Blockchain, sometimes referred to as Distributed Ledger Technology (DLT), makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing. 

  • A blockchain is a database that stores encrypted blocks of data then chains them together to form a chronological single-source-of-truth for the data
  • Digital assets are distributed instead of copied or transferred, creating an immutable record of an asset
  • The asset is decentralized, allowing full real-time access and transparency to the public
  • A transparent ledger of changes preserves integrity of the document, which creates trust in the asset.
  • Blockchain’s inherent security measures and public ledger make it a prime technology for almost every single sector

Blockchain is an especially promising and revolutionary technology because it helps reduce risk, stamps out fraud and brings transparency in a scalable way for myriad uses. 

An example are Blockchain-based smart contracts. These are proposed contracts that can be partially or fully executed or enforced without human interaction. One of the main objectives of a smart contract is automated escrow. A key feature of smart contracts is that they do not need a trusted third party (such as a trustee) to act as an intermediary between contracting entities -the blockchain network executes the contract on its own. This may reduce friction between entities when transferring value and could subsequently open the door to a higher level of transaction automation. An IMF staff discussion reported that smart contracts based on blockchain technology might reduce moral hazards and optimize the use of contracts in general.