Not to be confused with Blockchain.info (a wallet and explorer service), the blockchain ledger technology was the key building block for Bitcoin. It is only in the last two years that blockchain emerged from the shadow of the cryptocurrency and became a tool for financial disruption.
In its current avatar, blockchain can be used to record transactions as well as process documents, secure financial messaging, network interactions, escrow and counterparty validation, core trade operations and even art. The technology is set to revolutionize age old paradigms in the banking industry, especially involving:
- Anti-Money Laundering
- Know Your Customer
- Clearing and Settlement
Blockchain (as part of Bitcoin’s vision) was originally designed to circumvent financial institutions (FIs) such as banks and clearing houses, however in an ironical twist it has become a preferred tool for FIs themselves. Globally there is a lot of activity happening on the blockchain. R3, a New York based consortium that is evaluating blockchain for financial systems has signed up 45 banks in a short span of two years. A few months R3 announced a successful trial involving 40 banks to trade debt instruments on blockchain. Similarly, some companies have developed real time, low cost systems on distributed ledgers that can handle more than a billion transactions per day.
Indian banks and financial institutions too need to form a similar consortium and move quickly to take advantage of this disruptive technology. In a significant move, India’s banking regulator RBI (Reserve Bank of India) too has backed the transformational potential of blockchain, asking Indian banks to evaluate it for their operations and processes.
Given the fact that a significant chunk of banking operations worldwide are handled by technology developed and maintained by Indian IT companies, it is surprising that India has not grabbed pole position in the race to blockchain based banking. Hopefully the coming days will see CTOs and CIOs of Indian banks and technology providers becoming more active in this space.
There are a number of features that set blockchain apart from a standard database or an archive, something that several commentators gloss over while attempting to explain blockchain. While blockchain is a database, such a simplification would be tantamount to describing a computer as a typewriter.