By Shehnaz Ahmed & Swarna Sengupta
India’s G20 presidency has been marked by an emphasis on leveraging digital public infrastructure (DPI) for inclusive growth and development. The focus on DPI is not surprising as India has emerged as a global leader in building DPIs such as Aadhaar, Unified Payments Interface, and the Open Network for Digital Commerce. As India leads the conversation on DPIs and digital transformation at the G20, it is an opportune moment to explore the innovation potential of emerging decentralised technologies like blockchain in designing such DPIs.
Blockchain technology enables sharing ledgers across multiple parties for recording information or transactions in a verifiable and permanent manner. Since the transactions are recorded and verified through a peer-to-peer consensus mechanism, there is no reliance on centralised intermediaries. The decentralised nature of blockchain eliminates the risk of a single point of failure, thereby creating a more secure ledger. The ledger can also be programmed to trigger transactions automatically through smart contracts. This creates vast opportunities for blockchain to offer new services and revamp existing legacy systems of recording transactions and information. The unique characteristics of blockchain such as immutability, auditability, and distributed verifiability promotes greater transparency and accountability and can help in reducing instances of fraud, cut down costs, and thereby unlock newer efficiencies.
There are many countries that are exploring the innovation potential of the decentralised and distributed nature of blockchain-based ledgers for public sector use. As per estimates, as of 2018, at least 46 countries had launched or were planning to launch over 200 blockchain initiatives. It is predicted that by 2025, blockchain would account for 10% of the global GDP. Blockchain experimentation for public sector use revolves around areas such as land registries, health registries, and the creation of digital identity. For instance, Estonia is a leading example of blockchain-based e-governance services. Blockchain forms the basis of select state registries in Estonia including the property registry, healthcare registry, and business registry. Turkey has also announced its plan to launch blockchain-based digital identities for citizens. Singapore is also exploring the potential of blockchain to revamp its payment infrastructure. Colombia has tested a blockchain-based public procurement system to increase transparency and accountability in the public procurement processes, thereby reducing corruption.
Before deploying blockchain for DPI, policymakers must consider if blockchain is the most viable option for such a service. If that is the case, the actual deployment and scaling of such blockchain projects must be backed by robust governance and technical standards. Blockchain networks consist of multiple parties such as developers, network operators, end-users, miners, and external gateways. The relationship between such parties is generally governed by contractual arrangements. However, for blockchain networks which form the basis of any DPI and involves multiple parties and processes sensitive personal information, it is important to have standardised terms of use. Legal certainty governing blockchain use is critical for incentivising participation in the network and scaling up such solutions. This has also been emphasised by around eight out of 10 countries that have released a national strategy on blockchain, including India’s National Strategy on Blockchain. It has been found that in many countries, the failure to account for such legal certainty at the pilot stage has adversely impacted the scaling of such solutions. Existing legal and regulatory frameworks are designed around identifying central points of accountability and responsibility which may be at odds with the decentralised nature of blockchain, thereby affecting the legal feasibility of blockchain solutions. Further, legal recognition of blockchain-based records under national laws may also need a separate examination.
In a recent report, the Vidhi Centre for Legal Policy argues for a governance framework that sets out quintessential terms of use for the adoption and operation of any blockchain-based solution so that it can function in a legally sustainable manner. For countries exploring blockchain technology in developing DPI, these terms of use will create an enabling environment for blockchain solutions, protect the rights of users / participants to the network, and protect the data stored on such systems. Such terms include the examination of legal recognition of blockchain records under applicable domestic laws and the legal structure of the entity / entities developing the solution. It will also entail setting out the legal arrangement to govern the relationship between different participants in the network, and governance matters such as eligibility criteria of participation, delineation of rights and liabilities of participants, and roles of responsibilities of each participant, dispute resolution, and determination of ownership of intellectual property rights in the solution. The terms of use should also lay down data governance standards, risk management strategies, and the mechanism of removal and exit of participants from the network.
The G20 presidency is an opportunity for India to develop a playbook for deploying blockchain technologies for DPI and forge a consensus on setting global standards for emerging technologies like blockchain.
Shehnaz Ahmed & Swarna Sengupta, respectively, fintech lead, and research fellow, Vidhi Centre for Legal Policy. Views are personal.
