ABSTRACT

A Blockchain is essentially a distributed database of records or public ledger of all transactions or

digital events that have been executed and shared among participating parties. Each transaction in the
public ledger is verified by consensus of a majority of the participants in the system. And, once
entered, information can never be erased. The blockchain contains a certain and verifiable record of
every single transaction ever made. Cryptocurrency is a form of digital or virtual currency designed to
work as a medium of exchange. These have emerged as an important financial software system. These
cryptocurrencies are generated by a process called mining. Mining is an integral process that not only
creates the currency but also, adds records of past transactions to the distributed ledger (collection of
transactions) known as blockchain. The use of blockchain and cryptography, enables security in the
environment and makes it robust in nature. Cryptocurrencies are designed using a peer-to-peer system,
so they are not centrally owned by anyone, like the regular currencies. For the mining of such digital
currencies, we have to rely on miners to validate the currency and its creation. To provide security to
the currency, it uses cryptography to secure and verify transactions as well as to control the creation of
new units of a particular cryptocurrency. Cryptocurrencies are limited entries in a database that no one
can add activity to unless specific conditions are fulfilled. There are almost more than 1600
cryptocurrencies in the market right now, and many more are created daily. Bitcoin, Ethereum, Tether,
Binance coin, are some of the top ranked cryptocurrencies today. Bitcoin, the decentralized peer-to--
peer digital currency, is the most popular example that uses blockchain technology. The digital
currency bitcoin itself is highly controversial but the underlying blockchain technology has worked
flawlessly and found a wide range of applications in both the financial and nonfinancial world. The
main hypothesis is that the blockchain establishes a system of creating a distributed consensus in the
digital online world. This allows participating entities to know for certain that a digital event happened
by creating an irrefutable record in a public ledger. It opens the door for developing a democratic open
and scalable digital economy from a centralized one. There are tremendous opportunities in this
disruptive technology and revolution in this space has just begun. We then look at the challenges ahead
and business opportunities in this fundamental technology that is all set to revolutionize our digital
world.

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 1. INTRODUCTION
1.1 Definition
1.1.1 What is Blockchain?
Blockchain refers to a distributed, encrypted database, which is a public depository of information that
cannot be reversed and is incorruptible. In other words, a Blockchain can be defined as a distributed
public ledger or database of records of every transaction that has been carried out and shared among
those participating in the network. Every transaction or digital event in the public ledger has to be
authenticated via the agreement of more than half of those participating in the network. This implies
that no participant or user as an individual can modify any data within a Blockchain without the
consent of other users (participants).It could be observed clearly that the technological concept behind
the Blockchain is interestingly closely identical to that of a database.

As long as a transaction is unconfirmed, it is pending and can be forged. When a transaction is

confirmed, it is set in stone. It is no longer forgeable, it can’t be reversed, it is part of an immutable
record of historical transactions of blockchain.

1.1.2 What is Cryptocurrency?

A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that
uses cryptography to secure its transactions, to control the creation of additional units, and to verify the
transfer of assets. Cryptocurrencies are a type of digital currencies, alternative currencies and virtual
currencies. Cryptocurrencies use decentralized control as opposed to centralized electronic money and
central banking systems.

1.2 Features of Blockchain and Cryptocurrency

1.2.1 Features of Blockchain
1) The validity of each cryptocurrency's coins is provided by a blockchain.
2) A blockchain is a continuously growing list of records, called blocks, which are linked and secured
using cryptography. Each block typically contains a hash pointer as a link to a previous block, a
timestamp and transaction data.

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3) By design, blockchains are inherently resistant to modification of the data. It is "an open, distributed
ledger that can record transactions between two parties efficiently and in a verifiable and permanent
way".

1.2.2 Features of Cryptocurrency

According to Jan Lansky, a cryptocurrency is a system that meets all of the following six conditions:
a) Independent: The system does not require a central authority, distributed to achieve consensus on its
state.
b) Supervision: The system keeps an overview of cryptocurrency units and their ownership.
c) Efficiency: The system defines whether new cryptocurrency units can be created. If new
cryptocurrency units can be created, the system defines the circumstances of their origin and how to
determine the ownership of these new units.
d) Ownership: Ownership of cryptocurrency units can be proved exclusively cryptographically.
e) Accuracy: The system allows transactions to be performed in which ownership of the cryptographic
units is changed. A transaction statement can only be issued by an entity proving the current ownership
of these units.
f) Decision making: If two different instructions for changing the ownership of the same cryptographic
units are simultaneously entered, the system performs at most one of them.

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 2. BRIEF HISTORY
In 2008, an individual or group writing under the name of Satoshi Nakamoto published a paper entitled
“Bitcoin: A Peer-To-Peer Electronic Cash System”.
This paper described a peer-to-peer version of the electronic cash that would allow online payments to
be sent directly from one party to another without going through a financial institution. Bitcoin was the
first realization of this concept. Now word cryptocurrencies is the label that is used to describe all
networks and mediums of exchange that uses cryptography to secure transactions-as against those
systems where the transactions are channeled through a centralized trusted entity.
The author of the first paper wanted to remain anonymous and hence no one knows Satoshi Nakamoto
to this day. A few months later, an open source program implementing the new protocol was released
that began with the Genesis block of 50 coins. Anyone can install this open source program and
become part of the bitcoin peer-to-peer network. It has grown in popularity since then.

– 2008
• August 18 Domain name "bitcoin.org" registered
• October 31 Bitcoin design paper published
• November 09 Bitcoin project registered at SourceForge.net

– 2009
• January 3 Genesis block established at 18:15:05 GMT
• January 9 Bitcoin v0.1 released and announced on the cryptography mailing list
• January 12 First Bitcoin transaction, in block 170 from Satoshi to Hal Finney

The popularity of Bitcoin has never ceased to increase since then. The underlying Blockchain
technology is now finding a new range of applications beyond finance.

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 3. ARCHITECTURE OF BLOCKCHAIN
A number of blockchain protocols exist, but they all pretty much do the same thing and each has four
basic elements: the transaction, block, chain and consensus process.
● THE TRANSACTION - The most basic component of a blockchain is a transaction. It may
represent an exchange of something valuable (literally, a “transaction”) or it may be a hash file
representing something as simple as a single word or as complex as a software program.
Whatever it is, the submitting party digitally signs it, and when it’s received by the network, it’s
time-stamped.
● THE BLOCK - The transaction is then added to a “block” that includes other new transactions.
The size of the block and how fast it gets filled up depends on a number of factors, including
the particular blockchain protocol.
● THE CHAIN - When the new block is full, it is linked to the preceding one through a clever
hashing process that makes blocks more and more secure the longer they’ve been a part of the
chain. Once the new block is added to the chain, it is not possible to change any of the
preceding data. This makes the data immutable. Because transactions and blocks are assembled
in the order they’re received, as the blockchain builds it forms a chronological record of
activity. Much like a record in accounting, it forms a ledger.
● MINING - Mining, in the context of blockchain technology, is the process of adding
transactions to the large distributed public ledger of existing transactions, known as the
blockchain. The term is best known for its association with bitcoin, though other technologies
using the blockchain employ mining. Bitcoin mining rewards people who run mining
operations with more bitcoins.
● THE CONSENSUS PROCESS - Before a new block is permanently added, the network
participants complete a process to confirm that the newly updated version of blockchain,
including the new block, is valid. This consensus process can take a number of forms, but the
goal is for each of the network participants to agree that the block has been assembled and
added according to the rules of the network. This is a critical feature of the blockchain concept,
because it is this consensus that establishes a single record of “truth” that all participants will
agree with. When consensus is reached, the newly updated blockchain is then replicated among
all of the participating nodes in the network.

