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Written by Srinivas Mahankali.


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TABLE OF CONTENTS

01 02 03 04
Introduction Blockchain - Some Growing risk and the Bitcoin and the
FAQs need for blockchain blockchain

05 06 07 08
Ethereum: The new The birth of Enterprise blockchain Global trends in
generation platform enterprise blockchain applications - a closer government and
to catalyse and spur look enterprise application
innovation globally for blockchain

09 10 11 12
Global activity in Blockchain incubation Blockchain business Limitations and
blockchain technology - global scenario incubation in India - risks of blockchain
paradigm shift needed ecosystem

13 14 15
Blockchain triggered Recommendations ANNEXURE 1:
opportunity for India Prominent Indian
blockchain startups

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INTRODUCTION
The birth of Bitcoin on January 3, 2009, marked a Eric Schmidt, then CEO of Google, had famously
landmark event for a world reeling under the global said, “Bitcoin is a remarkable cryptographic
financial crisis following the collapse of Lehman achievement, and the ability to create something that
Brothers in September 2008. is not duplicable in the digital world has enormous
value.”
US-based financial services firm Lehman Brothers
filed for bankruptcy on September 15, 2008, drawing The framework of this system is called blockchain,
attention to the reckless lending by US banking and ‘Bitcoin’ came to be known as its first application
executives. The subprime mortgage crisis threatened in the form of a cryptocurrency that represents a
the global financial system, and had governments value, which can be transferred from one entity to
across the world indulging in massive bailouts and another in the form of money, without the need of
fiscal stimuli to support the global financial system. any trusted central party such as the Reserve Bank of
Governments lost credibility, currencies became India (RBI), or any government.
volatile, and the banking system was in turmoil.
Distrust for the banking system among citizens was at Bitcoin offered a safe and secure system that allowed
its peak when a whitepaper - ‘Bitcoin: A Peer-to-Peer users to transfer assets in a way that everyone
Electronic Cash System’ (https://bitcoin.org/bitcoin. knows a transaction has taken place by employing a
pdf ) - supposedly written by the hitherto unknown distributed ledger system with transferable ownership
Satoshi Nakamoto was published in October 2009 of slots.
in a cryptography mailing list. Nakamoto outlined a
consensus network that enabled a new form of digital By mining digital currency units through a
money, and a complete payments system. programmatic process, and limiting its supply with
a pre-determined mathematical calculation, Bitcoin
Bitcoin offered a proof of concept with a solution addressed the issue of ‘inflation that was recklessly
to the ‘Double Spending’ problem, also known as fuelled by the central banks and governments’.
the Byzantine Generals’ Problem, which meant one Valued of $0.00001 per unit 10 years ago, a Bitcoin
could create and spend a unit of a digital asset on the today is worth more than $6500, and its total market
internet, without the fear of duplication, in a capitalisation is around $120 billion. There are over
fool-proof manner. 1.7 million Bitcoins in circulation, and several other
blockchain technology-based cryptocurrencies like
Bitcoin remarkably combined programming, Ethereum, Litecoin, Dash, Zcash, and Monero, with
mathematics, cryptography and economics to offer varying properties, are in circulation offering fast and
a secure and versatile system that can create a digital low-cost money transfer and payment systems, free
asset and transfer its ownership in an irrefutable from centralised regulations. Merchants and leading
manner between peers. Impressed by this invention, companies across the world have started settling

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invoices in Bitcoin, and the Blockchain technology Nakamoto has been attempted in the book Blockchain
Bitcoin represents, is considered the biggest invention - The Untold Story.
after the internet itself.
The lack of regulation of these cryptocurrencies
Today, bitcoins worth over $100 billion are in opened up its usage to people with criminal
circulation, and those worth billions of dollars are intentions for wrongful purposes, clouding the
exchanged between persons and organisations credibility of bitcoin. Dark web companies like Silk
without any centralised organisation. Satoshi Road reportedly conducted millions of dollars’ worth
Nakamoto, whose identity is still unknown, owns of transactions for underground activities like money
over 9 lakh bitcoins mined during the early stages, laundering and narcotics until its founder Ulbricht
which are valued at over $6 billion as of end July was arrested in 2013, and over 144,000 bitcoins were
2018. There has been a lot of speculation regarding seized.
the true identity of Satoshi Nakamoto. The birth of
bitcoin on January 3, a day that coincided with the Like an ‘electric bulb’ is an instance of ‘electricity’,
date of incorporation of Apple Computer Inc in 1977, ‘cryptocurrency’, like bitcoin, is one of the instances
gave rise to speculation that Steve Jobs may be a of Blockchain. At its core, Blockchain represented
likely suspect behind the launch of this path-breaking an open decentralised ledger recording transactions
technology. between participants transacting peer-to-peer
without the need of a central authority in a trusted
A deeper analysis regarding the identity of Satoshi and transparent manner. This results in a dramatic

Blockchain can drive over $500 billion in business value and $50 billion - $ 100 billion in total
addressable market for technology by 2026

Business value created due to blockchain Total addressable market for technology

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reduction in the cost of conducting transactions due Blockchain technology for various sectors.
to elimination of middlemen.
With a wide variety of cryptoassets and Blockchains
The launch of Ethereum by Vitalik Buterin in coming up for various requirements, the need for
2015 brought in the possibility of leveraging this interoperability of Blockchains is gaining momentum,
technology for a number of real-life applications by and platforms like Cosmos, Polkadot and Microsoft’s
automatically processing transactions through ‘smart COCO framework are working to allow different
contracts’. Unlike Bitcoin, which recorded currency Blockchain protocols to integrate and collaborate,
transactions, Ethereum can record other assets such enabling enterprises across segments to leverage the
as loans, agreements and contracts. This opened up power of distributed ledger technologies.
the potential of Blockchain technology to impact Governments across the world, and leading
almost any industry, leading to a surge in investments technology companies are collaborating to leverage
by large global companies and funds, exploring its the power of Blockchain to improve transparency and
applications in finance, supply chain, insurance, efficiencies, and increase speed of transactions and
political elections, contract management, real estate, productivity.
health care, and social media, to name a few.
The success of Ethereum in creating decentralised Globally, Blockchain is gaining significant traction,
autonomous organisations (DAOs) along with and the economic gains that are projected from
token-enabled speedy crowdfunding by creating the adoption of Blockchain technology are deemed
autonomously run versions of real life centralised enormous as per Keynote Strategy Research.
applications has resulted in the launch of similar In India, even though the government’s attitude
public Blockchain platforms like EOS, NEO, NEM, towards cryptocurrencies is lukewarm at best,
IOTA, Lisk, Ark etc, that power many versatile the same definitely doesn’t extend to Blockchain
applications. technology. In fact, the transparency that Blockchain
provides would be well received in a country
Enterprise applications powered by Blockchain like India where over 80 percent of the working
applications without the involvement of any platform population operates within an informal economy.
specific cryptoassets enabled organisations to
drastically improve efficiencies, automate processes Andhra Pradesh (AP) announced several steps to
and eliminate non-value adding middlemen. promote the use of Blockchain across governmental
This enabled programme-powered trust, security, departments for secured storage of information and
accountability and authenticity. IBM, Linux and a immutable recording of transactions across domains
number of leading organisations collaborated to like land records, vehicle registrations, driving
launch the Hyperledger Framework and offered license records, educational certificates, electronic
platforms like Fabric, Sawtooth, Iroha etc, to power health records, etc. by digitising and placing them
enterprise applications. R3 Corda, JP Mogan’s online to prevent tampering. The AP government
Quorum, Hydrachain, and Auxledger offer versatile also announced a programme to boost support to
options to governments and organisations to adapt blockchain startups at the Fintech Valley Vizag, and

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has created the largest repository of used cases for Indian private sector enterprises and the government
global startups to test their solutions. are preparing for disruption ahead, by embracing
cutting-edge technologies and challenging the status
Similar steps are being undertaken by various state quo. A more active stance with a concrete action plan
governments as blockchain technology is being has to be undertaken by the government to leverage
leveraged to improve transparency, eliminate the technology, and keep pace with the rest of the
corruption, and increase efficiencies. world.

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Blockchain - some FAQs
What is Blockchain?
A blockchain is a growing list of records, called Each address has a public key and a password
blocks, that are linked using cryptography. protected private key. The public key is used to check
Blockchains that are readable by the public are widely the details of a transaction, and private keys allow a
used by cryptocurrencies, and private blockchains holder to spend the UTXO units associated with the
have been proposed for business use. respective public key.

Bitcoin Blockchain The Blockchain is thus a store of, and a means to,
Cryptocurrency-based blockchains like Bitcoin transfer immense value, underlining the importance
define blockchain as a linked list of blocks containing of keeping the password (pass phrase of wallet and the
a full copy of the Bitcoin ledger, giving the UTXOs private key for every address) a closely guarded secret.
(Unspent Transaction Output) in the form of a crypto
currency unit named Bitcoin or its fraction i) Bitcoin and Ethereum are examples of Public
(1 Bitcoin = 1 million Satoshis) of each of the Blockchains
addresses mapped in groups to respective wallets. In a public Blockchain, anyone can read, send
transactions, and participate in the consensus process.
It is considered fully decentralised and transparent,
without the intervention of a central authority.
A Blockchain with Turing complete state machine
(Smart contract + Cryptocurrency), Ethereum, unlike
Bitcoin core is known as ‘World Computer’ and is
capable of processing a wide range of applications. It
not only stores the transactions, but also the updated
values of each address.

