Back in 2009, as the 2008 global financial meltdown unfolded, cryptocurrencies - and by extension, the Blockchain technology - made their first appearance.
Positioned from the outset as an alternative to traditional banking mechanisms, Blockchain raised the possibility of a revolution in the world of financial technology, and the way money was controlled. Nine years on, we see different economies and industries across the globe still trying to understand and adopt the technology.
In India, Bitcoin – one of the most popular cryptocurrencies - has caught the fancy of investors, startups and users alike, spurred at least in part by the recent demonetisation drive.
However, while Bitcoin remains a different ball-game, Blockchain technology, in particular, may hold the answers to India’s widening financial divide. With an objective outlook, different public and private players in the financial domain can adopt Blockchain technology to reduce the cost of operations and remittances, and enable financial inclusion.
Demystifying Blockchain Technology
Bitcoin has shone the spotlight on the potential of blockchain technology and in particular its use in allowing the transfer of digital currency between individuals without needing an intermediary to validate or permit the transaction.
The core of the technology is governed by a software protocol that efficiently maintains records of every transaction. The records thus created are decentralised, immune to any external tampering, and can be accessed and used to verify transactions.
The technology not only eliminates the need for intermediaries but also creates secured data that is readily accessible. These attributes put Blockchain tech as the frontrunner solution to expand financial inclusion without surging costs.
Finland has been leading by example when it comes to leveraging Blockchain technology for providing legal and financial identities to individuals.
When greeted with a huge influx of refugees seeking political asylum, Finland leveraged Blockchain technology to help find an identity and access MONI cards to send or receive payments, pay bills and more.
Following this precedent, the United Nations is also exploring the idea of deploying Blockchain tech to provide legal entities to over one billion people without any authorised documents.
Serving the Un-served with Digital Identities
India has an incredible opportunity to spread financial inclusion across the length and breadth of the nation. According to a joint study released by ASSOCHAM and EY, 19 percent of the population continues to remain unbanked, or financially excluded, despite the best efforts of banks and financial services providers.
While the Government of India and the Reserve Bank of India have taken several steps to spread financial inclusion, the infrastructure at present is not sufficient to reach out to the myriad sections of the country
The most significant barrier to accessing financial services for individuals at the base of the pyramid is the lack of required documents.
The use of Blockchain technology helps resolve this mismatch by establishing digital identities for individuals. For immediate means, the Government can leverage the potential of cryptography technologies to create online profiles, taking account of an individual’s identity and family associations.
Another way is to create usernames with an open space for the name, and directly embedding the user data in the Blockchain. This way, individuals can self-identify and access the available financial services – from opening bank accounts to sending or receiving money, applying for loans and more.
Blockchain will also be able to facilitate a greater flow of remittances into the country from Indian workers overseas – again, the degree of access to financial services that Blockchain provides through its identity management will enable hitherto unbanked workers overseas to send funds directly back home, with a very clear positive knock-on effect for local economies.
Citizens hitherto excluded from access to financial services will enjoy greater financial freedom and security through Blockchain technology. Digital identities created in the process offer greatly improved privacy by restricting them to specific devices or by granting privileged access to individuals, in line with their authority.
A financial institution can access the same digital identities to reissue documents or access data whose paper versions may have gone missing. By integrating these solutions into other external services, we stand to reduce instances of fraud or error in the delivery of financial services to the under-served or unbanked sections of society.
While financial inclusion is paramount for India to continue her growth trajectory, its nature tends to be complex and challenging.
The shift in paradigm requires collaboration between the private and public sector, for not only trailblazing innovations but also creating a holistic, robust ecosystem.
With the growing adoption of Blockchain technology, the two billion unbanked people spread across the globe stand a chance of financial inclusion. Lowered risks and costs, along with increasing innovation, means that blockchain technology is going to be integral to financial services in times to come.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)