TECHNOLOGY
efficient mechanisms like ‘ proof of stake ’, which rewards seniority over computing power .
The cryptographic foundation of DLT relies on sophisticated hash functions and digital signatures . Each transaction is “ hashed ” to create a unique digital fingerprint that cannot be altered without changing the underlying data .
The World Bank Group notes that “ the hash enables detection of any tampering of the underlying transaction data , as when a hash is computed again , it will produce a different hash than the originally generated hash ”.
Smart Contracts and Financial Innovation Smart contracts represent a significant evolution in DLT capabilities , enabling self-executing agreements that automatically implement terms when predefined conditions are met .
The World Bank Group describes them as “ programs that are written on the underlying distributed ledger and are executed automatically by nodes on the network ”.
Ethereum , the second-largest blockchain platform , specialises in
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Chain Reaction : Distributed Ledger Technologies ( DLT ) explained smart contract applications and has attracted significant institutional interest .
However , the technology ’ s risks were highlighted in 2016 when the Decentralised Autonomous Organisation ( DAO ) lost US $ 50m through a code vulnerability , leading to a controversial ‘ hard fork ’ in the Ethereum blockchain .
This incident underscores the European Securities and Markets Authority ’ s ( ESMA ’ s ) warning that “ errors in the coding of smart contracts could create widespread risks ”.
The financial services sector is particularly focused on DLT ’ s potential to streamline operations .
Ripple has developed a network for near-instantaneous international transfers , with the Shanghai Huarui Bank implementing its technology for USA- China corridor remittances .
Likewise , the Australian Stock Exchange is partnering with Digital Asset Holdings to revolutionise its clearing and settlement processes , while the Depository Trust and Clearing Corporation ( DTCC ) has joined forces with IBM to develop DLT-based software for post-trade processing of credit default swaps .
Industry estimates suggest DLT could save the financial industry approximately US $ 15-20bn annually through reduced infrastructure costs and improved efficiency .
ESMA notes that “ DLT could bring several benefits to securities markets , notably more efficient post-trade processes , enhanced reporting and data management capabilities and reduced costs ”. 110 March 2025