Ethereum has made it possible for any type of


business to be transacted peer-to-peer, and in
a sustainable manner through the concept of
‘smart contracts’ and decentralised autonomous
organisations where decisions are taken with little
human intervention.

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ii) Enterprise Blockchains (Private and provide transparency, accountability and security of
Permissioned) transactions.

In the case of enterprise applications like Hyperledger, In a permissioned Blockchain, selected and
Multichain, Quorum, and Corda etc, Blockchain is authorised participants take part in the consensus
defined by IBM as ‘A Peer to Peer Distributed Ledger process, and identified participants with valid
Technology’ for a new generation of transactional identities can read and send transactions.
applications that vastly improve the security, In a private Blockchain, a centralised and trusted
transparency and accountability while streamlining authority is in charge of granting approvals and
organisational processes. Here, the ledger is shared allowing access to the ledger for authorised
between identified, transacting participants to participants.

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What are the building blocks of a Bitcoin II) Merkle root (Root of roots):
Blockchain? While a hash is a unique number derived out of the
base number, the Merkle root is derived from hashing
I) Hash function: pairs of transactions together until only one element

A hash function produces a unique output for a is left. Since the hash was unique, a change in any
given input, which cannot be replicated. Hash of any transaction would result in a change in the Merkle
information is treated as the unique and indisputable root, which would be easily caught.
representation of the information. Hashes form the
heart of Blockchain as the blocks are represented by III) Private key and Public Key:
the hash of the information, and are chained together The Private Key and Public Key are used to encrypt
as a linked list of chronologically mined and validated information using mathematical algorithms,
blocks. rendering decryption virtually impossible without

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these keys. Computationally, it is similar to the referred to as the ‘Consensus Mechanism’. Consensus
factoring of prime numbers, which is a simple, formation ensures the involvement of multiple
mathematical procedure. However, decomposing validators in a systematic and predetermined manner,
the result is difficult without prior knowledge of its ensuring decentralisation and objectivity of decision-
factors. making. It ensures implementation of the key features
of the Blockchain platform like increased trust,
IV) Digital Signatures: immutability of the transactions, and maintenance of
Digital signatures are a unique aspect of Blockchain integrity of the platform.
transactions, and provide a layer of security to carry
out and validate genuine transactions. A digital The consensus mechanism is the soul of the
signature is a mathematical scheme to present the Blockchain platform, and has to help members in
authenticity of digital messages or documents. A valid reaching the right decision all the time. The sanctity
digital signature gives the recipient reason to believe of the Blockchain application depends on the strength
that the message was created by a known sender and reliability of the consensus mechanism. The
(authentication), and the sender cannot deny having consensus mechanism followed by Bitcoin, and the
sent the message (non-repudiation), or that the earlier version of the public Ethereum client is known
message was not altered in transit. as ‘Proof of Work (POW)’ where miners or validators
compete with each other, and burn valuable resources
V) Consensus Mechanisms (POW, POS, DPOS, like computing power and enormous amounts of
PBFT etc.): electricity to guess the right Nonce (number used
The mechanism by which members come to an only once) and create a targeted hash to win the race
agreement about the authenticity of a transaction is to create a block.

How do you represent a simple Bitcoin Blockchain?


Bitcoin Blockchain consists of a series of hash-
linked, time-stamped blocks embedding details of
transactions in a unique manner. These blocks are
available to everyone, which creates a distributed
ledger.

Who are the participants of the Blockchain?


In Bitcoin and Ethereum, transactions take place
between peers, identified through their public keys/
addresses, or pseudonyms, which are difficult to trace
to real-world entities unless an enormous effort is
made on tracking the IP address.

In Ethereum, the founders are part of a foundation

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that has a small role in the functioning of the What does a Bitcoin Blockchain’s Block contain?
network, transacted through pseudonymous parties. Who owns Bitcoin Blockchain? What is the
In the case of enterprise Blockchain, transactions are ownership structure in other Blockchains and
conducted between untrusting peers with established applications?
identity and credentials, validated through a member Bitcoin Blockchain is a publicly-owned blockchain,
identification methodology. and is open for anyone to transact, download, store
and mine. It works like a decentralised autonomous
Bitcoin and Ethereum public Blockchain-based organisation without an owner group. Any decisions
businesses rely on a cryptoasset-based mechanism to regarding the upgradation of the software etc, are
incentivise economic and value creation activity. In uploaded in the form of suggestions in public portals
the case of enterprise Blockchain, promoted and run like GitHub, and voted upon by the community.
by an established member, or member consortiums, Major proposals need to be adopted by over 95
the incentive arises from the various benefits percent votes for inclusion.
derived from a Blockchain-based approach that
vastly increases the accountability, transparency and While upgradations in the core network are called
efficiency of operations while streamlining business ‘Soft fork’, new blockchains arising out of the core
processes. blockchain following disagreements in the proposed
implementation leading to breaking away of a set
of miners to start a new blockchain with different

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features is called ‘Hard fork’. Some of the strategies being discussed and
Bitcoin cash and Bitcoin Gold are new implemented by leading platforms to manage scale
cryptocurrencies formed out of such hard forks. are as follows:
• Changing the consensus algorithm. Proof of
In case of Ethereum, while the public blockchain Work - followed by Bitcoin blockchain and some
operates like a decentralised application, or DAPP, versions of Ethereum blockchain - consume huge
which is overseen from a distance by the Ethereum amount of resources to arrive at a deterministic
foundation, for the private blockchain version, as consensus. The Ethereum platform will soon
in the case of Hyperledger Fabric, Corda, Quorum, shift to a ‘Proof of Stake’-based consensus, which
and Multichain etc, the governance is done by involves negligible energy consumption.
an identified promoter in case of a single-party-
promoted blockchain, and by a quorum represented Some new-generation public platforms use
by a promoter group in case of consortium variations of ‘POW’- and ‘POS’-based consensus
blockchains. algorithms like PoET (Proof of Elapsed Time)
In decentralised autonomous organisations, or DAOs, and DPOS (Delegated Proof of Stake) to
created with public blockchains as the backend, the minimise resource utilisation and wastage.
decision making is driven programmatically, while
the promoters oversee the governance through a Enterprise blockchains use energy efficient
pre-declared code of conduct as per a consensus algorithms like ‘Proof of Authority’ (POA),
mechanism. Practical Byzantine Fault tolerant’ (PBFT), ‘Node
to Node’ (N2N) and their variations to arrive at a
How are public blockchains like Bitcoin and deterministic consensus.
Ethereum planning to scale up in view of the rapid
increase in usage? • To prevent blockchain bloating, external
Bitcoin and Ethereum platforms are supported by databases linked through the InterPlanetary File
the Bitcoin improvement proposal and Ethereum System, or IPFS, or Swarm, giant-scale databases
improvement proposal, respectively. All other public like BigChainDB and FlureeDB, cloud databases
platforms are actively supported by a number of like Interplanetary Database, or IPDB, as well as
improvement projects that are generally incentivised decentralised storage systems like Storj, SIA etc,
by using a mechanism involving native currencies are used.
and tokens. For Bitcoin, the proposals are listed on
GitHub, and are brought to the notice of informal • Sharding, Segwit, Sidechains etc, are some of the
leadership bodies overseeing bitcoin.org. They are concepts being used to improve the processing
then put to the notice of mining members to vote power of public blockchains.
on and adopt. In case of other blockchains, the
foundation or the governing body consisting of the Sharding
founders and associates oversees the implementation A database shard is a horizontal partition of data
of the improvement proposals. in a database or search engine. Each individual

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partition is referred to as a shard or database (‘witness’ data) from the original portion, and
shard. Each shard is held on a separate database appending it as a separate structure at the end.
server to spread the load. Sidechains
Sidechains allow organisations to leverage
Segwit (Segregated Witness consensus layer) the power of the main blockchain platform
Bitcoin Improvement Proposal number BIP141 like Bitcoin by creating a pegged chain with
aimed to solve the transaction malleability much more versatile features, and having
that allowed a possibility to double the spend interoperability of their assets with the assets on
by changing the transaction code before the main chain (bitcoins). However, sidechains
confirmation, while being mined. It was also are still considered vulnerable to double spend,
intended to mitigate the size-limitation problem and are awaiting confirmation of results from
that reduces the Bitcoin transaction speed. It approaches like NiPoPoW (Non-Interactive
does this by splitting the transaction into two Proofs of Proofs of Work) that could address this
segments - removing the unlocking signature issue.

What are the prominent use cases of Blockchain across the world?

