BLOCK CHAINS: NEW PARADIGM FOR SECURE, SEAMLESS ONLINE TRANSACTIONS
| 02 Sep 2017
| Onkareshwar Pandey, Editor In Chief, NOP


BLOCK CHAINS: NEW PARADIGM FOR SECURE, SEAMLESS ONLINE TRANSACTIONS

• ANUP MUDGAL


As recently as 25 years ago, we could hardly imagine a useful role for the newborn internet but the youngsters of today cannot conceive how humanity survived so long without it. No other technology transformed our lives as profoundly and as quickly as the net has done.

Earlier major technology breakthroughs like printing, the engine, electricity, telecoms or advances in healthcare made significant contributions to societal growth and development but in most cases, they were tools of collective empowerment with an unequal balance of rights and obligations.

Societies are built on complex webs of transactions amongst purveyors and seekers of goods and services; that require movement of people, information, money, services and goods. Even with the world getting more connected through faster mobility, the trust gap has largely continued or even further widened amongst these distant unfamiliar partners.

This has given rise to an expansive and multilayered system of intermediate service providers - not only the carriers of information but also providers of trust by way of guarantees and insurance, adding substantially to the cost to the consumers.

No wonder, the urban centres are no longer defined by manufacturing but rather by service providers like banks, insurance companies, stock exchanges, information providers, certification agencies, marketing firms, couriers etc. - the nanny has become more valuable than the baby it was meant to protect and support.

The internet has succeeded exceptionally well in bridging the information gap where knowledge can be created and shared instantly over long distances.
The detail and quality of digital information and knowledge are improving by the day and this is already reducing time and cost of many transactions. Ironically as the net is squeezing the information gap, the trust gap continues to be a major barrier.

While we are able to carry out a number of transactions online, we have yet to be liberated from the 'middlemen'- be it financial transactions, travel, e-commerce, stocks, or a host of other services.

The need for these middlemen is primarily driven by our limited individual capacity to verify the credentials of a potential partner or the asset and we continue to pay heavy fees to the intermediate entities which claim to provide necessary trust.

No more- if the internet bridged the information gap, BLOCK CHAINS- a new technology which was used for its first major application for launching the so-called crypto-currency 'Bitcoin'- promises to add trust to online transactions and minimise the role of middlemen.

Bitcoin was conceived as an answer to the 2008 financial crisis, when those who charged societies a heavy fee for providing trust proved untrustworthy.
Millions of unsuspecting investors were robbed of their hard-earned savings and the world is still trying to recover from this unprecedented shock.

It was a huge breach of trust and many started wondering why they should not take control of their assets and transactions themselves rather than pledging their faith in a few so called expert hands or the regulators, especially when the global webs of transactions were becoming more complex by the day.

Block-chain technology promises to bridge this very trust gap by making the process more transparent and decentralised with real time participation of all potential stakeholders tagging, vetting, monitoring and auditing the entries at every stage of the lifecycle of a transaction.

This should eliminate delays and much of the processing costs besides enhanced security as the entire process is supported by cryptographic digital tagging.
To simply explain the benefits of block chains, let's examine a common transaction where 'X' wants to buy a property from 'Y'. While 'X' likes the property and 'Y' likes the idea of a paying customer, the two parties (being unfamiliar with each other and in the absence of a verifiable record of the property itself) are not confident enough to conclude the transaction on their own.

To bridge this 'trust deficit', both parties are forced to use the services of a series of intermediaries like brokers, market evaluators, agencies to verify structural soundness, law firms to confirm clear title, verification of the credentials of the parties etc., and for each activity they incur additional costs and lose time.
How do the intermediaries provide trust?

They either have better access to authentic information, which is traditionally maintained in various ledgers or log books, or have greater skills in understanding and vetting the information.

As these ledgers or log books are maintained by various official or private entities (like builders, registrars, architects, banks etc.), not only is the access to information restricted but the information is also more susceptible to human errors, both unintended and deliberate.

This explains why, during the financial crisis of 2008, some of the top banks and financial institutions failed despite triple A ratings. Such events erode confidence in institutions that are supposed to generate trust.

Now let's see how the application of block chain technology could help such a transaction. Under this procedure, the property in question, the buyer and the seller carry unique identifications (UID).

As and when a transaction is carried out by or with any of these UIDs, the details of the transaction are digitally tagged to the concerned UIDs along with verification by the relevant parties/stakeholders, thereby generating digital ledgers of all transactions in a verifiable and secure manner.

The beauty of block chain technology is that these ledgers are maintained by all parties (distributed ledgers) but they also remain linked to each other so that no one in the chain can tamper with the entries without being noticed.

Under such a scenario, both the buyer and the seller are sure of the credibility of the parties and details of the property duly vetted by other relevant partners/stakeholder in a chain.

This would have allowed the transaction to go ahead instantly without the need for any middleman - faster, less expensive and more secure.

Satoshi Nakamoto (a ghost name yet to be linked to an individual or group) - the father of block chain technology and the brain behind the first ever block chain supported crypto currency launched in 2009 called 'Bitcoin' - favours open web of block chains.

However, applications for closed block chains are developing fast amongst known verifiable participants. Even this limited application holds immense promise for efficiency and cost cutting.

Such applications are already being developed for logistics, supply chain management and verification, health care, transportation, and in due course are likely to cover accounting, taxation and financial services.

This is only the beginning. As the trust and the technology grow, we may well go back to the original idea of open webs of such block chains supporting instant transactions amongst partners anywhere in the world with greater reliability and security.

Once fully developed this technology has the potential to completely change the way we govern and carry out business.
Having developed sound capabilities in IT applications, India can be at the forefront of this development and the time has come to mainstream this debate involving all stakeholders - government, business, education and technology developers.

The concerns on the usage of crypto currencies is genuine and wide spread but the underlying technology of block chains deserves close attention, lest the baby gets thrown out with the bath water.

Our vision of Digital India would surely need some practical applications of this fast evolving technology for optimising the fruits of e-governance, even though the gates may remains rightly shut for the so called crypto currencies.

(Anup Mudgal is Ambassador (Retd) and Member, FICCI Task Force on Blue Economy)




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