Relevance: GS-3: Science and Technology- developments and their applications and effects in everyday life.

Key Phrases: Blockchain Technology, Absolutely Imperative, Central Bank Digital Currency, Cryptocurrencies, Immutability, Transparency, High Availability, High Security.

Context:

• Finance Minister on Saturday flagged anonymity as an ‘inherent risk’ in blockchain technology and called for precautions in the future with the increase in the use of the technology.
• The Minister made it clear that using distributed ledger technology (DLT), also called blockchain, is ‘absolutely imperative’ and that the government also supported the use of the same.
• Her remarks come ahead of the unveiling of the budgetary announcement of the central bank digital currency (CBDC), which is based on blockchain technology and is billed as being similar to the paper currency carried in our wallets.

What is Blockchain Technology?

• Blockchain technology is a structure that stores transactional records, also known as the block, of the public in several databases, known as the “chain,” in a network connected through peer-to-peer nodes. Typically, this storage is referred to as a ‘digital ledger.’
• Every transaction in this ledger is authorized by the digital signature of the owner, which authenticates the transaction and safeguards it from tampering. Hence, the information the digital ledger contains is highly secure.
• In simpler words, the digital ledger is like a Google spreadsheet shared among numerous computers in a network, in which, the transactional records are stored based on actual purchases. The fascinating angle is that anybody can see the data, but they can’t corrupt it.

How is anonymity maintained in blockchain?

• The cryptocurrency blockchain is a public ledger. When you transact cryptocurrency, your wallet address and transaction details are recorded in the blockchain. As long as there is no link between your wallet address and your identity, your transaction stays anonymous.
• But, because a blockchain ledger is public, maintaining anonymity is hard, especially in the case of cryptocurrencies. Cryptocurrencies are considered pseudo anonymous, which means a person may be linked to a public cryptocurrency address, but not to an actual name or home address. You may know that an address is related to one person but you do not know to whom.
• Hence, cryptocurrencies are not completely anonymous. Many people trading in cryptocurrency prefer their transactions to be anonymous for various reasons. These include, but are not limited to, law enforcement–related issues, company-specific information, or for the sake of maintaining privacy.

Benefits of using Blockchain Technology:

• Immutability: In Blockchain, there is no possibility of changing the data or altering the data i.e. the data present inside the Blockchain is permanent and one cannot delete or undo it.
• Transparency: By utilizing blockchain technology, organizations and enterprises can go for a complete decentralized network where there is no need for any centralized authority, thus improving the transparency of the entire system.
• High Availability: Unlike centralized systems, Blockchain is a decentralized system of P2P network which is highly available due to its decentralized nature. Since in the Blockchain network, everyone is on a P2P network, and everyone has a computer running, therefore, even if one peer goes down, the other peers still work.
• High Security: This is another major benefit that Blockchain offers. Technology is assumed to offer high security as all the transactions of Blockchain are cryptographically secure and provide integrity. Thus instead of relying on third-party, you need to put your trust in cryptographic algorithms.

Applications of Blockchain Technology:

• Industry: A few companies that have integrated blockchain in their functioning are Walmart, Pfizer, AIG, Siemens, Unilever, etc. Blockchain has made its way into many industries due to its host of benefits and ease of use and accessibility.
• Healthcare: In healthcare, blockchain can be used to store the medical records of patients. The data is immutable, so tampering with it is not even a possibility. Confidential data can be encoded and stored in a private key to limit access by various individuals.
• Agriculture: According to Forbes, blockchain is making a hero entry in the food industry as it makes it easy to track the path and safety of food, right from its journey from the farm to the buyer/user. IBM’s Food Trust blockchain is one of the most successful implementations of blockchain in the food industry.
• Banking: The banking industry has benefitted the most by integrating blockchain into their business. It has increased their efficiency, reduced transaction time and fees, helped them store customer data, and much more.
• Governance: Blockchain technology can help in ensuring good governance. It ensures transparency of the public records through the usage of a digital form platform and allows auditing of government documents. Moreover, it allows to maintain the authenticity of the document and clearly reduces the processing time.

Way Forward:

• Blockchain technology has enormous potential in creating trustless, decentralized applications. But it is not perfect. There are certain barriers that make blockchain technology not the right choice and unusable for a mainstream application like anonymity. But by proper regulation and surveillance anonymity can be reduced.

Source: Live Mint

Mains Question:

Q. What is the Blockchain Technology? What are the issues with the adoption of Blockchain Technology in India? Critically Examine.