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Growing risks and the need for blockchain
Following massive data leaks through apps such attacks now, when the world has over 20 billion
running on its platform like ‘Thisismydigitallife’, internet connected devices, as per an IHS Survey.
‘myPersonality’, etc. and the backlash owing to the
Cambridge Analytica case, Facebook, on May 14, Aramco, once the world’s largest company by market
2018, announced it had suspended around 200 apps capitalisation, was crippled by an attack on its
as part of its investigation on applications that had computers and network systems that tried to cripple
access to large amounts of user information. its oil production output. We are besieged by many
single points of failure in the form of centralised apps
This exposed potential privacy threats by large that hold data on us.
centralised data aggregators that billions of global
citizens used for financial transactions and to engage While, in many cases, the motives behind cyber
in social media. warfare and attacks are economical (for example,
ransomware attacks), in many cases, the motives and
The World Economic Forum’s Global Risks Report the identity of the attackers is unknown.
2018 cited cyber-attack and data fraud as two of the
top five threats to global stability in coming years. Ransomware was the top variety of malicious
In fact, leading global companies including Google, software of 2018, found in 39 percent of malware-
Yahoo, Facebook, and many transnational banks, related data breaches. — Verizon, 2018
which are supposed to maintain high standards
of internet security have fallen prey to audacious The increasing risk due to ‘Single Points of Failure’
assaults. at centralised organisations, the growing threat of
cyber terrorism, and the increasing mistrust between
The world is still reeling from the October 2016 organiations warrants drastic solutions.
attack on the DDOS (Distributed Denial of Service),
where a mere 1 lakh IoT endpoints compromised The recent instances of large scale fraudulent bank
by a botnet brought down many top internet portals transactions to the tune of over Rs 11,000 crore,
through a flood of malicious traffic. How do we avoid probably with the involvement of corrupt bank

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officials in collusion customers brought to light and SAAS (Software as a Service) have enabled
the urgent need to overhaul banking operations by a large number of entrepreneurs with limited
leveraging cutting edge technologies to eliminate resources to undertake application development,
human-related errors and frauds. and thus implement Proof of Concepts (POCs)
and launch new products and services with a low
We are witnessing three major trends that are coming investments.
together to spur the development and adoption of the
latest technologies in tandem. They are: These are catalysing the growth and adoption of new
age technologies like Blockchain at a rapid rate.
1. Increasing tendency for decentralisation:
Decentralisation has three dimensions, namely Blockchain offers a solution to manage growing risks
i) Political, ii) Administrative and iii) Logical. through a variety of features that promote security
Increasing scepticism about centralised control and privacy of transactions, and personal data.
and its potential to become the single point of
failure is a strong catalyst for subjects asserting The WFP (World Food Programme) saved millions of
self-expression. Ironically, the need to trust a dollars by distributing aid to Syrian refugees directly
central organisation has led to the proliferation and cutting the middlemen. It also increased the
of ecommerce, and the very lack of trust in speed of disbursements. By leveraging Blockchain
centralised organisations, and their vulnerability technology, WFP saved over 98 percent of its bank
to act as single points of failure, is accelerating and financial charges.
the trend towards political and administrative
decentralisation. It may still be acceptable to Estonia, a country of around 1.3 million people,
be logically centralised to add method to the is best known as the birth place of Skype. One of
process. the most digitally advanced countries in the world,
2. Increasing availability of open source Estonia is a part of the D5 Nations - UK, South Korea,
technologies: The trend towards open source Israel, New Zealand. Its Digital Citizen Identity card is
technologies like Linux, Android operating known to be the most advanced in the world, and the
systems, and programming languages like Java, health records of the entire population are secured by
PHP has spread across technological paradigms, Blockchain technology. Estonia is one of the biggest
putting immense power in the hands of exponents of ‘Internet of Things’ (IoT) technology,
developers to rapidly develop programmes and and Estonians are securing and empowering their IoT
applications at minimal cost. devices with Blockchain technology to fight malware
3. Availability of cloud computing-enabled ‘pay attacks.
as you use’ services: During the early days of
the internet, for an organisation to develop any With 100 percent of its population on the blockchain,
applications, it had to invest heavily in hardware. Estonia is a role model for many countries to take
Now, environments such as PAAS (Platform as advantage of this revolutionary technology.
a Service), IAAS (Infrastructure as a Service)

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Bitcoin and the blockchain
Any currency we use must have some desirable that ‘Bitcoin is exciting because it shows how cheap
characteristics: it can be. Bitcoin is better than currency in that you
1. Scarcity: There should be limited supply of don’t have to be physically in the same place and of
units that are represented by a common symbol course, for large transactions, currency can get pretty
(Example - $) inconvenient.’
2. Fungibility: Interchange ability of the unit is
represented by the same symbol. Bitcoin is the first implementation of Blockchain
3. Divisibility: Ability to be divided into fractional technology, and consists of six primary elements:
units for varying transaction sizes.
4. Durability: The representative single unit should • An updated distributed ledger replicated across
be available across time periods. peers undertaking transactions through a
5. Transferability: The units should be transferrable platform consisting Unspent Outputs (UTXO)
from person to person into respective accounts. in chronological order

In the real world, gold and the US dollar are seen as • A network of nodes verifying and propagating
the standard for value transfer, representing precious transactions generated by participants
metal and fiat currency, respectively.
• A group of miners dispersed across the world to
Bitcoin successfully implemented the concept of mine transactions to ensure their authenticity,
cryptocurrency, implying a unit of money that had and maintain the integrity of the Blockchain
been created on the internet, and could be distributed using automated execution of the protocol
without the fear of double spending. defined by the consensus algorithm called ‘Proof
of Work’. ‘Proof of Work’ represents the amount
To own a bitcoin, all one needed was a computer with of work that miners undertake utilising their
an operating system and fiat currency to convert into computing power and electricity spent, to be
‘bitcoins’. eligible for block rewards in the form of newly-
mined coins as per a predefined formula
Bill Gates, the co-founder of Microsoft had once
famously said, ‘Bitcoin is better than money’. • Blockchain wallets used by participants to initiate
It can be observed that Bitcoin, though it has some transactions, and store value in the form of
limitations as against a fiat currency like the US UTXOs or unspent transaction outputs measured
dollar, scores better across a range of desirable in the number of bitcoins
characteristics of a currency.
• The value that is exchanged across the platform
No wonder then that Bill Gates went on to remark - ‘bitcoin’ or its fraction - which is treated as a

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cryptocurrency with all the properties associated person to another without the need of a trusted
with a fiat currency, except the unitised physical central party - a bank or a government. As on August
representation and regulatory approvals 7, 2009, there are over 17 million bitcoins with an
approximate total value of over $120 billion at a unit
• Exchanges that facilitate buying and selling of price of over $7000.
cryptocurrencies and derived products known
as tokens among themselves using wallets, and The success of Bitcoin led to the launch of a number
conversion of the same into fiat currencies in a of variations of alternate blockchains for a variety of
dynamic manner purposes. A majority of them are cryptocurrencies,
with different properties in terms of privacy,
Bitcoin has proved that billions of dollars’ worth of speed of execution, and consensus mechanism for
value can be exchanged across the world from one transaction validation. The most prominent variation

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was proposed in the form of Ethereum Blockchain • Immutable data:
platform by Vitalik Buterin and his team at Ethereum The blockchain contains replicated transactional
foundation. data appended to the existing database in the
form of serially numbered and timestamped
Properties of Blockchain: blocks after being approved by the constituents
• Peer to peer: of the blockchain as per a standardised and
Blockchain enables peer-to-peer transactions fool-proof protocol. Hence, to change the data
across parties that are unknown to each other. recorded in the system, one has to get approval
Unlike in current methods, where trusted from all parties, and even after that, the new
intermediaries or central authorities help data is recorded through approval of updating
alleviate third-party risk, peers in the Blockchain transactions. Once a transaction is approved
can transact through an automated programme and data recorded, it is considered immutable.
that guarantees correct transactions. This is the All changes thus become identifiable in the
decentralised approach to executing transactions. form of updating transactions along with their
corresponding track record. This is how data in
• Secure transactions: the Blockchain is considered tamper proof.
Transactions on the Blockchain take place
between parties verified and authenticated • Auditability:
through cryptographically-secured keys, and The data in blockchain is stored in the form of
digital signatures. Further, transactions are hashes and Merkle roots of sets of data. In case
approved and authorised by a tested democratic any data is changed, the hash of the data, and
process known as ‘Consensus Mechanism’. that of the overall set of data (stored in the form
of a Merkle root or combined hash of hashes)
• Trust between transacting parties without changes. Hence, blockchain can be used to audit
intermediaries: data to throw out any unapproved tampering.
Role of non-value adding middlemen is
minimised as their role is automated to a large • Paperless:
extent with programmed intervention through Blockchain deals with digital identities of assets,
smart contracts/ chaincode, as the case may their owners, and the transactions that result in
be, increasing execution speed and reducing their respective state, like change of ownership
transaction costs. etc. All these are programmatically carried out
through automatised processes resulting in
paperless transactions.

