Tuesday, 29 November, 2022
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Finance Minister Arun Jaitley finally sees value in blockchain. Here’s what he should also know

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In his Budget speech the Finance Minister has said he sees value in blockchain. But there’s a lot that most people don’t know about blockchain.

Blockchain and cryptocurrencies encompass a vast store of applications just like the smartphone, and different actors are trying to exploit different features of the technology. But the totality of its potential has escaped many, except for the visionary crypto founders like Satoshi Nakamoto and Vitalik Buterin.

Which is why I am amused by the many so called blockchain speakers at conferences who are barely acquainted with a single domain or category of the myriad possibilities:

Blockchain as a better ledger of immutable record-keeping, and a universal source of truth – e.g. birth records, passports, KYC, AML

Blockchain as a low cost payments rail that replaces fee-taking intermediaries such as SWIFT

Blockchain as a decentralised crowd-sourcing marketplace for all sorts of goods and services such as newsworthy images and videos, rating of restaurants, gig economy etc

Blockchain with Internet Of Things as a data gathering mechanism for safety, accidents, inventory tracking, quality checks, and productivity enhancement in agriculture etc

Blockchain as a provenance, origin and ownership tracking mechanism – e.g. diamonds, pharmaceutical drugs

Blockchain to ensure authenticity of high value art and precious jewellery, and insurance against fraud

Blockchain as a tool to build peer to peer marketplaces and exchanges

Blockchain for Enterprises

This category consists of banks, financial institutions and other corporates/enterprises that have been trying to explore areas where blockchain can boost their bottom lines. These players mostly hold a myopic view of blockchain and its impact, for they are limited in their vision and appetite to realise blockchain’s full potential.

This is partly to preserve their existence, which blockchain threatens, and partly due to lack of comprehension of the true potential of the technology. In most cases, everyone is at least publishing press releases that they are doing something with blockchain.

They would be left behind and their stocks would languish, in light of peers who appear to be more proactive. Nevertheless, their espousing or ignoring of blockchain has negligible impact on blockchain’s impact on society. It may affect their bottom-lines and may marginally improve customer experience of these enterprises, but that’s not the entire story.

As I pointed out to the government of Maharashtra at a blockchain conference they hosted in Mumbai on 17 January, governments are missing the point entirely when they look to these enterprises and feel smug that businesses are adopting blockchain. That brings me to what governments ought to be doing with blockchain.

Blockchain for Governments

Governments should not only go after the low-hanging fruit of digitising public records like birth & death certificates, identity, education, medical, subsidy distribution, and social security data.

They can also build an enabling ecosystem for educating and skilling youth, R&D & training centres, incubators and startup funds, and facilitation of partnerships between government, academia, industry and startups.

After all, blockchain is the next big wave, and we would be lame not to ride it. It can help governments in a big way, if we leverage this to reskill our youth most threatened by the oncoming Machine Learning, Bots and Artificial Intelligence era.

This is an opportunity for India to become a global resource provider on blockchain, as we are the biggest producers and exporters of engineering talent and Computer Scientists which is a prerequisite to technical prowess on blockchain. Let’s build blockchain centres of excellence. This was my advice to Chandrababu Naidu, Chief Minister of Andhra Pradesh at Davos 2017.

Blockchain for Consumers

This is an area with huge potential. The promise of blockchain for consumers is being realised by innovators through diverse Initial Coin Offerings (ICOs) focused on a range of aspects such as an energy distribution grid, distributed cloud storage and cloud computing, loyalty rewards, invoice financing, probability-based games, prediction markets and so on.

Each of them is a small market, but blockchain can make possible new marketplaces, new industries and economies that did not exist before.

Blockchain for the Common Man

It is not all rosy in the crypto paradise. Being a mostly unregulated field, people have lost millions of dollars in hacks, compromised security of keys, wallets and sometimes perhaps dark and criminal intentions of the exchanges. Examples abound like MtGox, Bitfinex, DAO, and Parity among others.

A common misconception is that these thefts happened because of vulnerabilities in the underlying blockchain technology. That is not true. Almost every hack has happened at the exchange or wallet level—which are third-party applications built on top of the blockchain—and the faulty smart contract code in them. Code is money in smart contracts. And worse, the code is public for everyone to view and exploit.

So your crypto assets are only as secure in third party vaults, as the code written to hold them. The thefts are getting grander with each passing day. The latest swindle comes from Coincheck, a Japanese cryptocurrency exchange, that has lost 58 billion yen or $530 million.

So the future seems to belong to decentralised exchanges and marketplaces where no third party holds access to your account or keys, and no escrow holding funds – but smart contracts would interact directly and exchange value with no possibility of leakage.

The technology for decentralised exchanges is still nascent and evolving. We are working on one for dealing in tokenised IPOs, and a global stock exchange platform on blockchain – which I believe to be highly disruptive to the existing financial landscape globally. The repercussions for private equity, venture capital, asset management industries would be far reaching.

Decentralised marketplaces are the ultimate promise of blockchain, which will have the most dramatic impact on society and economy. To redesign current processes, eliminate intermediaries, and build marketplaces where two parties can exchange value between each other seamlessly, and securely – without having to trust any centralised entity – that is the ultimate gift of Satoshi. This decentralisation trend will unleash an era of new institutions fashioned after distributed autonomous communities, like the DAO.

Arifa Khan is a crypto pioneer, and India Partner of Ethereum. She tweets as @misskhan

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