digital currencies. unlike fiat currencies. does not yet reflect the reality for large concerns and other challenges related to digital segments of the population in most countries today. Balances held in non-fiat physical bank infrastructure. FDIC in the USA. populations: e-money and mobile money frameworks which raises questions about recourse mechanisms expand geographic reach and reduce reliance on and dispute resolution. transactions in DLT- relevant for financially excluded and underserved based digital currencies are generally not reversible. which can make it unsuitable as a or exchanges to convert digital currency back to fiat store of value. But despite these advantages.

change in the future if acceptance of Alternative approaches to address limitations of digital currencies among offline and online merchants existing financial infrastructure should be considered became more widespread.some of the most promising DLT-based applications It is also worth noting that employing DLT to help reach utilize and build on existing structures. but could – in that applies to financial services enabled by DLT. in theory . APPLICATIONS OF DLT 27 . electronic cross-border transactions currently still rely Important among these are: (i) user-friendly application on the domestic payments infrastructure to be funded. and biometric ID systems. 7. e-money and mobile money. and (v) effective oversight. interface design. banks issue digital fiat currencies. for example once central side-by-side and potentially in complement with DLT.also be done through an agent or teller (see interoperability with traditional payment and financial Abra example above). (iv) theory . which is typically done through a conventional bank (iii) a sound financial consumer protection framework or mobile account or a payment card. Digital wallets financial inclusion goals requires the development and that contain digital currencies that enable direct active promotion of important accompanying elements. (ii) financial literacy and capability. However. such as cloud computing. this could – at least services and infrastructure.

28 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .

among many others. controls ownership of an asset. to actually control real-world assets. such as mortgage processes or collateral registries. without the need for a third party that controls the release of the assets. and consequential actions. Ethereum is the second-largest public blockchain - 8. The term was first coined by cryptographer Nick Szabo in a 1997 paper where he used a vending machine to illustrate the idea of a smart contract. and in securities transactions. For example. and executes the transfer of ownership when triggered by a defined input. Potential applications of smart contracts could be used in the derivatives markets. Another way of putting this is that smart contracts “allow for logic to be programmed on top of the blockchain transaction”. A ubiquitous modern analogy would be automatic trading rules. DLT systems provide a platform that allows for smart contracts. are programs that are written on the underlying distributed ledger and are executed automatically by nodes on the network.33 The vending machine. SMART CONTRACTS 29 . for example. written in computer code. such as real estate. shares. such as a broker. the event of entering a coin into the machine. This is due to the fact that the nodes in the distributed network have the ability to enforce a contract by executing code. Smart contracts have to be verifiable by each node on the network. The vending machine therefore enforces the terms of the pre-agreed ‘contract’ that defines the underlying assets. mergers & acquisitions. inputs. the candy bar.8. that initiate sales or purchases of securities at a pre-defined strike price. meaning that all nodes on the network must see the same data. Smart contracts have captivated idealists because they make automated companies possible which do not rely on any human inputs – no managers or board directors . Smart Contracts ‘Smart contracts’. a mechanical device. land titles.32 The same applies to other DLs. in the context of DLT. figure 7 illustrates how a smart contract could be used in the context of trade finance. Transactions or data recorded on the distributed ledger trigger the smart contract and the actions taken are in turn recorded in the ledger. as smart contracts can also be executed by DLs that are not blockchains. a land title administrator or an escrow agent.except financial backers. A similar DLT-based approach could also be applied to a variety of other contexts. Any instruction that could be executed by a computer could theoretically be run by a smart contract. or escrows. executed by a computer program.

6. 7. and issues certificates that are added to the smart contract. and a certificate of origin. Vessel: The agent for the vessel issues the bill of lading. Documents are verified by the smart contract for compliance and accuracy. Buyer: The buyer and issuing bank create an electronic letter of credit. 3. which details the shipment and is used as a receipt. Wall Street Journal https://www. guaranteeing payment if the order is fulfilled. 5. 4. Figure 7: Smart Contracts in Trade Finance 7 1 2 8 5&6 3 4 1.com/articles/banks-turn-to-virtual-world-to-modernize-physical-commodities-trading-1491303623 30 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . 2. 8. Blockchain-based smart contract: All documents and records of ownership are added to the smart contract in unalterable “blocks. Seller: The seller and advising bank gather documents with specifics on the oil shipment and create an invoice. and payment is transferred to the seller. the title of goods is transferred to the buyer. By Stephanie Young. 04 April 2017. Inspector: The inspector checks the quality and quantity of the oil. Cargo: The oil is loaded onto the vessel. Shipment: The oil is shipped to its destination.” Source: ING/Wall Street Journal * “Banks Turn to Virtual World to Modernize Physical Commodities Trading”. Title and Payment: If documents are found to be compliant.wsj.

