This article is written by Kartik Bohra, from Symbiosis Law School, Hyderabad. In this article, the laws and regulation of blockchain technology in India and its pros and cons along with the current Indian scenario have been discussed.

Introduction

‘Blockchain’ is considered to be the backbone technology behind digital cryptocurrency Bitcoin. Many people know about the cryptocurrency, the revolutionary trustless payment. But cryptocurrency is just a simple art and application of blockchain technology. It is one of the prominent technologies in the environment attracting a lot of startups and businesses. Blockchain is considered to be secured and more transparent technology which has the potential to change various industries and markets. There are so many financial players in the market who are excited about this technology but not sure to identify the right deal and beneficial business case for blockchain. A study conducted by the World Economic Forum observed that blockchain technology is emerging in the world and it can become a new phenomenon in the financial markets of the world. Blockchain offers various possibilities of finding solutions for good governance and ease of doing business. 

Blockchain technology has emerged as a highly transformative force in government as well as the private sector. The potential of this technology has become a global phenomenon and various national, as well as international organizations, are using the benefits of its application in financial services, minimizing cost workings, and advancing efficiencies. Blockchain technology can help in ease of collaboration for various business segments and ease of standard of living for the people as it provides transparency across the private as well as government sectors. There is no doubt that technology is beneficial for various businesses as well as non-business organizations but it is still in a developing stage. Thus, it is suggested for the stakeholders, such as organizations, industry, policymakers, and citizens to understand each and every prerequisite rule and regulations associated with it and functional definition of the complete suite of blockchain technology. It is also noted that this technology may not be globally efficient thus specific use of it is needed in India.  

What is blockchain?

Blockchains can be defined as a special type of network chain (a method to assemble the information and values) that generate “trust” in networks by giving audibility and consensus. Blockchain technology creates trust by giving relevant databases to the stakeholders which have minimum chances of failure. It provides safety as no person can modify or alter a blockchain network and no individual can own it without the consensus of its peers. In simple words, it is the technology where information is stored in a public database.

The blockchain is a technology that creates an opportunity for the users to pass information from one person to another in a safe and automated manner in the digital world. One party has the power to pass information by creating a chain. 

How far is the blockchain secured?

The blockchain technology is safe and secured as long as it is used and executed properly. Blockchain technology is changing the ways of doing business in the world by eliminating the middleman in most of the transactions. It also helps in reducing costs and increasing the efficiency of the transaction. Further, it is also observed that blockchain technology has immense power to reduce the poverty level to developing societies. But the question often arises about the security of blockchain technology. Various stakeholders and organizations raised their concern over the security and privacy of the technology.

Security 

Although it is very difficult in conventional systems to maintain privacy and security, the blockchain system has inbuilt confidentiality by enabling “public key infrastructure” which protects the system and the data against unauthorized and malicious attempts to change data. It also safeguards data by enabling and maintaining the size of a ledger. It is also believed that the more dispensation of the network, the more secured and safe it is.

Blockchain is a technology that helps in eliminating intermediaries such as banks, financial institutions, etc. and diminishes the cost of the whole transaction. This technology gives secured transactions as each blockchain provides a transactional record and chain-link them in the devices. The administration network of transactions maintains and confirms the record.

Privacy

There are various data privacy issues that can be seen in blockchain technology. These issues can be resolved if a blockchain user may store his personal data. The reference of the transactions to this personal data off-chain with a “hash” of the series of transactions in the information to an obscure piece of information. 

Storing the data of transactions off-chain means that personal data should be saved by the stakeholders themselves or in a traditional database. The important documents such as license and passport can be saved or stored off-chain using traditional databases and other application systems. But there is a drawback of the off-chain database as it reduces the transparency in the transaction and increases the risk of unprotected files and stolen personal information that can be shared across other networks. It is generally believed that the privacy of the transactions in the blockchain technology largely depends upon its users. If the transactions are encrypted and keys are held securely, then privacy is not a problem in blockchain technology.

Pros and cons of blockchain

We have learned a brief about the working of blockchain technology for establishing networks. After learning the blockchain system, we have observed certain pros and cons of the technology. They are as follows:

Blockchain pros

• Durability and security

Blockchain technology provides the best security and durability in the transactions. The overall administration of this technology makes it more durable. Furthermore, the technology keeps blocks of information around the network which provides better durability as there are no chances of failure of transactions. It also provides good security protection to the users by enabling “Public key infrastructure.”