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ETHEREUM: the new generation
platformto catalyse innovation and spur
enterptreneurship globally
The next major development in the history of to be triggered, where all centralised organisations
blockchain was the launch of public blockchain conducting businesses, and offering a variety of
Ethereum, which allowed Turing complete services to consumers, could be modelled without a
programmes to be run on its blockchain, in centralised control structure and aggregation, through
addition to having the salient features of the Bitcoin applications called smart contracts. End users could
Blockchain. Ethereum was proposed in late 2013 conduct business amongst themselves without any
by Vitalik Buterin, a cryptocurrency researcher and additional human intervention.

programmer. Its development was funded by an When a smart contract is triggered through an
online crowd sale between July and August 2014. The external account, the business logic embedded in the
system went live on July 30, 2015, with 11.9 million contract automatically gets executed; along with the
coins ‘pre-mined’ for the crowd sale. ledger, all corresponding accounts get updated, and
Ethereum facilitated the launch of many P2P written on all nodes of the blockchain. While reading
organisations that can conduct operations over any date from the blockchain, the data can be read
the internet without the fear of counterparty trust only from the nearest node, but while writing, the
issues through the use of applications named ‘Smart data is written onto all nodes.
Contracts’.
It thus takes more effort and resources to write and
Ethereum revolutionised the concept of blockchain update information on the Ethereum blockchain.
by allowing the use of high-level programming To incentivise this, Ethereum blockchain uses the
languages like Solidity to create an application that concept of ‘gas’, which is used to pay for the effort
automated business processes, and recorded them on undertaken to execute any type of transaction on the
the blockchain. This allowed large-scale innovation blockchain. Gas is expressed as a proportion of the

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Ethereum blockchain’s native currency - ether - and ownership could flourish, while those who could not
keeps varying to adjust for the variation in the price of earn consumers’ trust would burn out.
ether, thus keeping transaction execution costs stable.
There was a time when one would engage in business With the success of Bitcoin and Ethereum, it has
with an organisation only if they were confident of the been proven that organisations that run with
management. Ecommerce companies with credible automated smart contracts, and are not controlled by

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a centralised owner group, are more trusted, leading The tokens are launched through a process called
to the current wave of ‘Decentralised Autonomous ICO (initial coin offering) to fund the decentralised
Organisations’ gaining ground. autonomous organisations developed using DAPPs,
which are created by cryptopreneurs. The tokens are
The concept of DAOs has led to the launch of a means of incentivising promoters, contractors, and
organisations that are completely out of the purview those working to further the viability of the platform,
of regulators, and are governed by computer and are also used by those conducting transactions.
applications named, DAPPS which are made up of This, in turn, leads to demand for tokens, and
smart contracts. increases their value when traded on cryptocurrency
exchanges across the world.
These organisations are incentivised with their own
community-based cryptoassets, namely tokens, issued
through ‘initial coin offerings’. Any organisation
can build communities by creating decentralised
applications using smart contracts that leverage
Ethereum Blockchain to verify transactions, and
‘offer’ trust in an automated manner.
To do this, companies running smart contracts
can use their own currency, reward their partners
and shareholders with it, and have customers using
it. Ethereum facilitated this process by allowing
standardised protocols in the form of ERC-20, ERC-
223 and ERC-721 to launch smart contracts that
implement token through Ethereum Blockchain.

The facility to raise money quickly by issuing


tokens has resulted in the setting up of thousands
of enterprises, which has led to the development
of a huge ecosystem of miners, exchanges, traders,
consultants, market-makers and the like.

In 2017, ICOs issuing tokens raised over $4.8 billion,


mostly to build cryptocurrency and blockchain
infrastructure for future businesses and opportunities.
Against this, in the first seven months of 2018, over
$6.3 billion worth of capital has been raised through
ICOs.

23
Ethereum has been the most popular platform August 18, 2018, is given in the following graph.
to develop consumer-oriented peer-to-peer Cryptoassets - currencies and coins issued on
decentralised autonomous organisations. There are various platforms like Ethereum, EOS, NEO, NEM,
a number of options available to entrepreneurs to Lisk etc - are traded on cryptoexchanges, allowing
develop their platforms, depending on the scope and their conversion across the assets, and also into fiat
area of operation, and the use cases. currencies like the US dollar. This has brought in
liquidity to investors, as well as allowing them to
The total market capitalisation of all cryptoassets transfer money globally through the internet without
issued through ICOs, and cryptocurrencies as on going through the regulated monetary system.

24
The top 10 cryptoassets trading across all exchanges are given in the following graph:

With the global cryptoasset market capitalisation exceeding $300 billion, it is a matter of concern that India is
nowhere in the picture as far as the blockchain ecosystem goes.

25
The birth of enterprise blockchain
The disruption in the currency space caused by applications. These applications do not involve any
bitcoin led to the launch of a number of altcoins internal currencies, but can facilitate the launch of
arising out of the hard fork (with a substantial internal assets that can be tracked through a pre-
upgradation of platform functionality), while determined governance mechanism.
Ethereum’s functionality threatened to disturb
every business that catered to customers through a The Hyperledger Project is a prominent platform to
centralised model. The evolution of the blockchain develop enterprise applications.
paradigm further evolved with the launch of a
number of platforms that focussed on enterprise Hyperledger Project is promoted by a consortium of

26
organisations led by IBM and the Linux Foundation. processes. In enterprises, there is higher emphasis on
It comprises of many sub-projects contributed by accountability, identity, scalability and economy of
leading global organisations. Hyperledger is an operations, as companies are keen about their return
attempt at open source cross-industry collaboration on investments. Hence, consensus mechanisms like
that promotes the adoption of blockchain across that of cryptocurrencies are not relevant.
different industries.

With new developments, the blockchain landscape is


Blockchain is described by IBM as ‘peer-to- poised to enter into a high-growth phase across the
peer’ distributed ledger technology for a new world, eliminating corruption and non-value adding
generation of transactional applications that vastly middlemen, and more importantly, enabling citizens
improves dependability, security, accountability to monetise their own data, which was hitherto being
and transparency, while streamlining business monetised by third parties.

27
Enterprise apllication for blockchain and
opportunity in India
It is clear that blockchain has wide-spread in choosing and applying blockchain-based solutions
implications for every major industry across the appropriately. This is where organisations and startups
world, and India is no exception. working in the blockchain business need to exercise
care and judgement.
Blockchain is helping companies overcome challenges
with trust and transparency – IBM. A flowchart developed by Bloqcube (https://bloqcube.
com/) founder Rama Rao gives an appropriate list
Though blockchain has widespread implications, it is of questions to be asked before zeroing in on any
important to know that it is not the solution for every blockchain-based solution for an application.
problem we face, and hence we need to be selective

28
Blockchain in Financial services:
One of the major applications of blockchain is effecting faster international financial transactions. An example of
a transaction with and without blockchain can be depicted as follows (Source: Infosys external document 2016)

Normal International Payment transaction:

• Company A (US) needs to make a payment to Company


B (Japan) – Company A requests its bank (Bank A – US)
to send a US dollar payment to Company B
• Bank A does not belong to the corresponding clearing
house – it has to request its correspondent bank (Bank
B), which is a member of CHIPS, to facilitate the
transfer; SWIFT message from Bank A to Bank B
• Bank B, a member of the clearing house, sends the funds
transfer command to the clearing house
• The clearing house executes the fund transfer by
crediting the account of another US clearing house
member (Bank C)
• Bank D in Japan is Bank C’s correspondent bank and
receives payment from Bank C; SWIFT message from
Bank C to Bank D
• Company B has an account with Bank D and receives
the funds

International Payment Transaction through Blockchain.

Banks are verified partners within a peer network that uses a


private blockchain solution with private keys.
Each member of this blockchain platform can send funds
and information directly to other members, an open market
principle guarantees lowest exchange rate fees.
Information and back-office data is saved and integrated into
each block of transaction.
Ripple transaction protocol (RTXP) can serve as a central
protocol, which allows members to conduct cross-currency
transactions in 3 to 10 seconds

• Company A (US) needs to make a payment to Company


B (Japan) – Company A requests its bank (Bank A - US)
to send a dollar payment to Company B
• Bank A directly executes the fund transfer to Bank D
via the blockchain protocol (information and back office
data is stored in the blockchain)
• Company B has an account with Bank D and receives
the funds

29
Individual transactions and cross border payments for Blockchain in Manufacturing:
large transactions can be effected through a private A lot of activity in blockchain technology is centred
blockchain where counterparty banks are members, around financial applications, asset tracking, and
drastically reducing costs and improving efficiencies. supply chain. Application of a framework to identify
Globally, several banks are forming a consortia to various aspects in the manufacturing sector gives
take advantage of blockchain technology for efficient us an idea of the segments that are amenable to the
cross-border money transfers. Ripple Labs and R3 application of blockchain technology. As per an
Corda have led these consortia globally, and SBI-led assessment, at least four out of six aspects governing
Bankchain, among Indian banks, is exploring its the relationship between the parties must be met, as
use case actively. In India, organisations like Bajaj given in the following table.
Electricals with the help of YES Bank, and Mahindra
and Mahindra group, through its group company Source: Application of Blockchain technology in the
Mahindra Finance, are exploring trade financing manufacturing Industry
through blockchain technology.
Authors: Vincent Dieterich, Marko Ivanovic, Thomas
For Blockchain to have a wider impact in the finance Meier, Sebastian Zäpfel (Technische Universität
domain, it is important that a large number of parties München), Manuel Utz (StromDAO), Philipp
transacting with each other come on board on a Sandner (Frankfurt School Blockchain Centre),
common blockchain platform. This is still a long way published by Philip Sanders, Frankfurt School
off, and several organisations are still working on Blockchain Centre, November 2017.
their proof of concepts.