”34 fork. A number of DAOs (Decentralized of US$120 million of ether in one month. the Ethereum community • A group of people write the smart contracts made a controversial decision to complete a so-called (programs) that will run the organization. add funds to the DAO by purchasing tokens that active cryptocurrencies: ether (containing the hard represent ownership – this is called a crowdsale. As a result. venture capital exploited a flaw in the DAO software. jurisdiction. the DAO begins still under control of the hacker).after Bitcoin . creating application layer on top of the blockchain. and the members who have though one third had originally opposed the hard bought in can vote to approve these proposals. but the core Ethereum blockchain a DAO’s goal as “to codify the rules and decision itself was not hacked. Classic (original transaction record with stolen funds • When the funding period is over. which are. A survey among to operate. CoinDesk defines run on Ethereum. SMART CONTRACTS 31 . had broken 8. in effect. worth around US$50 million example related to liability. which Autonomous Organizations) have been launched on the constituted 14% of all ether ever issued. This hack is an example of an making apparatus of an organization. the Ethereum • There is an initial funding period. The DAO.35 (See the annex for more information on the However. Here’s how it a major security concern. the use of referred to as “The DAO” . an application funds for automated businesses.5 million units of Ethereum’s raise a number of legal and regulatory issues. confidence in Ethereum was put to a DAO hack and Ethereum’s forks). test after a successful attack on such an entity – In addition to technical vulnerabilities. “hard fork” in the Ethereum blockchain in order to recover the stolen funds. in which people blockchain was broken down into two separate. fork that restored the stolen funds. A hacker Ethereum platform. 240+ technical leaders in the blockchain community conducted by CoinDesk revealed that 63% reported • People then can make proposals to the DAO on how no change in their use of Ethereum after the fork even to spend the money.and it is optimized for smart contract crowdsourcing records by raising the equivalent applications.in June 2016 in which automated smart contracts combined with DLT also an attacker diverted 3. amendments at the time of the hack. works: In response to the attack. which was run and voidability of contracts. which are a structure with decentralized control. also referred to or an initial coin offering (ICO) – to give it the as Ethereum One or Ethereum Core) and Ethereum resources it needs. for cryptocurrency “ether”. eliminating the exploit of a security vulnerability that existed in the need for documents and people in governing.it. by a German startup called Slock.

32 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .

. Estonia has also pioneered the concept of e-residency as a form of transnational digital identity. Estonia’s e-Residency platform. AND DONORS DOING IN THIS SPACE? 33 .. transparency and trust.. [. development organiza- tions. deliver benefits. e. leadership and the platform for DLT within government • Invest in research • Create a regulatory framework for DLT • Set standards for security. corruption.g. according to the circumstances. issue passports. DEVELOPMENT ORGANIZATIONS. assure the supply chain of goods and generally ensure the integrity of government records and services. What are governments. the technology offers the potential. 9. birth and marriage certificates. [.”36 The report sets out eight recommended actions for government to maximize opportunities and reduce risks of DLT. record land registries. WHAT ARE GOVERNMENTS. It has similar possibilities for the private sector. integrity • Build trust and interoperability • Ensure implementation of effective identification and authentication protocols • Establish trials of DLT to assess usability within public sector • Build capability & skills within government. The Estonian government has been experimenting with DLT for years. In this report. Estonian e-residence is available to anyone in the world interested in using Estonian online services. published in January 2016. including: • Provide the vision. It has the potential to redefine the relationship between government and the citizen in terms of data sharing.] Distributed ledger technology provides the framework for government to reduce fraud.. which assesses the opportunities of DLT to be used within government and by the private sector and recommends a broad government initiative to facilitate the beneficial use of DLT.9. the UK’s Chief Scientific Adviser Mark Walport writes: “Distributed ledger technologies have the potential to help governments to collect taxes. and donors doing in this space? The UK Government’s Office of Science issued a major report on blockchain and DLT. using it to verify records on government databases. open a bank account. privacy. for individual consumers to control access to personal records and to know who has accessed them. error and the cost of paper-intensive processes.] For the consumer of all of these services.

