BLOCKCHAIN: THE NEW TRUST PARAGON

Trust and its Systems

Trust is a tricky word. Its general sense can rarely be observed in everyday applications. If we trust someone or something, we can create trust in that entity, allowing it to influence us. A dictionary definition of this would be “to believe that something is true or correct or that you can rely on it.” Trust is critical but risky too.

“Trust but verify.” - Ronald Reagan

    This trust is what makes us deposit our money in banks; trust in contracts enforceable by law. With more financial transactions and contracts occurring over the Internet, trust is becoming increasingly important online. What organizations have tried to do is make the Internet more reliable by setting up online structures which are close to real-life structures. Taking my word that I am over 18, for example, is usually not an option, but a form of identification is needed from a trusted third party to verify my identity. In this case, the trusted third party is the government, and the identification form is a voter’s ID. If there were to be an inconsistency identified between what is written on a voter’s ID and what a person was saying, most people would trust what the voter’s ID says. It is because government information has proven to be in the wrong for only a small percentage of time from previous observations, and the level of trust we have in the government is far higher than the level of trust we have in the individual. This doesn’t mean that entities which are government endorsed can be trusted to the extreme.

    In particular, India has not performed well in tests that assess the performance of trust-building processes. In the ‘Ease of Doing Business’ rankings, released annually by the World Bank, India has reported remarkable progress to be ranked 63rd in the 2020 edition since 2015. But it continues to perform abysmally low in indicators such as ‘enforcing contracts’ (ranks 163 out of 190 countries), ‘property registration’ (154 out of 190 countries), and ‘starting a business’ (136 out of 190). The perceived level of corruption in public’ trust systems’ is unusually low in India, with a ranking of 78 out of 180 countries in Transparency International’s ‘Corruption Perception Index.’

    You maybe familiar with “blockchain,” the technology behind the Bitcoin network if you’ve been following cryptocurrencies over the past decade. Blockchain is commonly synonymous with Bitcoin, one of the most expensive cryptocurrency. Yet experts believe blockchain is something more than cryptocurrency’s cornerstone.

“A blockchain is a decentralized, distributed, and often public, digital ledger that is used to record transactions.” When searched online to understand blockchain, one must have come across this concept. Yet it doesn’t explain how the blockchain operates or what makes this sought after?

What is Blockchain?

A blockchain, originally block chain, is a list of records, called blocks, that uses cryptography to connect them. In this sense, when we say “block” and “chain,” we’re talking about digital information (“block”) that’s stored in a public database (“chain”). Stuart Haber and W. Scott Stornetta first introduced the Blockchain concept in 1991, who tried to launch a program where document timestamps could not be tampered with. In 2008 an individual (or group of people) known as Satoshi Nakamoto conceptualized the first blockchain. Nakamoto significantly improved the design using a Hashcash-like method to timestamp blocks without needing a trusted party to sign them and adding a difficulty parameter to control the rate at which blocks are added to the chain.

    “Blocks” on the blockchain store transaction information such as the date, period, amount of the most recent purchase, and who is involved in the transactions. Much like human beings have fingerprints to be differentiated from each other, each block stores information of its unique code called a “hash” that allows us to tell it apart from others. Hashes are cryptographic codes generated by algorithms. The blocks also store details about the hash of the most recent block.

    Once the new block is added to the blockchain, it is open to everyone to access publicly, but users can still choose to link their computers as nodes to the blockchain network. By doing so, their computer receives a copy of the blockchain, which is automatically modified every time a new block is added. While the blockchain transactions are not entirely anonymous, personal user information is restricted to their digital signature or username. This poses an important question: Is Blockchain Secure?

    To tackle the problem of trust, blockchain networks have introduced checks for computers who want to enter and add blocks to the chain. The evaluations, called “consensus models,” allow users to “prove” themselves before they can participate in a blockchain network. One of the most common examples that Bitcoin employs is called “Proof of Work”. Computers must “prove” in the framework evidence that they have done “work” by solving a complex computational math problem. Proof of work doesn’t make hacker attacks impossible, but it does make them pointless.

Applications of Blockchain

Blockchain is a reasonably safe way to store money transaction data, and so on. Here are some of the most common blockchain applications being explored today.

 ●     Cryptocurrencies

Through spreading its activities around a computer network, blockchain allows Bitcoin and other cryptocurrencies to operate without the need for a central authority. It not only reduces risk but also removes many of the transaction costs.

 ●     Financial Services

Banks are interested in incorporating blockchain into their business processes as it can speed up settlement systems. By integrating blockchain into banks, customers will be able to see their transactions processed in just 10 minutes.

 ●     Smart Contracts

A smart contract is a computer code that can be embedded in the blockchain to enable, check, or negotiate a contract. An IMF staff discussion indicated that smart contracts based on blockchain technologies could reduce moral hazards and overall maximize contract usage.

