Will blockchain power India's digital dream?

Ankitt Gaur and Anshul Dhir

As blockchain goes mainstream, Digital India will open up to a new and transparent medium of carrying out transactions. Blockchain, a simple concept yet so diverse in its use-cases, is still in a nascent stage, and many countries are tapping into the unexplored areas of this technology.

Blockchain 101

Blockchain is a distributed ledger database. Consider it like your bank passbook, where all the transactions are recorded, and cannot be changed or modified — and it can be viewed by anyone, thus making the process transparent.

Unlike banks, which are controlled by a central authority, a blockchain is decentralised — meaning nobody controls, or owns it.

Cryptography is what makes blockchain secure. Every transaction recorded on the blockchain is encrypted. The data on a blockchain is irreversible — a transaction cannot be deleted or modified. It will always remain recorded on the database. This aspect of blockchain is why its use is being advocated for governance functions, such as storing important records.

Use Cases: Governance

For India to harness the full potential of blockchain, the government will need to tap the right use cases. India is constantly looking for solutions to validate the documents of all its citizens, and blockchain could be the solution. The security features of blockchain can help authorise transactions through the digital signature powered by smart contracts to authorise KYC, transactions, etc.

For the uninitiated, a smart contract is an algorithm stored on blockchain. It is an agreement between two people in the form of computer code that cannot be changed or modified. For instance, if a piece of land is to be bought, the transaction that occurs between the two individuals will take place without the need of any third party/intermediary. This will significantly reduce notarisation as well.

Government systems that provide various schemes, mainly monetary, are constantly under cyber-attacks. Issues of privacy can be addressed by using blockchain for record management.

Use Cases: Industry

At a retail chain and store level, blockchain can be used to save sales receipts, and this ledger can be used while mitigating fraud claims/cases. In supply-chain industries, blockchain can be used by valuing any asset being sent out for lease/ transportation through a smart contract.

Blockchain in healthcare can be used by hospitals and medical research facilities to keep track of the medical records of patients. At a pharmaceutical level, this tech can be used to weed out counterfeit medicines from the entire supply chain.

Smart contracts between insurance providers and policy holders will remove the intermediary, and speed up the whole process.

Transforming Traditional Finance

Traditional finance is centred on consumers dealing with transactions while interacting with a third party or a central governing entity. With blockchain, this will change as the third party is eliminated from the transaction. TradFi (consisting of banks and FinTechs) deals involve manual paperwork and third party involvement, which increases the chances for fraud and faulty records. Smart contracts will ensure that there is a digital proof for all the terms that are agreed upon. The immutability on the blockchain will ensure that these smart contracts are not altered at a later stage.

Decentralised Finance (DeFi) has been built upon the ethos of permission-less networks and automation of smart contracts on blockchains. Loans can now be issued in the form of digital assets while holding digital assets as collateral.

Metaverse will also witness a marked shift with financial systems and commerce built on blockchain, specifically for the virtual space. MetaFi will be the blockchain-based finance for the metaverse that will provide a gateway to this commerce with solutions such as lending and borrowing of metaverse assets, e.g. NFTs and virtual land facilitated through blockchain.

Lending and borrowing protocols will also change without the need of a central authority governing the clauses of a simple loan. In the future collaterals could be virtual assets.

We can expect a sea change in the financial use-cases, many for the better.

Sign Of Acceptance

The government’s proposal to introduce a central bank digital currency (CBDC) is the sign of blockchain and the Web 3.0 revolution gaining momentum. A digital rupee is definitely a start of a new era in financial transactions, but there is a long way to go for India before we see tangible positive effects.

While the challenge will be its integration into a predominantly centralised financial system, the digital rupee is definitely the future of an improved and much more efficient means of conducting financial transactions. The digital rupee will complement the DeFi industry, but not before the government provides more clarity on the road ahead.

Change Is Here

Blockchain is bound to transform many areas for Digital India. The first few changes we will witness will be in digital commerce with marked improvements in supply chain management and payment processing among others. With introduction of the CBDC we may see increased peer-to-peer ecommerce transactions that will be fast, simplified, streamlined, and frictionless, driving greater financial inclusion.

Moreover, with the advent of NFTs, how we define ownership of data and assets will be transformed with the power of data ownership being placed back into the hands of the consumer. The current surge in demand for NFTs clearly indicates the path the industry is going to take.

Ankitt Gaur is Founder &CEO, and Anshul Dhir is Co-Founder & COO, EasyFi Network. Views are personal, and do not represent the stand of this publication.