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 4. BLOCKCHAIN WORKING
Blockchain is a fast-moving phenomenon. Due to its decentralized methodology, many leaders in the
finance and technology industries are taking blockchain seriously. A blockchain consists of a
distributed database of all transactions on a network. Each constituent of this database represents a
“block”. As the state of a transaction changes, a block gets appended to the blockchain with a
reference to the previous block in a linear and chronological order. The new block is then replicated
across the network so that each node has the same blockchain. Every participant of this transaction has
a copy of the blockchain. Thus, any participant can validate a given transaction. This methodology has
removed the need for having a centralized, trusted third-party transaction validation. Blockchain
technology has a broad applicability range and has great transformative potential. Thus, business
leaders must use this technology to explore the range of possibilities available to their business and
their sector. Using blockchain’s ledger methodology and cryptographic techniques, data can be sent
across a network securely. A blockchain technique will ensure that the data is from the correct sources
and that nothing is intercepted in the interim. If this technology is more widely implemented, the
probability of hacking can go down. Blockchain is more robust than the legacy systems in your
organization. Thus, blockchain technology minimizes cyber security risk by simply removing the need
for human intervention. Blockchain’s verifiable and networked data structure is suitable for application
across many other industries. Companies undertaking digital initiatives to gain a competitive
advantage should not overlook blockchain.

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 5. TYPES OF BLOCKCHAIN
All Blockchain can be classified into three categories:
1.Public Blockchain
2.Private Blockchain
3.Permissioned Blockchain

5.1 Public Blockchain

In a Public Blockchain, anyone can read and write the data stored on the Blockchain as it is accessible
to everyone in the world. A person can become a member of the Blockchain network and can store,
send and receive data after downloading the required software on his device. A Public Blockchain is
completely decentralized as the permissions to read and write data onto the Blockchain are shared
equally by all the connected users, who come to a consensus before any data is stored on the database.
A Public Blockchain is based on a completely trust-less system where no user is given special
privileges on any decision.

5.2 Private Blockchain

In a Public Blockchain, the permissions to write data onto the Blockchain are controlled by one
organization which is highly trusted by the other users. This organization may/may not allow users to
have access to read the data, as public readability might not be necessary in most cases. In some
situations, the organization might want the public to audit the data. Limited/restricted read permissions
also provide a greater level of privacy to the users, a feature not available in Public Blockchains. The
organization in control has the power to change the rules of a Private Blockchain and may also decline
transactions based on their established rules and regulations.

5.3 Permissioned Blockchain

A Permissioned Blockchain is a type of Private Blockchain and shares many features of the latter. A
Permissioned Blockchain provides a hybrid between the ‘low-trust’ provided by Public Blockchains
and the ‘single highly-trusted entity’ model of Private Blockchains. Popularly called a Consortium
Blockchain, it is one where instead of allowing any person with an internet connection to participate in
the verification of the transaction process or allowing a single company to have full control, a few
selected nodes are predetermined.

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 6. BENEFITS OF BLOCKCHAIN TECHNOLOGY
There are immense benefits the Blockchain technology provides. Some of these benefits include;
Trust, Openness, Independence, Speed, Robustness, Global Nature and Effectiveness.
Before any data is added to an explicitly defined Blockchain, it is expected that a greater number of
users of the system reach an agreement. This pattern is quite distinct from the centralized pattern in
which there is a central authority. A more trustworthy system is created when the majority of the users
have a say over the writing, creation and alteration of such data. This high level of trust has been the
case of the innovation brought about by Blockchain technology.
Also, through the use of smart contracts that reconcile in real-time, the level of openness has
drastically improved with the advent of Blockchain technology. Also, since trade data is published to a
common platform, trades can be viewed by participants in real-time. This helps to forestall any form of
manipulations or alterations.
The design of Blockchain technology was done in such a manner that this technology is not dependent
on any financial institution such as banks or government. This makes it more attractive and less prone
to regulations. Furthermore, the technology of Blockchain has enhanced the level of speed of
transactions. Since Blockchains can automate messages by the addition of code snippets called ‗smart
contracts‘ that does not involve the involvement of any human in any way, the speed of payment is
enhanced. This implies that there will be a lower transaction completion time as third parties have been
eliminated. The robustness of the Blockchain technology makes it possible for data to be stored across
a large number of nodes. The higher the number of nodes, the more resilient the data.
Also, the ability for Blockchain technology to serve both locally and globally makes it more attractive.
Moreover, the technology of Blockchain has enhanced the level of effectiveness that exists when
reconciliation is brought to play in the financial sector. Taking banks for example, banks usually
delegate a system to serve as the trade data for a specific security and this will result in deficiencies in
reconciliation. Since Blockchain technology exists, reconciliation is carried out in real-time.
Blockchain technology may provide several important features that could be leveraged for use in the
creative economy:
● Transactions are verified and approved by consensus among participants in the network,
making fraud more difficult.
● The full chronology of events (for example, transactions) that take place are tracked, allowing
anyone to trace or audit prior transactions.

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● The technology operates on a distributed, rather than centralized, platform, with each
participant having access to exactly the same ledger records, allowing participants to enter or
leave at will and providing resilience against attacks.
● Empowered Users: Blockchain provides the users with the ability to control their information
as well as the transaction that they are part of.
● Durability, reliability and longevity: Blockchain technology does not depend on centralized
computing architecture, thus, it will not fail because of a single failure.
● Process with integrity, transparency and immutability: Transactions conducted using
blockchain are viewable by the public and cannot be altered, thus, their integrity, transparency
and immutability are guaranteed.
● Faster and lower costs transactions: Blockchain technology has the potential to radically reduce
the time and costs for the transactions by eliminating the intermediaries or third-party agents.
● Initial implementation cost: The savings promised by the use of blockchain technology is
encouraging; however, the initial implementation costs would be considered as an important
factor that cannot be neglected.

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10
 Ky Features of Blockchain
Decentralized Database
A distributed database is a database in which storage devices are not all attached to a common processor.
It may be stored in multiple computers, located in the same physical location; or may be dispersed over a
network of interconnected computers. With the use of a decentralized and encrypted communication
protocols, messages can be transferred, stored and retrieved at any time without any form of intervention
from the government and a distributed database system consists of loosely coupled sites that share no
physical components.

Decentralized Database also allows both decentralized and secure manner of data exchange. If required,
information can be published and distributed across a huge number of computers in an encrypted manner
thereby eliminating the ability of a single entity to censor.

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 Eliminating Third Party
It records and stores every transaction that occurs in the network, essentially eliminating the need for
―trusted‖ third parties such as payment processors. Blockchain proponents often describe the innovation as a
―transfer of trust in a trustless world,‖ referring to the fact that the entities participating in a transaction are
not necessarily known to each other yet they exchange value with surety and no third-party validation.

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 Smart Contracts
Smart contact is a term used to describe computer program code that is capable of facilitating, executing,
and enforcing the negotiation or performance of an agreement (i.e. contract) using blockchain technology.
The entire process is automated can act as a complement, or substitute, for legal contracts, where the term of
the smart contract is recorded in a computer language as a set of instructions.
These smart contracts employ the use of the ‗if-this-then-that‘ logic. The execution of smart contracts
does not involve the use of any human in any way. This signifies that Smart contracts are decentralized and
they tend to operate without any middleman or third-party regulation.

Furthermore, they employ the use of a distributed database so that participants can verify that there is an
occurrence of a digital event without requiring any middleman or third party. Moreover, smart contracts are
not written in legal languages but are written as computer programs and these computer programs have the
ability to define strict rules.

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 Self-Executing Systems

Blockchain-based smart contracts are self-executing. They can solve the problems of counterparty trust
in the sense that they automatically implement the terms of an agreement between parties on pre-set logic
without the need for intermediaries. They are executed by a computer network that uses consensus protocols
to agree upon the sequence of actions resulting from the contracts‘ code.

Coded contracts introduce efficiency of automatically generating contracts based on mutually

agreed-upon patterns and syntax amongst counter parties. This is a major overhaul from how things are
currently done i.e. manual documentation. Prior to blockchain, for an agreement of this type, parties would
have had to maintain separate databases. Blockchain however, allows the shared database to have
self-executing smart contracts where all participants can validate the outcome instantly without requiring an
intermediary.