The below figure gives us an idea of the same:

30
An overview of the use cases across various segments of manufacturing, along with the current use cases, is given
in the following table:

The activities that may see strong benefits from blockchain technology are mostly in the proof of concept stage,
and their real economic impact can be felt in three to five years.

31
Source: Luca Mary, 17 April 2018, Blockchainitaly.org

Blockchain in supply chain: Blockchain can enable direct interaction among


Recently, IBM and Maersk announced a joint various parties in a supply chain, establishing
venture to explore the application of blockchain in programme-driven trust and eliminating
the supply chain industry, which consists of several intermediaries. One example could be the tracking
non-trusting parties interacting with each other, of refrigerated goods by recording the temperature
exchanging a humongous amount of information across the value chain with the help of IoT devices.
through documents. The application of blockchain Further, the movement of goods from the
to the supply chain industry promises a huge benefit manufacturer to the end consumer, along with the
in terms of streamlining of operations, speedy and various parameters associated with the goods, can be
efficient processes, and elimination of time-, effort- tracked on a live basis with IoT sensors and devices
and money-consuming paper work. tagged to the goods. This will further help in the
elimination of fake products as their ownership can
The process of supply chain among various parties be traced. An example use case is depicted below:
can be described in the following diagram:

32
In the pharmaceutical industry, it would be possible Similarly, in agriculture, produce can be tracked
to track the movement of a medicine strip across from farm to fork, and IoT technology can be used to
the value chain - from the manufacturer to the monitor storage conditions like temperature to ensure
last distribution point - proving the source, and it is not spoilt along the way.
differentiating it from a fake.

33
The movement of the produce along the supply Background verification and identity management
chain can be mapped, automated and tracked by can also be integrated into the blockchain platform
leveraging IoT and blockchain technologies to ensure for educational resources and interactions.
spoilage and wastage is minimised, contamination
is controlled, and can be traced to the farm that
produces the crop, if required.

Blockchain to track ownership of assets and


property rights:
Blockchain tracks the movement of goods, and the
change in ownership in a trustworthy manner. It
enables proof of authenticity of the goods across
fields such as art, music, pharmaceuticals, assets, and
original certificates, etc.

Blockchain in education:
Blockchain has extensive application in the education
sector. Every year, millions of certificates are issued
by various institutions to students across the world,
which are used as credentials for various purposes. It
Blockchain in HR:
is imperative to have a fool-proof process to confirm
Blockchain has extensive application in the human
the authenticity and originality of these documents.
resource industry. Extensive dependence of the HR
Blockchain now offers a platform for organisations
industry on third-party portals to source resumes and
to confirm the authenticity of these documents
employees, dependence on manpower for large scale
electronically. For this, organisations who give out the
outsourcing, extensive documentation across every
certificates record them in a blockchain. Any party
aspect of the human resource function that needs to
looking to confirm the authenticity of a certificate
be recorded, tracked and its authenticity ascertained,
can verify the same by comparing it with the original.
offer excellent use cases for blockchain technology.
For this, the property of ‘Hashing’, which generates
a unique hash for a unique digital document, is
World Food Programme’s aid disbursements to
used, and hashes of the original and presented
Syrian refugees:
documents in conjunction with the digital signature
The World Food Programme created a private
are compared, and the originality ascertained if the
blockchain fork of Ethereum with the help of
hashes are identical.
engineering firm Parity, and is transferring aid to
Syrian refugees directly.
Apart from this, teachers and students can discover
Before:
each other and offer peer-to-peer training and
World Food Programme earlier provided vouchers
educational services as well.

34
as aid to refugees, which they used to encash in retail For this, they have to provide extensive
outlets and supermarkets against their purchases. documentation to banks, leading to high costs,
This amounted to huge leakages on account of wrong and also payments to intermediaries to facilitate
voucher submissions, bank charges and time delays. documentation, relationships, contacts and other
logistical issues.
Now:
With the help of blockchain, refugees are provided With the help of blockchain, companies can directly
accounts on the blockchain, identified by the scanned transact with banks securely, with limited paperwork
images of their irises. Upon purchasing any item in a high-trust environment.
at a supermarket, the refugees are identified by iris
scanners and the due amount is charged to the World Future:
Food Programme. The use of blockchain technology helps in the
following aspects:
This has saved the WFP over 98 percent in bank and • Reduction in transaction costs due to elimination
other financial charges, and now, it plans to spread of middlemen.
the same to refugees across regions for a variety of • Trust through the system as all transactions are
services. recorded on a distributed ledger with established
identities and are time stamped.
Trade finance on blockchain: • Transparency and elimination of duplicity or
Now: mistakes in invoices as all records are managed
Companies seek credit from banks and finance through a streamlined process and verified
companies for formats that are encoded into the system.
• Working capital • All parties can operate in a safe and efficient
• Manufacturing costs environment, devoid of human dependency.
• Temporary spurts in demand

35
Supply chain transactions between manufacturers procurement/ manufacturing cycle to streamline
and distributors: operations
Manufacturers of consumer products undertake • Reduced dependency on manual intervention,
large-scale distribution through a vast network of leading to faster payment cycles
distributors and resellers. Most often, it becomes • Tamper-evident and timestamped records to help
difficult to coordinate the billing and cash collection monitor the trends of order-supply-despatch-
cycle due to skewed demand and supply patterns, and delivery-payment cycle and reduce order-to-cash
limited manpower availability. cycle through streamlined operations
Problems with the current system: • Reduction in friction due to automation-led
• Lack of trust between manufacturers and management of issues like invoicing and money
distributors resulting in delayed invoicing and collection
payment cycles
• High level of paperwork leading to unnecessary Cross-border remittance:
time delays and expenses Cross-border remittance is often a time-consuming
• Huge pressure on sales persons to reach targets, process as it involves multiple countries, banks and
resulting in excessive dumping at times and regulatory and non-regulatory agencies. This results
inordinate delays in payment in
• Distributors rotating their money among various • Delays and a lot of documentation
manufacturers, leading to lower working capital • High transaction charges across the various
in the business to fund other interests parties
A blockchain connecting interested parties as nodes
on either side of the border, and also regulatory
agencies as participants, can speed up the process
significantly. However, the financial organisation
serving as the intermediary has to be in tune with the
regulatory environment to avoid any legal issues.
A R3 Cords-based system with a trusted-third party
notary offers the best solution for a blockchain-based
solution. The solution offers the following benefits:
• Details of the customer transferring the
money, and the one receiving money can be
Blockchain-based distribution management system
cryptographically encoded to ensure their details
offers the following:
are confidential and known only to relevant
• Smart contracts to automate the process of
parties on a must/ already know basis
invoicing, despatch, and recording transactions
• Instantaneous transfer of money through smart
• Smart contracts to interact with other
contract operation
applications like production planning, ERP,
• Reduced transaction fees by cutting down on
CRM, analytics and other systems to enable
irrelevant intermediaries
fine tuning of demand planning and product

36
Bill discounting:
Invoice discounting is often undertaken by medium
and small-scale industries dealing with large
creditworthy organisations. The process involves a lot
of documentation, and time-consuming procedures.
Here, blockchain can offer a solution by offering trust
through a smart contract, and by cutting down a
number of mediators between parties.

R3 Corda offers an appropriate solution with a node-


to-node secured and verifiable transaction.

The solution involves a trusted notary operated by Medical records:


a regulated and accredited entity that can ensure Estonia has digitised the medical records of its
transaction sanctity without intruding into the entire population, which have been uploaded
confidentiality of transactions. onto the blockchain. This enables doctors to have
verifiable, tamper-evident medical records with the
entire history of diagnostic tests to offer the right
prescription.

For more information on, and detailed working


of medical record blockchain, please refer, https://
medicalchain.com/en/whitepaper/
A patient can use his mobile device to access
information, and also to provide permission to a
healthcare provider to access the health data.

37
Health insurance: • Automated comprehensive background and
The Government of Singapore has implemented authenticity verification of all things insured
blockchain-based medical insurance for a segment • Automated claim handling and settlement
of its population on a pilot basis. An Ethereum- • Elimination of insurance fraud due to
based private blockchain is implemented to connect transparent recording and immutable data sets
health insurance providers, hospitals and banks. on the blockchain that removes the propensity to
When a patient in a given risk category signs up for defraud insurance companies with inflated and
an insurance plan, the details are recorded on the multiple claims
blockchain. • Automated insurance settlement through smart
contracts that get triggered on impacting events
In case a patient undergoes a procedure and needs to
avail insurance, the smart contract gets triggered and Energy Trading:
the money is transferred from the insurance company Energy trading is another opportunity that is
to the hospital within 24 hours to clear the bills. increasingly being evaluated for blockchain adoption.
This has substantially eased the pain point of patients Smart contracts help trade any excess energy from
who are often unsure about the settlement of claims. producers, and can provide for listing, discovery,
The following are some use cases emerging in the trading, and settlement of all transactions pertaining
insurance domain. to energy trading among the generators and users.

