The Indian Tale of Blockchain & Digital Payments
Introduction to Blockchain Technology In the past few months, we have been hearing the terms ‘Blockchain’ and ‘Digital payments’ quite a lot. It has emerged as one of the top trends in IT for the year 2017. Blockchain technology was invented to create the peer-to-peer digital cash ‘Bitcoin’ in 2008. It, essentially, is a technology that makes creating and sharing of a digital ledger of transactions like bank ledgers. But, unlike bank ledgers, blockchain records do not need any central administrator. The ledger file is shared among all the participants on the network called ‘miners’ and anyone can participate in the network.
The miners collect all the transactions that happened in the last 10 minutes globally and record it altogether and this is called a ‘block’. Like physical ledger where each page is lined with the previous page with running totals, in the blockchain, each block is also linked with the previous block. It creates a chain of blocks and hence the name, Blockchain. Anyone can add a block of transactions on the bitcoin ledger after solving a crypto graphic puzzle to add a new block. These bitcoin ‘miners’ are rewarded in the form of 12.5 bitcoins for solving the puzzle. At today’s rate of about Rs. 97,000 per Bitcoin, that is over Rs 12, 00,000. Although research is being carried out to explore its potential use cases in banking and other sectors, crypto currencies is the successful application of the technology so far.
Bitcoin is one of the most prosperous and trending cryptocurrency in India today. The blockchain powered by bitcoin can only work with bitcoin and this is by far is the biggest and most secure blockchain the world currently has. After being the top performing 'currency' in 2016, it rallied to all-time highs and was trading at around levels of $1220 on the CoinDesk Bitcoin Price Index, last week.
Digital Payment Revolution
India is making an attempt to transition to a digital payment, less cash economy. The recent move of demonetization spurred the overnight adoption of digital payments and the trends in here to stay. People are moving to electronic payment methods resulting into unprecedented surge in digital payments.
According to the data from RBI, digital payments have increased by 43 percent to 958 million transactions from November to December. Banks and technology companies are simultaneously exploring the usage of Blockchain to make our lives easier. The various areas where blockchain technology could make huge impacts are identity and authentication, digital assets, micro payments, decentralized notary, remittances, smart contracts, loan syndication and others.
Below are the reasons why digital payments could be the next big thing for India:
• Cost of Handling Cash
India is facing challenges with huge use of cash for payments, quality of notes in circulation, counterfeit notes, security features, infrastructure to promote digital payments and the parallel economy. A report published by a leading financial services company in October 2016, estimates opportunity India has to reduce cost of handling cash from 1.7 percent of GDP to 1.3 percent of GDP. This will save Rs. 70,000 crores in coming five years if digital payments are adopted on a larger scale.
• Smartphones to Connect the ‘Unbanked’
India is considered to have 30 percent of the world's unbanked population. With more than 300 million smartphone users in India, lies a huge opportunity to turn each mobile phone into a bank! With the increase in the number of mobile and mobile Internet users, a digital payment is a space for the future. This indicates the potential mobile devices have in giving ‘unbanked’ people access to digital payments. The regulators have also offered licences to telecom and ecommerce companies having large distribution networks to extend the reach of mobile banking to people who are poor or living in rural areas.
• Government Policies Around Disincentivizing Cash
On 8th December 2016, Government announced incentives like discounts on buying fuel, Rupay cards to farmers, insurance cover for passengers who book rail tickets online, no service tax on credit / debit card payments of up to Rs 2,000in order to provide a push for a less-cash economy. The government has been appealing Indians to go cashless since demonetisation. In a recent move, the government has asked banks to get all the accounts enabled with net banking by March 31, 2017 setting a target of achieving 2,500-crore digital transactions in the current financial year.
In a Nutshell
Demonetisation prompted people to go low on cash. The government promoted digital transactions which helped boost the fintech companies. The digital mode of payments put power back in the hands of the people, especially when combined with mobile P2P payments. Appropriate policy initiatives and execution will help India leapfrog from a highly cash-dominant economy to a cashless society over the next five years reducing the proportion of hard currencies and paving the way for crypto currencies.
Although research is being carried out to explore Blockchain’s potential use cases in banking & other sectors, crypto currencies is the successful application of the technology so far
Below are the reasons why digital payments could be the next big thing for India:
• Cost of Handling Cash
India is facing challenges with huge use of cash for payments, quality of notes in circulation, counterfeit notes, security features, infrastructure to promote digital payments and the parallel economy. A report published by a leading financial services company in October 2016, estimates opportunity India has to reduce cost of handling cash from 1.7 percent of GDP to 1.3 percent of GDP. This will save Rs. 70,000 crores in coming five years if digital payments are adopted on a larger scale.
• Smartphones to Connect the ‘Unbanked’
India is considered to have 30 percent of the world's unbanked population. With more than 300 million smartphone users in India, lies a huge opportunity to turn each mobile phone into a bank! With the increase in the number of mobile and mobile Internet users, a digital payment is a space for the future. This indicates the potential mobile devices have in giving ‘unbanked’ people access to digital payments. The regulators have also offered licences to telecom and ecommerce companies having large distribution networks to extend the reach of mobile banking to people who are poor or living in rural areas.
• Government Policies Around Disincentivizing Cash
On 8th December 2016, Government announced incentives like discounts on buying fuel, Rupay cards to farmers, insurance cover for passengers who book rail tickets online, no service tax on credit / debit card payments of up to Rs 2,000in order to provide a push for a less-cash economy. The government has been appealing Indians to go cashless since demonetisation. In a recent move, the government has asked banks to get all the accounts enabled with net banking by March 31, 2017 setting a target of achieving 2,500-crore digital transactions in the current financial year.
In a Nutshell
Demonetisation prompted people to go low on cash. The government promoted digital transactions which helped boost the fintech companies. The digital mode of payments put power back in the hands of the people, especially when combined with mobile P2P payments. Appropriate policy initiatives and execution will help India leapfrog from a highly cash-dominant economy to a cashless society over the next five years reducing the proportion of hard currencies and paving the way for crypto currencies.
