Is Blockchain Worth Every Penny?

Besides a slew of pilot projects by state governments, a lot of financial institutions and global conglomerate are testing usage of the blockchain. However, many of the experts caution that India needs to examine all aspects of the technology before it joins the bandwagon. Join us while we investigate if blockchain is really worth the attention it is drawing

Blockchain technology is gaining awareness owing to its decentralized control, transparent exchange, and immutable database. The blockchain is a distributed ledger technology that stores information across multiple systems securely to enable peer-to-peer transactions by creating a trustworthy source.

The technology is witnessing adoption among several applications including banking and financial services, transportation, supply chain as well as verticals like government and PSUs in India.

While consumer awareness for this technology is at a nascent stage; however, with surging growth of blockchain integration in several verticals, majorly driven by government and enterprise segments, the market is projected to register considerable growth over the next 2-3 years.

“As per Gartner, blockchain will add value worth $176 billion by 2025, globally. In fact, blockchain is one of the core technologies which will be adopted to deliver some of the key outcomes of the Industry 4.0 revolution. Even if, India accounts for 15-20 percent of the global market, we will see a market worth $15-30 billion by 2025,” predicts Anil Awasthi, VP, and Global Head, Retail Banking, Virtusa Corporation.

Adds Jitan Chandanani, Blockchain Leader, IBM India and South Asia, “The opportunity for blockchain is gigantic as it impacts almost every sector of the economy enabling them to work much closer with each other. That’s something which makes this technology quite exciting.”

He further adds that the blockchain ecosystem is evolving in India. Creating awareness on how this technology is simpler and easier to use with the existing cloud technology can go a long way in helping the country realize its potential.

Enterprises bracing for disruption

Blockchain technology is generating significant interest across a wide range of industries in India. As the field of applications for blockchain grows, industry leaders are customizing and tailoring the technology to fit multiple use cases.

As per NASSCOM, blockchain technology has the potential to create a value of up to $5 billion in India over the next five years by increasing productivity and reducing costs.

“In fact, blockchain is likely to disrupt businesses by addressing the systemic flaws endemic to traditional processes. These legacy processes will be taken away or adapted to better practices,” states Ravi Chamria, CEO, Sofocle Technologies.

Supports Vaibhav Gawde, Head, Solution Consulting, Oracle India, “In the cloud economy, blockchain promises to transform the way we do business, making B2B transactions more secure, transparent, and efficient while creating new revenue streams for businesses and simplifying the lives of the end-users.”

In fact, current blockchain solutions over the cloud offer customers a pre-assembled platform for building and running smart contracts, and maintaining a tamper-proof distributed ledger. With this, customers can enjoy improved traceability, supply chain transparency, compliance monitoring, and auditability.

“We are witnessing a rise in blockchain implementation in various processes over the last two years. With the advent of robust enterprise-grade blockchain solutions, we expected it to be adopted by many businesses in 2019. In fact, a job portal in India has seen a hike of 290 percent in the number of cryptography and blockchain-related jobs,” reveals Aharsh MS, Chief Marketing Officer, Accubits Technologies.

Apart from the obvious use of blockchain in the financial services industry, non-financial players from retail, travel, healthcare, telecommunications, and public sector are exploring blockchain. For instance, in retail, the blockchain solution uses a chatbot to store warranty receipts on the ledger, thereby building a tracking history of ownership. In oil and gas, a blockchain-based tracking of oil through the entire supply chain leads to an indisputable view of all events through the lifecycle of the asset. Blockchain-based Patient Record Management systems enable companies to simplify claim processing, secure medical records, monitor the pharmaceuticals supply chain and collaborate with network stakeholders. In addition, blockchain-based land registration system reduces the risk of manual errors while creating more secure processes for transferring ownership of documents.

Probably, that’s why blockchain is being widely recognized as having the potential to transform several sectors of the economy. Moreover, outsourcing and captive businesses are up for major disruption with blockchain.

“The technology will induce major disruption in the BPO and captive business units of MNCs operating out of India for cost benefits. As blockchain brings foundational changes in the business processes, back-office and reconciliation work will be disrupted because data redundancy will not be there,” explains Yuvaraj Thanikachalam, Senior Vice President, KrypC Technologies.

Further, blockchain is expected to enable enterprises to tap tier-3 and -4 markets in India by building connectivity. “As blockchains work over the cloud, they are independent of the underlying architecture. It can connect diverse platforms like SAP, Tally, Oracle, and a smartphone. India has seen a boom in the Internet connectivity as well as the spread of the smartphones. In this scenario, blockchain prepares a perfect setup for technology common play,” reveals Chandanani of IBM.

