Distributed ledger technology (DLT) is one innovation that has been cited as a means of transforming payment, clearing, and settlement (PCS) processes, including how funds are transferred and how securities, commodities, and derivatives are cleared and settled.
Distributed ledgers use independent computers (referred to as nodes) to record, share and synchronize transactions in their respective electronic ledgers (instead of keeping data centralized as in a traditional ledger). Blockchain organizes data into blocks, which are chained together in an append only mode.
Blockchain/ DLT are the building block of “internet of value,” and enable recording of interactions and transfer “value” peer-to-peer, without a need for a centrally coordinating entity. “Value” refers to any record of ownership of asset — for example, money, securities, land titles — and also ownership of specific information like identity, health information and other personal data.
Distributed ledger technology is considered to have the potential to address challenges in the financial sector, thereby fundamentally improving it.