India’s Blockchain Strategy
Blockchain is often made synonymous with words such as decentralised, distributed, immutable, cryptocurrency, bitcoin, etc. The general understanding of blockchain is that it is the technology behind bitcoin or Ethereum.
A blockchain is regarded as a revolutionary piece of technology and is estimated to be as impactful as the internet. Blockchain is defined as the usage of distributed databases to store transactional data of parties, the starkest feature of these databases is that these cannot be altered without the consensus of a significant fraction of the user base. This ensures that the transactions are thoroughly authenticated. Blockchain eliminates the need for any central authority.
The Possibilities of Blockchain
Private and government sectors keep highlighting the importance of blockchains and how they can be applied for cost-cutting, operation efficiency, improving compliance, and making processes faster. What must be noted is that the technology has developed but its implementation is in a nascent stage and it is evolving every day. While policymakers, stakeholders, regulators, industries, and citizens are trying to interpret the working of blockchain, it is raising its fair share of legal, regulatory, and implementation prerequisites. It can completely transform the way governments, businesses, and citizens interact among and with each other.
What are some of India’s biggest problems?
The current transaction systems require us to put our faith in a central authority but blockchain divides this trust onto a wider user base. As per the World Bank’s Ease of Doing Business Ranking 2020, India has gained 79 positions since 2015 and sits at number 63. But India is still performing poorly in enforcing contracts and ranks at 163 out of 190 countries. In property registration, it ranks at 154 out of 190 countries, and in starting businesses, it ranks at 136 out of 190 countries. India ranks at 69 out of 190 countries in trading across borders rankings. India also performed very poorly in the Corruption perception index where it ranks 78 out of 180 countries as released by Transparency International.
Is Blockchain the answer to society’s problems?
Yes, in a way blockchain is the answer to some of the major problems but it is not a panacea. Blockchain creates trust and introduces verifiability, audibility, and consensus. Each node of the network keeps its copy of the data and if one of the nodes changes its data then the other nodes reject it. This also means that hackers cannot just attack one computer and triumph over it.
Blockchain also prevents identity thefts and enables the creation of smart contracts. These are also known as self-executing contracts. Blockchain is estimated to generate a humongous sum of up to 3 trillion USD per year by 2030. The World Economic Forum anticipated that 10% of Global GDP will be stored on blockchain by 2025. The public sector is perhaps best suited to reap the benefits of blockchain. The article further mentions blockchains and their use cases in India.
Blockchain and Decentralisation
The idea of decentralising government services through an open unpermissioned blockchain might appear enticing, but it also rains down many new problems.
The advantages of decentralisation through blockchain may include:
- It enables direct participation of citizens in the decision-making process of the country just like a democratic system;
- It prioritises economy over politics;
- It advocates the use of strong encryption and thus promotes freedom and privacy; and
- It breaks down governmental hierarchical structures and thus creates a truly independent nation.
The final outcome of this is that public policies and government services will be directly managed by a network of private individuals through a decentralized model of governance.
The disadvantages of decentralisation through blockchain would include:
- The entire system would transform into a money minting system for the mining machines;
- The overall security of the current open blockchains still needs to be improved;
- The long-chain rule is said to be inefficient and there is a growing risk of attacks on the networks; and
- There will be insufficient network neutrality.
Decentralised networks do not necessarily mean that they are not regulated. Here the term decentralisation refers to the transfer of the decision-making power from a central authority to a distributed network. Governments should be paying more attention to peer-based transactions such as selling and buying of lands, educational certificates, etc. as they can generate a good amount of socio-economic value.
Regulation of Blockchain
Blockchain can be best used in the following areas provided there are regulations for the same:
To reduce intermediaries like entities, brokers, processes. This will make the overall processes cheaper, faster and make activities smoother. It’s easier to understand intermediaries into 2 types:
- Process intermediaries
This is a multiple record system, and it includes people who authorise transactions like Chartered Accountants, entire government ministries who verify the quantity and quality perspectives.
- Process flow intermediaries
This includes warehouses and retailers. They are involved in the more practical part of any process.
We must carefully note that blockchain solutions will merely help in reducing the number of intermediaries and not completely remove them. Eg: the Indian government provides a lot of subsidies to the farmers but the flow process of these subsidies from the government to the reach of the farmers involves middlemen and the verification and accounting takes time. With blockchain, we can reduce some of these intermediaries and we can automate certain tasks which were earlier verified and then given a green light.
Blockchain is best suited where there is a need for multiple stakeholders, transparency, and audits. It will also act as a source of trust.
Digitally native assets
The most basic need for blockchain solutions to be applied to any context is that the assets must have a digital presence. It is versatile even to the fact that if an asset can change form even then can it be managed on a blockchain. The best example of this is using blockchain to trace farm produce. We can trace back how wheat became flour and then bread finally.
Permanent and authoritative proof of record
Blockchain highlights the immutability of its database as one of its prime features. Databases can only be altered when consensus is achieved and a node gets the majority approval on a blockchain network.
Low transaction volume
Despite technological advancements, the processing power of blockchain is very little compared to contemporary technology. For instance, Visa is capable of handling almost 50,000 transactions per second whereas Ethereum, a blockchain-based programme is working at only 3,000 transactions per second. Although permissioned or private blockchain is capable of handling more transactions than public blockchains; the overall processing capacity remains low.
Blockchain solutions are not a substitute for databases and thus are not best for storing personal/proprietary information. It’s best suited for transactional records.