as well as lower transaction costs. sign financial stability by providing the central bank with documents remotely. Many different scenarios are being discussed. China’s central bank. Central Banks around the world are exploring Regulators across the world – in OECD countries as DLT-based digital currencies.38 IOSCO and the FATF. and This solution has been provided by eCurrency Mint settlement in February 2017. a central bank-issued digital currency regime would result in a “permanent UK’s Department for Work and Pension piloted increase” in fiscal income flows for the government DLT for government transfers. with a digital ledger opens up the possibility to exchange controls and capital flow management. which the opportunity for governments to monitor the would allow for an increase in public spending observance or program rules related to conditional or a lowering of tax rates by the fiscal authority. which focuses on consumer digital currency would likely look substantially protection and outreach. taxation. report on the use of DLT for payment. and identifying risks and opportunities. People’s analytical framework for central banks and other Bank of China. clearing.42 Marchés (BRM) launched an e-money solution in The World Bank participated in the working group 2016. decentralized. digital currencies create a permanent. conduct online banking. which considers implications of one radical option would bypass commercial banks digital currencies and their underlying decentralized as intermediaries by allowing individual customers payment mechanisms for central banks. central banks are are studying regulation of digital currencies. including issues prospect for “smart money”. Canada. which provides an Limited (eCurrency). peer-to- peer model and it might not need a DLT approach. E-residents can apply for a bank paper argues that digital fiat currencies could enhance account. at government transfers through smart contracts. financial stability and monetary policy. China. consumer protection. payments related to cash-for-work programs 34 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . when and by whom it can be The CPMI issued a report on digital currencies spent. In addition. tested a blockchain-based digital authorities to review and analyze DLT use cases currency in January 2017. for example Uganda39- Russia. with the difference that the customer pool funds that produced the report. According to this analysis. or start a company. and Digital Currency & Commerce Association. program certain terms and condition on digital money.37 In Senegal. For unchanged deficit and debt targets. issues. regulatory to hold accounts directly with the central bank. A DLT-based currency related to AML/CFT. The CPMI also issued a are held with the regional central bank the BCEAO. Self- assessing risks and benefits of issuing fiat currency regulation efforts are also underway: the Australian backed digital currency on the blockchain. DLT offers (due to reductions in net interest expenses). In the UK. bank intermediation. and get access to international an additional policy tool to reduce interest rates below payment providers. NASDAQ is partnering with the zero lower bound and also being able to directly Estonia’s e-residency platform to enable secure fund asset purchases by non-banks without need for e-voting in shareholder meetings. and demand. for example. Any central bank-issued Code of Conduct. the example.41 The trackable record of each transaction and costs of report considers preliminary implications of digital handling cash would be eliminated.and supply-side factors using DLT. how. has launched Digital Currency Industry and on financial stability. CPMI- real interest rates. Sweden.43 A recent paper issued by Bank of England discusses opportunities for significant savings from central The World Bank is also participating in several bank-issued digital currencies through a reduction in working groups on this topic at the FSB. A further potential currencies (referred to as ‘virtual currencies’ in the advantage of DLT-based digital currencies is the report) for regulation and policy.40 different from Bitcoin’s open. well as developing counties. (focusing on permissioned ledgers). declare taxes. for investigating their potential effects on the economy example. in November 2015. risks of digital currencies in January 2016. where. Australia. In The IMF issued a report on the benefits and contrast to cash. the Banque Régionale de influencing the development of digital currencies.