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 Best-Fit Scenarios

A good fit for blockchain enabled smart contracts could be a scenario where frequent transaction happen
between a network of participants and manual mechanical tasks are performed repetitively for each
transaction. Smart contracts are particularly well suited for the permissioned/private blockchain network. For
the financial and securities sectors, such a codebased compliance would save a lot of time and money.
Syndicated loans are a $4 trillion plus market that still run primarily on faxes, emails and Excel spread sheets.
It can definitely see improvement with this technology.

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 Blockchain Smart Contract Use Cases

Mastek’s KYC Proof of Concept

Mastek developed a proof of concept around the ‗KYC for Banks‘ use case with blockchain and smart
contract. Know Your Customer (KYC) is an expensive element of on-boarding a new client and each
financial institution must create their own KYC. This means that banks/companies have a high cost of
customer acquisition, and for customers it means a painful process to go through every time a new account is
opened with a new bank.

Blockchains remove the need to trust a third party by trusting the network-agreed dataset. Smart
contracts assure that whenever details like the address is changed, the customer needs to resubmit the proof
for it to be acceptable again by the participating banks/companies. Mastek successfully developed this PoC
and tested it on a private network.

As exciting as all of this may sound, this is just the beginning for this technology. On the technology
front, certain advances will only broaden the applications. On the business side, businesses will find out more
uses for smart contracts and newer models will begin to emerge.

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 Start-ups have already begun pairing it with IoT devices to provide access via smart locks. This is the
right time for business leaders to examine this technology. Blockchain and smart contracts represent a new
model of computing, development and integration, and it is of paramount importance to understand these
newer protocols when evaluating these applications for the enterprise.

Faster Settlement
By eliminate the need of third party regulator to a large extent, since the rules and regulations would be
in built and required to follow every time in order to make your transactions official (as a part of the
blockchain), so in this case the network acts as a regulator for every single transaction. This would not only
reduce huge costs levied on customers in terms of commissions, but would also speed up the process
resulting in much faster transaction settlements.

Also, given the number of intermediaries in the system gets reduced, the costs associated with them like
trades record keeping, audits, and trade verifications also gets eliminated. For example, in the current system,
1% processing fee might not seem like much but add a number of intermediaries and the cost mounts up
significantly creating an impact in the long run. This also restricts access to a lot of small players. Blockchain
removes this hurdle. Any transformation, which helps small businesses compete with big organizations can
have major global effects.

For example, remitting money from one country to another takes about 2-3 days whereas
Blockchain application designed to do this can do the same within minutes. It shouldn‘t be hard to
imagine the impact of this efficiency and effect it would have on the global economic progress.

Better Security
The blockchain addresses the fundamental flaws of security by taking away the human factor from the
equation, which is usually the weakest link. By leveraging a distributed ledger and taking away the risk of a
single point of failure, blockchain technology provides end-to-end privacy and encryption while still ensuring
convenience for users.

Blockchain technologies are here to stay. It is probably going to help us protect as individuals,
companies and governments. Even the pentagon already thinks the blockchain technology can be used as
cybersecurity shield.

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 Different types of Blockchain
All Blockchain can be classified into three categories:

1.Public Blockchain

2.Private Blockchain

3.Permissioned Blockchain

Public Blockchain
In a Public Blockchain, anyone can read and write the data stored on the Blockchain as it is accessible to
everyone in the world. A person can become a member of the Blockchain network and can store, send and
receive data after downloading the required software on his device.

A Public Blockchain is completely decentralised as the permissions to read and write data onto the
Blockchain are shared equally by all the connected users, who come to a consensus before any data is stored
on the database. A Public Blockchain is based on a completely trust-less system where no user is given

special privileges on any decision.

Private Blockchain

In a Public Blockchain, here the permissions to write data onto the Blockchain are controlled by one
organisation which is highly trusted by the other users. This organisation may/may not allow users to have
access to read the data, as public readability might not be necessary in most cases. In some situations, the
organisation might want the public to audit the data. Limited/restricted read permissions also provide a
greater level of privacy to the users, a feature not available in Public Blockchains.

The organisation in control has the power to change the rules of a Private Blockchain and may also
decline transactions based on their established rules and regulations.

18
 Permissioned Blockchain

A Permissioned Blockchain is a type of Private Blockchain and shares many features of the latter.
A Permissioned Blockchain provides a hybrid between the ‘low-trust’ provided by Public
Blockchains and the ‘single highly-trusted entity’ model of Private Blockchains. Popularly called a
Consortium Blockchain, it is one where instead of allowing any person with an internet connection
to participate in the verification of the transaction process or allowing a single company to have full
control, a few selected nodes are predetermined.

Benefits of Blockchain Technology

There are immense benefits the Blockchain technology provides. Some of thesebenefits include; Trust,
Openness, Independence, Speed, Robustness, Global Nature and Effectiveness.

19
 Before any data is added to an explicitly defined Blockchain, it is expected that a greater number of users
of the system reach an agreement. This pattern is quite distinct from the centralized pattern in which there is a
central authority. A more trustworthy system is created when majority of the users have a say over the
writing, creation and alteration of such data. This high level of trust has been the case of the innovation
brought about by Blockchain technology.

Also, through the use of smart contracts that reconciles in real-time, the level of openness has drastically
improved with the advent of Blockchain technology. Also, since trade data is published to a common
platform, trades can be viewed by participants in real-time. This helps to forestall any form of manipulations
or alterations.

The design of Blockchain technology was done in such a manner that this technology is not dependent
on any financial institution such as banks or government. This makes it more attractive and less prone to
regulations. Furthermore, the technology of Blockchain has enhanced the level of speed of transactions. Since
Blockchains can automate messages by the addition of code snippets called ‗smart contracts‘ that does not
involve the involvement of any human in any way, the speed of payment is enhanced. This implies that there
will be a lower transaction completion time as third parties have been eliminated. The robustness of the
Blockchain technology makes it possible for data to be stored across a large number of nodes. The higher the
number of nodes, the more resilient the data.

Also, the ability for Blockchain technology to serve both locally and globallymakes it more attractive.
Moreover, the technology of Blockchain has enhanced the level of effectiveness that exists when
reconciliation is brought to play in the financial sector. Taking banks for example, banks usually delegate a
system to serveas the trade data for a specific security and this will result into deficiencies in reconciliation.
Since Blockchain technology exists, reconciliation is carried out in real-time.

Blockchain technology may provide several important features that could be leveraged for use in the
creative economy:

• Transactions are verified and approved by consensus among participants in the network, making fraud more
difficult.

• The full chronology of events (for example, transactions) that take place are tracked, allowing anyone to trace or
audit prior transactions.

20
• The technology operates on a distributed, rather than centralized, platform, with each participant having access to
exactly the same ledger records, allowing participants to enter or leave at will and providing resilience against
attacks.

• Empowered Users: Blockchain provides the users with the ability to control their information as well as the
transaction that they are part.

• Durability, reliability and longevity: Blockchain technology does not depend ona centralized computing architecture,
thus, it will not fail because of a single failure.

• Process with integrity, transparency and immutability: Transactions conductedusing blockchain are viewable by
public and cannot be altered, thus, their integrity, transparency and immutability are guaranteed.

• Faster and lower costs transactions: Blockchain technology has the potential toradically reduce the time and costs for
the transactions by eliminating theintermediaries or third-party agents.

• Initial implementation cost: The savings promised by the use of blockchaintechnology is encouraging; however, the
initial implementation costs would be considered as an important factor that cannot be neglected.

21
 Future of Blockchain
Blockchain technology has a great future if well harnessed and implemented onvarious platforms.
Blockchain technology could govern the future of finance as it will result into huge reduction of cost for all
participants in the market thereby changing global banking

Just of recent, the governor of the Bank of Japan (Haruhiko Kuroda) highlighted that with the
development of Blockchain technology, there could be an evolution in the manner in which financial services
are designed. He pointed out that artificial intelligence and Blockchain technology could bring about an
immense impact on financial services and he also highlighted that ledgers (the basic information
infrastructure) have significantly supported the development of financial services.

