An Announcement that can Transform Indian Economy

The Indian Finance Minister in her budget speech on 01 February 2022 made a small announcement at Paragraph 111 about introducing digital currency (Central Bank Digital Currency) using blockchain and other technologies. The concept and benefits of digital currency are well known. It changes paper and metal into electrons flowing through the network. Blockchain technologies revolutionize the entire eco system of governance, business, citizen to government and citizen to citizen interaction.

By Brig (Dr) Ashok Pathak

Satoshi Nakamoto (a pseudo name) wrote the white paper on bitcoins in 2009 with the intention of breaking free from state control- especially the central banks of the world. The group felt that the central banks world over are not just to the customers they serve. Hence they created a new currency ‘bitcoin’. Creation and mining of bitcoins necessitated a network of blocks linked together by a secure chain-hence the name blockchain. In essence it is a peer to peer network that was created for people who do not have to know or trust each other but could still exchange money without cheating.

However from 2009 to the current times the blockchain technologies have evolved very rapidly. A number of weaknesses observed in the initial blockchains have been removed. More importantly the technologies have been suitably modified and adapted for use in a large number other non -financial domains like governance, supply chain management, cyber security, health care, education and so on. The basic tenets or the vision of the founders have remained unchanged. These are security, distribution across the network, immutable, based on consensus, provenance, cost effective and fast. Hence when the digital currency rides on the blockchains and related technologies the impact will be across a large number of domains outside the financial systems. In this article we will cover three major aspects:-

  • Essentials of blockchain technologies
  • Likely impact.
  • Major challenges and New Opportunities.


Blockchain in essence is a data structure. What differentiates it from other digital data structure are inherent security and distributed digital ledger of data that is shared in the network. The ledger entries are made by the users through mutual consensus and once the entries are made and accepted it becomes impossible to change. Blockchains can be public (open to all participants like the ones dealing with bitcoin), permissioned (where the roles of the members are controlled) or private (where the membership itself is closely controlled). All these three types of blockchains function without any central agency. The members run the show.

‘Block’ in this system represents transactions that are recorded in the digital ledger (each transaction is secured cryptographically). Transaction here implies the act of recording the data. It is assigned a value to interpret what that data means. The data in the block is linked to another block through cryptographic hash function (SHA-256) which acts as a digital fingerprint of the data. This hash function is the secure chain.

Nodes in the blockchain comprise of computers running an algorithm in a secured network. Considering the difficulty, cost and time spent on operating the nodes people are incentivized to operate these computers. This brings in the concept of token or bitcoin as reward for transactions and mining. The first and the original blockchain was for financial systems and the reward for transaction/mining was in terms of bitcoins. There is a general tendency to use bitcoin and blockchain as synonyms. However blockchains are not bitcoins. A blockchain can store personal details, contracts, real world objects and shared reality across the network.

Key Concepts – When we intend using the blockchain technologies for business usage the key concepts to remember are shared ledgers, permissions, consensus and smart contracts. In shared ledgers transactions are recorded only once, are time stamped and shared with all who are entitled. No entry can be altered or deleted. Participants see only those transactions that they are authorized to view. If an authorized user ‘A’ transfers an asset to another authorized user ‘B’ then all the participants in the blockchain network can see that the transaction has taken place but are blocked from seeing the details of the transaction. When an auditor is required to examine the transactions access can be provided to entire set of details through cryptographic arrangements. Consensus among the participants can be established through multi signature, proof of stake or through a special algorithm. Smart contracts in blockchain define contractual conditions and clauses and can be made partially or fully self-executing, self-enforcing or blockchain include Artificial Intelligence, Big Data and communication. If the programmers know the actual environment of a given block chain then suitable artificial intelligence tools can be developed for trend analysis, forecasting and decision making. Given the nature of AI the efficacy of the AI tool will improve with each iteration. Big Data becomes relevant when very large and rapidly changing data needs to be analyzed. Smart and cooperating agents (codes) can be devised for special automated communication within the agents in the block chain for helping AI and Big Data.


Supply Chain Management (SCM). The most revolutionary application of block chain can be made in SCM. In her budget speech the Finance Minister referred to Medium Small and Micro Enterprises (MSMEs). In 2019-20 the MSMEs contributed more than 30 percent to the GDP. In manufacturing sector these enterprises contribute around 37 percent and almost half of exports (49.5 percent) have been from the MSMEs. There has been fivefold increase in the number of startups in India (14000 in 2021-22). High tech startups in space technology are almost doubling every year since 2018 (7 in 2018, 11 in 2019, 21 in 2020 and 47 in 2021) India ranks third in the world in terms of number of unicorns after US and China. Various networks supporting the MSMEs (Udyam, e-Shram, NCS, and ASEEM portal) can be integrated in the blockchain networks that will trace warehouse space, availability and movement of goods, logistics and spares. Besides by using special facility in the blockchain faults in any components can be traced through the complex supply chain. Connecting the financial system to this supply chain with the above SCM will ensure timely flow of finances from the down-stream to up-stream as goods and services move in the opposite direction. Thus as the MSMEs deliver their out puts to bigger recipients payments will flow from the recipients to the deliverers. This uninterrupted flow of goods and services to the end customer coupled with equally fast flow of payments from the recipients to the deliverer is likely to act as an elixir to this industry.

