The importance of blockchain for India

Mains Paper 3: Science and Technology
Prelims level: Blockchain
Mains level: Awareness in the fields of IT

Introduction

•  Blockhain technology is considered revolutionary for its ability to enable the secure movement of assets, without intermediaries, with its economic impact projected to exceed $3 trillion in the next decade.

•  There are two worlds to blockchain public chains that create trusted transaction networks between entities that do not know or trust each other, and private networks that are only between known entities.

•  While private distributed ledger implementations may have incremental value.

•  The essence of blockchain is in the power of decentralization.

•  This is because the true value of blockchain is in creating consensus and trust between strangers.

•  It is extremely important to understand that blockchains without cryptocurrency incentives (tokens) are just data networks, not value networks.

About cryptocurrency tokens

•  Cryptocurrency tokens perform three key functions.

•  Maintaining decentralization by providing the necessary economic incentive for network nodes to validate transactions.

•  Enabling developers to build decentralized applications on top of blockchain networks, and

•  Allowing early-stage projects a new way to crowd-source capital and users.

Gains for India:

•  Blockchain is now the fastest-growing skill set demanded on job sites, with job growth rates at 2,000-6,000% and salaries for blockchain developers 50-100% higher than regular developer jobs.

•  The decentralized nature of projects with distributed teams can translate into lakhs of high-paying jobs from all over the world being available to Indian developers.

•  Blockchain-based initial coin offerings (ICOs), when done correctly, open up a whole new channel for startup funding and tap into more than $20 billion raised through the ICO route.

•  With its strong IT ecosystem, India can become a leading blockchain development hub and a major net beneficiary of global capital inflows.

Solving Indian problems:

•  Decentralized applications on public blockchains can solve myriad Indian problems.

•  The eliminating middlemen, providing data security, reducing corruption and tampering of financial ledgers, and improving the speed of service delivery by governments and corporations. 

India’s global positioning as a technology powerhouse:

•  Different emerging technologies, such as blockchain, artificial intelligence, and the internet of things will not work in silos but will converge.

•  That is the space where the next Googles and Amazons of the world will get created.

•  Blockchain is a foundational data/transaction layer and missing out on it will hurt India’s overall tech competitiveness.

Regulation in India:

•  The current debate in India has, unfortunately, focused too heavily on trading and speculation.

•  Looking at cryptocurrencies as an investment tool, rather than understanding the potential of core blockchain technology.

•  The basic role of cryptocurrencies as an incentive mechanism to secure decentralized transactions.

What we needs to?

•  As core developers/shapers of this technology in India, we are fully cognizant and sympathetic to government concerns of money laundering, tax evasion, investor protection and capital flight.

•  However, the blockchain sector is especially sensitive to regulation.

•  Any regulatory action on cryptocurrencies that misses the nuance of separating speculative activity from core software development inadvertently shuts down core development as well.

•  There are sufficient global examples of countries that have taken nuanced and cautious steps in regulating the technology, and are focusing on stopping illegal activity without hurting innovation.

Conclusion

•  In the current regulatory environment, Indian developers do not have to ability to develop open blockchain solutions at scale.

•  Serious blockchain professionals are migrating rapidly to countries with more friendly regulations.

•  India’s ability to benefit from jobs, capital, local innovation and positioning is all curtailed without the talent ecosystem in place.

•  The government has legitimate concerns around money laundering, tax evasion and capital flight using cryptocurrencies.

•  However, regulating the space is not too difficult with a light touch and intelligent policies.

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Prelims Questions:

Q.1) With regard to Blockchain technology, consider the following statements:
1. It is a digital public ledger that records every transaction.
2. It eliminates the need for a third party for conducting transactions.
3. Bitcoin is one of the popular application of this technology.

Which of the statements given above is/are correct?

(a) 1 only
(b) 1 and 3 only
(c) 2 only
(d) 1,2 and 3
 Answer: D

Mains Questions:
Q.1) Why blockchain technology is so important for India?