There is an old adage: “Building the road is the first step to becoming prosperous”. In recent years, India has made tremendous efforts to become a digital society by building large-scale digital public infrastructure. The Indian government and the Reserve Bank of India (RBI) have promoted simplification and transparency to accelerate the speed of interaction between people, markets and government. With the start of the Digital India mission in 2015, our payments, provident funds, passports, driver’s licenses, tolls and verification of land records have all been transformed with modular applications built on Aadhaar, UPI and India Stack.
Limits of public digital infrastructures
It is well established that digital infrastructure should be designed based on the principles of availability, affordability, value and trust. The invisible rules underlying technology can be made visible using design principles, legislative frameworks, governance frameworks and public engagement. But when we look at the current digital ecosystem, it is identified that the various existing digital infrastructures are not interconnected as a design; technical integration is needed to make them familiar and interoperable. Today, information must travel through multiple systems to complete the interaction and rely on private databases, which makes data validation more complex as the network grows, increasing costs and creating inefficiencies.
Dilip Asbe is MD and CEO of National Payments Corporation of India (NPCI). NPCI is a non-profit organization established by the Reserve Bank of India (RBI) and the Indian Banks Association to create and operate a robust retail payment and settlement infrastructure in India. NPCI’s service portfolio includes BharatQR, BHIM, IMPS, UPI and RuPay among others. Ashutosh Dubey is Senior Manager of Innovation Management, NPCI.
Web 3.0 to meet the challenges
It is becoming increasingly essential for developing countries to iteratively build innovative solutions on top of existing digital infrastructure. We need resilient platforms, which could be based on the Web 3.0 architecture of tomorrow, although we know that it may take a bit longer for these platforms to be able to scale and to solve today’s challenges in a cost-effective way.
The Web 3.0 architecture establishes a new version of the Internet protocol integrating the token-based economy, transparency and decentralization. It is essential to understand that Web3 is not only cryptocurrencies, but also NFTs or non-fungible tokens, representing physical assets or digital twins. A user can access all the benefits of the ecosystem using a distributed token where he can show proof of ownership, tax history and payment instruments.
Since the Web 3.0 ecosystem is less zero-sum, user lock-in is not the primary goal of new businesses, and key operations can be encoded in “smart contracts” that are auditable, immutable and easier to complete for an early adopter. A blockchain-based infrastructure can provide all of these attributes without needing to trust a particular actor to verify a ledger’s history. Blockchain records could be viewed, compiled and audited by regulators in real time.
Increase in global adoption of blockchain infrastructure
According to management consulting firm Gartner, by 2023, 35% of enterprise blockchain applications will be integrated with decentralized applications and services. Many countries have already started establishing their blockchain policies and infrastructure.
Estonia, the blockchain capital of the world, uses blockchain infrastructure to verify and process all e-governance services offered to the general public. China launched in 2020 a program called BSN (Blockchain-based Service Network) to deploy blockchain applications in the cloud at a simplified pace. In Britain, the Center for Digital Built Britain, a partnership between the University of Cambridge and the UK Government’s Department for Business, Energy and Trade Strategy, runs the National Digital Twin (NDTp) program to foster collaboration between owners and developers of digital technologies. twins in the built environment. And the Brazilian government recently launched the Brazilian Blockchain Network to bring participating institutions to the governance and technological system that facilitates the adoption of blockchain in solutions for the public good.
There are also well-established decentralized finance (DeFi) platforms that rely on blockchain infrastructure like Ethereum, however, pegged to the base cryptocurrencies belonging to that platform. As we know, these platforms have a presence and use in several countries and do not fall under any particular regulatory framework. DeFi allows users to borrow and lend short-term cryptocurrencies at algorithmically determined rates. DeFi users are rewarded with tokens that confer governance rights, which are analogous to seats on the protocol’s board of directors.
Recently, blockchain provider Solana released a prototype smartphone with hardware and security that can support decentralized apps for people interested in crypto wallets, Web3, and NFTs. Many Indian tech companies are building Layer 2 (L2) chains on top of the proven Layer 1 (L1) base chains, while delivering added values such as scale, throughput, etc., primarily by bundling the transactions. These implementations tell the story of blockchain technology driving the future of Web 3.0.
The Digital Roads India Must Build Using Blockchain
India’s digital community including fintechs, academia, think tanks and institutions should focus on supporting research on standards, interoperability and effective management of current known issues with distributed technologies, for example, scalability and performance, consensus mechanisms and self-detection of vulnerabilities. Also, currently, end-user devices such as smartphones do not support blockchain-based technology and therefore the last mile is always outside the network. However, the day is not far off when smartphone makers will deliver blockchain-compliant devices by adding extensions.
Blockchain models today are either authorized, which suffices for the need of a consortium, or public like Ethereum, which are unregulated and based on intrinsic standards. The ideal solution to solve most of the known problems of decentralized technologies lies in the middle path, i.e. a national platform operating at L1 that interconnects blockchains (authorized and public), data providers applications (decentralized – dApps – and existing applications), tokens service providers and infrastructure managers. Together they can form a reliable and efficient network for India’s digital economy. The ecosystem can further deploy relevant and L2-specific applications for very little cost and effort, while L1 continues to handle the heavy lifting for all L2s running on Layer 1. All L2 chains on this L1 public infrastructure will communicate with each other, thus replicating communication (and avoiding the need for complex integrations between them) over the Internet for existing Indian digital infrastructures.
The need of the hour is to work on an indigenous solution of the people, for the people and by the people – an Indian Blockchain platform – even if it takes years to design and implement. A digital infrastructure based on blockchain technology will transform the digital ecosystem in India and enable the future of digital services, platforms, applications, content and solutions. Given the current state of things in the world, it’s safe to assume that we’re at the start of the curve, but the days aren’t far off.