forum

Blockchain is steadily revolutionisingbusinesses across industry verticals byredefining their transaction frame-

works. Enterprises across the banking, fi-nancial services and insurance, telecom,retail, travel and public sectors have starteddeveloping blockchain use cases for creat-ing a more secure, immutable and transpar-ent environment. However, ambiguityaround regulatory standards continues topose a challenge. Industry experts talk ab-out the blockchain potential for India, thekey risks and the future outlook…

What potential does blockchain hold for theIndian market, and what are the key emerg-ing trends and use cases?

Rajesh DhudduBlockchain is fast evolving as an importantlever for digital transformation. It has thepotential to change the way businesses runby meeting underserviced and unaddressedneeds, driving efficiencies and curbingfrauds. Almost all crucial sectors such asfinancial services, agriculture, healthcare,real estate and utilities stand to benefit fromthe application of this technology.

In India, public blockchain can effec-tively tackle multiple problems such as

offering services digitally while helpingcheck frauds and misuse. It can play a sig-nificant role in furthering the Digital Indiamandate – ensuring safe and secure digitaltransactions.

Blockchain is witnessing significantfooting in the country, especially in thebanking and financial services sector. In-dian banks, stock market exchanges, andbusiness conglomerates are the pioneersfor leveraging blockchain in India. Thesecurity, data preservation, and network-ing capabilities of blockchain can addresstraditional cybersecurity barriers and en-able the information-sharing require-ments of contemporary business.

Satya N. GuptaBlockchain, a distributed ledger technolo-gy (DLT), is a revolutionary value addingtool for artificial intelligence (AI). It holdsthe promise of solving any problem, in-cluding those that may be unknown at themoment. It brings in security, transparen-cy, permanancy, legality and trust throughthe use of cryptography, immutability andsmart contracts. The various use cases forblockchain in India pertain to land recor-ds, health records, the agriculture sector,financial contracts, fintech and telecom-

munications. Further, it has the potentialto solve unsolicited calls, or do-not-call,issues. It can also help in the creation of anational digital grid using indefeasibleright of use, smart contracts and crowdsourcing principles through the tokenisa-tion of the existing fibre optic infrastruc-ture in the country.

Jaideep ReddyThe main benefits of blockchain aredecentralisation, disintermediation, and,in many cases, cost savings. The followingbenefits of crypto-assets have been recog-nised by government authorities: • Control and security • Transparency • Very low transaction costs • Instantaneous settlement of transactions• Reduction in costs of cash• Ability to provide a more comprehen-

sive and unified source of credit history• Reduction in instances of tax avoidance

These features can be hugely benefi-cial for India, which is aiming to be a dig-itally-enabled society and trying to min-imise the costs of intermediaries. For ins-tance, the country was estimated to be thelargest receiver of inward remittancesglobally by the World Bank in December

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Securing the FutureBlockchain emerging as a game changer for industries

tele.net | March 2019

Global Practice Leader,Blockchain,

Tech Mahindra

Rajesh Dhuddu

Leader, Blockchain Practice,

Nishith Desai Associates

Jaideep Reddy

Director, Deloitte India

Dr Vikram Venkateswaran

Secretary General, ITU-APT Foundation

of India

Satya N. Gupta

forum

39

2018. The remittances stood at $79.5 bil-lion for 2018. The same World Bank re-port also noted that the average cost ofreceiving remittances in South Asia was5.4 per cent, which is approximately$4.29 billion (Rs 306 billion) annually forIndia. Based on this year’s budget, thisamount will fund India’s Mid-Day Mealscheme for about three years, whichshows the urgent need for reducing thecost of remittances.

Dr Vikram VenkateswaranBlockchain is more of a foundationaltechnology. Just like cloud, blockchain isexpected to follow a similar adoptionpath. Blockchain can be used for immu-table records, which means one cannoterase or modify encrypted records, andthis is important from an integrity as wellas security point of view. It can be used asa distributed ledger, which means that atany given point of time all those in thechain will have a real-time view of what ishappening in the network. Further, smartcontracts running on blockchain provide agood alternative for corporates to get thebusiness done. Traditionally, contracts inIndia, if disputed, have to be validated bya court of law. But, with regard to block-chain, smart contracts can be implement-ed, which can then be executed uponcompletion. It provides a very hassle freeway of doing business. While the originalintention was to implement a publicblockchain network, Indian organisationsare favouring private blockchain. If welook at the alliances in this space, it is mo-re on the private side.

