What is blockchain? And how can blockchain technology be used? These are two common questions that usually come up after any discussion on Bitcoin. We've already explained what Bitcoin is, and how to buy Bitcoin in India, but here's a quick summary - Bitcoin is a virtual currency that is "mined" by computers, through a process of solving complex mathematical equations encoded in an algorithm. This is done using a technology called blockchain, that not only defines the rules of the algorithm, but serves as a public ledger - all transactions (such as mining or trading coins) must be verified against the ledger, which ensures that the transaction is legitimate, and transparent. It's an interesting idea, that started to skyrocket in value as Bitcoin became popular, particularly because there's a hard limit on the number of coins that are possible in the system. As a result, it's gotten harder to "mine" each coin, and the value of each coin has also gone.
The process of mining through complex algorithms makes Bitcoin a type of cryptocurrency - and in fact it's just one of many popular cryptocurrencies, with some well known alternatives being Litecoin, Etherium, and Dash. These all have different rules and different pros and cons - for example, Litecoin is designed to be faster to mine and trade, while Etherium's growing popularity means that there's a growing ecosystem around the currency. But these aren't the only uses for blockchain technology.
What is blockchain?
Brock Pierce, co-founder Blockchain Capital, a venture capital firm that invests in blockchain technology companies, explains the blockchain as a public-private ledger of transactions, which does not have any central control or single authority, or repository of information. Think of blockchain like a public record - anyone can make changes to it, provided they have the right credentials (authenticated using algorithms described in the blockchain), but all these changes are also public, including who changed what. This means that any sort of record can be widely shared, yet kept private and restricted, and can be kept up to date without losing track of who made the changes.
That sounds straightforward enough, but the key to the technology is that it doesn't rely on a centralised server to keep track of all this. Instead, the blockchain is distributed among all users, and its validity is measured using the blockchain algorithm. There's no "master" copy that any one person can access or edit; in a way, the infrastructure of blockchain is a little bit like a torrent file being shared.
This makes it a great basis for a cryptocurrency, but there are actually more ways in which it can come into play as well, with potential application across different sectors, although the financial companies are probably the ones who are most vocal about blockchain right now.
How can Blockchain technology be used?
There are a lot of different potential applications for Blockchain technology. Mumbai-based Auxesis Group, which got its start as a research group roughly two years ago at IIT-Bombay is one of the companies that's working towards building applications on top of blockchain infrastructure, and Akash Gaurav, its CEO, spoke to Gadgets 360 about how blockchain technology can be used.
"Our focus is on building a products suite for different industries, so that any organisation can quickly deploy blockchain," says Gaurav. "We're building applications for core banking, governments, and PSUs to use the power of blockchain."
One of the projects that Auxesis is working on is for the Government of Andhra Pradesh - the government is launching prepaid Visa cards, and wants to use blockchain technology to track the transactions. "The government wants the transactions on the blockchain infrastructure so that it's transparent to all stakeholders," explains Gaurav, adding, "otherwise Visa is the only person keeping the records."
Other projects are currently under NDAs, but Gaurav talks about a healthcare project where blockchain could enable better sharing of data between hospitals.
"A lot of data [from patients] is still collected in the paper format," he explains, and as a result, massive digitisation drives are underway around the country. The challenge becomes sharing data between hospitals, without raising privacy issues for patients. "One hospital cannot easily share the information of one patient with another hospital while guaranteeing the privacy of your data," says Gaurav. "But with blockchain, the treating doctor could update the patient's data, and if they go to another hospital, that data is available, but it can only be accessed with the patient's digital consent."
Lots of potential for businesses too
Beyond currencies, and government uses for maintaining records, blockchain technology has other potential uses too. For example, Yes Bank is using blockchain to manage vendor financing for its clients. With this, vendors can submit invoices using the ledger, and clients can handle payments seamlessly. This used to be done manually, explained Anup Purohit, Senior President and CIO, Yes Bank, and the implementation of blockchain makes it faster, and more secure.
Finacle, whose technology powers many major banks in India, has also been looking at the future of blockchain. Some areas where it could find right now use are international remittances, and identity management, according to Rajashekara V Maiya is Associate Vice President and Head – Finacle Product Strategy. One of the challenges that he foresees is slow adoption, because there's no advantage to early adopters, he said. "Unlike other digital technologies – mobility, analytics, cloud and so on – which offer competitive advantage to early adopters or monopolists, the distributed ledger needs a minimum of two parties to even function," said Maiya, adding, "On the blockchain, it only pays when you collaborate. That will not be easy for banks, who are slugging it out in a fiercely competitive market."
"Indian companies have only been looking at this technology for only about a year right now but already a lot of development has been done and we aren't very far behind because that was the early stages where things were moving more slowly," adds Auxesis' Gaurav. "So now when we make use cases, they learn from these scenarios. Bajaj, Pidilite, and others are looking at things like supply chain using blockchain infrastructure, and there are more big corporations that are also working to evolve the processes."
At the same time, the advantage of the government taking an interest in blockchain is that a large user base comes up quickly, which can be beneficial in developing the technology, Gaurav adds. "Right now, the Aux Ledger has more than 50 million users, which provides us an edge over any other blockchain organisation in the world," he says. "When people are talking about doing pilots, we've already got some live projects."
Cryptocurrency isn't necessarily the future, though blockchain is likely to be
If state governments are showing interest in blockchain, does this mean that you should start buying Bitcoin? Well, the RBI recently said it was "not comfortable with Bitcoin". That's not the end of the discussion, definitely, but Gaurav also sounded a note of caution.
"For any central or regulatory body this is of course going to be a very difficult concept - of completely peer to peer currency," he says. "There are some downsides of it as well, if it is not well regulated it can be used for money laundering and other uses which does not suit the institutions. So it's logical that the RBI or any government has a hard time to fully embrace it."
"But the RBI is looking at the parts of the blockchain," Gaurav continues. "It's only been eight to ten years since the birth of the cryptocurrency, and more evolution has to be done, which will only happen once the central bank looks into it. The RBI is also thinking of using the Rupee over the Blockchain infrastructure. Blockchain would solve the issue of counterfeit money, and bring transparency to money."
It's a view that Johan Gerber, Executive Vice President of Security and Decision Products, MasterCard, echoed on a recent visit to Bengaluru. Gerber was in the city for Mastercard's first Innovation Forum event in India, and showed us different methods for securing transactions, and the question of cryptocurrency came up. "Blockchain, yes," he said emphatically, continuing, "cryptocurrency though, they're still facing issues and figuring it out. Fiat currency [government backed money] is still a larger and more open ecosystem. And it's not necessarily more secure, and it's a lot less regulated. I believe blockchain technology has a big role to play, but not necessarily restricted to cryptocurrency."