BFSI getting miles ahead

Banks and other financial institutions are increasingly investing in blockchain technology as it cuts down their costs and makes their operations faster and more transparent. In fact, BFSI organizations are contemplating the use of blockchain for payment remittances, trade finance, asset inventory audit, AML (anti-money laundering), smart contracts and land record validation.

The adoption started with ICICI Bank executing transactions in international trade finance and remittance using blockchain technology in partnership with Emirates NBD in October 2017. Yes Bank followed by implementing a multi-nodal blockchain transaction to fully digitize vendor financing for Bajaj Electricals in January 2018. Axis Bank became the third bank when it recently announced that the bank will be using blockchain for cross-border remittances.

In addition, India has witnessed several proofs-of-concept to demonstrate blockchain applications in BFSI organizations. IDRBT, the technology arm of Reserve Bank of India (RBI), led two PoCs – domestic trade finance letter of credit and enhanced information for payments – by involving banks and technology firms like Infosys and IBM. General insurance companies have also worked on a pilot to track health insurance policies using blockchain.

“Attempts at creating blockchain consortiums within banks and other ecosystem players are also in progress, locally, and the space is ripe for moving from individual bank-led POCs into nationwide networks with wide participation from members and support/sponsorship from the regulator(s),” discloses Anup Purohit, Chief Information Officer, Yes Bank.

Yes Bank is also in talks with other corporate houses in the manufacturing and other sectors wherein our vendor financing solution will ease out their operations and provide real-time bill discounting solution, he adds.

As one can see, the momentum around blockchain is rising quickly in the banking sector. The reasons are obvious – a report from Santander Inno Ventures claims that banks can slash infrastructure costs by $15-20 billion by 2022, by eliminating redundant activities.

Growing support from governments

Apart from voting systems, blockchain technologies could be used to help reduce and eliminate bureaucratic red tape and corruption in government agencies. For example, welfare, disability, veterans, and unemployment benefits could be more easily verified and distributed, eliminating fraud and waste.

Industry experts say that blockchain has a large potential to transform the government and PSU sectors by changing the way public services are delivered. “Mere size of the government and PSU sector is so huge that even a small portion reflects the size of the opportunity. So far, governments have begun with land record regularization with blockchain, but the possibilities are limitless,” says Awasthi of Virtusa.

Interestingly, we are witnessing growing support from the central and state governments for blockchain. Andhra Pradesh is the first state to introduce blockchain in land records and is also setting up a Blockchain Centre of Excellence. Other states like Maharashtra, Karnataka, Kerala, Rajasthan, Telangana and West Bengal are following the lead.

In all, we have seven state governments trying blockchain. In addition, we have regulatory authorities like TRAI which has mandated the use of DLT (Distributed Ledger Technology) for DND; RBI has created a new frontier unit to figure out how blockchain will be beneficial, and the IRDA and FSSAI are evaluating blockchain. If the regulators accept the technology as a standard, it will become a stepping stone which will ease the adoption of the blockchain, shares Chandanani of IBM.

In addition, the government of India has started establishing various projects in the administrative section to improve the safety and authenticity of records. NITI Aayog has tied up with Oracle, Apollo Hospitals and Strides Pharma Sciences for a pilot on supply chain management of drugs. “The central government is working on a blockchain solution to address the menace of fake medicines in India. In addition, the government is willing to implement a system to attain safety in education, healthcare, agriculture and manufacturing sectors using blockchain technology,” adds Aharsh of Accubits.

A complete ecosystem is crucial

Despite its potential, the response of Indian organizations to adopt this technology has been far from enthusiastic.

The primary factors that are holding back the widespread deployment of this technology in India are lack of awareness, unavailability of adequate skilled persons and insufficient ecosystem.

Experts highlight that the challenges related to adoption and use case identification were the most difficult to surmount in the pre-POC stage of development, while lack of common standards and complexity of current IT landscape is a key deterrent for PoC development and subsequent full-fledged implementation. However, ensuring the right mix of business partners, platform and vendor are what make the difference between a successful PoC and a failure.

“A major challenge faced by blockchain is the derivation of right use case. Almost 80 percent of the successful blockchain production is the use case derivation and its rationalization. It is crucial to make sure we have the right use case, ecosystem participants and a symbiotic benefit to every participant. I believe that these exercises are generally not done in use cases which fail,” shares Chandanani of IBM.

