Blockchain and Potential for Financial Service Industry in India

Blockchain and cryptocurrencies are making their mark in the economy with a stratum of technology that is still being explored. According to the World Economic Forum report published in 2016, over 24 countries are investing in blockchain. Financial services in India and its counterparts have also entered the arena adorned with a digital armor. The Internet of Value Exchange is striving to take in its envelop the booming potential of India’s financial structure with every passing day with a new advocate of Digital Ledger Technology (DLT) lining up to explore its potential.

Financial Service Industry in the nation has long been beguiled by crypto and blockchain technology to their consternation. Blockchain transactions possess a digital signature that cannot be tampered with along with decentralizing the way they are processed. IT giants like Infosys have been creating core platforms for banking with garnered support from startups who are ambitious about ideas around fintech and blockchain.

 Blockchain technology can bring a revolution in the basic math involved in financial transactions and can be regarded as the foundation for an entirely new set of ventures to record public and private transactions where they are recorded in an encrypted manner accessible only to holders of the database. It has embedded benefits of privacy, security, consensus, and transparency. The record created on the ledger cannot be forged along with limited access. Records can only be accessed by member/company after encrypting and decrypting them using cryptographic public and private keys. If a particular record is changed in one place, it has to be modified everywhere. Even a minor change will not go unnoticed which hence increases safety for the consumer in the end as well. 

Digital ledgers are built on cryptographic tools supported by distributed consensus mechanism. This was a significant innovation for transaction management and record processing. The distributed ledger is expressed as a tamper-evident electronic ledger for all practical purposes. The digital ledger is shared within a network of computers. It is accessible across the WAN and is not restricted to be kept in a single place. The ledger holds a record of transactions between the participating entities. The set of transactions often called as 'transaction collections' are stored in the data segment of a blockchain providing meaning to the block component of the Blockchain. The blocks, in turn, are stored chronologically.

Financial service institutions can determine a potential client’s investment experience, risk tolerance, and other characteristics through blockchain, which as an added advantage, could help cut down on identity tampering. The credit rating business will be relied upon more as a result-  reliable credit histories could be available to all who need restricted access to them. Of course, this raises potential privacy concerns, so technology solutions will have to be developed to allow users to safeguard their confidential data.

Blockchain technology is synonymous with permanency and transparency which leads to auditability.  Any honest regulator needs this technology to make sure that fraudulent cases can be checked at the right time and corrective measures be incorporated.

Our Prime Minister’s constant endeavors to fight corruption, establish digitalization in India and conform to international standards of quality within the country will make the Indian market the most suitable for the adoption of blockchain technology.

Blockchains can also be used to encourage institutions with access to efficient funding mechanisms to rely upon a safer way of transactions. The technology holds a lot of potential but needs to be utilized carefully keeping in mind the viability of such a resource along with its impact. Risk and challenges of this technology are inevitable and can be dealt with necessary technical advice.

(The Author is the Founder & CEO of Cashaa and Chairman of Auxesis Group).