With every daily newspaper and social networks trending with a buzz word ‘Crypto-Currency’ and since perception created around quick money, Indians are more than curious about this new Tech/Pseudo currency. Let's understand what is the technology behind Bitcoin, pros & cons and relevance in the Indian context.
Technology Backbone - Blockchain is a robust technology that reminds you of the internet in the early '90: It packs the potential to change the way we live, work, consume and interact. Blockchains are a real-time ledger of records stored in a distributed, peer-to-peer fashion independent from any central authority. Since every record is encrypted and time-stamped and users can only access and edit the block they “own” through a private key, it’s very secure. Every block is linked to the one before and the one after it – forms a chain, and whenever a change is made, the entire chain gets updated. Blockchain helps secure and update transactions efficiently without requiring mediators to manage the process. Blockchain technology is revolutionary in terms of record keeping and can track and document every change in a record or transaction. By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Originally invented for the digital currency, Bitcoin, the tech community is now finding other potential uses for the technology.
Technology that is safe within - Blockchain technology is like the internet in that it has a built-in robustness. By storing blocks of information that are identical across its network, the blockchain cannot - be controlled by any single entity; has no single point of failure. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily certifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.
The blockchain network lives in a state of consensus, one that automatically checks in with itself every ten minutes. A kind of self-auditing ecosystem of a digital value, the network reconciles every transaction that happens in ten-minute intervals. Each group of these transactions is referred to as a “block”. Two important properties result from this:
1. Transparency data is embedded within the network as a whole, by definition it is public.
2. It cannot be corrupted altering any unit of information on the blockchain would mean using a huge amount of computing power to override the entire network.
Currency is not the only application - Bitcoin — the most popular blockchain application — is just one use of the technology. Blockchain technology has applicability to many business areas including government, healthcare, education, manufacturing, energy, and supply chain. In the case of Walmart, IBM was able to reduce a food tracing process from six days to about two seconds, using blockchain. "That kind of transformation can really speed up the decision-making process so you can minimize the health risk from a food-borne illness," said the IBM blockchain unit head. Blockchain enables many different peer-to-peer situations that eliminates middle people. So anything to do with the so-called back-office functions that exist in many firms, especially in financial firms, those are going to be the first job to disappear.
Leaders of major financial institutions where security is supreme and change are often resisted see enough upside in blockchain technology that they have been willing to invest millions in resources to learn how to best implement it. And, they are not alone. Any business with valuable digital assets from contacts to contracts they need to protect can find a legitimate use case for blockchain technology.
The India Story so far and opportunities– With Indians are getting amazed, excited by news about Bitcoin’s quick and multi-fold ROI; finding ways to invest in it. Indian regulators like RBI seems to be in double mind. However, with Reliance’s announcement of its venture (JioCoin), soon regulators in India will have to make it a legitimate affair.
A lot of Indian players have tested usage of Blockchain in the areas of Trade Finance, Cross-border Payments, Bill Discounting, Supply chain financing, Loyalty and Digital Identity areas. Some of the Indian banks, business conglomerates, and one stock exchange are among the pioneers for exploring Blockchain in India. However early adopters eyes challenges in – Lack of internal awareness, identification of business cases & partners, selection of vendors, security and integration issues.
The blockchain gives internet users the ability to create value and authenticates digital information. Following are new business applications areas Indian entities can explore:
• Smart contracts - Distributed ledgers enable the coding of simple contracts that will execute when specified conditions are met.
• The sharing economy - With companies like Uber and Airbnb flourishing, the sharing economy is already a sure success. By enabling peer-to-peer payments, the blockchain opens the door to direct interaction between parties — a truly decentralized sharing economy results.
• Crowdfunding - Crowdfunding initiatives abroad like Kickstarter and Gofundme are doing the advance work for the emerging peer-to-peer economy.
• Governance - By making the results fully transparent and publicly accessible, distributed database technology could bring full transparency to elections or any other kind of poll taking.
• Supply chain auditing - Consumers gradually want to know that the ethical claims companies make about their products are real. Transparency comes with blockchain-based timestamping of a date and location — on ethical diamonds, for instance — that resembles a product number.
• File storage - Distributing data throughout the network protects files from getting hacked or lost.
• Prediction markets - Prediction markets that payout according to event outcomes are already active.
• Protection of intellectual property - Smart contracts can protect copyright and automate the sale of creative works online, eliminating the risk of file copying and redistribution.
• Internet of Things (IoT) - A combination of software, sensors, and the network facilitates an exchange of data between objects and mechanisms. The result increases system efficiency and improves cost monitoring.
• Neighbourhood Microgrids - Blockchain technology enables the buying and selling of the renewable energy generated by neighborhood microgrids.
• Identity management - Distributed ledgers offer enhanced methods for proving who you are, along with the possibility to digitize personal documents. Having a secure identity will also be important for online interactions — for instance, in the sharing economy.
• AML and KYC - Currently, financial institutions must perform a labor-intensive multi-step process for each new customer. KYC costs could be reduced through cross-institution client verification and at the same time increase monitoring and analysis effectiveness.
• Land title registration - As Publicly-accessible ledgers, blockchains can make all kinds of record-keeping more efficient. Property titles are a case in point. They tend to be susceptible to fraud, as well as costly and labor-intensive to administer.
• Stock trading - The potential for added efficiency in share settlement makes a strong use case for blockchains in stock trading. When executed peer-to-peer, trade confirmations become almost instantaneous (as opposed to taking three days for clearance). Potentially, this means intermediaries — such as the clearinghouse, auditors, and custodians — get removed from the process.