There is a big opportunity for skilldevelopment in the blockchain domain.While a lot of Indians have the right sci-entific talent, there exists an opportunityto skill them in emerging technologies.Moreover, new companies/start-ups canlook at blockchain as their foundationalinfrastructure.

While, so far, all the use cases havefavoured the financial services industry,the supply chain, logistics as well as con-sumer goods industries are also looking atblockchain technology. The key is to takethe use cases beyond the proof of conceptlevel, to the proper implementation level.

What should be the building blocks fordeveloping a successful blockchain ecosys-tem in India?

Rajesh DhudduWith the right amount of industry andgovernment participation and collabora-tion, India could be one of the world’sblockchain leaders. Niti Aayog has beendriving several initiatives to foster a suc-cessful blockchain ecosystem.

Andhra Pradesh is the first state to ad-opt blockchain for governance to preventtampering, protect digital assets and trans-actions, besides piloting two projects thatstreamline vehicle registration and manageland records. Further, Telangana is the firststate to build a blockchain district for nur-turing a vibrant ecosystem comprisingblockchain companies, blockchain traininginstitutes, accelerators and academia. TheTelangana State Information Technology,Electronics and Communication depart-ment has signed a memorandum of under-standing with Tech Mahindra to set up anincubator for technology and process deve-lopment for fostering the growth of Indianblockchain start-ups and companies.

Blockchain is increasingly being usedby the government to eliminate corrup-tion. The Telecom Regulatory Authority

of India (TRAI) has commissioned ablockchain-based solution for curbing themenace of unsolicited calls and spamming.Such initiatives can help build blockchaincapabilities across sectors, including tele-com, media, travel and hospitality, health-care and even public sector undertakings.

Satya N. GuptaThe key building blocks for developing ablockchain ecosystem in India are aware-ness building, capacity building, a favou-rable regulatory regime and the creationof multiple centres of excellence in variousgovernment and private institutions th-rough the public-private partnershipmode. In addition, proof of concept (PoC)will need to be conducted across variousdomains to test the impact of this revolu-tionary technology.

Jaideep Reddy Crypto-assets are essential for the success-ful implementation of blockchain, asrecognised by several academics and in-dustry leaders. Distributed ledgers or“private blockchains” can exist withoutcrypto-assets. Although such technologieshave existed since the 1990s, they haveonly come into vogue recently after theattention generated by blockchain. Anoutright ban on the crypto-asset activityshould not be considered for several rea-sons. Crypto-assets and blockchain arenew and disruptive technologies that pre-sent both benefits and risks. History hastaught us that such technologies should beregulated and not banned, since banningis likely to be counter-productive and mayalso suffer from legal infirmities. Rather,in line with international consensus, a bal-anced regulatory approach should be fol-lowed for promoting various benefits ofthe technology and mitigating the risks. Inour paper, “Building a Successful Block-chain Ecosystem for India”, (December2018), which we submitted to the Indiangovernment, we have suggested the legalroutes through which the government canintroduce a balanced regulatory regime.This involves introducing a know-your-c u s t o m e r / a n t i - m o n e y - l a u n d e r i n g(KYC/AML) regime and a licensing re-gime for crypto-asset business.

tele.net | March 2019

“The key building blocks fordeveloping a blockchain

ecosystem in India are aware-ness building, capacity build-ing, a favourable regulatory

regime and the creation of mul-tiple centres of excellence.”

Satya N. Gupta

“With the right amount ofindustry and government partic-ipation and collaboration, India

could be one of the world’sblockchain leaders.”

Rajesh Dhuddu

forum

Besides this, educational programmeson blockchain by leading institutions forstudents and the public, which are alreadyunder way, can help generate an informedview on the pros and cons of the technol-ogy, as well as build skills in the softwarecommunity.