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 Trade Finance
This area is one of the key areas that Blockchain technology can be applied. It has great potential. If
some banks make a decision to position the financial supply chain by putting the letters of credit on the
Blockchain, this will be immense as these letters have highly complicated and sophisticated flow of
information, even if a Blockchain solution is used mainly by a small number of participants.

Three key features of blockchain — cryptographic security, distributed ledger architecture and a network
consensus mechanism — are instrumental in treating the major pain points of trade finance:

• The cryptographic security underlying blockchain technology enables information immutability and
credibility. This capability renders trade transaction records stored on blockchain tamper-proof, reliable
and verifiable by all parties at any time. Data confidentiality and privacy are ensured through permissioned
access rights for trade participants.

• The distributed ledger architecture provides transaction transparency and traceability.

This increases visibility into asset status for merchandise tracking, enables automated execution of
contractual obligations through smart contracts, and ensures networks are resilient to downtime and
manipulation risks.

• The network consensus mechanism provides a single source of truth for enabling native issuance of
financial assets (trade receivables and other payment obligations). It also eliminates the associated
problems of double spend, fraud and the need for continuous reconciliation between trading and financing
parties in the transfer of these digital assets.

Together, these features provide the foundation for building robust and synergistic trade finance
ecosystems and platforms that substantially increase the efficiency of trade processes, eliminate fraud,
improve asset liquidity and provide better visibility into the trade supply chain.

BLOCKCHAIN’S IMPACT ON TRADE FINANCE

Blockchain‘s benefits can be looked at across three key areas in trade finance.

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1. Providing payment certainty to sellers by automating payment methods.

While payment methods like letters of credit (LC) provide an effective way to mitigate business
risks through bank facilitation of the trade flow and settlement process, their value can be seriously
limited by high costs, contractual delays and process complexities. Because LC compliance is
evaluated based on trade documents and not the actual delivery or quality of goods, ambiguities in the
semantics of the legal clauses in the LC contract necessitate the bank to apply discretionary
determination when interpreting them. As a result, errors in terminology and interpretation of
requirements commonly lead to disputes between parties, with goods sitting unclaimed at the delivery
location

Letter of Credit Process Flow

To mitigate the risk of delayed or denied payments, the LC can be modelled as selfexecuting
contracts on blockchain (see Figure 1, previous page). This would automate compliance verification
with contract terms and ensure faster payment to sellers by preventing disputes from arising due to
ambiguities in the payment contracts. Automating the payment method on blockchain also expedites
payments through early discovery of discrepancies and increases the efficiency of the amendment
process.

2. Providing delivery assurance to buyers through trade asset tokenization.

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 Visibility into the status of in-transit shipment is essential for buyers to obtain timely indications of
potential delays and damages that can impact fulfilment of downstream obligations. However, buyers
often lack this insight into en-route delays or shipment damage due to bad weather, port congestion,
customs hold-ups and other reasons until the actual delivery of the shipment. This limits the ability to
foresee and mitigate business risk.

Trade documents also move separately from the flow of goods, leading to situations when goods
cannot be claimed by buyers until the title or other physical documents have been received. Documents
can also be easily forged or manipulated due to vulnerabilities in the transport chain resulting from
fragmented interactions between stakeholders, variations in country-specific regulations and trade
procedures, and an overall lack of security and common standards. This increases the risk of document
fraud for trading parties.

Parties in the Trade Transport Chain

On blockchain, the trade asset can be digitized through crypto-tokens to denote custody or
ownership of the bearer and link its transfer between trade transaction participants on blockchain with
the movement of the physical asset, establishing a clear chain of provenance. The trade-related
documents can also be directly issued and verified on the blockchain by relevant parties.

Asset tokenization on blockchain provides delivery assurance and better risk management for
buyers by enabling real-time shipment status tracking and visibility into transport conditions. Managing
the flow and transfer of trade documents, such as bill of lading, on blockchain reduces hold-ups in the

25
 release of cargo to the buyer due to delayed receipt of trade documents, and it also prevents losses from
document manipulation and errors.

3. Mitigating risks and increasing financing revenues for banks through payment instrument
digitization.

Trade receivables and other payment instruments such as promissory notes, checks, drafts or bills
of exchange act as negotiable instruments that can be transferred to third parties like banks and other
financial institutions. This makes it possible for suppliers to get funding to meet their working capital
needs by sale or transfer of these payment instruments through discounting, factoring or forfeiting.

However, banks face challenges in detecting deviations and ensuring compliance because of
process inefficiencies, such as limited availability of trade information, reliance on documentary proofs
of trade, and the high cost of manual screening required, making them vulnerable to business risk.
Another key pain point in financing is the unavailability of sufficient and timely trade credit for
SMEs, which generally receive deferred payment terms from corporate buyers but need liquidity in the
interim to meet their working capital needs. The overhead involved in issuing, storing, transferring and
redeeming receivable instruments in paper form also makes for an operationally inefficient, costly and
time-consuming process.

Post-Shipment Financing Process Flow

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 Since payment instruments are essentially credit instruments created by the trade transaction, they
can be directly issued on a blockchain network as native assets. Payment instruments such as bills of
exchange or promissory notes can be digitally created as financial contracts between the issuing and
redeeming parties. Direct issuance of payment instruments on blockchain prevents fraudulent invoicing
practices, improves SME financing options through increased liquidity of receivables, and enables
process efficiencies in managing receivables.

OTHER PROCESS CONSIDERATIONS

In the coming years, we expect blockchain to also play a pivotal role in improving the peripheral
business processes that impact trade finance. These include, among others, identity management and
document and contract management processes.

Identity management

Identity and reputation management is the cornerstone of any trade interaction. Banks need to
facilitate trade transactions to cover the risk of payment or delivery default by the trade counterparty.
Blockchain ecosystems can facilitate credible and effective trade party credentialing based on
immutable and comprehensive payment and trade transaction history records that can be effectively
deployed for assessing the creditworthiness and financial health of the corporate and initiating
financing, as well as for ongoing monitoring for funds release and disbursement.

Document and contract management

Trade documents related to financial, regulatory, commercial and insurance can be effectively
managed on blockchain by hashing these to ensure that all parties are accessing and making changes to
the most recent version of the document. Similarly, trade-related contracts can also be created, updated
and amended directly on blockchain through a multisignatory mechanism and carried forward and
easily referenced with the rest of the transaction activities.

These actions increase the auditability of the trade process and ensure that documents or contract
information cannot be tampered with by any single party. Blockchain technology also lends itself to
27
 easier dispute resolution as immutable contract information is preserved and made accessible to all
parties on the blockchain.

Financing
When Blockchain technology is used in data exchange during trade, it serves toprovide irreversible and
simple matching of data. Also, it serves to increase the effectiveness and speed of reconciliation (as this is
done in real-time) and helps to increase the level of security of transactions between parties involved in
buying and selling and their banks.

Simply put, blockchain revolves around an encoded and decentralized or distributed database (the
‘distributed’ part of distributed ledger technology) which serves as a ledger whereby records regarding
transactions are stored.

28
 These records can‘t be changed as the model is distributed: there isn‘t a central authority but there also
isn‘t any involved party (those doing transactions) that can change information. Blockchain relies on
peer-to-peer network principles whereby each encrypted block in the chain is linked to the next.