• Integrity

Another main advantage of blockchain technology is that it offers a high level of integrity and assurance to the users and stakeholders. It is observed that blockchain offers high-level data protection and integrity when compared to other networks so far. It means that it provides protection to the data by enabling data will always be the right one and no person can alter or add anything to the ledger once it’s uploaded.

• Immutability and transparency

This is the most significant feature of blockchain technology. The technology or system is enabled with the immutable feature which provides a system from which users can’t delete or alter the data stored in the network. It is protected because every block contains a Hash ID and if someone tries to alter it then the block would change the ID completely. 

Further, it provides a great transparency system as it is open for everyone to see and if anyone attempts to alter the data then it would be noticed right away by the users.

• Faster processing

Before blockchain technology became operational, the traditional technology had taken a lot of time and cost in the procedure. But after adopting blockchain technology, transactions have become faster and increased to a very high extent. This is also one of the most important advantages of blockchain as it reduces time and saves the cost of the network. 

• Traceability 

It is considered one of the prominent features of blockchain technology. The structure of blockchain technology is formed in such a way that it can easily trace the location of the network and known as a safe and reliable source of the transaction. It also creates an irreversible audit trail.

Blockchain cons

• Complex regulations

It is one of the most significant disadvantages of blockchain technology. It is not necessary that all blockchain technology contains proper rules and regulations in the workings of the network. Thus, the lack of rules and regulations causes scams and brings the concept of ICO.

• Privacy concerns

Another major drawback of blockchain technology is that it has privacy issues. The most important thing for any business enterprise is to maintain privacy so that they can maintain their brand value in the long run. But sometimes due to lack of privacy in blockchain, many enterprises have to bear the loss of profit as information may be shared with their competitors. 

• High cost

Although blockchain is cheaper than other networks, it can cost a huge amount for its solutions. Generally, the cost is highly dependent on your need and what type of feature you want in the blockchain. 

• Dispensable performance

It is also an important con of blockchain technology as the computations required in this network are more repetitive than traditional networks. It is generally happening because new nodes are added when there is an update in the ledger. All the nodes of the network also update when there is an update that happens in the ledger version.

Indian status on blockchain

• Historic stance of the Indian government

Many countries including India and China have banned cryptocurrency that is part of blockchain technology. Blockchain technology gained its importance in Indian markets gradually as in the initial stage people were afraid to use this technology due to various concerns and issues involved in it. The potential of blockchain technology was not known to its users in the Indian markets. At the initial stage, the government took the decision to ban all the activities associated with it in the Indian markets due to lower credibility and high risk.

But in the year 2018, the Apex court passed its decision in favour of blockchain technology and quashes the Reserve Bank of India ban on cryptocurrency. The decision came after various petitions challenging the decision of RBI came in Supreme Court in 2018. Further, the court mentioned that this technology can be operated with due laws and regulations in India with the framework to be made by the government. 

• Current scenario

Blockchain is a simple technology yet gaining significance across the world for its benefits. It can be complex, problematic, simple depending upon its uses. In its initial phase, many countries including India believed that the concept of blockchain and potential offered by it wasn’t worthy in a competitive and fast-growing technological market. Afterwards, several countries started adopting various uses and realised the potential of this technology in the long run. 

According to the report published by NASSCOM, the emergence of blockchain technology in India is gaining immense growth, and investments in blockchain-related markets have crossed USD 20 billion in many sectors. The report also mentioned that various Indian states such as Maharashtra, Telangana, Kerala, etc. are giving full opportunity to various stakeholders to invest in blockchain and supporting blockchain startups. After the demonetization in India, people understand the need for digital currencies and making a cashless transaction that digital currency offers. In the present scenario, blockchain offers various digital advantages to the citizens, and it is becoming a successful technology at a large scale. Therefore, we can say that blockchain technology is one of the emerging innovations and technology in the present era in India and will shape the future of digital transitions in India.

Blockchain technology is still facing various issues and challenges in Indian markets. It is facing various challenges due to the lack of initiative and implementation of proper rules and regulations from the side of government. The regulation and compliance of blockchain is still not up to the international standards and facing many challenges in Indian industries. The implementation of blockchain can be made in Indian markets if the government brings proper rules and regulations to manage it.