38
Global trends in government and enterprise
applications for blockchain
It will be interesting to see the activities of • Government data service should actively use
governments and public sector organisations in the technology as an expert customer, thus
embracing blockchain across the world. supporting and influencing economic activity in
the sector.
United Kingdom: • UK should actively invest in research to ensure
UK was among the early ones to recognise distributed ledger technologies are scalable,
the importance of blockchain technology. UK secure and accurate. Cryptography, cybersecurity
government’s chief scientific advisor Sir Mark and development of new algorithms have been
Walport, in a report, highlighted how blockchain considered priority research areas for investment
could help in areas such as reducing benefit through the newly-created Alan Turing Institute
fraud, protecting critical infrastructure, and to create commercial applications for blockchain.
registering assets. The following are some of the • Government should create a regulatory
recommendations considered for implementation by framework to safeguard interests of participants
the UK. in the blockchain industry while encouraging

39
innovation environment for blockchain technology companies
• Government should set standards for integrity, with a supportive policy. Under Project Ubin, using
security and privacy of blockchain data reflecting the concept of Digitised Singapore Dollar, the
in both software code and regulatory issues Monetary Authority of Singapore has successfully
• Government should work at creating powerful conducted a pilot for interbank payments. It is now
identity management tools for individuals and testing blockchain technology for cross-border
organisations to provide authentication while payments, bonds trading, and insurance settlements.
protecting privacy. Further, there must be Singapore has over 15 blockchain startups that have
interoperability across ledgers to maximise the together raised over $500 million in the last two years
power of distributed ledger technologies to invest in blockchain platforms and projects.

The Government of the UK has also formed a Japan: In April 2017, Japan passed a low recognising
Cryptoassets Task Force, comprising of the Treasury, bitcoin as legal tender, and permitted 11 companies
Bank of England, and the Financial Conduct to operate cryptocurrency exchanges. The Financial
Authority to understand and exploit the benefits of Services Agency of Japan, along with three leading
cryptoassets, and bring them into the fold of effective financial institutions - Bank of Tokyo-Mitsubishi
regulation. UFJ, Sumitomo Mitsui and Mizuho - are creating a
blockchain-based digital ID for all Japanese citizens.
Blockchain as a service has been made available These digital IDs will be used to create a national
for purchase through the government’s digital property registry including the sale prices, and to
marketplace allowing all government departments award government contracts.
to experiment and deploy the distributed ledger
technology. In 2016, UK’s Department of Work A consortium of Japanese banks has joined hands to
and Pensions successfully conducted a PoC for launch a new national digital currency, J coin, to wean
distributing benefit payments to subscribers using away citizens from excessive cash usage.
blockchain technology using an app called Govcoin,
with the properties of a cryptocurrency. China: In late 2016, capital markets and financial
services company Juzhen Financials closed on a $23
The UK is home to top blockchain technology million Series A, in which Fenbushi Capital, a China-
companies like Blockchain, a cryptocurrency wallet based blockchain-focused VC firm participated. In
and money services platform, and SETL, a capital early 2018, the Chinese government banned the use
markets and financial services blockchain company and trade of cryptocurrency in the country. China
that has received significant funding from marquee has, however, announced its strong appreciation
investors. Recently, a UK-based crypto mining and support for blockchain technology. It has filed
company became the first to raise $32 million through more than 225 blockchain-related patents last year
an IPO on the London Stock Exchange. and the country is home to over 4,000 companies
with blockchain in their name, at least five times
Singapore: Singapore boasts of a conducive more than its nearest competitor, the US. China’s

40
state-backed Bank of China and financial services Dubai has also launched its own cryptocurrency,
corporation China Union Pay have announced plans emCash based on blockchain technology. This may
to jointly explore blockchain applications to develop a result in a giant leap for the city to harness game-
payment system. There are also talks that China plans changing innovations to improve ease of doing
to release its own digital currency as a play against business, and quality of life.
bitcoin with a motto of ‘disintermediarisation’ instead
of ‘decentralisation’. China is also home to one of the Estonia: Considered to be a leader in the adoption
most popular public blockchain platforms, NEO. of blockchain technology, Estonia’s citizens and
e-residents are issued a cryptographically secure
Dubai: As part of its plan to adopt latest technologies digital ID card powered by blockchain infrastructure
and innovative practices at the global level, Dubai on the backend. This allows access to various public
Future Foundation announced the establishment of services like health, judiciary, security, legislative and
Global Blockchain Council consisting of 46 members commercial code systems. On a blockchain platform,
who are potential key players in the blockchain citizens can verify the integrity of records held in
industry. The objective of the council is to explore and government databases, and control who has access to
discuss current and future applications, and organise them.
transactions through the Blockchain platform.
Estonia is also adopting blockchain technology to
The Crown Prince of Dubai has announced plans to secure the country’s 1 million health records. Every
secure all government documentation on blockchain update and access to healthcare records is registered
by 2020 as part of the Smart Dubai initiative. The on the blockchain, preventing medical fraud and
Dubai government has partnered with IBM to making it impossible for hackers to hide their trail.
implement paperless smart contract-based supply It also provides real-time alerts to attacks, enabling
chain solutions, and has launched proof-of-concepts the government to respond to incidents immediately
for blockchain projects across departments covering before any large-scale damage. Estonia is also
health records, diamond trade, title transfer, business planning to launch its own cryptocurrency, ESTcoin.
registrations, digital wills, tourism engagement, It has an e-Residency programme that allows persons
shipping, and the court system. across the world to become digital citizens, and
register their companies in the country.
Dubai International Finance Centre (DIFC) courts,
in partnership with the government’s Smart Dubai Sweden: The land registry authority Lantmäteriet, is
initiative, announced plans to disrupt the legal and working with startup ChromaWay and consultancy
judicial system by creating the world’s first “Court of Kairos Future, and SBAB and Landshypotek banks to
the Blockchain”. A joint task force will be formed to test whether private blockchains can serve as a means
explore verification of court judgements, and share to carry out property transactions. Also, financial
documents in real time for efficient cross-border law services group SEB, along with Nasdaq, are planning a
enforcement through paperless operations. joint venture to revamp the $431 billion mutual fund
industry by implementing blockchain technology to

41
improve efficiency in fund order management, and While a number of states are still adopting a wait-
payments and settlement, accelerate the transaction and-watch approach towards cryptocurrencies and
cycle, increase transparency, and ensure asset safety blockchain technologies, states like Delaware, Illinois,
and security as well as reduce costs. Arizona Colorado (government record keeping),
This calls for cooperation and coordination from West Virginia (mobile voting) have taken an active
multiple parties like fund companies, service approach to promoting blockchain based applications.
providers, banks, distributors and auditors. Delaware announced the Delaware Blockchain
South Korea: South Korea has identified blockchain Initiative in 2016, to spur adoption and development
as one of the prominent growth areas along with of blockchain and smart contract technologies in
AI and Big Data for the future, and has earmarked both private and public sectors. Illinois announced
investments of $918 million for the year 2019, up over the Illinois Blockchain Initiative, aimed at utilising
80 percent from 2018. The South Korean government blockchain and distributed ledger technologies to
is actively promoting blockchain education among “transform the delivery of public and private services,
its youth and is considering a proposal from one its redefine the relationship between government and
provinces, Jeju island, to become a special zone for the citizen in terms of data sharing, transparency
blockchain and cryptocurrencies from where startups and trust, and make a leading contribution to digital
can issue their ICOs despite a ban on them in the transformation.”
country.
Arizona has introduced regulations making
Switzerland: Switzerland is ranked among the most signatures, transactions, and contracts on a
blockchain and cryptoasset friendly companies in the blockchain legally valid, and also allow residents to
world. Four of the 10 largest ICOs last year are were pay income tax in cryptocurrencies. US Government
launched from Switzerland and many companies and departments have started realising the importance of
traders in Switzerland accept payments in bitcoins. blockchain technology and are seen incorporating the
The town Zug, where Ethereum was originally same into their plans.
incorporated is rated as the epicentre of crypto
activity in Switzerland, with the first bitcoin ATM in The Department of Homeland Security awarded a
the country set up there. blockchain contract to “Prove Integrity of Captured
Data From Border Devices.”
US: In March 2018, a report submitted by the
Joint Economic Committee of the US Congress The US Food and Drug Administration issued a
made several recommendations for policymakers, “sources sought” notice late in 2017 for an application
regulators, and entrepreneurs regarding applications of blockchain for portable interactive devices “to
of blockchain technology. The committee recognised enable exchange of patient-level data within the
the potential of blockchain technology to conduct United States Critical Illness and Injury Trails Group
secured transactions, and protect technology network.”
infrastructure against malware attacks.