pilot. Taking advantage of this framework.”45 Npower. established are conditional on completion of the works project can a ‘Blockchain for Development Solutions Lab’ in be executed automatically. Malaysia and Hong Kong Securities Exchange Commission recently gave permission for a DLT-based crowd funding platform.can be executed automatically once the work is International development consulting firm completed or payments for public works projects that Chemonics.”44 Several regulators in OECD countries and Delaware’s 2017 “Blockchain Amendments”. University College London).47 its plans to conduct a pilot using DLT for inter-bank payments and settlements. the New York state regulator reviews companies’ Regulatory Sandboxes and “Test and Learn” anti-money laundering. the Delaware General Assembly passed a implemented such a framework allowing startups and series of amendments that recognize blockchain as an regulated institutions to experiment. transactions are being activity” that act as cryptocurrency exchanges recorded on a distributed ledger with the aim to create and/or function as custodians of bitcoin and other a more efficient and secure welfare infrastructure that cryptocurrencies. The BitLicense has drawn some and delivery mechanisms in a live environment criticism by the start-up community for the high costs without immediately incurring all the normal associated with the application. services. a regulatory framework which is designed to help them manage their benefit for companies engaged in “virtual currency business money. and Regulatory Approaches. In also in middle income countries like Malaysia have July 2017. RWE reduce poverty and increase aid effectiveness. test. Regulators are exploring cybersecurity policies. New York they are receiving and spending their benefit payments. the have the ability to issue shares and manage ownership Monetary Authority of Singapore recently announced records using blockchain technology. Ripple. and the United Kingdom’s Financial Conduct Authority.46 As of October 2017. NYDFS different regulatory approaches for DLT-based has granted BitLicenses to three companies. and scale blockchain solutions to GovCoin Systems and other partners (Barclays. State released the BitLicense. consumer protection. and launch acceptable form of corporate recordkeeping. a major USAID contractor. The lab’s goal use DLT for welfare benefit payments. As part of the application process. Claimants are BitLicense – New York State’s Department of using an application on their phones through which Financial Services (NYDFS). WHAT ARE GOVERNMENTS. question. prevents fraud. A regulatory sandbox. Coinbase. With their consent. business models Gemini and itBit. the regulator “aims to create a ‘safe space’ in which businesses can has also granted banking charters to bitcoin exchanges test innovative products. starting services on a small scale using DLT and other Fintech August 1. The Department for Work partnership with blockchain technology company and Pensions in the UK started a trial in June 2016 to BanQu. which has led some regulatory consequences of engaging in the activity in firms to cease operations in New York. In June 2015. working with is “to build. Delaware corporations approaches. DEVELOPMENT ORGANIZATIONS. 9. In addition to the BitLicense. who are innovations. announced in October 2016. AND DONORS DOING IN THIS SPACE? 35 . Under this law. 2017. as defined by all major players in the industry: Circle.

36 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .

The bulk of R&D resources for DLT are currently devoted to improving financial infrastructure and processes. Further research and 10. and (iv) tracking of provenance of agricultural products. HOW CAN DLT BE LEVERAGED FOR WB PROGRAMS AND PROJECTS IN THE FINANCIAL SECTOR? 37 . it will miss the opportunity to shape and procure implementations of the technology that will provide maximum benefit to the public sector. the World Bank Group cannot. There is an emerging view that the DLT applications in finance that will likely gain traction first will not be payment and settlement systems but instead areas in which there is little automation and heavy use of manual processes with high inefficiencies. Consideration should also be given to the argument made in the 2016 report by the UK Government Office for Science that “if government waits for ‘perfect’ solutions. and the UK may lose opportunities for economic benefit as well”. commodities and the like and their subsequent sale or use as collateral based on which financing is provided. and (iii) using a cryptocurrency for the cross-border leg (as noted in the discussion of Abra). How can DLT be leveraged for World Bank programs and projects in the financial sector? DLT is still at an early stage of development and many challenges need to be resolved before the full potential of the technology can be realized. however it will explore how to integrate and incorporate DLT as the technology matures. scalability. as the technology is still being developed and tested. The BoE recently concluded this consultation with the assessment that DLT is immature at this point. and legal and regulatory issues. at this stage. such as issues related to privacy.48 Bank of Canada also came to a similar conclusion. and is not yet sufficiently robust and scalable. (iii) syndicated loans. However.10. There are also discussions about applications of DLT as part of the solution framework for de-risking through: (i) reliable and auditable maintenance of identity. Suggested areas that fit these characteristics are: (i) reference data maintenance in payment and settlement systems. The Bank of England (BoE) launched a review of the Real Time Gross Settlement (RTGS) system it operates. interoperability. including Know-Your-Customer and Customer Due Dilligence data. and this investment could potentially be leveraged by development organizations for the benefit of developing countries. (ii) developing an alternative to the correspondent banking model (as noted in the discussion of Ripple). issue any general recommendations about usability independent of specific contexts. (ii) trade finance. followed by an industry consultation in which it considered applications of DLT. security.