Dr Vikram VenkateswaranFor any organisation looking to deploy anew technology, it is important to look atits use cases as well as the organisation’sown strategic priorities and key perfor-mance indicators.

For instance, when the cloud wasintroduced, it was not a question of flexi-bility but whether an organisation had abusiness need for flexibility. Similarly, itwill be important to see how organisationscan benefit from blockchain attributessuch as smart contracts, encryptions, dis-tributed ledger and immutability.

First, it is important to do a fit analysisin terms of how blockchain can be used tosolve business problems or meet strategicobjectives. This fit analysis needs to happenacross technical and functional aspects andthe ecosystem will develop accordingly.

Second, it is important to considerhow the risks – technological, operational,security, etc. – will be managed. The mostvulnerable part of blockchain is the smartcontract. A lot of attention is requiredtowards coding standards for ensuring thatthere are no vulnerabilities in the contract.

What should be the regulatory approachtowards the technology in India?

Rajesh Dhuddu The regulatory approach needs to be twopronged:• The government should state its posi-

tion on cryptocurrencies clearly. This isimportant from the innovation perspec-tive. Many start-ups leverage cryptocur-rencies as the most preferred form ofraising capital. An unfavourable regula-tory framework for blockchain will stiflethese start-ups, forcing them to migrateto safer havens globally.

• The government should mandate theuse of enterprise blockchain, only if it isrelevant to addressing the constantly

plaguing problems such as spam calls.

Satya N. GuptaThe role of the regulator has to be that ofa facilitator and not a controller. Regu-lators have to help in creating awareness,strengthening capacity building andbringing in initial funding for PoCs. Thiscalls for implementing a light-handedregulation and preparing a code of con-duct for self-regulation to start with. Weneed to follow the example of what wasdone for the next-generation networkand IPV6 by TRAI and the Departmentof Telecommunications.

Jaideep Reddy For the purpose of legal analysis, all cryp-to-assets are not alike, and the implica-tions of each should be assessed on a case-by-case basis. Broadly, crypto-assets can beof three types: payment tokens, securitytokens and utility tokens. Those securitytokens which amount to securities will beregulated by the Securities and ExchangeBoard of India (SEBI) and under theCompanies Act. Trading activity withregard to all other crypto-assets falls into aregulatory vacuum, although existing lawssuch as the Consumer Protection Act con-tinue to apply to a significant extent.

This vacuum should be addressed byintroducing a KYC/AML regime, and alicensing regime for crypto-asset business.

As regards KYC/AML, businessesdealing with crypto-assets, that is, provid-ing custody or trading services, can beincluded within the framework of the Pre-vention of Money Laundering Act by acentral government notification. As regar-ds licensing, a new regime for crypto-assetbusiness can be evolved by: • New legislative provisions, such as under

the newly proposed regimes on commod-ity spot trading and payment systems

• Administrative regulation under variouslaws such as the Consumer ProtectionAct, Payment and Settlement SystemsAct, Non-Banking Financial Company(NBFC) regime, and/or Securities Con-tracts (Regulation) Act, and/or,

• Statute-backed self-regulation Administrative regulations under the

existing laws will be limited by the currentscope of the parent statutes, while newlegislative provisions may be able to betteraddress the unique nature of crypto assets.In either case, the responsibility for suchlicensing or oversight should be clearlyassigned to a given regulatory body toavoid jurisdictional ambiguity. Since SEBIhas competence in investor protection, itis one option that can be considered inthis regard.

Meanwhile, the existing laws such asthe Consumer Protection Act, ForeignExchange Management Act, Indian PenalCode, Information Technology Act, Pay-ment and Settlement Systems Act, Pre-vention of Money Laundering Act, PrizeChits Act, deposits-related laws, securi-ties laws and tax laws should be activelyenforced with regard to crypto-asset bu-siness, since most of this activity isalready covered by these laws. The app-licability of some of these laws may befurther clarified or fine-tuned with res-pect to crypto assets.

What are the risks and issues in usingblockchain? How can these be managed?

Rajesh Dhuddu The key risks vary based on the nature ofblockchain, i.e., private or public. In thecase of public blockchains, there is alwaysthe question of how much information canbe made public. There is also an element of

40 tele.net | March 2019

“The lessons to be learnt fromglobal markets are that innova-tion should be allowed to blos-

som along with regulatoryoversight and that blanket

prohibitions are unwarrantedexcept in extreme cases.”