Further, with blockchain, sharing economy thinking is required as a single organization building a blockchain is not feasible unless all the stakeholders in the value chain share the resources and build an ecosystem to benefit all, highlights Thanikachalam of KrypC.

As the blockchain concept requires a complete ecosystem to work, the evolution will take time, as organizations are currently involved in creating proof of concept projects. “We expect that the ecosystem and the regulatory framework shall evolve in due course. Once these challenges are sorted, we anticipate the faster adoption of the blockchain,” says Chamria of Sofocle.

Road ahead

Blockchain might not be an instant solution to all of India’s issues, but, it can bring speed and efficiency to various sectors. We must not look to blockchain technologies as a ‘magical cure’ or as a ‘one-size-fits-all’ solution to an industry’s woes. In fact, blockchain may not be a perfect technology for many processes.

The success of blockchain adoption will depend on the ability of the proponents /network to increase trust amongst themselves on the assets they transact on.

While these are certainly early days for blockchain, the enthusiastic embracement of this technology, by a number of huge corporations, points out to a momentum that is driven by user organizations. When seen in the context of a larger vision of Digital India and the existing Government’s inherent push for digitization, the blockchain momentum in India may continue to pick pace rapidly.

Is it worth the attention?

Blockchain was synonymous with cryptocurrency until boardrooms started adopting use cases in day-to-day enterprise functions, such as fraud control, patent tracking and invoice automation. While the government has banned cryptocurrencies, which is a spin-off of the technology, there are more reasons to be cautious.

Few of the experts warn that scaling up could be a serious problem for blockchain. For one, even mature applications like Bitcoins process merely 7-14 transactions per second. Enterprise-grade applications, on the other hand, routinely handle hundreds, and often thousands, of transactions per second. Another issue is the fact that, by design, blockchains are ‘exponentially wasteful,’ and while storage and computation may be cheap, electricity is not. A report by Morgan Stanley states that Bitcoin is likely to use 125 terawatt-hours of electricity in 2018.

Further, as the size of blockchain increases and more transactions are cached, the performance will decrease, and transactions will become increasingly difficult to manage due to storage, bandwidth, and processing power requirements. The absence of standards or interoperability between various blockchain platforms is another drawback highlighted by few of the experts.

However, while contradicting the apprehensions on the scalability of the blockchain, many of the experts point towards wrong analogy between Bitcoin and enterprise-grade blockchains.

“Bitcoin uses proof-of-work (POW) consensus mechanism which is an energy-intensive process. Moreover, the transactions-per-second offered by Bitcoin POW is not sufficient to build enterprise-grade solutions,” counters Aharsh MS, Chief Marketing Officer, Accubits Technologies.

However, the scalability can be improved by using other consensus mechanisms such as proof-of-stake and proof-of-authority. New consensus mechanisms are being used for enterprise blockchains, which offer scalability and are not power-intensive, he adds.

In addition, few experts highlight that scalability of blockchain is unmatched. “Bitcoin has about 3-5 million nodes, which is not matched by any centralized utility. So scalability is not an issue with blockchain. Further, the first Bitcoin transaction happened in 2010 and till now the total size of the Bitcoin database is about 150 GB,” shares Jitan Chandanani, Blockchain Leader, IBM India and South Asia.

He further adds that unlike typical mail systems, blockchain puts the document at the shared database and sends a reference or hash of the document to every participant. “Hence, blockchain helps in reducing the size of storage.”

Further, the enterprise blockchain is a non-mining network and the number of nodes may not go beyond 1000. Hence, it is not compute- and power-intensive. Moreover, since many of the organizations are already on the cloud with over 99 percent uptime, power usage will be almost the same, states Yuvaraj Thanikachalam, Senior Vice President, KrypC Technologies.

He explains that interoperability issues between different blockchains arise as they are public, permission-less networks with specific objectives. However, enterprise-blockchains are developed with data standardization to enable communication between different chains. “We have created a communication layer, CrypCore, to retrieve the data from one chain and standardize it in order to be understood by another chain. Hence, we don’t see any challenge in the enterprise blockchain adoption.”

Moreover, experts say that the blockchain market is undergoing an intense revolution. “Currently, Ripple executes almost 1500 transactions per second, which is quite impressive. Hence, there is a revolution happening and things are changing. While blockchain has been there for the last 8-9 years, most of the revolutions happened during the last 2 years,” shares Anil Awasthi, VP, and Global Head, Retail Banking, Virtusa Corporation.