SME where appropriate. Global Remittances Working Group technical sophistication and robustness of DLT. This is an area where the WBG could for a development context and provide assistance take a more active role. However. to systematically collect information on costs of • Leverage the new WBG Blockchain Lab. Where retail payments in Retail Payment Costs surveys. agriculture finance settlement systems are being actively studied by related applications or cross-border payments and various central banks and the WBG should closely remittances. But understanding the true potential of DLT developments in DLT and. with a development focus. feasible. and partners with a group of DLT companies and other the Global Payments Systems Survey to collect technology firms. This could in particular with conducting pilots and proof-of-concepts. monitor the developments through participation in the various working groups of standard-setting bodies • Foster international co-operation and collaboration. this could done be in partnership with client countries. where feasible. other leveraging ongoing participation in working areas – in particular those related to financial sector groups of international standard setting bodies. foster its adoption. Foster collaboration and co-ordinate with Given the potential for DLT to structure solutions to international standard-setting bodies development challenges in the financial sector and • Join industry consortiums like R3’s R&D lab and/ beyond. to identify regulatory bottlenecks hampering the development of DLT. • Enhance the level of awareness on DLT within the especially actions taken by governments and Finance & Markets Global Practice and beyond and development organizations. invoice/ could include a comprehensive analysis of the true receivables financing and collateral registries. encourage country counterparts to invite companies offering DLT- • Leverage existing forums like ID4D. encourage ongoing and pipeline Advisory Services and Analytics (ASA) and investment programs to • Applying existing tools such as the World Bank explore opportunities for leveraging DLT. which potential DLT-based remittance services. potentially as part of a 2-stage 38 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . Remittances Prices World Wide database. propose specific research projects development and. The WBG blockchain lab49 could • Leverage IFC investees and private sector forums also be used to support clients in testing country- like the SME Forum for knowledge exchanges and specific pilots. but also real-life applications and trials. exploration is required to reach a higher level of Forum. to study and further develop qualitative and quantitative information on usage DLT-based solutions for cross-border payments. conflict and violence (FCV). and through bilateral engagements. for example projects related to digital identity. where appropriate. asset registries. This include applications in agriculture finance. costs and benefits of using DLT approaches. of digital currency and DLT approaches and their particularly in the context of de-risking and regulatory framework. Potential actions the WBG could take include: Enhance awareness of DLT within WBG and Monitor developments explore applications • Closely monitor developments in the DLT field. International solutions to participate in the procurement process. Committee on Credit Reporting (ICCR). design for development objectives requires not just research and implement pilots. • In WB-financed operations. the WBG should closely monitor and shape this or Hyperledger. and the upcoming Financial Inclusion Global especially when used in combination with smart Initiative (FIGI) to closely monitor and analyze contracts. addressing AML & KYC The applications of DLT in the payment and challenges. development and financial inclusion – are not getting • Encourage companies and other entities working much attention from many private sector players and on DLT to explore applicability of the technology regulators. and explore opportunities to maintaining payment flows to regions affected collect information on uses of DLT approaches in by fragility.

Actively engage with WB client countries working • Participate in reviews of pilot implementations to on these topics: assess the costs and benefits of DLT. invoice/receivables engagements: technical assistance. Jordan. procurement process. identity. • Support WB client countries in establishing regulatory sandboxes or participating as observers 10. HOW CAN DLT BE LEVERAGED FOR WB PROGRAMS AND PROJECTS IN THE FINANCIAL SECTOR? 39 . and registries.50 At minimum. notably in contexts through the full range of WBG the areas of agriculture finance. • Support World Bank client countries in exploring • Explore financing small-scale pilots as part of potential applications of DLT in their specific WBG ASA and investment programs. South Africa. payments and remittances. and Malaysia). in question would work in a DLT framework. bidders could be in other countries’ sandboxes (for example as asked to share alternative implementation approaches South-South collaboration with countries like and also share information on how the infrastructure Mexico. especially in the areas of cross-border identified earlier). convening and financing and collateral registries (which were investment.

40 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .

