Blockchain – The Buzz is Everywhere
• Tokyo, March 01, 2017 : Japan bank consortium plan to use blockchain
technology from Google-backed Ripple to make payments
• New York, February 28, 2017 :Thirty big banks, tech giants, and other
organizations—including J.P. Morgan Chase, Microsoft, and Intel—are uniting
to build business-ready versions of the software behind Ethereum, a
decentralized computing network based on digital currency.
• Dubai, February 07, 2017 :Dubai, one of the world’s largest trading hubs, has
linked up with IBM (IBM.N) to launch a scheme using blockchain computing
technology to process transactions and keep track of goods being shipped,
IBM said on Tuesday.
• Mumbai, January 03, 2017: YES BANK, India’s 5th largest private sector bank
today announced that they have implemented a multi-nodal Blockchain
transaction to fully digitize vendor financing for Bajaj Electricals
• Mumbai , October 12,2016: ICICI Bank executes India’s first transaction on
blockchain. The ICICI Bank will expand the blockchain ecosystem and create
common working standards to push its commercial adoption, says Chanda
Blockchain- It all started with…
• It all started with the white paper authored by Satoshi Nakamoto and published in 2008
• The White Paper Titled “BitCoin : A peer –to-peer electronic cash system” speaks
about online payment to be sent from one party to another without going through a
financial institution . The cryptographic currency which changes hands between the
parties is called BitCoin
• These peer to peer transactions are broadcast over the network and the nodes over
the network verify the transactions through proof-of-work
• The verified transactions are recorded in a public distributed ledger called as
• Like BitCoin, there are more than 710 crypto-currencies today . Example: DogeCoin,
Ether, XRP , LiteCoin
• To explain the concept of Blockchain, the next couple of slides will show a BitCoin
transaction and explain how a Transaction gets into the Block and a Block gets into the
Properties of Blockchain
• Immutable - A write once read only database. A record once written into the Blockchain
can neither be altered nor be deleted
• Secure – The data is protected by complex mathematics i.e. hashing (SHA-256)
• Distributed – Many copies of the data are stored across the network i.e. Every node on
the network has the copy of the ledger, making it almost impossible to manipulate or
• Efficient - The average time taken for the confirmation of a transaction is10 minutes.
• Cost-Effective - Lower Transaction Costs due to lesser or no intermediaries
• Transparent - The transactions are publicly recorded and available for scrutiny
• Low Counterparty Risk – No party can transfer assets which they do not own as all the
transactions are recorded on the blockchain.
• Privacy – The users are anonymous and do not need to provide address beyond their
Blockchain- An existential risk ?
• The Transactions on the blockchain do not need an intermediary
• The Transactions are created by any user who has a public and a private key on the
• The Transactions are broadcast on the network and are verified by various nodes (i.e.
miners) on the network
• The Transactions are stored securely over the network.
• The Transaction fee is much lower than charged by any bank or payment system across
• Thus, moving funds on the blockchain offers a lot more advantage over moving funds
through the banks.
• Hence, had the cryptographic currencies (say BitCoin) been widely accepted as
medium of payment and had there been regulations in place to control the risk of
money laundering , terror financing and tax evasion , the blockchain would eat up
into the banks business and possibly make them irrelevant in the long run.
Blockchain – An Opportunity
• The real innovation behind BitCoin is not the currency itself but the underlying technology
• Blockchain has the potential to totally change the way we think about transaction history,
database storage and security
• Near instant settlement of funds, lower transaction costs for cross border payments are
some of the benefits the blockchain has to offer
• The challenge for the banks now is to provide the same benefits that the
permission less blockchain has to offer either by coming up with a rival
technological innovation or by exploiting the benefits the Block Chain has to offer
in a way that banks remain a part of the blockchain eco-system.
• Embedded in this challenge is the opportunity to reduce capital expenditure, lower
operational risks as well as offer better services at lower cost to the customers.
• Enter Private or Consortium Blockchain - A blockchain where a group of financial
institutions are nodes on the blockchain with some of the participants of the consortium
playing the miners or verifiers of the transactions.
• More on private blockchain in the upcoming slides
• A private blockchain is just like the public blockchain when it comes to the distributed
nature of the ledger – except that the private blockchain is behind the firewall and can be
mined by the computers on that network.
• Unlike the public blockchain, it is possible to quickly reverse a transaction on the private
blockchain as the number of nodes required to verify the reversal transaction are known.
• The rules of the private blockchain can be decided by the participants in the blockchain
thus giving better control.
• The nodes which verify the transaction are known. Hence there is no risk of collusion of
miners to validate a fraudulent transaction.
• The nodes are well-connected .Hence , faults if any can be fixed quickly and the time
taken for confirmation of the transaction is reduced due to fewer number of the nodes.
• Hence, the majority of the financial services firms exploring the use of blockchain are
looking at private or semi-private (consortium) blockchain.
Smart Contracts and Ripple Payments
• Smart Contract pioneered by Ethereum is one of the most widely talked about feature in
the blockchain ecosystem . Smart contracts have found their way in multiple business
use cases which need validation of a condition to undertake the next steps in the
• IBM has come up with Hyperledger platform for smart contracts which is permissioned as
against the permission less smart contracts provided by Ethereum.
• Smart Contracts - It is a contract between parties written as code on the blockchain.
Once the triggering event is hit , the contract executes itself as per the terms and
conditions coded in the blockchain.
• Ripple Payments - Ripple’s distributed financial technology enables banks to send real-
time international payments across networks.
Blockchain Use Cases
Potential Use Cases in the financial services industry are listed below
• Trade Execution and Settlement
• Cross Border Payments
• Supply Chain Financing
• Syndicated Lending
• Centralized KYC
• Asset Registries
• Stock Exchange
• Bank Guarantees
• And many more…