Health Care in India has been recognized as a priority sector with the introduction of ambitious Ayushman Bharat. Blockchain and related technologies will ensure safe medical records, smooth insurance system by pre authorizing cashless payments. Blockchain will also provide complete medical history for each patient with distribution of control by the patients, concerned doctors, regulators, insurers. This will ensure availability of data with professionals and the concerned patients who need it.

Education and Skill Development sector can gain immensely from this technology. As per European Journal of Contemporary Education blockchain networks are being used for issue and storage of certificates, identification of students and faculty, protection Intellectual Property Rights, cooperation among students and their teachers/trainers/professors, preparing academic passport, and administration of academic processes[7]. All these uses will make the e university- proposed by the Finance Minister in her speech, a modern and effective platform for skills development and education.

Governance needs establishment of trusted identities that cannot be forged. Secure blockchains will ensure digitally authenticated certificates of birth, death, domicile, and other details that are unforgettable, time-stamped and accessible to anyone in the world on as required basis once permission is accorded by the person and the concerned regulators. This will ensure huge reduction in cost and time in identity verification, reduce human trafficking, transparency in direct financial benefits and curb terrorism by state sponsored cross border infiltration.

International Trade and Cross Border Transactions are processed by designated international banks (generally located in Western Europe, Japan, the US). These banks keep accounts of currency wise payments due from and to various nations based on international trades in goods, services as also loans. All international financial transactions are processed through these banks. Blockchains will not only replace these banks but will manage international financial transactions through single interface, will ensure greater visibility and will provide consistent, timely and accurate picture across all foreign accounts.

Internet of Things (IoT)

The Supervisory Control and Data Acquisition (SCADA) system facilitates machines to machines interaction in the IoT environment. These transactions if processed through the blockchains ensure secure, trusted and automated environment. Manufacturers, freight logistics, customs agents and insurers can be integrated in this network.

Major Challenges and Search for New Opportunities

The blockchain envisaged by Satoshi Nakamoto had several challenges. The most important being a secure facility provided to those who wanted to skirt the regulatory regimes of their respective governments and create/earn illicit money (without paying taxes) for illicit trade. Secondly, it was restricted in use. Thirdly, though it proposed peer to peer equality the mining of bitcoins required fast computers and tremendous quantum of electric power. Few participants could afford this and hence the power shifted to those who had electric and computing power. Fourthly, the size of the block in this chain was small (1 MB). Thus not very many transactions could be stored in each block. More blocks meant more chain and more power to mine.

Thus on the heels of bitcoin blockchains a large number of other blockchains were developed that removed most of these anomalies. These included Ethereum, ripple, factom, DigiByte, HyperLedger, Microsoft Azure and IBM Bluemix. Besides a number of projects were undertaken to create new services under regulatory frameworks with same security, authenticity and non-repudiation. These included R3 for improving cross border exchange, T Zero for breaking the opaque nature of Wall Street business model, Block steam to develop sidechains for linking other business processes in to the secure blockchain, Open Bazaar to create peer to peer e commerce bypassing aggregators like Amazon and E Bay, Code valley to ensure collaboration among software developers to assist blockchain, Bitfury to develop software and create hardware solution for businesses and government.

As blockchain technology provides universal applications there would be explosive demand for skilled personnel in this new technology. A large number of open source and free training and skilling platforms have come up to meet this requirement. In short the entire eco system of network centric functionalities is under transformation.


Though blockchain technologies were conceptualized to break free of state imposed regulations and central agencies a number of countries (Singapore, Australia, United Kingdom and now India) have shown willingness to embrace the new technology. Application of block chains has gone much beyond its original intended use of transacting crypto currencies. The technology now focuses on making business processes transparent, secure, authenticated in distributed ledgers that cannot be repudiated. India has taken a big leap in entering this greenfield area where a large number of issues are yet to be fully understood.

India had two options to choose from in this context. First the cautious option of wait and watch till every thing becomes clear. Second a more proactive option to embrace the new regime and learn the ropes through experience. By choosing the second option the Finance Minister has shown MAXIMAX approach to decision making where the decision maker opts for maximizing the gains as against minimizing the losses. Destiny generally favours such decision makers who opt for a strategy of stretching their efforts and resources to maximizing the gains as against those who are content with the crumbs left by the first movers.

This article first appeared in and it belongs to them.