the hacker had amassed over $50 million dollars in ether but. However. “Metropolis”. the funding was released after 28 days. so that no blocks needed to be re-written and ANNEX: THE DAO HACK AND ETHEREUM’S FORKS 41 .000 investors. One of the most controversial forks took place in July 2016. an organization with decentralized control. Since then. The initiative successfully crowdfunded approximately 150 million USD from over 11. the funds were unavailable for withdrawal for 28 days. Two proposals were made: • The soft-fork proposal. Due to the distributed nature of the ledger. one of the largest crowdfunding successes in history. when the Ethereum community completed a “hard-fork”. was intended to retain backward compatibility. Ethereum has forked three additional times. By June 18th. members of the Ethereum community – the team behind German start-up “Slock. At this time. and the programmers were beginning to fix the code while over 50 project proposals were still pending for the DAO vote.53 The DAO also had a “split function” that allowed investors to leave the organization in case they saw damaging proposals being accepted. resulting in Ethereum’s blockchain diverging into two separate cryptocurrencies (Ethereum One or Core and Ethereum Classic).it” . governed by smart contracts. and if enough DAO investors voted for the proposal. and they can disrupt the value and stability of the underlying cryptocurrencies. due to the funding window.Annex: The DAO hack and Ethereum’s forks Forks arise when the blockchain in a distributed ledger splits into two competing paths forward. and is planning a fifth hard fork.announced the inception of the Decentralized Autonomous Organization (DAO). which did not secure enough votes. and the proposed forks required a consensus vote by Ethereum community members.52 The DAO built smart contracts on the Ethereum blockchain. there was no central authority to make a quick decision.51 The History of Ethereum’s Forks In April 2016. as stipulated in the DAO’s smart contracts. in mid-June the DAO creators announced that they had found a “bug” in the software. a hacker began to exploit the smart contract vulnerability and drain the DAO of ether (Ethereum’s cryptocurrency).54 The Ethereum community debated how to reclaim the funds. to be released later this year. which allowed people to make funding proposals. It was designed to operate like a venture capital fund for the cryptocurrency and decentralized space.

2016). Due to a vulnerability that was are wary of the divergences and lack of community discovered in the soft fork proposal. and (following the responses of the “supposed” hacker) as a result only a small percentage of community and proposed a reshaping of the platform to fix the members voted on fork proposals. Ethereum One (or Ethereum Core). and verify transactions. the platform release of ‘Serenity’. continued trading ether on the old into variant. which posed immediate network health 42 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN . similar platforms increases risks of platform and thus created a divergent blockchain multiple attacks. In response to blockchain state”. and a state”. which make it difficult to process and handle platform evolutions over time. as the same vulnerabilities exist on which now continues to exist as the alternative multiple blockchains. wait for the soft fork code and stand solution: the first hard-fork.56 Although a soft fork57 was released. code named “tangerine- ready to download and run it if they agree with whistle”. addressed the immediate vulnerabilities. as the messages were not verified) threatened legal action justifying that the rules The Future May Continue to Fork of smart contracts must be maintained. of these forks to understand their broader implications The attacks contributed to what is called a “bloated on the future of public cryptocurrencies. enabled the “de-bloat of the attempted to blacklist the hacker. first Ethereum hard fork created some distrust in the • The hard fork proposal reached sufficient community60 as members complained that voting- consensus after a few weeks of discussion windows were too short and not well publicized. like in the case of Ethereum Classic minority within the community refused to accept vs. The release of ‘Metropolis’ is planned later this year in 2017 and will provide greater flexibility in smart contracts for Subsequent Forks developers. upgrade processing blocks.55 This would have effectively November 22nd. continuous forking are unknown and many skeptics fork a “reward”. the hacker (or an individual posing fourth fork undertaken by Ethereum overall. the could not be implemented effectively. alongside quickly becoming more widely accepted within the cryptocurrency “Ethereum One” (or Ethereum community. The online attacks – i. this solution cohesion that accompany forks. Splitting the new rules. miners could continue to “allow transactions issues. In addition. there is anticipation for the After Ethereum’s landmark hard fork. as a hacker. which accepted the hard fork. Despite these risks. Additional vulnerable underlying code of smart contracts and implications include the fracturing of cryptocurrency allow reparations for DAO investors.58 Ethereum proposed a two-stage hard fork as normal. the implications of offering miners that do not upgrade to the soft. forks are cryptocurrency “Ethereum Classic”. However. and (the proposed) path forward for the Ethereum the second hard-fork. “Spurious Dragon” (released ecosystem”. and Ethereum is planning two additional Core). according to the Ethereum blog. For instance. The Forks are now becoming a frequent occurrence in the hacker attempted to protect the “stolen” ether by blockchain community. hard-forks to improve the platform.59 Spurious Dragon marked the this proposal. whereby miners and nodes spend a long time community’s ability to cohesively update.e. hackers continued to exploit various weaknesses through DDoS attacks. attacks that infect and compromise blockchain community will be waiting for the release multiple systems in order to flood the Ethereum host. A splinter communities. which will include the transition continued to implement multiple forks over time in from proof-of-work to proof-of-stake consensus response to distributed denial of service (DDoS) through a new algorithm called “Casper”61.

