July 07, 2019

M6L5: Blockchain technology

Context

Recently, Estonia has used blockchain technology to secure the health records of over a million citizens. This will offer individual citizens, medical practitioners, and insurance companies, a fully transparent and accurate view of the medical data of the concerned person. The purpose of this initiative is to improve the access to social security schemes, esp. insurance for healthcare. How can India use it to improve the efficiency of delivery in its own social sector schemes? Can we use this for Modicare scheme? (Ayushman Bharat)? Can it be used to protect Aadhar data? Can it be used to facilitate online voting? Let’s discuss this by first understanding the Blockchain technology

Why in news?

Blockchain technology came into news through Bitcoin. Bitcoin is a cryptocurrency

What is cryptocurrency?

A cryptocurrency is a medium of exchange such as the US dollar. Bitcoin, the first cryptocurrency, appeared in January 2009 and was the creation of a computer programmer using the pseudonym Satoshi Nakamoto.

The term cryptocurrency is used because the technology is based on public-key cryptography, meaning that the communication is secure from third parties. This is a well-known technology used in both online transactions and communication systems.

Features of cryptocurrency v/s a currency

Cryptocurrency	US Dollar ($) or Indian currency (₹)
1. Like the US dollar, cryptocurrency has no intrinsic value. Therefore, it is not redeemable for another commodity such as gold.	1. Same as cryptocurrency
2. Cryptocurrency is not backed by any central bank	2. US dollar is a legal tender, implies it is backed by a central bank or the government. Thus, banks cannot refuse to accept it
3. Cryptocurrency doesn’t have any physical form	3. US dollar does have a physical form
4. Its supply is not determined by a central bank and the network is completely decentralized, with all transactions performed by the users of the system.	4. Its supply is determined by the central bank on the basis of inflation or contractionary or expansionist fiscal policies.

What is blockchain technology and how is it used in Bitcoin?

1. The blockchain is the technology underlying Bitcoin and other cryptocurrencies. In Blockchain, this data is stored in the cloud network. In case of Bitcoin, this decentralized public ledger takes the place of cloud storage that (खाता-बही or account book or cash book) keeps a record of all transactions that take place across the peer-to-peer network.

2. This technology allows participants to transfer assets across the Internet without the need for a broker or an intermediary (central third party).

3. Identifying information (public key) is encrypted, and no personal information (private key) is shared. However, a transaction record is created. One transaction record is called one block. When other transactions happen in the future, those transactions are recorded once again in a block and connected to the earlier block in a chain network. This chain of transactions from the source of origin to the end is called blockchain. Thus, you can backtrace the source money by traveling back in the chain.

4. The important parts of a block are:

(a) Its header, which includes metadata, such as a unique block reference number

(b) the time the block was created and

(d) Its content, such as transactions made their amounts and the wallet addresses of the parties to those transactions.

5. Given the latest block, it is possible to access all previous blocks linked together in the chain, so a blockchain database retains the complete history of all assets and instructions executed since the very first one – making its data verifiable and independently auditable.

What are the differences between public and private blockchains?

In public blockchains, there is no central authority in a decentralized network.

Private blockchains are networks where the participants are known and have permission to update the ledger. Participants may come from the same organization or from different organizations within an industry sector where the relationships between them are governed by informal arrangements, formal contracts or confidentiality agreements. This means that this can be used in a group of people, such as a company enforcing a contract, that wants to maintain an eye on each and every penny, from the point it comes to the point it goes.

Features of Blockchain

· The blockchain data structure is a back-linked list of blocks of transactions, which is ordered. It can be stored as a flat file or in a simple database. Each block is identifiable by a hash, generated using the SHA256 cryptographic hash algorithm on the header of the block.

· Data is stored in a decentralized cloud network in blocks. In the case of Bitcoin, this cloud is the public transaction ledger.

· Blockchain code is resistant to counterfeiting since data once added, can’t be reversed. Data security is enabled by public-private key cryptography.

What is the public key and private key?

Let’s say, I myself person XYZ sent an email to person ABC. In that case, I sent the email to abc@gmail.com from my email address xyz@gmail.com. This email address of person ABC can be shared with anyone in the public domain, whosoever is interested to communicate with ABC. This is called a public key (abc@gmail)

Now, when I (XYZ) sent the email to ABC, my email address (xyz@gmail) will appear to ABC when he/she opens her inbox. But to open her email, Gmail will ask for her credentials that will be known only to him/her. This password that XYZ keeps private is called the private key.

A similar analogy can be made for a cell phone. If ABC sends a text msg to me, he/she will use my cell number to send the msg. This is my public key that she and many other people possess. Now if I want to open that text msg, I will have to unlock my cell phone. That pattern or password to unlock my phone is confidential to me only. That is my private key that I will keep it private only to myself.

Advantages of Blockchain in the Indian context

1. Online voting

With a unique digital identity to identify the voter and a private key, online voting can be facilitated. Since blockchain doesn’t allow reversing the data once entered, every voter using this option can exercise this privilege only once.

