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Blockchain: Riding the FinTech Opportunity

A blockchain provides a means for various parties through a digital register to agree on a set of facts. Blockchain encompasses a public register of all digital transactions that have been executed and shared among participating parties, and that cannot be tampered or revised. All the participants in the system verify each individual transaction. A unique hash number identifies a set of valid transactions in blocks, and linked with other blocks to build a blockchain. All the participants of the network have access to an identical copy of the blockchain ledger. As such, security and trust tends to be higher in blockchains as its verified by all participants of the ecosystem. In other words, it is not possible for any single participant to tamper with the transaction, as any change to a transaction will undergo approval from all members of the network.

Though blockchain is in its nascency, the Indian fintech industry is adapting itself quickly through various initiatives around blockchain applications.

For instance, India’s largest bank, the State Bank of India (SBI) has created a blockchain platform “Bankchain” that brings public and private banks as well as technology companies. Similarly, a YesBank led financial accelerator welcomed blockchain startups on board. Axis Bank and ICICI Bank have successfully adopted blockchain to undertake cross-border remittances. The Government of India has also taken note of blockchains, and is looking at bringing in regulations.

The blockchain reference architecture was originally envisaged as Bitcoin, wherein “electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” However, blockchain has now evolved much beyond bitcoins, to transform into an immutable ledger that enables a consensus mechanism for creating permanent records of transactions through a distributed and decentralized network.

There are three variants of blockchains:

Public Blockchain: A blockchain where all participants in a network have the same privileges to see, alter and provide their assent to a transaction. In such a public network, any new participant can join. However, the identity of the transacting parties is always kept confidential.

Private Blockchain: The permissioned or private ledger, like its public counterpart, is decentralized, transparent and distributed, but with one difference: all participants in the network do not have rights to see, alter and provide their assent to a transaction. These rights are confined to only a few select members, qualified by the nature of transactions, wherein one member has rights to view transactions, another has rights to edit or build transactions. Such private blockchains are suited for financial institutions. In such a private blockchain, the identities of the trading parties could be made known to others in the network.

Hybrid Blockchain: A blockchain that includes characteristics and features of both public and private blockchains. In hybrid blockchains, the network members can decide on the access available to the participants, in terms of which transactions are deemed public, and which transactions need to be limited to a select circle. Blockchains have capabilities of speeding-up transactions, ramping up the security of transactions, and cutting down on financial burden incurred in the operations. The global blockchain landscape includes >800 blockchain and bitcoin enterprises, with >US $1Bn in funding, and spread across >70 countries.

The blockchain startups are enabling next-gen blockchain ecosystems, by focusing on technological applications; application development and APIs; protocol and business logic; and distributed messaging.

Given the benefits, it is not surprising that blockchain is a hot technology area that attracts a lot of interest from various stakeholders:

Today, financial institutions are looking to secure new IP to protect concepts and technologies around blockchains, and secure them from infringement risks. They are also looking at acquiring new IP through patent sales. Financial institutions, including banks, can potentially use such new patents gained through a patent acquisition process to create market exclusivity over their trading platforms. They can also build royalty revenue streams by monetizing the blockchain patents through licensing processes.

For individual blockchain inventors, this translates into a huge opportunity to leverage their patents through focused patent sales.

For blockchain startups, there has never been a better time than now to build-up scales and drive efficiency, or to leverage the strengths of established financial organizations through a strategic M&A deal. For mature blockchain startups that have reached some scale, a strategic sale would enable them to expand even better, or leverage their know-how, scale and IP. h various initiatives around blockchain applications.


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