How will the blockchain technology revolutionize the global economy?

Blockchain is seen as a technology with the potential to transform almost all industries and economies. It is estimated that blockchain could generate USD 3 trillion per year in business value by 2030. The World Economic Forum (WEF) anticipates that 10% of the global GDP will be stored on blockchain by 2025 and lists blockchain as one of 7 technologies that are anticipated to revolutionize various aspects of our lives.

What is Blockchain?
Blockchains can broadly be defined as a new type of network infrastructure (a way to organize how information and value moves around on the internet) that create ‘trust’ in networks by introducing distributed verifiability, auditability, and consensus. Blockchains create trust by acting as a shared database, distributed across vast peer-to-peer networks that have no single point of failure and no single source of truth, implying that no individual entity can own a blockchain network, and no single entity can modify the data stored on it unilaterally without the consensus of its peers. New data can be added to a blockchain only through agreement between the various nodes of the network, a mechanism known as distributed consensus. Each node of the network keeps its own copy of blockchain’s data and keeps the other nodes honest – if one node changes its local copy, the other nodes reject it. Blockchains record information on a timestamped chain that extends forward infinitely. New data is added to the end, and once added, it is permanent. Older data can neither be removed nor modified because a snapshot of it is captured in the blocks of data that come after it.

What is a Smart Contract; and how it functions?
Blockchains also enable the creation of ‘smart contracts’, defined as self-executing contracts with the terms of the agreement between the buyer and seller directly written into lines of code. The code and the agreements exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable and irreversible. Unlike present day networks that depend on trusted intermediaries for security and trust, blockchains thus create trust organically through the underlying technology of distributed networks. They allow users to exchange digitized assets directly, in a way that is incorruptible (data cannot be changed once added) and transparent (all transactions are logged onto the timestamped ledger, with the identity of the person who committed the transaction).

What is Bitcoin?
In 2008, a technical white paper was released to describe the design of a new ‘Peer to peer electronic cash system’ called Bitcoin. The paper argues that the traditional trust-based payment models, with the possibility of reversals, lead to high transaction costs and increase the level of intermediation required by a ‘trusted third party’ (in this case, a bank). The high transaction costs, in turn, prohibit the digital execution of small value transactions. The paper proposed that instead of trust being introduced to transactions through ‘trust systems’ or ‘trusted third parties’, it could be introduced to transactions cryptographically. This would ensure a shared order of transactions through computations without the need of parties knowing each other. Through a peer to peer distributed network that time stamped transactions, participants would be able to execute transactions without the need for a trusted third party as intermediary, thus eliminating inefficiencies caused by the more traditional system. While the shape and form the technology, takes has evolved since its introduction, certain features remain consistent, as does blockchain’s goal to facilitate trusted electronic transactions more efficiently.

What problems can be solved by blockchain in India ?
India, specifically, has not fared well in indicators to measure the efficiency of processes to ensure trust. In the ‘Ease of Doing Business’ rankings, released annually by the World Bank, while India has registered phenomenal progress and has gained 79 positions since 2015 to be ranked 63rd in the 2020 edition, it continues to perform abysmally low in indicators such as ‘enforcing contracts’ (ranks 163 out of 190 countries), ‘property registration’ (154 out of 190 countries) and ‘starting a business (136 out of 190 countries) . Of note is also India’s poor performance in ‘trading across borders’ (68 out of 190 countries) which includes parameters such as ‘cost of compliance’ to export. Apart from the increase in complexity, centralised authorities introduce risks and disadvantages of their own, since they themselves need to be trusted and compensated for their services. In India, the perceived level of corruption in public ‘trust systems’ is especially poor, with a position of 78 out of 180 countries in the ‘Corruption Perception Index’ released by the Transparency International. The Government of India has taken several initiatives to improve both the ease of doing business and ease of living by streamlining and simplifying processes, primarily by leveraging technology as well as proactively rationalizing various regulatory and other requirements. However, there is still a case for further improvement. Blockchain presents the potential for achieving the vision of Hon’ble Prime Minister of less government and more governance.