5.fatf-gafi.github. http://www.much like an online wallet containing e-money or fiat money could be hacked. Adrian Chen. This means that applying the same hash function to the same input always yields the same output. 9.bis. Karl Dwyer and David Malone - https://karlodwyer.pdf 2. In these cases. “We need to know who Satoshi Nakamoto is”.newyorker.com/business/currency/we-need-to- know-who-satoshi-nakamoto-is 3.html 4.pdf ENDNOTES 43 . Satoshi Nakamoto decided to cap the size of a block at one megabyte. The block size limit of the Bitcoin blockchain is the subject of intense debate in the Bitcoin community.io/publications/pdf/bitcoin_KJOD_2014. or about 1. Satoshi Nakamoto.pdf 6. See CoinDesks’s Q3 State of Blockchain for more information on this: http:// www.Endnotes 1. https:// bitcoin.org/bitcoin.org/publications/fatfgeneral/documents/guidance-rba- virtual-currencies. Blocks could be made bigger but bigger blocks would take longer to propagate through the network.vice. which is a two-way process.com/read/bitcoin-could-consume-as-much-electricity- as-denmark-by-2020 7. 8. “Bitcoin: A Peer-to-Peer Electronic Cash System”. the exchanges were hacked and coins that were kept in the exchanges were stolen . “Bitcoin Mining and its Energy Footprint”. http://www. 09 May 2016 http://www.400 transactions. The Bitcoin ledger itself was never corrupted as a result of these hacks. http://motherboard. hashing is a one-way process. The New Yorker.org/cpmi/publ/d157.coindesk. worsening the risks of forking.com/research/state-of-blockchain-q3-2016/# 10. In contrast to encryption. A message can be encrypted and then decrypted but it is impossible to revert a hash output back to its original message using either the hash function or any other cryptographic method.

http://www. There is the possibility where the non-upgraded pdf nodes continue to mine and either abandon the block chain mined from upgraded nodes. 11. 15.wired. https://www.com/short-guide-bitcoin. CoinDesk. 2nd edition 2004. 28. http://www. c o m / p r e s s / u s / e n / Handbook of Software Construction”.com/fintech/d9335db1-bf1a-4ab2- plan-to-issue-company-stock-via-the-bitcoin- 8d1d-a36cb747a6ae blockchain/ 33. http://www. “Understanding The DAO Attack”.com/korea-exchange- 34. h t t p : / / w w w . “Distributed 23. 19 January 2016.wss Press.bitpesa. U.K. World Bank 12.pdf 26.com/coindesk-research-spotlight-study- as needed and record of identity validation stored q3-ethereum-hard-fork/ also on the DL. 36. slock. Microsoft pressrelease/51054. management consulting firm join-ripples-growing-network/ Oliver Wyman and venture capital investor 25. 25 June 2016. http://www. t e c h . Bitcoin. across a range Adviser. State of Block Chain. 17 November 2016. Cited in: https://blog. government/publications/distributed-ledger- technology-blackett-review 44 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .org). i o / w p .com/10-stock-exchanges- blockchain/ 32.coindesk.org/cpmi/publ/d137. https://www. https://www. http://www.com/insights/several-global-banks- bank Santander.worldbank. A recorded at World Bank remittances price database report by the UK Government Chief Scientific (remittanceprices. h t t p : / / w w w. https://www.it/the-history-of-the-dao-and-lessons. This estimate is from a 2015 report by Spanish 24. Government Office for Science. CoinDesk. Q3 2016 31. https://www. 18. Based on analysis of the remittance prices ledger technology: beyond blockchain”.e. CoinDesk. c o m / r x / 4 8 5 1 7 / cryptocurrency-what-is-a-fork/ 29.htm 17.com/german-central-bank- http://szabo. “Block Chain: Backoffice Block Buster”. which can be affirmed coindesk. launches-blockchain-powered-private-market- by David Siegel. blockchain-trading/ html 20. http://www. h t t p : / / m e d i a . “Code Complete: A Practical 27. This means in practice that assets will be managed learned-d06740f8cfa5 on a closed block chain system so no individual transaction will be identifiable. payments-with-africa-and-china/ com/wp-content/uploads/2015/06/The-Fintech- 2-0-Paper.com/2015/12/sec-approves- autonomous. pdf 16.0 3 . the closed system will be stamped onto a public forks-explained/ block chain.r e c i p e s .bis. 19. or fork 30. By swaps/#1ebe0994ad88 Bradley Miles. i b m . i. service/ coindesk. http://santanderinnoventures. 22.c o n t e n t / off into its own cryptocurrency. Identity becomes a token. making any fraudulent changes publicly visible.coindesk. c o m / s i t e s / journalists/ laurashin/2017/01/09/dtcc-selects-partners- 35. uploads/2016/09/Everledger_OnePager_2016-1. Global Findex 2014. h t t p : / / w w w .com/understanding-dao-hack- 21.net/smart_contracts_idea. 14. https://ripple. Steve McConnell. “CoinDesk Research: Ethereum for-blockchain-solution-for-credit-default- Hard Fork Had Little Impact on Sentiment”. Nick Szabo. but the data on 13. e v e r l e d g e r. Autonomous Research LLP.co/blog/connecting- Anthemis Group.vwh.uk/ of corridors.coindesk.ubitquity.best.io/home/resources/ worldbank_land_paper_ubitquity_march_2016. https://www. f o r b e s . “The Idea of Smart Contracts” (1997).gov.coindesk.

