On January 25, 2016, the Depository Trust & Clearing Corporation (DTCC) released a white paper on the use of blockchain technology (also known as distributed ledgers), the same electronic trails used to track bitcoins, for the tracking, execution, and settlement of global financial transactions.

Blockchains function in a networked database. Each time an asset is transferred, after each party agrees to the terms of the transaction, the transfer information is irreversibly recorded on the asset's ledger, which is distributed and available to each server on the network (also called a node). Nodes check the asset's transaction history against what is recorded on other nodes in the network to ensure that only the true owner of the asset has engaged in the transfer and to ensure that no asset is transferred multiple times. Using this method, the asset's transactions history and any transfers can be mathematically verified.

According to the DTCC report, blockchain systems could enhance the speed, security, and efficiency of the global financial markets.

This technology could eliminate a number of steps involved in closing a financial transaction, and would largely obviate the need for third-party settlement and clearing. The DTCC's report details other shortcomings of the current market infrastructures that could be solved by the use of blockchain.

Important elements of the blockchain system would include, among others:

Blockchains are closed systems with assets built in. Since assets are produced and managed completely within the network, the history and quantity of asset movement is mathematically verifiable by the recorded history in the distributed ledger.

Many banks, including a consortium of 42 investment banks called R3, are addressing these issues to allow for the use of blockchain technology in financial transactions. Eleven of those 42 banks, including Wells Fargo, UBS, Barclays and HSBC have even simulated the exchange of value, using token assets, via distributed ledger technology without a centralized third party. There are also other efforts being pursued simultaneously, both by competing large banks as well as so-called "fintech" (financial technology) companies.

However, the current state of blockchain technology is inadequate to deal with the size and complexity of today's financial markets. Additional technology development is required in many areas including scale, latency, performance, monitoring tools, and security. Additionally, the existing blockchain technology does not integrate with existing systems in use (such as identity management, workflows, and matching), and does not provide a way to reverse or nullify transactions.

DTCC believes that with coordinated technological efforts, these problems can be solved and that the eventual shift to a less centralized processing mechanism or a combination of the two would ultimately be beneficial.

DTCC views the role of the current trusted centralized processing systems, such as repositories and custodians, as being the driving force behind introducing standards, governance, and technology to support implementation of blockchain technology. However, with private development already occurring, in order to facilitate long-term compatibility and reduce costs of implementation, these efforts must be coordinated to reimagine the financial industry infrastructure, and to ultimately provide:

DTCC views blockchain, in conjunction with standardizing workflows and advancements in areas like cloud computing, as a once-in-a-generation opportunity to modernize financial industry infrastructure. The report includes extensive additional information about the costs, benefits, potential problem with, and other aspects of developing a blockchain solution to problems with existing financial industry infrastructure.