Rahul Sharma, a final year student of IIM-Rohtak, opens his trading account and manages his portfolio every day. He analyses different graphs, ratios, technical analyses given by experts and various factors that can influence value of his portfolio. This may look like a normal scene in a B-School, but what makes it different is that he is not trading in stocks or commodities. Rahul manages his portfolio of crypto currencies which he has been trading for more than a year now, and Rahul is not the only one. Though precise data about Bitcoin usage in India is hard to find, a few start-ups in this space put it at around half a million users.
Cryptocurrencies are digital currencies in which encryption techniques are used to generate units and verify their transfer without the involvement of a central bank. The most popular cryptocurrency is Bitcoin.
Bitcoin has gained tremendous popularity in recent times because of various advantages it offers compared to traditional currencies. First of all, Bitcoin has no borders which mean that it is a single currency which can be used all over the world. Bitcoin transactions involve almost zero fees. Central banks and governments have no involvement in terms of devaluation of the currency. And only a limited number of Bitcoins will ever be produced. Some experts have even termed Bitcoin as the Digital gold.
The underlying technology behind Bitcoin is called Blockchain. Simply put, a Blockchain is a distributed database that maintains a growing list of records called blocks. These are secured by use of encryption techniques. Each block contains a timestamp and a link to the previous block. This was first conceived and implemented in 2009 by an anonymous programmer who goes by alias Satoshi Nakamoto.
Bitcoin adoption in India
India has already established itself as a leader when it comes to anything related to software and coding, so Bitcoin’s early adoption in India was bound to happen. According to recent reports, India holds a dominant 55% market share in IT outsourcing market, and as expected, India is an early adopter of the Blockchain Technology as well, which holds the potential to disrupt the financial ecosystem worldwide.
Bitcoin, the leading crypto-currency, holds the potential to challenge the existence of currencies issued by governments around the world.
Reserve Bank of India, the Indian Central bank, had started discussing the Blockchain technology as early as 2014. RBI’s Deputy Governors have repeatedly advised Indian banks to work with the Central Bank on Blockchain Project. In a recent speech at IDRBT (Institute for Development and Research in Banking Technology), Mr R. Gandhi, Deputy Governor of the Reserve Bank of India, advised bankers to explore latest technologies in Fin Tech. He said, "Cloud-based computing, blockchain processing technologies and virtualization of IT systems are a few examples which hold potential for being used in a big way. Banks and IDRBT can work together to study these, test them out and adapt for best use”. RBI has set up a committee to study the adoption of the technology in Indian context. S.S. Mundra, Reserve Bank of India’s Deputy Governor, said, “The uninitiated, ‘distributed ledger’ allows a payment system to operate in an entirely decentralized way, without intermediaries such as banks. The banks would need to either develop their own capability or seek proper alliances. I say this, however, with a caveat that we or rather the global regulatory community elsewhere, have not taken a final stance on the use of distributed ledger technology,”
The erstwhile Governor of RBI, Dr. Raghuram Rajan has even said that the institution might consider releasing its own Digital Currency.
Blockchain Technology holds potential to disrupt Indian Banking Sector
Axis Bank is exploring ways to integrate Blockchain Technology in its Banking Applications. Amit Sethi, Axis Bank’s chief information officer, says, “The biggest thing in financial accounting is ledger, keeping track of debit and credit. Also, in case of forex, the back office of each bank needs to speak to the back office of the other bank. Blockchain has immense potential to eliminate back office in banking, especially for trade finance”.
Indian IT giants Tata Consultancy Services and Infosys are already way ahead in incorporating Blockchain Tech in their Banking Platforms BaNCS and Finacle respectively. Rajashekara V. Maiya, head-financial product strategy, EdgeVerve Systems, a product subsidiary of Infosys, says, “We looked at blockchain in much more detail. We got 40-50 employees trained.”
“Blockchain-based application can be a disruptor for capital markets, brokerages, stock exchanges... wherever reconciliation is required. When we were looking to build something for the banking sector for frictionless banking, we came out with ways to use it for trade finance. In trade finance, the involvement of document and cost of communication through SWIFT can be eliminated using blockchain technology. The settlement can be much faster. The framework we have created is for a network of banks”, he added.
How do we make it more compatible in the age of mobile banking, and what other applications we need to build and develop on Blockchain so that we can offer benefits to our clients?
However, we still cannot gauge the full technological impact it can have. More than just knowing the payments, we can get insights into the legal documents, or even use for credit-worthiness of parties. All this obviously makes a core banking product stand out.
ICICI Bank, India’s Largest Private bank, is focusing on Blockchain Technology to make its services more secure and customer friendly. It has also created a new position with the title Chief Technology and Digital Officer (CTDO) to look after the latest technology adoption in its services.
The Bank’s CEO Chanda Kochhar says, “It is not just limited to the banking part. If we look at trade or exports and imports - can we start linking right from the point where exports are made and the export certificates are received and then against that the banks give a confirmation and another set of banks give funding? The ports give the confirmation of the physical goods having moved. Having that whole thing sit on an open ledger helps make things that much more transparent and therefore reduces fraud; it reduces mistakes of data entry and two banks giving different information.”
If this pace of adoption of Blockchain Technology in India continues, it won’t be long before India becomes a cashless economy with full transparency in all the transactions. This might even be the solution of the menace of corruption that has been plaguing India’s growth over the years.
About the Author:
Soumya Soni is a second-year student at IIM Rohtak. He is also a member of Placement Committee of the institute. Before joining IIM Rohtak, he worked with Accenture for 29 months. He writes at:
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Twitter - @soumya77
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