Dr Pandurang Kamat, Chief Architect - Innovation and R&D
Blockchain, the technology that powers bitcoins and other cryptocurrencies is considered to be the new Internet. Many believe it will change the way we do business and the way we transact with each other. Blockchain relies on a decentralised ledger and works very well in trustless systems.
Blockchain allows transfer of bitcoins without any third party intermediary. In general, when you want to send currency from one person to another, you need an intermediary which is generally a bank. Blockchain transactions eliminates the need for a third party and are also secure and difficult to hack.
Today this technology is finding uses in many other industries apart from cryptocurrencies. Blockchain is called the trust protocol and has application in all the areas where markets are inefficient with very low trust. The data is difficult to hack as it is distributed across computers. The technology is expected to change the way education, government and corporates work.
Dr. Pandurang Kamat, Chief Architect – Innovation and R&D at Persistent Systems talks to Pravin Palande of Forbes India about this technology and how businesses and financial markets will benefit from it.
Can you give us a scenario where Blockchain technology will be more useful to financial markets? Companies are trying to build a future where you can directly send shares to someone and carry out a demat transfer within account without paying any transaction fees. This is easily possible with a smart contract. I believe there is inefficiency and there are high costs involved in financial market transactions that can be disrupted. Mutual funds like subscribing to commercial papers and short-term corporate loans. However, it takes four to seven days for this instrument to be created, and as a corporate, you will have to go through several intermediaries and credit rating agencies to get the commercial paper cleared.
There are documents that are physically delivered for signatures by couriers from Mumbai to New York. The document trail cannot be formed by one entity. This process can be significantly streamlined if you have a distributed ledger where the integrity of the document cannot be controlled by one entity and everybody can see the same document. We had built a prototype. This came from listening to what the market was telling us.
Is Blockchain the new internet? This was a statement made with a view that it has a very long future. Naval Ravikant, an angel investor, said that the arc of the internet is bending towards decentralisation. But this will not happen tomorrow. Companies like Ethereum and Blockstack that are trying to build a future where we don’t have to be dependent on centralisation.
Today, content is censored or controlled or kicked off the internet. However, there is a group of technical people like the cypher-punks who want to build a decentralised internet and that vision will be realised in some time. Today it's possible for you to get censored or blocked on social media for saying or sharing something that violates the content creation guidelines of the platform. But in a decentralised world, this will not happen.
You have created your own version of your decentralised digital locker at Persistent Technology. Can you talk about it? We had an idea about creating a decentralised version of the digital locker that the Indian government built. Built on a traditional application like Google Docs or Dropbox, the government's digital locker was centralised and hence, while it allows you to upload copies of your key documents, there are certain challenges that come up here. A capable hacker can easily get hold of sensitive data of millions of citizens. The Equifax breach is an example where hackers accessed data of 143 million Americans. It can happen with any centralisied database and while we don’t want our data to be leaked but we are not in a position to enforce it.
We decided to create a digital locker on Ethereum and created a decentralised app that is serverless. The entire logic runs on a mobile or laptop and the smart contract, and the master key reads my device. This model was created to showcase that it is possible to create the same convenience of the digital locker service as an app without needing the end user know anything about blockchain or how it works. This medium is secure and is difficult for hackers to hack. The payment of these digital contracts is based on Ethereum, a cryptocurrency. Today the Ethereum tokens are volatile and the cost of transaction will differ every day. From technology point we have a model that we believe will work.
Why do you prefer the Ethereum platform? Bitcoin was designed as a digital asset or a digital currency. Its primary concern was payments and has a limited programming language. You can only do a handful of things with it. Ethereum, on the other hand, is a much more Turing-complete language and it is possible to do a different things with it. The programming language is not as complex as Java or C++. But it is much more robust than bitcoins. Etnereum appeals to us because our customers are enterprise customers.
How do companies decide if they want to move on to the Blockchain platform or not? We tell the customer where they can use the blockchain technology or where they cannot. Blockchain is not the most efficient way of doing things when there is trust in the system and a centralised database works very well. But trust also comes at a cost. For example when we need a Verisign certificate (the company that allows secure transactions between companies), we need to pay them.
In other cases, we walk our customers through a process. If their customers will only have one participant creating the data while the others will only read it, then you may not need blockchain technology. It is more helpful when there are more participants creating data than just reading it. We also want to know if there is a trusted business intermediary in the workflow that is adding cost or time delay. I may have my own data and you have your own data and we always end up reconciling when there are mismatches.
A classic example is supply chain, invoices and payments. In that case we have heard from customers where there are enough differences that arise where the vendor is relying on one piece of data coming from their ERP and the buyer has another set of data coming from his ERP. So there is a mismatch as we are reading from two different databases. That is when reconciliation, arbitration takes place and they add cost as well as time escalation to the entire process.
So those are some examples where there are intermediaries and multiple players all writing data and that data needs to be reconciled and there is a need for a single source of truth, these are some of the cases where blockchain technology fits.