Reliance on trusted third parties
Organisations whose work process specifically demands the use of intermediaries/trusted partners/regulators make the implementation of blockchain a complicated affair. In such circumstances it’s best that the regulators are included in the project, this will also ensure that the laws and regulations are complied with.
If the functionality of a blockchain can be changed without much discussion and debate at any time as per the requirement it would be best that a permissioned blockchain is used.
Legal and regulatory modifications
Blockchain brings with itself the concept of smart contracts and thus would require better contract management, more accountability, and quality control across all supply chain mechanisms. From an implementation perspective in India, we would require an incentive-based platform.
As blockchain implementation has started moving from sandbox to real-life adoptions, it has been found that it is extremely difficult to incorporate it into real-time data. This is the major reason why the use cases have been limited to just specific parts of businesses yet. Blockchain reduces the number of intermediaries and instead provides its platforms with a trusted entity. Historically in the absence of digital means of executing transactions certifications for physical verification forms have developed. For example, during the land transfer process, the registration of deeds at the registrar’s office requires the physical presence of witnesses to ensure that transactions are not fraudulent. If this process was made electronically possible then the need for physical presence could be eliminated and the verification can be done with the help of blockchain.
Use cases of Blockchain
For Land Records
Indian land ownership laws are based on the colonial model. It is established by the means of a registered sale deed. This document is not a government-guaranteed title to the property but is merely a record of transfer and hence can be challenged. At times the administration had to go back to very old documents and verify them manually. This causes a lot of delays and makes the entire process less efficient. A lot of data also gets lost over time. All of this created a lot of confusion and land-related disputes account for two-thirds of all pending cases in the country and the average time to resolve them is about 20 years.
If all of these processes were digitised and a blockchain was to be implemented to these, it would enable the execution of smart contracts. Many countries have adopted the Torrens system of land registry, it is based on three main principles:
- The Mirror Principle: the records show the details of registered land assets in a structured and accurate form.
- The Curtain Principle: the recorded facts of an asset are sufficient and there is no need for an ownership trail of documents.
- The Indemnity Principle: the State will provide compensation to the victim in case of an error made by the State.
A blockchain will put the first two principles into action. A blockchain-based land record system will keep track of all the transactions- purchases, sales, titles, mortgages, and rentals. On top of that, it will all be verified information.
For Pharmaceutical Drugs supply chain
The WHO estimates that 1 in 10 medical products in the markets of low-income Countries are either fake or sub-standard. There is a need for transparency and better traceability in the process of the origin of the medicine to its journey to the retail shop. The tampering can occur at any stage. Blockchain technology can be used to maintain a unified data system. As the supply chain passes every stage from production to reaching the patient, blockchain can be used to timestamp the processes and the ledger will ensure the safety and integrity of a product. Blockchains will let the stakeholders know the exact location of the medicine in the transaction and also help pinpoint any error. Blockchain will reduce the need for pharma companies to rely on any intermediaries and will help in improving quality control.
For Educational Certificate verification
A paper-based certification is very susceptible to fraud. A lot of companies and organisation’s resources go into the verification of certificates of individuals. The current verification system is completely centralised and manual. It is a very time-consuming process and is very easy to tamper with. Through the implementation of blockchain, we can create an identity system with a set of public and private keys. The issuing body will provide it on the super identity that cannot be tampered with. In the future, this data can be utilised globally.
For Immunising Supply Chain
India accounts for a large percentage of the global child mortality rate and many of these cases are due to preventable diseases. For children being born at hospitals, the records are not kept properly and are lost after a point of time and this is even true in rural areas. Through blockchain, we can store all the data in a reliable, real-time, and accurate form. We can also keep a track of the supply chain and the network of healthcare workers, this will enable them to work sincerely and hold them accountable in case of error.
Chit Fund management
The Supreme Court of India regards Chit Funds as special kinds of contracts. Blockchain can be used to address many challenges in administering chit funds and it would help in reducing interaction and information friction. It would be keeping track of all the transactions and any frauds could be detected easily. The grievance redressal process will be easier comparatively. This kind of system will protect the interests of the subscribers and the government as well.
Blockchain implementation in India is still at a very nascent stage and the use cases will keep increasing as the technology progresses. Some way forward recommendations for blockchain implementation in India are to create a vibrant blockchain ecosystem based on policy considerations. To promote research and deploy national infrastructure on blockchain and focus on improving the skills of students. The government agencies can start planning a process on how they will be adopting blockchains.
Aryan Kashyap, India’s Blockchain Strategy, Metacept-Communicating the Law, accessible at https://metacept.com/india’s-blockchain-strategy
- Alex Mizrahi, A blockchain based property ownership recording system, https://static1.squarespace.com/static/5e26f18cd5824c7138a9118b/t/5e3c1c7d6d5ff061da34da80/1580997757765/A-blockchain-based-property-registry.pdf.
- Anna Roy, Blockchain The India Strategy, NITI Aayog, (2020), Alex Mizrahi, A blockchain based property ownership recording system, https://static1.squarespace.com/static/5e26f18cd5824c7138a9118b/t/5e3c1c7d6d5ff061da34da80/1580997757765/A-blockchain-based-property-registry.pdf.
- Jaspreet Bindra, How Blockchain can transform India, TEDxTalks, (Jul. 17, 2018), https://youtu.be/8fbhI1qVj0c.
- PwC, Making sense of bitcoin, cryptocurrency and blockchain, PwC, https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html.
- Transparency International, Corruption Perception Index, (2020), Transparency International, https://www.transparency.org/en/cpi/2020/index/nzl.
- World Bank Group, Doing Business 2020, (2020), World Bank Group, https://documents1.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies.pdf.