Though governments and banks may be wary of Bitcoin and its application, the technology behind the crypto-currency—blockchain—is what has attracted attention of many. In India, three private sector banks—ICICI, Yes and Axis—have already instituted the technology for domestic financing, intra-bank transactions and cross border remittances, with many more vying potential uses for the technology. But, now blockchain is expected to get a much-needed push, which may make it one of the primary platforms in the country. The central bank’s research arm, Institute for Development and Research in Banking Technology, has released a White Paper saying that the technology has matured enough to be considered for various uses across the spectrum. Moreover, the research also showcases a proof-of-concept study on its potential use in trade finance.
Blockchain or distributed-ledger-technology, is more like a shared Google spreadsheet, but much more secure. Like a spreadsheet, all transactions are visible to anybody on the platform, but only those with requisite authorisation can make changes to it. This is what makes blockchain reliable and faster in instituting contracts and making payments. Though blockchain, combined with the internet of things, has found uses in building smart contracts and niche insurance products, one of the major drawbacks is the inability to interlink different players. Goldman Sachs and a consortium of banks had created a research firm, R3, to build upon blockchain, but ultimately most left the consortium to develop their individual technologies.
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If RBI were to bless blockchain, however, it would ensure participation from the industry. So, instead of each bank creating its own set of systems, there would be one central interconnected chain which every bank would adhere to for inter-bank transactions. In the case of transfer of funds or extending a credit line, a common blockchain can not only ensure which lender has taken money from which bank, it can lead to faster processes within the banking system. The White Paper goes beyond this, and talks of using blockchain in trade finance, cross border payments, capital markets, loan syndication and supply-chain financing, all of which can lead to smart contracts being enforced electronically, and in real-time. While the digital currency that the paper talks of is quite some distance away since no country has reached this stage, there is considerable work that can be done immediately in the non-banking space as well. While the customs department should start work on blockchain for real-time tracking of data, land-registry is an obvious area that would benefit from what blockchain has to offer. For a government pushing Digital India, this could be a force-multiplier.