42
The US Department of Defense Transportation with a Gulf-based currency exchange house
Command has also showed interest in blockchain. • In September 2017, the Institute for Development
US Army Medical Research and Materiel Command and Research in Banking Technology (IDRBT),
(USAMRMC), in coordination with the Medical the research arm of Reserve Bank of India,
Technology Enterprise Consortium (MTEC), is released a white paper on the ‘Applications of
evaluating the application of blockchain to streamline Blockchain Technology to Banking and Financial
its supply chain operations. Sector in India.’ It also announced plans to
launch a blockchain platform for different
A number of other countries like Israel, Tunisia, applications relevant to banking. The RBI, in
Senegal, and Ecuador, as well as multinational association with technology partner MonetaGo,
banks and finance companies like Citibank, Bank a New York-based cryptocurrency firm, has also
of America, Goldman Sachs and JP Morgan successfully tested blockchain technology for
have announced plans to launch their own trade applications
cryptocurrencies based on blockchain technology. • The IDRBT also announced India could use
India: In India, the Andhra Pradesh Government blockchain to digitise the rupee
was one of the first to see the potential of blockchain • The Andhra Pradesh Government is planning to
technology, and has kickstarted incubation focussed use blockchain to record land titles and resolve
on this area. Companies supported by it are now disputes. (Source http://economyria.com/
able to not only develop competency to execute blockchain-india/)
government orders, but also expand their offerings • In August 2018, a Hyderabad-based blockchain
across segments, and aim to go global. startup announced it would launch blockchain to
The Indian government does not recognise digitise educational certificates, with IIIT Basar
cryptoassets as a legal tender. Hence, most Indian as its first customer
startups planning to launch ICOs and DAPPs have • The Union Government has mandated CDAC
set up offices in cryptoasset friendly countries like to develop a pilot for a blockchain-based land
Singapore, Switzerland and Estonia. registration system
• Eleven01 Foundation announced it plans to
Some blockchain applications currently under testing develop an India-specific blockchain protocol
are: defining the standards for its usage in India
• In October 2016, ICICI Bank executed India’s • Niti Aayog is working on launching Indiachain,
first international trade transaction using one of the largest blockchain platforms in the
blockchain on Steller’s platform in partnership world for governance. It plans to link Indiachain
with Emirates NBD. Since then, other banks like to IndiaStack and other governmental databases
SBI, YES Bank, Kotak Mahindra Bank, IndusInd built around the India’s unique identity project,
Bank, and Axis Bank have started exploring this Aadhaar, that will enable the development of
technology products and services on the country’s digital
• South Indian Bank completed a PoC for foreign infrastructure
currency remittance from the UAE in partnership • Mahindra & Mahindra group and IBM have

43
developed a blockchain solution to reinvent programmes for Indian professionals
supply chain finance across the country. This will
help suppliers access instantaneous credit due Leveraging blockchain could help governments
to enhanced trust. Live information available to become trusted partners for citizens to provide
finance companies allows them to design and speedy and efficient services transparently, avoid
offer innovative products and solutions quickly corruption, eliminate non-value adding middlemen,
• In light of the various scams that have hit Indian and unplanned delays. The resultant benefits, once
banks, the Securities and Exchange Board ploughed back into the economy, could lead to all
of India is examining the use of blockchain round prosperity. K.S. Viswanathan, Vice President
for e-KYC. The e-KYC details of all citizens (Industry initiative) of IT industry at Nasscom
and banking system users could be stored observed that blockchain technology can add $5
in a centralised server linked to different billion to the Indian economy in the coming five
nodes operated by participants, resulting in years.
simplification and transparency
• A number of state governments are evaluating The Indian government has taken a positive stance
blockchain technology for various real estate towards blockchain technology, but has maintained a
applications like land registration, land pooling, cautious approach towards cryptocurrencies. Prime
and property management, etc. Minister Narendra Modi had tweeted on February 18,
• In February 2018, Nasscom tied up with ‘disruptive technologies like Blockchain and Internet
Blockchain Research Institute, Canada, to of Things will have a profound impact on the way we
undertake training and skill upgradation live. They will require rapid adaptation in our work
places.’

44
Global activity in blockchain technology

It is interesting to see country-wise concentration of


global Blockchain activity.

Most valuable companies in the blockchain ecosystem


are concentrated in the US and Europe. India can
boast of a handful of companies engaged in providing
services for some global companies, and to public
enterprises and the government. India has kept off
from the cryptoasset-related emerging ecosystem.
The enterprise and government sectors are yet
to contribute substantially to blockchain-related
applications.

The table gives a glimpse of the views of various of cryptocurrencies and blockchain technologies
nations with respect to the cryptoassets as exhibited to arrive at a reasonable framework that not only
in the recent summit of G20 nations. preserves the integrity and sanctity of interactions
within the regulations, but also provides ammunition
As the debate on cryptocurrencies and their for entrepreneurs to take advantage of the
validity rages on, it is important to analyse the revolution that is being unleashed by these advanced
positives and negatives associated with the usage technologies.

45
Limitation and risks of blockchain
echosystem
Crypto-controversies

Cryptos for dark web activities on Silk Road: exploited a software vulnerability in its multi-sig
Silk Road was an online black market, and the first wallets, resulting in a freeze of over 500 multi-sig
modern darknet market, best known as a platform wallets containing over $150 million worth of ether,
to sell illegal drugs. In October 2013, the US Federal some of it belonging to startups that had raised funds
Bureau of Investigation (FBI) shut down the website, through ICOs. This led to the $150 million worth
and arrested Ross Ulbricht on charges of being the of ether being indefinitely suspended. On July 19,
site’s pseudonymous founder “Dread Pirate Roberts”, hackers exploited another software bug in the Parity
and recovered 1.44 lakh bitcoins that were allegedly wallet to steal over $30 million in ether.
used to conduct transactions on the website. This
exposed the utility of unregulated cryptocurrencies The DAO Smart contract bug:
for criminal activities. The DAO was the first decentralised autonomous
organisation created over the Ethereum platform
Fall of the largest crypto exchange Mount Gox: through a smart contract. It was meant to be an
In February 2014, Mt Gox, the then largest exchange investor-directed venture capital fund and raised over
trading bitcoins, filed for bankruptcy, claiming that $150 million worth of ether through a crowdfunding
over $450 million worth of bitcoins were lost from campaign in May 2016 from over 11,000 investors.
its servers. Though around $100 million worth of Being a decentralised autonomous organisation, it
bitcoins were later found, the rest have not been had no employees or board of directors. Decisions
traced and have been either stolen or are lost forever. to invest the funds were taken by voting among
token holders. On June 17, 2016, the DAO was
NEM Coincheck exchange hack: subjected to an attack that exploited a combination
In January 2018, one of the largest cryptocurrency of vulnerabilities, including the one concerning
exchanges, Vancouver-based Coincheck, reported that recursive calls, and the user gained control of 3.6
over $534 million worth of NEM coins were stolen. million ether, around a third of the 11.5 million ether
Though a part of the stolen NEM was later traced to that had been committed to the DAO. The 3.6 million
trades conducted in Canada and Japan, the company ether had a value of about $50 million at the time
declared there is little hope of tracking most of the of the attack. The lost ether were later recovered by
coins. hard forking the Ethereum platform, which split the
Ethereum community into two, and by moving the
Parity wallet freeze: diverted ether to a recovery address. This, however,
On November 8, 2017, UK-based Parity Technologies exposed the vulnerability of smart contracts to
Ltd, a leading provider of blockchain technology programming bugs.
platforms and applications announced a user had

46
The above cases expose the various shortcomings of Legal framework and compliance:
unregulated cryptoasset markets like: • As blockchain involves trade of digital assets of
• Utility of cryptocurrencies for criminal activities significant value, there needs to be a common
• Inability to take a legal recourse in case of loss of position with respect to the title of assets, and
cryptoassets also a legal framework across peers spread
• Vulnerability of cryptoasset accounts to hacking globally
of exchanges and wallets • There is no centralised owner of a blockchain
• Vulnerability of cryptocurrencies in case platform and thus there is a lot of confusion as
accounts are rendered unusable due to a freeze to who is responsible for the functioning of the
caused by a software bug or loss of the private key blockchain and the compliance thereof

There are many cases where cryptocurrency Co-operation and scale-related challenges:
owners have lost huge amounts of • As a number of parties are involved in
cryptocurrencies when their private keys were transacting across the blockchain, there needs
forgotten, stolen, or lost, or the computers in to be co-operation and understanding among
which they were stored were rendered unusable. participants to comply with the technological
A lot of precautions have to thus be taken while and application parameters. Further, a lot of
launching smart contracts to ensure they are free integration with backend systems is required.
of bugs, and also by holders of cryptocurrencies • There will be an investment in creating a
to safeguard their private key. blockchain platform, and hence it is critical
with respect to the number of parties and the
Some of the challenges that the Blockchain transaction volume for a profitable operation.
ecosystem faces in scaling up This needs to be addressed clearly for any project
Regulatory framework: to be sustainable
• Negative connotations associated with Bitcoin,
branded by most governments as an anti- Validity and usage of tokens in various countries:
establishment and unregulated currency, • There are a number of transactions taking place
overshadows the perception of blockchain. This among parties, sometimes present in different
needs to be overcome for authorities to have a countries, and there needs to be an appropriate
favourable disposition to blockchain applications system to settle transactions in a mutually
• In certain countries and areas, data secrecy and agreeable currency. Platform and application-
protection-related regulations need to be taken specific tokens may not be acceptable in some
care of countries, which recognise only fiat currencies.
• Anti-money laundering and know your Hence, appropriate interfaces need to be built for
customer-related regulatory concerns need to be smooth transaction across the parties
aligned in most countries for blockchain to come All these limitations pose a number of challenges
into the mainstream for adoption of blockchain technology in India
and globally.