Jaideep Reddy

“It is important that enterprises manage and govern

blockchain implementation.”Dr Vikram Venkateswaran

forum

41

unidentified nodes, their malicious intentwhile contributing to the consensus mech-anisms and the risk of takeover of the net-work by controlling the computing power.

In the case of private blockchains,there is the issue of how much control thecentral authority handling the blockchainsystems has and the degree of decentra-lised consensus. Further, parties joiningprivate blockchain may not be willing toshare their data freely till complete trusthas been established. A significant riskassociated with blockchain is the ability ofquantum computing to compromise thesecure SHA 256 algorithms that form thebasis of immutability in blockchain.

Satya N. GuptaSince the technology is totally transparent,open and digital, there will always be risks,as with any IP-based technology. But allthese risks can be mitigated by using appro-priate technologies, as is done in the case ofthe public internet.

Jaideep ReddyThe risks include money laundering,volatility and fraudulent deposit schemes.We have suggested ways in which theserisks can be mitigated without going for acomplete prohibition. No country exceptfor China has chosen to prohibit block-chain. The US, the UK, the EU, Japan,South Korea, Singapore and others haveadopted a balanced regulatory approach.The G20 and the Financial Action Task

Force, of which India is a member, has alsosuggested taking a balanced approach.

Dr Vikram VenkateswaranOrganisations face fundamental questionsof whether they need blockchain and ifthey are ready for it. They need to consid-er change management across people, pro-cesses and technologies.

According to a Deloitte survey, theimplementation risk and the challenges inreplacing or adapting to the legislative sys-tem, is one of the bigger challenges.Further, business continuity and meetingcustomer experience are seen as strategicrisks. It is important that enterprises man-age and govern blockchain implementa-tion, and consider all the risks and controlsrequired for migration to the technology.

The other key risk in the blockchaindomain is that a lot of organisations work-ing in the ecosystem today are start-ups,and are mostly based on open source.

What is the future outlook for blockchain inthe Indian market? What lessons can belearnt from global markets?

Rajesh Dhuddu With capabilities such as enhanced securi-ty, data validity and immutability, block-chain holds tremendous potential for theIndian market. Several things can be learntfrom global markets in the field of regula-tions, building blockchain start-up ecosys-

tems and fostering innovations. Estonia,Russia, Japan, the UAE and Denmark aresome countries that are adopting block-chain for their grassroots operations.Meanwhile, Singapore is adopting block-chain in aviation.

Looking at blockchain case studies invarious industries, it is clear that building adigital blockchain-based economy is possi-ble. Leveraging the learnings from acrossthe globe can help us in moving towardscreating a digital nation seamlessly.

Satya N. GuptaIn India, we are on par with global trendsand the market is unlimited here. Weneed to seize the opportunity and gain theleadership position through collabora-tions amongst all stakeholders. The Inter-national Telecommunication Union(ITU), a United Nations body, has a spe-cialised working group on blockchain. Weshould participate in that very actively toexchange knowledge and experiences. Iwish success to our fellow stakeholders inleveraging this technology, and can helpthrough the ITU, if needed.

Jaideep Reddy A recent report by Incrypt, a non-profitorganisation, which surveyed blockchainsoftware developers in the country, foundthat open, public blockchains (powered bycrypto assets) can be a new growth driver ofthe Indian economy, similar to the IT ser-vices industry. The lessons to be learntfrom global markets are that innovationshould be allowed to blossom along withregulatory oversight (including regulatorysandboxes), and that blanket prohibitionsare unwarranted except in extreme cases.

Dr Vikram VenkateswaranHere, India might have a lot to teach theglobal markets. India’s banking industry iscutting edge, leveraging emerging tech-nologies, including digital. We have a lotof expertise to share in the blockchaindomain. That said, India can look at intro-ducing blockchain and emerging tech-nologies early on in schools and colleges.As for those in jobs, continuous re-skillingand re-learning will be required, some ofwhich is already under way. ▲

tele.net | March 2019