Future of Blockchain and DeFi in India

India is at the end of a significant impactful time in its history, witnessing the nascent beginning of the Fourth Industrial Revolution (4IR) with the advancement of Internet of Things (IoT), Artificial Intelligence (AI), Genetic Engineering and other technologies. The development across industries is witnessing unprecedented speed and creating new systems for businesses, payments and efficiency.

At the helm is a very important Blockchain technology that is often blurred with cryptocurrencies. We need to understand the distinction between technology and its use. There is no doubt that cryptocurrency is one of the earliest applications of blockchain technology. Blockchain technology, as IBM defines it, “is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An resource can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyright, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and reducing costs for everyone involved.” For various use cases to be executed on a blockchain, a smart contract is required and its execution requires costs that are exchanged in the form of a token/coin depending on the blockchain, the method of validating the transaction, and the service provided by the use case.

The technology makes it possible for every industry to develop and change the business landscape. As we have seen the benefit of brick-and-mortar trade being augmented by e-commerce, this technology will provide an advantage many times greater than the impact seen due to transparency, security, speed, trust, availability, lower costs, etc. of these factors prominent businesses are moving away from centralized finance (CeFi) to decentralized finance (DeFi). In DeFi, the absence of centralized control allows autonomy and adaptation of operational functions between parties without an intermediary. It essentially minimizes the cost of friction paid to intermediaries in the form of fees for various services that become redundant in the wake of technological developments.

In DeFi, operations are automated using Smart Contracts – a program that binds contract terms in such a way that the contract is automatically executed when it is fulfilled. This feature led to the development of Non-Fungible Tokens (NFT).

This industry is often misunderstood by the naive conflation of a private or decentralized form of currency with blockchain technologies and its uses. Cryptocurrencies are best understood by the historical references of private money with security and robustness. It will evolve as the financial system has evolved in traditional CeFi, while 4IR will continue to provide financial benefits, whether priced in fiat or exchanged in cryptocurrencies / tokens / coins.

Central banks around the world are moving towards digital currency based on blockchain technology calling it Central Bank Digital Currency (CBDC). This will coordinate the market and use of market currencies as developed through DeFi and the centralized CBDC – digital money by banks. Essentially, the value of a coin or token depends on the utility of the use case and the efficiency of the blockchain solution on which those use cases operate. The price and utility of such coins or tokens are discovered based on market mechanisms that can be made more reliable through reformed regulation and benchmark CBDC that can act as a stable coin.

The pace of the fourth industrial revolution, based on deep technology (deep technology), is fast and finds its place regardless of geographical boundaries, benefiting from jobs and prosperity. The growing importance of blockchain technology in tailoring the modern Metaverse cannot be overlooked. India, has around 279.5 million crypto users, as reported by ‘finds’, need to gain a clear understanding of how an ecosystem based on blockchain and the internet easily and quickly permeates the economic value chain. The benefits of blockchain bring efficiency, transparency, security and impact to the masses without mediation. This will transform many businesses and will also help technology adoption.

The terminology “virtual” in this industry is misleading and possibly delays many policy decisions while the economic benefit, or lost growth opportunity, is “real”. India does not receive much investment in blockchain related businesses compared to over hundreds of billions of dollars flowing into the same globally. This despite the fact that many of these solutions can use the technology of the Indian IT sector. BCG forecasts “very conservatively” by 2030, the tokenization potential of $68 trillion, while tokenization of global illiquid assets is estimated to be a $16 trillion business opportunity. The growth of this industry means next generation jobs, next level of value creation, additional GDP, new money multiplier and global dominance of Indian products and services.

As Deloitte highlights through its examination, the top five areas of regulation are the greatest need to facilitate the use of blockchain and digital assets, i.e. data security and privacy, ii. geography-specific regulations, iii. industry-specific regulatory issues, iv. internal/external audit and v. internal control and financial reporting.

An accommodating policy towards facilitating blockchain-based industry-wide adoption and innovation will accelerate the pace of India’s economic and social growth. If we miss this growth, it will be our own downfall.

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