Benefits of Distributed Ledger Technologies

There are quite a few benefits for the finance industry to be achieved by using distributed ledger
technologies (for the sake of keeping things simple, I will refer to these technologies as Blockchain).
Traditionally, the financial services industry is known for its legacy systems and some banks have stacks of
legacy systems, some of which 30-40 years old. It is, therefore, not surprising that the finance industry has
embraced Blockchain to improve many of their outdated systems and, along the way, save a lot of money
(which, not surprisingly, might be the main reason for them to move to the Blockchain). Using a distributed
ledger, banks can trade faster and cheaper and become more efficient. Some of the benefits are:

1. Instant Settlements
Transactions can be done in minutes or seconds, while currently, settlements can take up a week.
With Blockchain, settlements become user-optimized, which will save a significant amount of time and
money, for both parties involved. Blockchain will remove the need for a lot of middle-office and
back-office staff at banks, as transactions settles instantly. As such, banks have an important drive to
explore Blockchain for improving settlements and some banks explore internal options first, while others
explore options between banks first.

2. Improve Capital Optimization

One of the main features of Blockchain is that it removes the need for a trusted intermediary and
makes peer-to-peer transactions possible. When Blockchain is applied in the financial services industry,
it could render useless the fee-charging intermediaries such as custodian banks (those that transfer
money between different banks) or clearers (those vouching for counterparties credit positions). As such,
Blockchain offers better capital optimization, due to a, significant, reduction in operational costs for
banks. In addition, when banks share a Blockchain, the total costs of that Blockchain and the
surrounding ecosystem might be higher than individual costs of managing transactions at a bank.
However, the costs are shared among all participating banks and as such, there is a significant cost
reduction.

29
 3. Improved Contractual Performance due to Smart Contracts
When banks and financial institutions are using smart contracts, it will improve contractual term
performance as smart contracts execute automatically once certain pre-set conditions have been met. It is
important that those smart contracts are firmly rooted in law and comply to any regulatory compliances,
across jurisdictions if needed. Because of this, R3CEV had to tailor-make the smart contracts within
their distributed ledger platform. Especially complex financial asset transactions can benefit from
Blockchain, due to automatic settlement using smart contracts under the control of an incorruptible set of
business rules.

4. Increased Transparency
Blockchain is more transparent. It can give regulators and compliance officers clearer insight into
the provenance of financial transactions, helping them to combat money laundering and manage risk.

5. Reduced Error Handling and Reconciliation

A key feature of Blockchain is that any data recorded is immutable. Any data that is recorded on a
blockchain can be tracked in real-time, leaving a very detailed audit trail. As such, it eliminates error
handling and reconciliation.

The Capital Market

As earlier highlighted, some of the benefits the Blockchain technology include: Trust, Openness,
Independence, Speed, Robustness, Global Nature and Effectiveness among other benefits. These benefits of
Blockchain technology can as well have an immense impact on the future of the capital market. The capital
market has four key areas and these areas are; pre-trade, trade, posttrade and custody and securities servicing.
The record of each security would be held on a flat accounting basis - that is, with multiple levels of
beneficial ownership in a single ledger. There would be no need to operate data normalisation, reconcile
internal systems, or agree exposures and obligations. We would have standardised processes and services,
shared reference data, standardised processing capabilities (such as reconciliations), near real-time data and
improved understanding of counterparty worthiness. For privileged participants such as regulators, we would
have transparent data on holdings, among many other improvements.

To bring this ideal scenario to life, we lay out below a stylized ‗capital markets utopia‘ based on
blockchains and smart contracts.
30
 Potential benefits for capital markets
The blockchain vision is clearly a massive change to the structure of capital markets. Why would the industry
want to begin to go down this route? To understand the level of interest, it is worth thinking about the benefits
across pre-trade, trade, post-trade and securities servicing.

Implications for Market Structure

With such a fundamental change to the system, the role of market participants would change, with

profound impact on their business models.

Clients
Many clients (particularly on the buy side) will expect to accrue the most benefit, from the reduction in
costs of capital markets dealing and securities servicing. Retail and wholesale investors may transact more
among themselves, now with guaranteed execution on open markets.

31
 Dealers
Dealers will still play a valuable role in the market by being better at sourcing liquidity for assets, or
taking principal risk where liquidity is thin. Their primary value will be in price setting, advising on
transactions and execution management, rather than in providing market access.

Private trading companies

A near real-time settlement process would have major implications for private trading companies,
particularly market-makers and High-Frequency Traders (HFTs). If trading moves to pre-trade validation of
ownership prior to the asset being sold, HFTs will need to wait (for even just a few seconds) for each
settlement cycle before they can transact again. This would give rise to a substantial slowdown in their rate of
activity, which may mean that the scope of blockchain is limited only to post-trade processes in markets
where HFT is insignificant, or in markets which could operate on hybrid models, enabling HFTs to trade on
credit lines that are regularly cleared through the blockchain consensus cycle.

Venues
Execution venues may remain much as they are today, facilitating price discovery and matching
counterparties who wish to deal. The cryptographic signature data formed at the time of transaction also
serves as the data required for settlement, increasing the value of the role provided by venues. However,
given that trading strategies such as HFT account for such a large share of traded volumes (and hence fee
revenue), profound changes to market structure may have a knock-on impact on exchanges and other venues.

Central Counterparties (CCPs)

In a near real-time asset transaction settled for cash, there is no longer a need to clear the transaction
centrally (as both sides have pre-trade transparency that their counterpart will be able to meet the terms of the
transaction, and settlement happens almost instantly). However, transactions with a longer lifecycle (such as
derivatives) still need the advantages of CCP novation to achieve netting benefits and reduced future
counterparty credit risk (replacement risk).

32
 Custodians
Distributed asset ledgers with flat accounting structures could remove some of the role that custodians
and sub-custodians play today. Custodians‘ role may change to that of a ‗keeper of the keys‘, managing
holdings information and ensuring automated securities servicing operations are performed correctly. It may
lead to the unbundling of accounting from the other services provided, and erode their stickiness for clients
and the ability to cross-sell other services (such as collateral management).

Central Securities Depositories (CSDs)

The need remains for coordinated oversight of asset issuances and ensuring orderly functioning of the
market. As for the custodian, the ledger may become the primary destination of asset issuances, although we
might expect traditional CSDs to play the role of operational governance, responsible for coordinating the
evolution of the ledger protocols, managing the introduction or cancellation of tokens on the ledger, regulator

interface, and so on.

Ways Businesses Are Already Using Blockchains

Shipping
Maersk, the world‘s largest shipping company, completed an inaugural test this spring of using a
blockchain to track its cargo. The test involved not just Maersk but a series of third parties—the shipper,
Dutch customs, and the U.S. Department of Homeland Security— with all of them tracking containers
remotely. The tech‘s reliance on cryptographic signatures makes it harder for anyone to mislay goods or
tamper with labels while cargo is on the move, and can reduce the time goods spend in transit.

Banking
Despite its sophistication, the banking industry is still bedevilled by sluggish systems that can take hours
or days to confirm basic transactions such as stock sales or money transfers. But the ongoing adoption of
blockchains by the likes of Barclays, which conducted a ground-breaking transaction (it involved butter
exports) using the technology in 2016, means this is changing. In the near future, look for rapid increases in
the speed of banking services as well as the disruption of intermediaries like brokers and clearinghouses. Big
banks are even planning to use blockchains to remake the SWIFT system, which is used for global interbank
transfers.

33
 Law
All sorts of agreements—from home sales to business purchases to employee contracts— require
lawyers and courts to enforce. Now, more firms are experimenting with ―smart contracts‖ that execute
themselves: A blockchain system can, for instance, release money from escrow once one party to a contract
transfers a deed. Lawyers nervous about their jobs can rest easy for now, as smart contracts are still a novelty.

But this could change soon, especially as states like Arizona pass laws that confirm smart contracts are valid.

India Government Views on Blockchain

This favorable view of the Indian governments and the industry signal the opening of one of the world's largest
markets to the Blockchain Industry. It‘s going to be an exciting space to watch.

Reserve Bank of India (RBI), India's central bank also has been conducting various evaluations on the
Blockchain technology and in a research report released in Jan 2017, mentioned that Blockchain Tech can
bring cost savings, efficiency, and transparency to the banking industry. Large private banks and other
corporates have already made significant progress in adopting the technology in India.

