Isn’t Blockchain that thing that is sometimes called Bitcoin which is used by hackers who want ransoms? Was it also not something to do with the Silk Road where you could buy drugs, weapons and counterfeit goods, something that the FBI closed down and seized 140,000 Bitcoins, making them one of the largest holders of Bitcoins in the world?
Why would I care or want to know anything more about such a dubious topic?
If I told you that some of the largest banks in the world had invested in a company called Ripple, which was trying to create a competitor to Swift—which is the way many banks transfer billions of dollars a day between them—that could be 50% cheaper, you can start to see why you may want to carry on reading. Ripple is being used by American Express as it too can see how it can reduce their costs of moving money. But how does this affect you?
According to the World Bank, in 2015, over $575 billion was sent from one country to another, with India having the highest amount sent to it typically by workers overseas—a massive $67.2 billion. The cost of sending money home to India is not cheap, often ranging from 7% to 12%. However, by using an all-Indian company like Cashaa, the costs could be reduced substantially. Cashaa is currently raising capital, using a process called an Initial Coin Offering (ICO) to create a crypto currency (CC) and uses Blockchain technology, which could reduce your costs by 3% to 6%. This equates to over $2 billion less profits for the banks, but $2 billion of extra money to those that need the money the most.
So what is Blockchain and why is the Indian government worried about ICOs and crypto currencies? Blockchain is a technology that has been around since the 1970s and simply allows people to do business peer to peer remotely, i.e., over the internet, in a trusted and secure manner. It was the technology that allowed one to share music via Napster, so it has been tried and tested. It uses military grade cryptographic security and creates a record of a transaction, which is then held on a multitude of computers around the world, which means that there is no central database that can be hacked, and a transaction once finalised cannot be altered.
In 2008, Bitcoin was created and launched at $0.01 as a currency that was to have a maximum of 23 million coins, unlike a central bank, which can print unlimited amounts of euros, GBP pounds, dollars, rupees, etc. Bitcoins can now be used to buy almost anything: a cinema ticket, a house, food, it is even possible to have a credit card linked to your Bitcoins, meaning the spending possibilities are almost limitless. It took until 2015 for another crypto currency called Ethereum to come along and develop another type of Blockchain. Using this Blockchain it became easy to raise capital doing an ICO, thereby creating new coins. These ICOs in the last year have raised over $3 billion and the size of the crypto currency market has risen from $12 billion to over $200 billion.
Driven by fear and greed i.e. fear of missing out and greed, finding a crypto currency will hopefully rise in value by over 3000% (which is what Ripple has done in the last year) in the future. Unfortunately, these ICOs are not regulated and have attracted some questionable characters promoting dubious businesses.
THE REGULATORS
Reserve Bank of India (RBI) is looking to ban the use of crypto currencies as a form of payment, but is supportive of Blockchain. As proof of Blockchain’s great promise, several banks in India such as ICICI, Kotak Mahindra and Axis are already using Blockchain in such applications as overseas transactions and international remittances. However, the regulators are concerned by the number of Indians who are getting involved in crypto currencies. To curb the use of crypto currencies, a government panel is said to have advised shutting down crypto currency dealers. Meanwhile, Zepay, a crypto currency trading app is adding 200,000 new users a month.
LEARN, NOT INTERFERE
Munish Sharma, consultant at the Institute for Defence Studies and Analyses in New Delhi, discussed the ongoing dilemma that most regulators often struggle with, when handling the nascent technology, especially in such a highly regulated space: “Widely seen as a disruption for the traditional banking and financial institutions, crypto currencies have gained significant traction over the last half a decade, at the same time creating a regulatory nightmare for banking regulators across the globe. Governments and their regulatory bodies have been brainstorming for measures to either regulate the growth of crypto currencies, as against just letting them proliferate without regulation and interference.”
There is no need for a full ban, instead the Ministry of Finance needs to work on ways to regulate cryptos. The key issues being consumer protection, taxation and money laundering.
WHY IS BLOCKCHAIN SIGNIFICANT TO INDIA?
India is by far the largest English-speaking population in the world, making it an ideal recruiting ground. It is also a free-market country where thinking and innovation lead to success and are encouraged.
Indian secondary education (high school) is focused primarily on a few subjects. Science or Commerce are two primary streams, with Maths/CompSc/Economics being optional subjects.
These three factors help explain why some of the brightest Indian brains are running companies like Microsoft, whose CEO Satya Nadella is Indian. Indians are seen to have some of the most mathematically skilful minds and are being recruited to build new businesses that are harnessing the power of Blockchain in many different sectors. These organisations are developing ways to reduce costs, cut fraud and open new markets for the impoverished rural, as well and the sophisticated wealthy city dwellers all across India and indeed the world.
Blockchain has been heralded by Ginni Rometty, the CEO of IBM, as a powerful technology that has the ability to change the way we do business. It is a technology that the Indian economy and regulators need to embrace and use to drive the economy forward. Yes, there are challenges especially with ICOs, but these two are helping to raise capital, create jobs, and develop new solutions for today’s problems. The process of an ICO also offers governments and global brands a fantastic opportunity not to raise capital, but to run their organisations more efficiently, build stronger relationships with their citizens, clients, suppliers and staff…but that is for another day.
Jonny Fry is the co-founder and CEO of TeamBlockchain Ltd. He is a Blockchain, crypto economics, ICO and funds specialist, with over 25 years’ experience as CEO of an asset management business which he floated in London with over £1 billion under management. Twitter: @jonnyfry175