Issues involved with blockchain

Blockchain is a significant technology in the market and various stakeholders are using it for benefits in the business organizations. But its key features have certain legal as well as regulatory issues and challenges associated with the technology. It consists of network data that is recorded in “blocks” that are combined in a manner, it is impossible to alter or change the data in any form. Various organizations and stakeholders want to develop data that provides a decentralized network on blockchain technology which may face new risks and challenges in the technological era. Therefore, the majority of countries have laws and regulations that visualize a centralized governance system and businesses that provide accountability and control. Deviating from this system of governance may impose new challenges and issues in the legal field of blockchain technology. The main issues that are involved in blockchain technology are as follows:

• Risk of cyber-attack

Although there is a high level of data security and protection in blockchain technology that is recorded in the system there is some risk associated with the cybersecurity of this technology in the new era of cybercrimes. The different issues related to the security of data to the decentralized system where each network node is shared in the public blockchains, meaning there is an issue of tampering and misuse of each node. This cyber-attack may not necessarily aim to create a threat in blockchain but at external mechanisms such as cryptocurrency wallets. It could be possible to alter the data of the wallet and their destinations. Thus, an attacker can easily divert the amounts of users to his own account and the attack can be undetectable. 

• Double spending and DDoS attack

Double spending can happen in the blockchain if the same amount of currency is allotted to the number of users by giving them the freedom to use the same coin for the same transactions. A Distributed Denial of Service (DDoS) is a type of attack in the system where an attacker attempts to provide benefits to the users without the unavailability of service which often causes flooding in the system. This type of attack is increased in the blockchain if ledgers in the system are particularly aimed at a few high-performance nodes.

• Transfer of data

There have been cases in blockchain technology where the personal data of the users are transferred for privacy law purposes. Therefore, data of the users can be transferred to any destination in the form of nodes, and data in the network put in the blockchain is the same as data shared on public networks in the form of the Internet.

• Governance issues

If the system of data sharing is decentralized then the question arises about the accountability and responsibility for breaches of laws and regulations by users and regulators. Accountability and responsibility are issues that are prominent in the world of technology and have been a serious problem since the inception of the internet and other various technologies. A blockchain system that is open for the public in large is a contrast to other technologies because it is not possible to hold someone accountable for fraud and mischievous actions. Thus, the lack of accountability is a serious issue concerned with blockchain technology in the present scenario. 

Recommendations

1. There should be laws and regulations framed by the government to protect the interest of users and various stakeholders. The policy measures are necessary for evolving a huge blockchain system.
2. It is needed to create the necessary infrastructure for the deployment of blockchain solutions in developing countries like India. There should be a set up of identifying and incentive platforms in blockchain technology.
3. There is a requirement for government agencies to promote the use of blockchain technology in various operations.
4. The solution is needed for reliability, and data protection of blockchain is necessary for its development and growth in India. 
5. Promotion and growth of research in the field of blockchain technology and focus on creating awareness amongst the workforce and students.

Conclusion

After learning the blockchain technology in brief, we can say that there are still various risks and issues involved with legal as well as regulations in India. Likewise every new concept and technology, blockchain technology is an idea that disrupts in its initial stage. There are various number of risk management for the users and organizations in its application. The other primary issue is that the framework of contractual obligations and associated regulation are not adequate to provide decentralized data in the world of blockchain. Blockchain technology is emerging in Indian markets and the growth rate is high for this technology. Organizations working in the financial sector strive for the potential of this system of the network. 

Blockchain technology has many possible advantages in the near future aspects. It is an emerging technology and the majority of countries started adopting and finding potential in blockchain technology. Thus, over time, blockchain technology also became an emerging concept in various countries and several countries made their laws and regulations to provide security and safety to its users. It is also needed that the users must be flexible while using this technology. Therefore, blockchain technology has emerged as a highly transformative force in government as well as the private sector. Finally, it is necessary that users and regulators are well informed about the blockchain workings and its benefits in the long run. Awareness and information amongst the stakeholders would help in the adoption of the technology in India and India can become a leading player in the market of blockchain technology. 

References 

• https://niti.gov.in/sites/default/files/2020-01/Blockchain_The_India_Strateg y_ Pa rt _I .pdf 
• https://www2.deloitte.com/content/dam/Deloitte/in/Documents/strategy/in-strategy-innovation-blockchain-technology-india-opportunities-challenges-noexp.pdf 
• http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/The_Blockchain.pdf

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