The Reserve Bank of India has successfully tested blockchain technology for trade application. The
evaluation was carried out in partnership with MonetaGo, domestic banks and other financial institutions.

The Indian central bank recently tested Bitcoin‘s underlying blockchain technology. The Reserve Bank
of India‘s research arm is said to be involved in its first ever end-to-end test of the technology along with
other stakeholders of the country‘s financial system.

Institute for Development and Research in Banking Technology (IDRBT), the Reserve Bank‘s research
arm has worked closely with the regulators, banks, financial institutions and clearing houses during the
evaluation process. MonetaGo, a New York-based cryptocurrency firm served as a technology partner during
the study.

The adoption of blockchain technology among stock exchanges and trade platforms is increasing. The
potential of blockchain technology to automate trade settlements and transactions can prove to be a huge cost
saver for financial institutions. Even Reserve Bank of India‘s experiment involved the use of blockchain in a
trade application and the results are now available in a white paper titled ―Applications of blockchain
technology in banking and financial sector in India‖.

34
 The Reserve Bank‘s blockchain research follows a recent partnership between one of the Indian banking
majors, ICICI Bank and Stellar. ICICI bank had announced its plans to develop a Stellar-based blockchain
application for transactions within closed groups. Few other Indian banks working on blockchain technology
includes Axis Bank and Yes Bank. Axis Bank, in partnership with Ripple, is set to offer cross-border
payment services over distributed ledger.

Successful exploration of blockchain technology by the country‘s central bank will also help the growing
Indian Bitcoin community. In the recent days, the country has seen a dramatic increase in Bitcoin adoption
and the government‘s openness to the technology can translate to a lenient regulatory view towards the
cryptocurrencies.

35
 Use of Blockchain Technology in India
Banking Sector

Recently ICICI Bank said that it had successfully executed international trade finance and remittance
transactions using ‗blockchain‘ technology.

ICICI, India‘s largest private bank, says it collaborated with Dubai‘s largest bank Emirates NBD on a
pilot project to execute international trade finance and remittance transactions using ‗blockchain‘ technology.
What makes this development significant is that it is being used for the first time by banks in India as well as
in the Middle East. The banks say they have partnered with banking solution Infosys Finacle for this.

Know public-sector bank, government-owned State Bank of India (SBI) is India‘s largest banking
corporation with assets over $460 billion and services in a number of areas including retail and corporate
banking as well as financing and insurance. Earlier in February, SBI took the lead to establish ‗Bankchain‘,
India‘s first financial blockchain consortium comprising of India‘s biggest banks (both public and private)
alongside technology companies including IBM and Microsoft to develop and implement blockchain
applications in the financial services industry.

SBI is now pressing ahead with its first implementation of the decentralized technology by using an
enterprise blockchain solution for managing its Know Your Customer (KYC) system, via a new partnership
with Intel that sees the technology giant become the consortium‘s official technology advisor.

Financial Services sector

The Financial Services industry is witnessing an increasing number of Blockchain-based use cases that
yield the potential to drive operational efficiencies and improved customer experience.
There are multiple experiments in ―Cross-border remittances‖, ―Post trade settlements‖, ―Trade
Finance‖, and even ―Loyalty programs‖ applications from the financial services giants.

36
 Non-Financial Services sectors

Despite financial players being the first movers to explore this Distributed Ledger Technology,
non-financial players have been paying attention and looking for ways to leverage the opportunities that
Blockchain offers. The front-runners among them are retail, travel, healthcare, telecommunications and
public-sector industries. The major use cases applicable to these industries are focused on the decentralized
data storage, data immutability, and distributed ownership features of Blockchain.

37
 Cross industry use cases

As we found during our research, there is lot of press and hype around how blockchain can impact
industries and the broader society. As someone tweeted ―We need a ledger to store all the press and hype
around blockchain‖. Here is a glimpse at the gamut of blockchain applications The Financial Services
industry is witnessing an increasing number of Blockchain-based use cases that yield the potential to drive
significant operational and client experience improvements.
There are multiple experiments in ―Cross-border remittances‖, ―Post trade settlements‖, ―Trade
Finance‖ and even ―Loyalty programs‖ applications from the global financial services giants.

Some of the use cases are not specific to a particular industry and can be adapted across the different
organizations. The prominent among these are Loyalty, Transfer pricing, and Smart Identity

38
 CHAPTER III

REVIEW OF LITERATURE

39
 INTRODUCTION
Reviewof literature forms an integral as well as an essential part of modern researchstudies. No research
study is considered complete unless an extensive literaturereview is made by the researcher. The basic
purpose of undertaking this exercise isto find the research gap between, studies conducted so far or literature
available, andalso to finalize precisely the topic of research and to get insight into the researchtopic selected
for study. In this sense this exercise becomes a sort of exploratoryresearch.

REVIEW OF LITERATURE
1. Vincenzo Morabito,Technological advancements and innovation is constantly evolving and growing at such a
fast rate that everyone is required to stay abreast of these advancementsand innovations. The paradigm
change of Blockchain is not left out from this evolution. The technological concept behind the Blockchain is
interestingly closely identical to that of a database. However, it is clearly one of the key concepts that needs
to be understood for the future. There are five key concepts that not only need to be understood but also
explored in a manner that examines how they interrelate one to another: smart contracts, decentralized
consensus, the Blockchain, trusted computing and proof of work/state. This exciting computingparadigm is
critically important because it will be instrumental to the creation of decentralized applications.

2. Primavera De Filippi, in their research paper they said that the blockchain is more than just ICT innovation,
but facilitates new types of economic organization and governance. Suggests two approaches to economics of
blockchain: innovation-centred and governance-centred. Argues that the governance approach—based in new
institutional economics and public choice economics—is most promising, because it models blockchain as a
new technology for creating spontaneous organizations, i.e. new types of economies.‖

3. Goldman Sachs, in his article he said that blockchain has the potential to redefine transactions and the back
office of a multitude of different industries. From banking and payments to notaries to voting systems to
vehicle registrations to wire fees to gun checks to academic records to trade settlement to cataloguing
ownership of works of art, a distributed shared ledger has the potential to make interactions quicker,
less-expensive and safer.

4. Laura Jutila,in his research paper he acknowledges that Industries and old ways of doing business have been
reshaped or become entirely obsolete due to the new digitalization trends. The current technology to truly
revolutionize and disrupt especially industries that rely on trust, such as the financial sector, is the blockchain
technology. The core idea of this technology is that it is a public, shared and tamperproof ledger that allows
people who do not know or even trust in each other to share information in a trustworthy ledger, where any

40
 sorts of immaterial information of value can be stored. This thesis is a literature review that provides a
theoretical framework to examine how the blockchain technology affects particularly the financial sector

5. Anders V. Hua & Jorgen S. Notland:The blockchain is a new ground-breaking opensource technology
(Nakamoto 2008) which was initially released as the underlying technology for the world‘s first decentralized
global digital currency, Bitcoin. The blockchain is an immutable and transparent distributed database. The
supply chains for commercial markets are opaque and complex, they can span over hundreds of production
stages and several geographical locations so that the provenance and history of a product is usually unknown
to upstream actors. Lack of transparency and trust in the supply chain lead to lack of information about the
provenance and working conditions behind the product. There has been shown that some actors behave
illegally and unethically.

6. Gavin Smith We‘ve seen distributed ledger technology move out of the lab and onto the Csuite agenda of
our clients, from startups to multinational giants with centuries of transactions behind them. While
perspectives are many and varied, the overwhelming view is that distributed ledger technology has the power
to shift economies, businesses and behaviors. Whichever side of the ledger they‘re on, businesses need to
understand how the technology works and its potential applications, and how it interacts with existing legal
frameworks. Businesses that are investing in, or considering using, any variant of this technology, must be
able to assess the associated risks and benefits.