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Blockchain venture incubators - global
scenario
Globally, there are a number of blockchain focused entities that aim to nurture, support and promote the
development and deployment of DLT-based solutions across industries. Some of the leading incubators /
accelerators are listed below.

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Startup scenario in India • Appropriate marketing and business
Before we look at the startup scenario in India, let us development efforts
take a look at what the most important things that • Availability of seasoned marketers in the team
affect the performance of startups are. • Adequate and appropriate mentoring support
It is pertinent to note that the most critical things a • Ability of the founders to ‘think and adapt
startup needs are: globally’ for successful expansion
• Ability to create an appropriate product in the • Right marketing mix including appropriate
right time. Most times, the product ends up pricing and distribution of products and services.
much ahead of its time and there is cash burn in • Execution excellence
concept selling, or till such time that the market
matures Most of the time, in India, we see a majority of
• Clarity about the exact market requirement, and startups failing as they fall short on many of the above
the ‘why’ behind its proposition counts.
• Capital availability for sustenance

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Blockchain business incubation in India -
paradigm shift needed
Incubation of blockchain-based companies is not developers may move out of India in coming years.
the same as incubation of other IT, ITES and Fintech Needless to say, India stands the risk of losing out
companies as the technology is still in the nascent in the global blockchain ecosystem despite being
stage, with no clear business models and proven use home to pioneering organisations like the Auxledger
cases. Foundation, which is in the process of creating the
world’s leading blockchain platform with versatile
During the first quarter of 2018, over $6.3 billion features to compete with the likes of Ethereum and
was raised through Initial Coin Offerings (ICOs) IBM-supported Hyperledger.
globally, with India getting none of it. Closer home,
Indian blockchain companies seem to be shifting base It is observed that the growth of the Blockchain
overseas. In the first seven months of 2018, close to ecosystem is linked to a region/country’s approach
$1.8 billion has been invested by venture capitalists in to cryptoassets, namely cryptocurrencies and
blockchain and blockchain-adjacent startups globally. tokens, as they are able to quickly provide the
(https://www.bitcoinisle.com/2018/08/08/blockchain- necessary economic support and clear incentives
startups-have-raised-us1-8b-in-vc-funding-so-far- through crowd-sales for businesses suffering from
this-year/markets to raise funds through ICOs. unclear business logic, and operating in unchartered
Indian companies, in comparison, have raised a mere territories.
$4 million to $5 million.
It is especially important to tackle this problem
With inordinate delays in the government’s regulatory as the explosive growth of Internet-connected
framework on blockchain, there has been huge devices, which communicate better commercially
despair and discontent in the blockchain expert pool through cryptoassets for financial transactions need
in India. Consequently, many Indian startups are in a solution in India for secure transactions and data
the process of registering overseas, and it is expected monetisation. If not, India stands to lose out in a big
that more than 80 percent of Indian blockchain way as Indian entrepreneurs will be forced to look
outside for migrating to other permissive countries.

50
information is being created by the government, and
Dave Levine, the founder of blockchain startup will act as an intermediary between citizens and user
Applied Philosophy Labs, says centralised permission- groups like telecom companies, employment agencies,
less blockchains require a token or cryptocurrency to insurance companies, banks and NBFCs etc.
operate. “To say you like bitcoin blockchain, but not In case of enterprises, a number of PoCs are being
the bitcoin is an absurd statement. The two cannot be planned in the domains of NBFCs, trade financing,
separated. Banks may set up blockchains that don’t cross border remittances, and supply chain tracking
use tokens to operate, and those systems may add etc, but the lack of proven business models is acting as
great value to the bank and its customers, but without a speed breaker in the flow of investments into these
a token or cryptocurrency coin, that blockchain is not sectors.
decentralised”.
It is imperative that the government facilitates a
No wonder then, that some big conventional banks vibrant investment climate for funding of blockchain
have seriously started working on experiments with projects, either as a customer or as an investor. If
their own cryptocurrencies. In India, Niti Aayog not, it must make it easier and faster for blockchain
and a few state governments are actively driving the startups to raise resources.
application and use of blockchain technology to create Blockchain startups are in a disadvantaged position
a repository of citizens’ information like land records, as compared with startups in fields like ecommerce,
driving licenses, vehicle registration, academic mobile applications, AR/VR, AI/ML as proven
certificates, skills and certifications, personal identity business models are yet to emerge, and most potential
information, and medical records, etc. customers and blockchain partners are in a wait-and-
This will enable citizens to securely store and share watch mode, even to undertake PoCs.
relevant information with parties looking for that
information, with a possibility of monetising the Across the globe, accelerators and incubators
information. working in the blockchain domain pack much more
support for entrepreneurs with wide-ranging support
A digital fiduciary that contains trusted and verified involving extensive training, mentoring, seed capital,
subsidised amenities, and extended support.

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Blockchain triggered opportunity for India
It is important for India to join the race in supporting centralised data repository, and a mechanism to
the blockchain ecosystem along with the rest of the enable citizens and organisations to monetise the data
world, or stand the risk of losing out. in a secure and credible manner.

India is a country with over 1.3 billion citizens, and a Currently, a lot of organisations like ecommerce
huge concentration of smartphones. companies, banks, NBFCs, telecom companies,
employment exchanges etc, are sitting on a vast
With 1.21 billion mobile connections, 1.19 billion amount of data which they mine using advanced
Aadhaar enrollments, 462 million Internet users, 582 analytics to increase the life time value of their
million bank accounts and 375 million social media customers. To enable them to target a greater number
users, India is one of the largest generators of online of customers effectively, and increase their business,
data globally. they need to exchange and procure data from other
sources and organisations. This calls for a mechanism
Apart from existing connections, the increase in the to exchange curated data among holders of the data
number of IoT devices will lead to a huge deluge of across organisations and from individuals. This can
data. Unlocking the value of the data in the hands of be made possible with blockchain. For this, we need
citizens in a secure manner could give a big boost to a normalising means for commercial exchange,
citizens’ disposable incomes. which can be made possible with a data token on a
This implies an urgent need to set up a trusted and blockchain.

52
This will have implications for all sectors of the of companies leveraging blockchain technologies
economy as a trusted data source at a nominal cost to forge commercial interactions between data
will be available for sectors like education, healthcare, generating and data seeking organisations. One such
telecom, NBFCs and banks. company is explained below. (Source: DATABROKER
Interestingly, across the world, there are a number ICO Whitepaper)

In another bright example, let’s suppose there are farmers, wanting to buy snesor data to have a look at the weather forecast
for a particular region. Farmers can make the most such information to help them plan a fuitful harvest. This eventually can
bring higher revenue into a particular market. Little do you know that 9 billion IoT sensors are cuttently active worldwide.
Out of this number, mostly are under full-swing utilisation and they are worht $600 billion across the world market.

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Recommendations
It imperative for India and Indian organisations to value of the cryptoassets owned by it. Learn from
formulate an urgent plan to support innovation and the best practices of other countries like Estonia,
incubate startups in a pragmatic manner to support Dubai, Japan and the UK.
this nascent industry and take early lead by leveraging 5. Support startups by employing their services
its vast talented pool and captive data-led wealth of its for numerous government and public projects
population. to overhaul their way of working across
This can be achieved through: departments, thus increasing transparency and
1. Launching its own public blockchain platform improving speed and efficiency of governance.
with an associated cryptocurrency. Indian origin 6. Empower citizens to access services across the
platforms like Auxledger (https://auxesisgroup. country in a secure manner made possible by a
com/technology.html ) can be looked at for this blockchain-led ecosystem.
purpose. 7. Provide a trustworthy platform for citizens across
2. Supporting Indian startups launch their the world and global organisations to securely
blockchain-based businesses and fund them trade in India, and help in unlocking the value of
through the sale of cryptoassets convertible data we have and will generate in future.
through the India’s cryptoasset-backed platform 8. Provide an environment suitable for blockchain-
and create a market place for cryptoassets based businesses to survive and thrive.
through a supportive policy. 9. Engage with the global economy in an inclusive
3. Create a programme to provide trained and manner, and adopt the best practices followed by
experienced mentors across all aspects of other countries.
organisational building including strong 10. Improve coordination among various
marketing for the industry to assist the growth of participants in the incubation system and
the ecosystem and success of entrepreneurs. extensively communicate investor- and
4. Put in place an appropriate organisation (like entrepreneur-friendly policies and opportunities
Ethereum foundation) to oversee and guide the to citizens.
development of the platform, and also unlock the

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Annexure 1

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Except for a few organisations like Auxledger, which are building global-scale blockchain infrastructure, most
organisations are working in the area of application support, cryptocurrency infrastructure for global markets,
and in many cases, with registered offices outside India.

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