io/ join-ripples-growing-network/ 55.com/uganda-africa-first- 52. develop.com/australia-digital. https://blog. remittances. Regulation and Policy. https://blog.org/cpmi/publ/d137. 53. 02 November 2016. “Understanding The DAO Attack”. https://www. entrepreneurs.bitcoin.com/ethereum-plans-hard- 47. update-re-dao-vulnerability/ transforming-development/ 56. https://www. and roll for-2017 out blockchain-enabled solutions for the business and its various development challenges.org/cpmi/publ/d157.com/ethereums-road-map- organizations to experiment.co. http://www.ethereum.org/2016/06/17/critical- 45.aspx 59.coindesk. h t t p : / / l e g i s . http://www. “Macroeconomics of central bank issued 2nd stage a specific solution approach is chosen digital currencies” July 2016.org/external/pubs/cat/longres. The WBG Blockchain Lab was launched in June no-4-spurious-dragon/ 2017 as an incubator for learning. A helpful timeline of events related to Ethereum and the fork in response to the DAO hack is 43.co.com/content/f15d3ab6-750d-11e6-bf48- 50.” By of use cases with the Lab. https://blog. coindesk.chemonics.gov/legal/regulations/ network-currently-undergoing-dos-attack/ bitlicense_reg_framework. Financial Times.com/news/blockchain. http://www.dfs. and in the 605.com/understanding-dao-hack- currency-self-regulation/ journalists/ 41.org/2016/11/18/hard-fork- 48. d e l a w a r e .imf. http://www. The Finance & Markets ENDNOTES 45 .htm 57. https://news. ethereumclassic. g o v / fork-twice/ BillDetail?LegislationId=25730 58.htm available on Ethereum Classic’s website: https:// 44.com/insights/several-global-banks.ny. https://qz. http://www. experimenting 60. Bank of England Staff Working Paper No approaches are invited in the first stage. bankofengland. https://themerkle. ft.org/2016/11/18/hard-fork- 49.pdf metropolis-hard-fork/ 39. https://bitcoinmagazine.bis.com/730004/everything-you-need-to- aspx?sk=43618 know-about-the-ethereum-hard-fork/ 42. https://www. https://www. and Learning and Knowledge Sharing. http://www.bankofengland.github. The Lab is partnering coming-year/ with leading technology companies.htm 54.uk/markets/Pages/ no-4-spurious-dragon/ paymentsystem/strategy. In a 2-stage procurement process. steps-bitcoin-blockchain-regulation/ by David Siegel. innovators and development 61.37.com/articles/op-ed- and knowledge sharing on Distributed Ledger why-ethereums-hard-fork-will-cause-problems- Technologies (DLT). https://ripple.coindesk.com/what-is-ethereums- workingpapers/2016/swp605.ethereum. http://www. https://blog. Security.bis.uk/research/Documents/ 51. http://www.org/2016/09/22/ethereum- 46.ethnews. The lab has a cross-sectional mandate and has identified four priority tracks of work: Technology. start-ups. proposals b372cdb1043a without any specific restrictions on solution 38. including cross-border Jane Wild.ethereum. 25 June 2016. 40. “Central banks to explore Global Practice is currently working on a number blockchain to create digital currencies. CoinDesk.ethereum. and bids are invited for this specific approach.

46 DISTRIBUTED LEDGER TECHNOLOGY (DLT) AND BLOCKCHAIN .