CHAPTER IV

41
 ANALYSIS & INTERPRETATION

Investors into the sector tend to be specialists in blockchain technology

Figure 1

In the above figure 1 it is showing that in which sector the more investment is done regarding blockchain
technology like in Digital Currency the most investment is done and the lowest investment is in BiT Capital.

42
 Blockchain technology activity is dominated by acquisitions

Figure 2

In the above Figure 2 it is showing that the exit events within blockchain technology grew in which
sector from 2011 to 2016. In 2016 the most technology grew in the Public sector as well as in acquiring the
technology in different events.

43
 Recent blockchain technology funding events

Table 1

In the above Table 1 it is showing that the funds rose by different company by showing the use of
blockchain in different ways and what the blockchain can do in the different

Recent blockchain technology funding statistics

Figure 3

It is showing the recent funding statistics of blockchain and also the number of new funding for
innovation of blockchain technology in different sectors.

44
 Companies using blockchain for solutions in different industry

Figure 4

In the above Figure 4 it is showing that the companies using blockchain technology for solutions in

different industries like consumer products and manufacturing, financial services etc in 2017.

CHAPTER V

45
 CONCLUSION & RECOMMENDATION CHALLENGES
& ISSUES
Blockchains are not without their hurdles. While blockchain has immense potential to the society, it is
also recognized that this is hard to achieve without substantial regulatory will and collaborative effort from
all parties involved.

• Total transparency a double-edged sword - The demand for change in business processes (transaction
processing) will come either from the grassroots demanding that certain data go on a blockchain and form a
record which cannot be subsequently edited, or from regulators and policymakers mandating such change.

• Requires a lot of coordination - Blockchains can also be used in industry platforms for the sharing of data
that is helpful to the industry as a whole. In this case, a majority of players in an industry need to come
together and agree on what such a platform would look like, who would pay for it, and what value each
participant would get from it.

• Regulatory clarity over data sovereignty - Regulatory clarity of on and off-chain assets is something that is
often discussed, in the context of bitcoins and the issues of data governance of a share certificate on a
blockchain. What is often neglected is regulatory clarity over data sovereignty. In an industry blockchain, the
same data is copied over many data centres, often in different countries. A lot of the data are encrypted so
that only the intended recipient can see it.

CONCLUSIONS
In many ways, Blockchain today is comparable to where the Internet was in early 1990s. While we have
witnessed how the ‗Internet of Information‘ has changed our societies over the past two decades, we are now
entering a phase where Blockchain is likely to do the same by ushering in new paradigm comprising
‗Internet of Trust‘ and ‗Internet of Value‘. It is expected to disrupt the way stakeholders would interact in a
decentralized framework of trust, thereby increasingly democratizing value. Banks and financial services
institutions play a very important role in those wider societal interactions today and Blockchain is therefore
forcing them to rethink their roles to stay relevant in this emerging paradigm.

It's early days, but industry leaders are sponsoring a wide range of blockchain use cases supported by
industry consortiums. Having seen the potential of this technology and the challenges, we think the

46
opportunity is clear but the blue sky is too far off and companies need to validate use cases and business /
technical viability before implementing blockchain.

RECOMMENDATIONS
There are many possible ways that blockchains can make government more accountable, transparent,
efficient and fraud-proof, which include contract management, electronic voting and health care. There are
already several pilot projects in different countries regarding the use of block chain technology in e-health,
e-resident systems, elections and especially land and property registration. A prominent country which has
already several applications of blockchain technology in use is Estonia. Other countries include for example
Sweden, Hong Kong, Ghana, Kenya, Nigeria or Georgia. However, despite these pilot projects blockchain
technology is still in its infancy, so that there are still unknown factors and vulnerabilities.

Recommended actions
• To provide a balance between privacy and confidentiality on the one side and transparency on the
other side
• Resolve challenges such as transaction speed, the verification process and data limits

• Provide high-performance, low-latency operations

• Ensure that distributed ledgers are scalable, secure and provide proof of correctness of their contents

• Energy efficiency

• Ensure high level of cryptography

The societal demand for a trustworthy public sector resonates until today. This need also includes issues
such as better quality public services – fairness and customer service standards in public service provision.
Informants mentioned establishing trust in governance, accessing timely and accurate information, unlinking
public sector and politics as some of the key needs under this header. One informant expressed his opinion as:
―A clear point of authority to be established (often have to roam offices because it is not clear the authority
for a particular task).‖

47
BIBLIOGRAPHY

48
 BIBLIOGRAPHY
References from Books

Morabito Vincenzo, Business Innovation: Through Blockchain the B³ Perspective

Springer Publisher, Edition 1st 2016

Gold Steve, Blockchain: Understand Blockchain, CreateSpace Independent Publishing Platform

Publisher, volume 1st 2017

References from Below Links

https://www.blockchain.com/ https://www.ibm.com/blockchain/
https://en.wikipedia.org/wiki/Blockchain

49
ANNEXURE

50
 Case Study

A Case Study for Blockchain in Healthcare: “MedRec” for electronic health

records and medical research data.

Abstract

A long-standing focus on compliance has traditionally constrained development of fundamental design changes
for Electronic Health Records (EHRs). We now face a critical need for such innovation, as personalization and data
science prompt patients to engage in the details of their healthcare and restore agency over their medical data. In
this paper, we propose MedRec: a novel, decentralized record management system to handle EHRs, using
blockchain technology.

The purpose of this paper is to expose, in preparation for field tests, a working prototype through which we
analyze and discuss our approach and the potential for blockchain in health IT and research.

Introduction

EHRs were never designed to manage multi-institutional, life time medical records. Patients leave data
scattered across various organizations as life events take them away from one provider's data silo and into
another.In doing so they lose easy access to past data, as the provider, not the patient, generally retains primary
stewardship. Through the HIPAA Privacy Rule, providers can take up to 60 days to respond to a request for
updating or removing a record that was erroneously added. Beyond the time delay, record maintenance can prove
quite challenging to initiate as patients are rarely encouraged and seldom enabled to review their full record.

Interoperability challenges between different provider and hospital systems pose additional barriers to effective
data sharing. This lack of coordinated data management and exchange means health records are fragmented, rather
than cohesive. Patients and providers may face significant hurdles in initiating data retrieval and sharing due to
economic incentives that encourage ―health information blocking.‖

In this work, we explore a blockchain structure applied to EHRs. The blockchain uses public key cryptography
to create an append-only, immutable, timestamped chain of content. Copies of the blockchain are distributed on
each participating node in the network. The Proof of Work algorithm used to secure the content from tampering
51
depends on a ―trustless‖ model, where individual nodes must compete to solve computationally-intensive
―puzzles‖ (hashing exercises) before the next block of content can be appended to the chain. These worker nodes
are known as
―miners,‖ and the work required of miners to append blocks ensures that it is difficult to rewrite history on the
blockchain.

System Implementation Overview

For MedRec, the block content represents data ownership and viewership permissions shared by members of a
private, peer-to-peer network. Blockchain technology supports the use of ―smart contracts,‖ which allow us to
automate and track certain state transitions (such as a change in viewership rights, or the birth of a new record in the
system). Via smart contracts on an Ethereum blockchain [10], we log patient-provider relationships that associate a
medical record with viewing permissions and data retrieval instructions (essentially data pointers) for execution on
external databases. We include on the blockchain a cryptographic hash of the record to ensure against tampering,
thus guaranteeing data integrity. Providers can add a new record associated with a particular patient, and patients
can authorize sharing of records between providers. In both cases, the party receiving new information receives an
automated notification and can verify the proposed record before accepting or rejecting the data. This keeps
participants informed and engaged in the evolution of their records

MedRec prioritizes usability by also offering a designated contract which aggregates references to all of a user's
patient-provider relationships, thus providing a single point of reference to check for any updates to medical history.
We handle identity confirmation via public key cryptography and employ a DNS-like implementation that maps an
already existing and widely accepted form of ID (e.g. name, or social security number) to the person's Ethereum
address.