 ●     Supply Chain

Several projects and business associations are working on using blockchains in the logistics supply chain and supply chain management. It will allow retailers to check the quality of their goods, along with health and ethics labels such as “Organic,” “Natural,” and “Fair Trade.” Walmart and IBM are running trials on a supply chain tracking system backed up by blockchains.

 ●     Voting

Given the recent failures of apps to protect our elections, such as the leakage of millions of voter records in Israel, we are reminded that technology, especially in the hands of smaller contractors, can be fallible, leading to significant data leakage. Blockchain voting has the power to eradicate electoral fraud and improve voter turnout. Vote on the blockchain will be stored as a block, making it almost impossible for them to tamper with.

 ●     Other Uses

Health care providers can leverage blockchain to store medical records of their patients securely. If you’ve ever spent time at the local Recorder’s Office, you’ll realize that the property rights recording process is both burdensome and inefficient. Blockchain can eliminate the process of searching for documents and monitor physical files within a local recording office. The European football association UEFA said it was working with a blockchain-based ticketing app that revealed a positive trial in 2018.

Features of Blockchain

Through higher user privacy and improved protection to lower transaction fees and fewer errors, the benefits of blockchain technology can very well be seen beyond those listed below.

 

●     Accuracy: Transactions are approved by a network of thousands or millions of computers on the blockchain network. This eliminates almost all human intervention in the verification process, leading to less human error and more reliable information recording.

●     Cost reductions: Blockchain removes the need for authentication by third parties and, with this, their related costs.

●     Decentralization: Blockchain is more difficult to tamper with by spreading new block information across a network instead of one central database.

●     Efficient transactions: Transactions put through a central authority can take up to a few days to settle while it can be done in around 10 minutes via blockchain and can be considered secure after a few hours.

●     Transparency: While personal information is kept secret on the blockchain, the code itself is almost always open source.

While the blockchain is experiencing major upsides, its adoption still faces significant challenges. Today’s roadblocks on using blockchain technology are not only technical. For the most part, the main obstacles are political and regulatory, not to mention the thousands of hours of back-end programming needed to incorporate blockchain into existing business networks.

Reserve Bank Concerns

Both the Government of India and the Reserve Bank have stated that they have not approved or provided regulations to deal with cryptocurrencies for any agency. Thus individuals have no legal security in dealing with cryptocurrencies and will bear all the risks associated with them. Sensing growing threats posed by cryptocurrencies speculative transactions and safeguarding domestic depositors and financial institutions, in April 2018, the Reserve Bank prohibited its controlled agencies from offering its services to companies dealing with cryptocurrencies or virtual currencies. 

    The RBI considers cryptocurrency as a significant challenge to India’s payment system. India’s experience with cryptocurrencies has been inconsistent, with law enforcement being the main problem for India. Unlike China, India is an argumentative democracy, and unlike the United States, India has a vast population as well as complex, archaic colonial-era rules and an underfunded judiciary. Nonetheless, the rule of law is a big problem in India, which is entirely unrelated to cryptocurrencies.

    But India’s Supreme Court overturned a ban on the trade of virtual currency by the Reserve bank on March 3, 2020. This order represents a significant victory not only for the digital asset industry but also for the fast-growing fintech and technology industries in India. This progressive decision paves the way for balanced and progressive regulation that will allow India to benefit from rapid innovation in blockchain technology as a leading software exporter and market for fintech.

    This Supreme Court decision does not address the issue of law enforcement but paves the way for complex and well-crafted rules to be developed. The decision would probably put the responsibility for controlling digital commodities such as bitcoin in the hands of commodities and securities markets regulator, Securities and Exchange Board of India (SEBI). Several major crypto companies have withdrawn entirely from India over the past three years - a significant opportunity lost to the country. Now will be the ideal time for these businesses to re-engage in their investment, recruiting, technology collaborations, and ecosystem growth plans and bring India right back in.

What’s Next for Blockchain?

With many practical applications already being applied and explored, blockchain is now making a name for itself because of bitcoin and cryptocurrencies. As a buzzword on the tongue of any investor in the nation, blockchain stands to make business and government operations more accurate, useful, and stable. 2019 Global Blockchain Survey by Deloitte found that blockchain adoption reached a turning point: Momentum had begun to change from “blockchain tourism” and experimentation to developing practical business applications.

    Adoption of blockchain in India has advanced in recent years in both the public and private sectors, though most of the projects are in the proof-of-concept process. In the private sector, the banking and financial services industry is pioneers in the implementation of technologies based on blockchain. Illustratively, these projects include: Yes Bank introducing the issuance of trading papers on the blockchain; Axis Bank launching international payment service using Ripple’s business blockchain technology; and HSBC India and Reliance Industries Ltd., carrying out blockchain-based trade finance transactions.

    The Government of India recently announced various initiatives in the Union Budget 2020-21, emphasizing the digital economy focused on emerging technology such as artificial intelligence, machine learning, the Internet of things, etc. The future is bright for blockchain, and it looks brighter because India is a more a significant part of the picture.

~ By Alex Thomas