Get to Know Distributed Ledger Technology

Distributed ledger technology (DLT) has the potential to revolutionize the way we store, process, and transmit data. It is a decentralized system that allows multiple parties to record, verify, and share transactions and other information securely and transparently.

One of the most well-known examples of DLT is the blockchain, which underlies many cryptocurrencies like Bitcoin. A blockchain is a distributed ledger consisting of a series of interconnected blocks, each containing a list of transactions. The transactions are validated by a network of nodes, which reach a consensus on the contents of each block before it is added to the chain. This ensures that the ledger is immutable and resistant to tampering.

“Though there has not been a widespread adoption of blockchain solutions, it is inevitable,” said Matthew Palsgrove, Senior Consultant at Clearview Group. “Businesses will want to ensure they are prepared for when that shift happens, so they do not fall behind in this ever-evolving landscape.”

Advantages of DLT

One key advantage of DLT is that it eliminates the need for intermediaries, such as banks or other financial institutions, to facilitate transactions. This reduces costs and increases efficiency, as well as increases transparency and trust between parties.

Another advantage of DLT is its security. Since the ledger is decentralized and distributed across multiple nodes, it is much more difficult for hackers to compromise the system. In addition, cryptographic techniques make it nearly impossible to alter the ledger's contents without detection.

Opportunity Outside Financial Transactions

Supply Chain

‍DLT has a wide range of potential applications beyond just financial transactions. DLT can track the movement of goods through a supply chain by creating a digital record of each step in the process. For example, when a manufacturer produces a batch of goods, they can create a digital record on the DLT network that includes information such as the date of production, the serial numbers of the goods, and any relevant quality control data.

As the goods move through the supply chain, additional records can be added to the ledger at each step. When the goods are shipped to a warehouse, a record could be created that includes the date of shipment and the location of the warehouse. When the goods are subsequently shipped to a retailer, another record could be made that includes the date of shipment and the retailer's location.

Creating a digital record of each step in the process makes it possible to track the movement of the goods in real time and ensure that they are being handled and stored correctly. This can help improve the supply chain's efficiency and transparency, as well as reduce the risk of fraud or errors.

‍Electricity Distribution

‍DLT can also be used to manage electricity distribution in a smart grid by creating a digital record of energy production, consumption, and transmission. For example, when a renewable energy source, such as a solar panel or wind turbine, generates electricity, a digital record of the amount of energy produced can be created on the DLT network.

Similarly, when a consumer uses electricity, a record of the amount of energy consumed can be added to the ledger. This information can create a real-time map of energy production and consumption, which can help optimize electricity distribution across the grid.

One of the key advantages of using DLT for this purpose is that it allows for the automatic settlement of transactions between producers and consumers. If a consumer agrees to purchase a certain amount of electricity from a producer at a fixed price, the DLT network can automatically execute the transaction and transfer the appropriate funds once the electricity has been delivered.

In addition, DLT can be used to track the movement of electricity across the grid in real time, which can help improve the grid's efficiency and reliability. By creating a transparent and immutable record of energy production, consumption, and transmission, DLT can help to increase trust and confidence in the smart grid system.

Internal Controls Consideration

Implementing DLT can aid in a business’s internal control environment by automating many internal processes, such as releasing funds for an approved invoice or fulfilling contractual obligations.

Businesses that implement DLT will need to develop new internal controls and processes to ensure the security and integrity of the DLT network, including access controls, network monitoring, segregation of duties, disaster recovery and business continuity, risk management, and compliance monitoring. Though these control considerations may be like the systems that businesses already have in place, the novelty of DLT can cause challenges with scalability and regulatory issues.

However, the potential of this technology to transform many industries by providing a secure, transparent, and efficient way to record and verify transactions and other information is significant. DLT is rapidly evolving, and we will likely see more and more industries embracing it in the coming years.

‍If your business is considering implementing distributed ledger technology and needs help integrating it with existing internal controls, contact Matthew Palsgrove (mpalsgrove@clearviewgroup.us).