Blockchain Background

Originally designed for keeping a financial ledger, the blockchain paradigm can be extended to provide a
generalized framework for implementing decentralized compute resources [10]. Each compute resource can be
thought of as a singleton state-machine that can transition between states via cryptographically-secured transactions.
When generating a new state-machine, the nodes encode logic which defines valid state transitions and upload it
onto the blockchain. From there on, the blocks journal a series of valid transactions that, when incrementally
executed with the state from the previous block, morph the state-machine into its current state. The Proof of Work
consensus algorithm and its underlying peer-to-peer protocol secure the state-machines' state and transitioning logic

52
from tampering, and also share this information with all nodes participating in the system. Nodes can therefore
query the state-machines at any time and obtain a result which is accepted by the entire network with high certainty.

We utilize Ethereum's smart contracts to create intelligent representations of existing medical records that are
stored within individual nodes on the network. We construct the contracts to contain metadata about the record
ownership, permissions and data integrity. The blockchain transactions in our system carry cryptographically signed
instructions to manage these properties. The contract's state-transition functions carry out policies, enforcing data
alternation only by legitimate transactions.

To navigate the potentially large amount of record representations, our system structures them on the
blockchain by implementing three types of contracts. Figure 1 illustrates the contract structures and relationships.

53
 Smart Contract Structures
Registrar Contract (RC)
This global contract maps participant identification strings to their Ethereum address identity (equivalent to a
public key). We intentionally use strings rather than the cryptographic public key identities directly, allowing the
use of already existing form of ID. Policies coded into the contract can regulate registering new identities or
changing the mapping of existing ones. Identity registration can thus be restricted only to certified institutions. The
RC also maps identity strings to an address on the blockchain, where a special contract described below, called the
Summary Contract, can be found.

Patient-Provider Relationship Contract (PPR)

A Patient-Provider Relationship Contract is issued between two nodes in the system when one node stores and
manages medical records for the other. While we use the case of care provider and patient, this notion extends to
any pairwise data stewardship interaction. The PPR defines an assortment of data pointers and associated access
permissions that identify the records held by the care provider. Each pointer consists of a query string that, when
executed on the provider's database, returns a subset of patient data. The query string is affixed with the hash of this
data subset, to guarantee that data have not been altered at the source.

To enable patients to share records with others, a dictionary implementation (hash table) maps viewers‘
addresses to a list of additional query strings. Each string can specify a portion of the patient's data to which the
third-party viewer is allowed access.

Summary Contract (SC)

This contract functions as a bread crumb trail for participants in the system to locate their medical record
history. It holds a list of references to Patient-Provider Relationship contracts (PPRs), representing all the
participant's previous and current engagements with other nodes in the system. Patients, for instance, would have
their SC populated with references to all care providers they have been engaged with. Providers, on the other hand,
are likely to have references to patients they serve and third-parties with whom their patients have authorized data
sharing. The SC persists in the distributed network, adding crucial backup and restore functionality. Patients can
leave and re-join the system multiple times, for arbitrary periods, and always regain access to their history by
downloading the latest blockchain from the network. As long as there are nodes participating in the network, the
blockchain log is maintained.
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 The accepting or rejecting relationships is done only by the patients. To avoid notification spamming from
malicious participants, only providers can update the status variable. These administration principles can be
extended, adding additional verifications to confirm proper actor behaviour.

System Node Description

We design the components of our system nodes to integrate with existing EHR infrastructure. We assume that
many nodes, and in particular care providers, already trustfully manage databases with patient data stored on servers
with network connectivity. Our design introduces four software components: Backend Library, Ethereum Client,
Database Gatekeeper and EHR Manager. These can be executed on servers, combining to create a coherent,
distributed system. We provide a prototype implementation of these components that integrates with a SQLite
database and is managed through our web user interface. Notably, any provider backend and user interface
implementations can participate in the system by employing the modular interoperability protocol as defined
through our blockchain contracts.

Primary Software Modules

Backend API Library
We construct multiple utilities, bundled in a backend library, to facilitate the system's operation.
Our library abstracts the communications with the blockchain and exports a function-call API. Record
management applications and their user interfaces can thus avoid the hurdles of working directly with the
blockchain. One such hurdle is verifying that each sent transaction is accepted with high confidence by the network.
Our library automatically handles the uncertainty of when transactions are mined and deals with cases when they
are discarded. The backend library interacts with an Ethereum client to exercise the low-level formatting and
parsing of the Ethereum protocol.

Steps 1 and 2 in Figure 2 illustrate our backend implementation of a scenario where a provider adds a record
for a new patient.

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 Ethereum Client
This component implements the full functionality required to join and participate in the Ethereum blockchain
network. This handles a broad set of tasks, such as connecting to the peerto-peer network, encoding and sending
transactions and keeping a verified local copy of the blockchain. For our implementation we use PyEthereum and
the PyEthApp client.

We modify the client to be aware of our mapping of identity and addresses. We then implement a service to
locate the node's Summary Contract (SC), via Registrar Contract address lookup. This service runs continuously
within the client to monitor real-time changes to the SC. In the event of an update, the service signals the EHR
Manager to issue a user notification and, if necessary, sync the local database.

Steps 4 to 6 in Figure 2 continue the use case described above from the patient node perspective.

Database Gatekeeper

The Database Gatekeeper implements an off-chain, access interface to the node's local database, governed by
permissions stored on the blockchain. The Gatekeeper runs a server listening to query requests from clients on the
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network. A request contains a query string, as well as a reference to the blockchain PPR that warrants permissions
to run it. The request is cryptographically signed by the issuer, allowing the gatekeeper to confirm identities. Once
the issuer's signature is certified, the gatekeeper checks the blockchain contracts to verify if the address issuing the
request is allowed access to the query. If the address checks out, it runs the query on the node's local database and
returns the result over to the client.

Steps 7 to 9 in Figure 2 illustrate how a patient retrieves personal data from the provider node.

EHR Manager

We tie together all the software components previously mentioned with our EHR management and user
interface application. The application renders data from local SQLite databases (designed to be interchangeable
with other DB software) for viewing, and presents the users with update notifications, and data sharing and retrieval
options. Our user interface prioritizes intuitive, crisp, and informative design, as recommended by the Department
of Veteran Affairs and ONC‘s Blue Button design competition. Our application is conveniently accessed through a
web interface, built on a python backend framework. We are especially cognizant of compatibility for mobile
devices, as modern users expect easy access and high-quality experiences while on-the-go.

MedRec Blockchain Mining

We incentivize ―miners‖ to participate in the network and contribute their computational resources to achieve
a trustworthy, gradual advancement of the chain. We propose a model that engages the healthcare community in
network stewardship—MedRec brings medical researchers and health care stakeholders to mine in the network. In
return, the network beneficiaries, i.e. providers and patients, release access to aggregate, anonymized medical data
as mining rewards.

MedRec in the Context of National Healthcare Priorities

As mentioned in the introduction, we do not present MedRec as a panacea nor as the only blockchain-mediated
solution that would be needed to achieve our stated goals of data access, patient-empowerment, interoperability and
improved medical research. In the analysis below, we refer to MedRec by name to suggest how such a project might
address national healthcare priorities, likely as part of a larger suite of blockchain solutions to which we hope to
contribute.

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 Conclusion

The MedRec provides a proof-of-concept system, demonstrating how principles of decentralization and
blockchain architectures could contribute to secure, interoperable EHR systems. Using Ethereum smart contracts to
orchestrate a content-access system across separate storage and provider sites, the MedRec authentication log
governs medical record access while providing patients with comprehensive record review, care auditability and
data sharing.

We demonstrate an innovative approach for integrating with providers‘ existing systems, prioritizing open APIs
and network structure transparency. We look forward to continued work on the MedRec project infrastructure,
following the ONC‘s call for policy and technical components of an interoperable health IT stack. We remain
committed to the principles of open source software and will release our research framework on GitHub as a
platform for further development in the fall of 2016.

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