2. To trace black money

Provided people become completely cashless and shift to digital transactions. That is the biggest challenge since this operates on the digital network

3. Reduces duplication of efforts by creating a static registry on a distributed database for storing reference data with identity-related information

In India, all the banks undergo KYC (know your customer) process to reduce fraud. Aadhar is on kind of digital identity. If this data, that serves as digital identity is allowed for the only authorized purpose, this will reduce duplication of efforts to verify each beneficiary. India can use this under JAM yojana.

4. Improve the efficiency of the approval process in social benefits scheme

If personal health record is stored on the cloud network and secured with blockchain, every single addition of data by a medical practitioner will be recorded and connected to earlier blocks of data. By tracing the sequence of earlier treatments and medical tests, this will reduce the duplication of the same tests and treatment.

This will make the process of approval of health insurance policies faster and efficient. This is what Estonia has done and can be used in the Indian context to improve the efficiency of medical insurance schemes faster.

5. Data mining for research

Additionally, since the data is stored in the cloud, some person can sell it for clinical trials or experiments or research to a pharma company within few seconds, since the digital data can be transferred in few mouse clicks. Combined with Artificial intelligence, it can help to mine important data from billions of blocks.

Other examples where blockchain can be used to create registry are the origin of food items, Patents etc.

6. Smart contracts

The coding in the blockchain can be added with features to undergo transaction if certain conditions are met. Thus, in the above case, if the land records are completely digitized, land acquisition will become easier and faster, providing the predefined conditions set by the government are met. This reduces backend office work since the approval process is automated. Chances of scams and fraud are also reduced by reducing the discretion on the part of officials.

Other examples where this can be used are Cash-equity trading (Algo trading), the release of intellectual property with payment conditions etc.

7. Reduces chances of fraud

Since all the data is stored in the cloud and encrypted and can be transferred across platforms, it will help to reduce frauds since this can be checked immediately. For e.g., if all the banks and insurance companies collaborate the data of blacklisted people on common blockchain platform that they can check, chances are rare that the person under suspicion will be able to commit the same once again.

Can India use this in infrastructure projects? The answer is yes. Since every single payment will be recorded on the blockchain network and transparent to authorized people on the blockchain network, it will reduce the chances of scam.

8. To reduce the burden of pending cases on courts

If all the land records are digitized and stored on the blockchain, each and every transaction can be backtraced with complete details including the identity of the person, time and place when the land title was transferred etc. This will help to immediately trace out frauds.

9. Protection of Aadhar data by creating a Dynamic registry (a distributed database that updates as assets are exchanged on the digital platform

Since the blockchain stores all the records including, when the transaction has happened, who stored the data, who added value to it, it can be used to trace when and from where my Aadhar data was accessed by whom. This will help to trace the source of leakage if any fraud has happened by using Aadhar data.

This model can also be used in the drug supply chain or manufacturing supply chains to record every value addition along the production line.

What are the current bottlenecks or issues?

Governance structure	Requires development of a standard for data entry to facilitate collaboration and interoperability of data across various platforms
Tampering of data from the point of entry	In companies that trade in merchandise goods and commodities, connecting and securing the day to day transaction of physical goods to a blockchain requires enabling technologies like the Internet of Things and biometrics. This connection can be a vulnerability in the security of a blockchain ledger because while the blockchain record might be immutable, blockchain itself cannot assess whether an external input is accurate or “truthful”. This means that faulty data can be entered into the blockchain network if the physical item or IoT sensor to record the data has been tampered.
Coding complexity	In small companies that use blockchain to store data and approve transactions, a small number of people control the decision-making process. Hence the number of conditions in a single block, that are required to be approved before making a single transaction are few. This makes processing faster and efficient. However, in large companies employing more than 500 people, these number of conditions to approve a transaction automatically with predefined agreed set of conditions, the size of block storing the code increases immensely. This increases the complexity of blockchain and its efficiency to reduce the time required to approve each transaction.
Shortage of Skills	Skilled people are required to do the coding to prevent any issues in the future.
Loss of authority from man to machine	In PSU or big corporate companies, the head authority may fear the loss of dignity and honor due to shift in discretionary power and control from decision making authority to decentralized networks that use predetermine conditions to facilitate a transaction.
Lack of consensus	In markets where companies risk losing, it is difficult to take all of them on board to put their data on the blockchain. This is because, they may fear that their security and privacy will be compromised if their critical data is accessed by other people across various organizations.
Processing time, storage and coordination	With too many conditions, put on a single block of data, the system will require tight coordination among input data inserted by various stakeholders, immense memory and storage to scale up the blockchain. For example, a blockchain solution for digital media, licenses, and royalty payments would require a massive amount of coordination across the various producers and consumers of digital content.
Lack of flexibility to modify the data in certain extraordinary conditions	Blockchain data could be manipulated only if >50% of the network computing power is controlled and all previous transactions are rewritten—which is largely impractical

Way forward

India is considered an inspiration when it’s comes to frugal innovation. Combing the advantage of a highly skilled workforce in IT Sector, Artificial intelligence and encrypted data stored on the blockchain, India can be a scale up the efficiency of delivery of its various schemes and the pace of delivery of justice.

The need of the hour is to develop an architecture or an institution that can implement this at grassroots level.