Blockchain and Cryptocurrency

Blockchain and governments

In mid-2018, the words ‘blockchain’, ‘Bitcoin’ and ‘cryptocurrency’ were mentioned for the first time in the Indian Parliament by finance minister Arun Jaitley in his annual budget speech. ‘The Government of India does not consider cryptocurrency as legal tender,’ he said, ‘and will take all measures to eliminate the use of crypto assets . . . However, it will explore blockchain to add muscle to the digital economy.’ Strong words, both against cryptocurrency and in favour of blockchain. Since then, the government has been true to its word, at least in one of the two parts of the statement. While cryptocurrency has not been banned, partially because something which does not exist tangibly cannot be banned, it has been choked off. Crypto exchanges and wallets which had mushroomed around India, have shut down one by one. The flow of money from and to banks have been plugged, and so people cannot trade. The exchanges have either shut shop, or opened shop overseas, but the legs of the nascent crypto industry have been chopped off. Frankly, the reasons for this are not difficult to understand. At a macro level, it is completely inconceivable for a finance minister to consider a currency other than fiat currency. Traditionally, money supply and currency are one of the most powerful prerogatives of a government; they have a monopoly around it, and will not tolerate any competition to that. Money which is not centrally controlled is unthinkable and wrong, and therefore should be stamped out. It has not helped that crypto, especially Bitcoin, has been super volatile and has been the fount of multiple scams perpetrated by clever operators on poor, ignorant people. The volatility of Bitcoin has been much documented, with the cost of one Bitcoin yo-yoing between $3000 to nearly $20,000 and then back to $3500, all within a short one-year period. This makes some of the Latin American and African tin-pot economies look good. This reminds me of a popular tweet by Ran Neu-Ner, the Founder-CEO of OnChain Capital.

Added to this volatility are scams. Bitcoin, to the unsuspecting public, has been touted as the latest get-rich-quick scheme: ‘Give us your life’s savings, we will invest them in Bitcoin for you, and double your money in three months. Don’t believe it — see this graph, this is how it is going up. This is because it is on blockchain, and blockchain is the best thing since sliced bread. Or Dutch tulips. Or dot-com stocks.’ Besides sheer gullibility, one of the reasons this happens is because Bitcoin and other crypto is seen as a speculation instrument (like a stock or some hot commodity), rather than for its intrinsic value. This mania, like all others, will continue for some time, until sanity prevails. Actually, if you look at the prices of cryptocurrency, it is evident that sanity is starting to prevail. Another problem is that crypto is also the favourite monetary instrument for criminals dealing in unsavoury stuff on the dark net — porn, drugs, sometimes weapons. This is unforgivable but in many ways is expected. Most technologies tend to start off this way — the first use cases are discovered by the bad guys. Think of the Internet — among the earliest use cases, and perhaps the first business model, of the Internet was pornography. VHS won over Beta in videotapes, not because VHS was more superior, but because it was just easier to copy and therefore pirate. In my opinion, the march of digital currency is inexorable. So is the emergence of distributed, P2P money. Governments should be well advised to regulate the same, rather than just ban it. In some sense, this is like an earlier ban on dark film on car windows and windshields. This was supposed to reduce harassment and molestations in cars and reduce crime. Banning dark film on car windows does not reduce rapes, the root causes are different. Many other countries have taken a far more enlightened stance. Canada, the UK, Singapore, Sweden, Dubai, Japan and many others actively encourage blockchain adoption and have a more laissez-faire attitude towards crypto. This is not to say that they are not regulating it in some way or the other, but there are no outright bans and denunciations. Some of them are outliers — Mauritius announced itself as ‘Ethereum Island’. Venezuela, out of a reasonable amount of desperation, launched a petro-backed digital cryptocurrency. Countries like Switzerland and the UK are regulating cryptocurrency, much like they would regulate any new technology. In certain cases, there is self-regulation; in some countries, central banks take the ‘sandbox’ approach of containing the spread of the currency; in others, there are know your customer (KYC)-based regulations. But perhaps the country which has become the poster child of Blockchain is Estonia. Estonia, a tiny country of 1.3 million people and 2222 islands, became independent after the collapse of the Soviet Union in 1994. The poor, resource-deficient country has reinvented itself as a high-income, technology powerhouse. Wired magazine called it the ‘most advanced digital society in the world’. They have built e-Estonia on the back of many technologies, the primary of them being blockchain. The Estonian government has been testing blockchain almost since it was born in 2008. Blockchain is in operational use in Estonia’s registries, such as national health, judicial, legislative, security and commercial code systems, and there are plans to extend its use to other areas such as personal medicine, cyber security and data embassies. This has resulted in many things: e-citizenship for example, where you can become a citizen of Estonia remotely. E-voting is widespread, very few people vote in physical booths. It is reported that you can open a company in Estonia in three minutes, while it takes at least a day in the US and Canada and somewhere between weeks and months in India. This is because they have solved the ‘trust problem’ with blockchain. In India, for instance, though we have the Aadhar card, the DIN number, the PAN card, the mobile number and the bank account, each authority verifies this before passing it on. They ‘trust but verify’. It is this verification process that takes time; they do not yet trust you fully. If you solve the trust problem primarily using blockchain, like Estonia has, the results can be astounding.

Blockchain in Indian states

Many Indian states, led by Andhra Pradesh, are much more proactive than others in experimenting with and adopting blockchain. Andhra Pradesh is storing farmland records on blockchain and started PoCs for vehicle lifecycle management systems. They are experimenting with education records, and managing tamper-proof online exams and results, among other things. Neighbouring Telangana also has a land records PoC. Maharashtra is also trying blockchain in several registries — land, health, vehicles, government schemes, as well as working on a document management system. Chhattisgarh is working on a KYC identity system. Niti Aayog, the central planning guidance body, has initiated various PoCs in pharmaceutical supply chain and fertilizer subsidies. It is working to create a national blockchain policy document. Many other Indian states are doing or planning their own blockchain PoCs or Centres of Excellence (CoEs).

Thing from Tech Whisperer By Bindra Jaspreet