Even as the adoption of blockchain is gathering pace in the banking, financial services and insurance (BFSI) sector, experts feel that the technology is in its early stage. Clients are still determining the positive use of the technology and are learning how to make it useful for their businesses.
"We believe, it [blockchain technology] will pick up pace when clear, sector-specific benefit cases would emerge and there would be more clarity around policy and governance from the regulator," according to Prashant Garg, Partner, Data and Analytics, EY India.
"Banks are taking a cautious approach in defining the use cases for blockchain and how it can work in the Indian market; they await more clarity from the government to support and adopt it," he adds.
Commenting on the challenges on the regulatory or infrastructure front from an Indian context, Garg says, "Regulators recently took the first step in drafting the policy around cryptocurrency and its use in India; it paves way for Digital Twin currency backed by government and Distributed Ledger Technology (DLT) and use of Blockchain for positives by industry at large. The policy on cryptocurrency with clearer data localisation norms will encourage the industry to move towards faster adoption."
When asked, how blockchain would reduce cyber risk in the banking and financial services industry. Country Director of Micro Focus India, Saurabh Saxena points out, "Blockchain can keep records of transactions in a secured manner. One of the most common and famous blockchain implementations is the transactional backbone of bitcoin and several other cryptocurrencies. BFSIs, NBFCs, etc are counting on blockchain to help secure the financial sector."
"According to a recent report, the distributed architecture of a permissioned blockchain is an advantage that can help minimize the effect of cyber-attacks. Additionally, transparency in permissioned blockchain networks provides another level of cybersecurity protection. Given so many applications running for various purposes, the BFSI sector stands to benefit tremendously from the growth of blockchain. As cyber threats continue to evolve intensively, emerging technologies such as permissioned blockchains, help reduce cybersecurity risks and adequately protect consumers’ financial information," he stresses.
"There are certain elements of blockchain's encryption that can be beneficial, but that does not mean that this technology is always superior for all facets. So, this is much be evaluated as an option where applicable," says Gartner analyst Rajesh Kandaswamy.
Regarding concerns among the tech community that once quantum computers come into wider use, it would pose a major threat to all Blockchain networks, Saxena clarifies, "Currently, quantum computing is no threat to the cryptographic algorithms - that blockchain security relies on. Experts predict that it will take approximately 15-20 years for quantum computers to be able to hack a blockchain or cryptocurrency. With blockchain developers already working on protocols to mitigate the risk of quantum computing, it may never truly be a feasible threat to blockchain.
"However, blockchain developers need to be cognizant of any core security mechanisms and take precautions to build upon their platforms’ native security measures to fully address potential vulnerabilities to quantum computing. Going forward, we can expect engineers and developers to create exponentially more powerful, quantum-proof security protocols, well before quantum computers become a reality."
As Kandaswamy puts it, "The worry is that quantum computers can break the encryption that is the basis of blockchain systems and make them less secure. That issue is not unique to blockchain and can affect most mainstream computing systems today. We expect that solutions to come in place to prevent such scenarios by the time quantum computers are ready."
Experts also argue that most blockchain projects in the BFSI sector have not moved beyond the proof of concept (PoC) stage. Reacting to this, Garg points out, "Clients are investing in blockchain technology to learn how it can be useful for their business. The potency of the technology is well established; adoption can further improve with clearer data localisation norms and government participation in leading the way in using blockchain."