Get to know the Blockchain component of Distributed-Ledger Technology now (Part I/II)
Blockchain as a technology, will have a corporate and social impact on business processes and applications. Therefore Copenhagen Compliance® has already conducted several seminars and sessions on how blockchain will impact the business in general and specific industries in particular. In this article we review the role that blockchain technology has to play in enabling global trade while addressing industry-specific sustainability issues (e.g. corruption and fraud, carbon data and ship recycling)?
During the 10th annual Nordic GRC and IT-Security Summit in Copenhagen, Jiri Kram explored the potential of blockchain technology by highlighting the mega trends and underlying principles of decentralised trust, transparency and innovative ways of collaborating that blockchain can enable. (send us an e-mail to get a copy of Jiri's presentation)
At the 11th European GRC and IT-Security Summit in London, we will further explore how the Distributed-ledger technology (DLT)— which is a new set of technological approaches to transaction processing and record-keeping, comes in corporate transactional scope.
Companies can take an active approach for DLT policy development.
DLT can deliver some benefits for the financial services industries that include improved efficiency, strengthened risk management, and primarily reduce the heavy burden of compliance costs. However, DLT applications remain in their initial stages, and the right deployment can result in some GRC risks and challenges. Therefore companies hat wish to embark on this journey are currently seeking to understand and assess the implications of DLT for their trade and craft appropriate policies to prepare the DLT platform.
The DLT applications took its offspring in the person-to-person and business-to-business transfers in cross-border transactions in the digital currencies beginning with Bitcoin. Soon the extended use of DLT in the financial services was evident. That is why financial and banking services are currently using DLT in lending, letters of credit, trade finance and related service areas. However, Capital Markets are also aware of apparent qualities in DLT in the repo, syndicated loans, foreign exchange. OTC derivatives, clearing and settlement.
There are several global companies that wish to be in the forefront are now exploring the qualities of DLT in Compliance, primarily in the areas of anti-money-laundering and know-your- customer (KYC) controls. However, the virtues of DLT can without difficulty be extended to internal applications such as audit, risk management, asset-liability management and numerous financial controls.
There is no single definition of DLT, though it typically involves:
- a decentralised public or private peer-to-peer network;
- a digital ledger of replicated, shared, and synchronised data geographically spread across multiple locations or institutions;
- consensus algorithms can ensure the agreement, integrity, and replication of transactions across each network node.
Study the DLT components to shape future GRC processes
Therefore, distributed ledgers can use a variety of technological approaches in each of these areas, but their typical characteristics are:
Absolute and secure:
Users of the shared ledger are authenticated through cryptography, and each transaction is verified. There is a consensus amongst the participants on cryptographic conditions, to avoid access to any irrelevant parts of the ledger. The result is that the members cannot tamper with transaction records. Errors can only be reversed through attachment to existing transaction records.
All relevant network members must agree that a transaction is valid before it is added to the ledger. Validation is achieved through consensus algorithms that verify the authenticity of the underlying blocks and forward the additional information to other participant nodes on the network until all participants are in agreement.
Distributed and supportable:
The ledger is shared and updated with each transaction. Further, it is replicated among participant nodes in near real time. Therefore, the ledger is not dependent on any individual entity, as well as the DLT platform can be sustained, independent of the presence of any single entity.
Transparent and auditable:
Transactions are time-stamped and available for verification by participants in near real time. All participants in an operation on the shared ledger, have access to the same records. This access allows the validation of individual transactions. It also provides the ability to verify identities or ownership without the involvement of any third-party intermediaries.
After this introduction to DLT, in the next newsletter, we will go into some detail on how companies can make use of the Blockchain and DLT technology in their Compliance, Risk Management, Audit and Financial controls environment.