The Finance and Business World Transformation by Blockchain Technology

By Harsh Jain & Perumalla Hari Hara Prasanna


The monetary markets operate in an era of digitalisation. Digitalisation has given birth to various  currency platforms like ‘Bitcoin’, ‘Ethereum’, ‘Ripple’, etc. These currencies work on a platform which enables a digital ledger of transactions that is duplicated and distributed across the entire network of programmed systems. This platform is known as ‘blockchain’.

When such algorithmic digital currencies enter the medium of exchange in finance, to some extent they appear to be viable competitors of  fiat currency. Fiat currency is the currency that is not backed by any commodity by the government and is issued by that country’s Central Bank.  The value of fiat currency is maintained by the central bank whereas crypto currency is a digital asset which is stored in a ledger  secured by the use of cryptography. 

Bitcoin which is well known as a cryptocurrency was the first of its kind introduced in the year 2009 having no supervision by any central authority. It fails to perform the basic functions in an economy like, regulating the flow of money supply and acting as a lender of last resort for the government. 

This paper aims to bring out the disparities between blockchain platforms and the Central bank’s monetary policies. There are continuous debates all around the world about its credibility and how the central banks of countries are looking to tackle these issues. The potential for blockchain management is immense which can change every sector of an economy and how it tends to take over the economy, making the world more accountable and transparent, is what the near future of finance could be as some predict. This paper would examine how blockchain technology could shape the finance world and the discourse of Central Bank’s fiat money.


The humble start of the internet era led to information being reaching the masses. The new internet era is powered by a lot more than just information being available to the masses. It empowers various business groups with low cost technology algorithms and enables them to compete in global markets. This privilege granted by the internet is powered is ‘Blockchain’ system. It uses cryptography and hash functions which will be further discussed in the paper (McMullen, June 2018).

The blockchain platform is not only a ledger to keep a record for transactions of crypto currency via cloud computing but acts as a global ledger, by recording transactions of stocks and bonds, intellectual property rights and various titles. It is also used in various other ways which can revolutionise an industry all together. It has already been a part of many industries and areas like medical, food industry, corporate governance and governance of country or states etc.  (Yermack, May 2016) 

Decentralisation is one of the main objectives of block chain technology where the central authorities will not have power but the stakeholders will have greater participation and can involve in decision making (McMullen, June 2018). The decentralised network of blockchain uses two functions like immutability and auditability which will be discussed further in the paper. 

The traditional means of business via bankers and legal advisories are expected to take a backseat when blockchain emerges the markets aggressively and changes the culture of how start-ups and corporates work (Yermack, May 2016). But flipping the coin to the other side crypto currency is not backed by anything more realistic like fiat currency issued against Central Bank’s gold reserves. 

As international business continues to grow, it is demanding extensive use of sophisticated technology to enable a fast pace in day-to-day transactions, keeping a ledger record for the same, processing information about market trends and processing the data as many data mining corporates are indulging in. The intention behind such a vision is to enable the concerned individuals to witness and examine their ledger transactions at the same time, without involving any third party to moderate and safeguard such ledgers from being corrupt. Although blockchain technology would lead to large unemployment as it refrains any involvement of middlemen and empower technology elites  it will give birth to a new generation which will create new opportunities for masses, disrupt and change the banking and other financial sector’s traditional objectives which will create new a lifestyle order for the masses. 

Central Banks’s Fiat Currency vs Blockchain 

Competition between Central bank’s fiat currency and Cryptocurrency could facilitate both parties to flexibly decipher settlement terms. Debtors would be instigated to settle monetary matters in currency which depreciates after the contract and creditors on the other hand would be provoked to fulfil contracts if the currency appreciates. But the fluctuating nature of cryptocurrencies by more than 20% every day makes it highly adverse for investors to trust its vitality for business. 

Several countries like China and Russia and many countries have abandoned the ideology of such digital societies were individuals are a part of blockchain due to lack of central authority for leadership to regulate such a platform and the fictitious nature of cryptocurrencies which acts as a cover blanket for criminals to avoid any government oversight. If such a platform is enabled for investors on large scale there are chances to threaten the Country’s monetary supply and fiddle which several economic tools that could trigger repercussions like inflation, which could turn out to be a disaster for fragile states. 

But flipping the coin to the other side, such a platform could be blessing in disguise for fragile states. According to The Global Findex database, 2017, around 1.2 billion individuals remain without a bank account which makes it nearly impossible for them to gain any ‘financial inclusion’. For the ones who have bank accounts there are chances that they have improper knowledge to avail the financial benefits initiated by the government to be availed by such small sector and a result of which they might end up paying more interest on certain loans than their deposits. Moreover, lack of investment in infrastructure due to corrupt practices by a few government officials, contributes to financial exclusion. In such fragile states, blockchain will facilitate financial inclusion of individuals. There is no intervention by government authorities and intermediaries on transactions, and participants can avoid corrupt practices, abuse of power that negatively impact trade and finance. Since blockchain practices making ledgers of a transaction, storing it on multiple databases and facilitating simultaneous viewing of the same ledger for both parties, the trust factor is respected.

Transformation of Supply chain

Although blockchain technologies have digital ledgers for several participants which are difficult to tamper with since these transactions are programmed to execute transactions automatically, but even such platforms need human beings to operate and make it work. Hence, there are chances of fabricated data being entered as it is evident that corruption exists in the supply chain, and such officials who enter data for ledgers records are prone to bribery practices. Introducing such a platform to channelise the supply chain from various fragile states could easily prove vulnerable as it is difficult to route the source of supply when it comes to acquiring materials from such fragile states. An element of coercion for conflict minerals like blood diamonds, is likely to be missed even if supply chain is routed through blockchain technology.

Many agree, to the fact that there are chances of corrupt practices when supply chain of commodities and data entered could be fabricated, but practically examining such issues, due to intense supervision control, the chances of entering falsified data are quite slim as only the higher management(in most cases) have the right to access and enter the information and many corporates are using such ledgers to manage their supply chain. 

It is the hash algorithm which programs the block to store the data entered and these hash functions are programmed to include any data stored in the previous block to a new block whenever a new block is added to the chain. In case the hash differs from the expected value, it can be inferred that, the data entered in the nodes have been tampered. The complex programming of hash deciphers a protocol to alter hashes the subsequent blocks when a change is recorded in the previous block. This makes it very secure and easy to detect any falsified data. 

The structure of the programme is such that every transaction will be recorded on a block and such several ledgers are circulated over many nodes which accounts for its transparency.  Whenever a transaction is recorded on a block, that block links the one before it and after it which makes it difficult to tamper with the records as blockchain has built in ‘set of commands’. 

Since it’s a distributed ledger, many firms have redefined the meaning of blockchain as a crypto currency and are using it to curb practices of child labour and to trace any product which is conflict driven like ‘blood diamonds’. E.g. De Beers, which is a diamond mining firm, is using blockchain to trace the source of every gem that is being bought by them and that goes to their clients. Right from the mining of the stone, and its shipping across the globe for its cutting and polishing to being sold to clients, is traceable via blockchain technology. Since it is decentralised, clients can check the routes and sources of the gem they intend to purchase as the community is very sensitive towards social evils like child labour and issues with blood diamonds. 

Reliability and Advancements in Blockchain

Although blockchain seems to be transforming the business world, the point of concern is the   governance concerning blockchain technology. It has many hurdles because of the issues of reliability and enforceability of the policies to people. Adding a new rule or code to the blockchain creates a fork when it comes to governance as it must go through constant changes which keeps creating new forks. When such changes are made, the old forks, which are already existing will stop working as they cannot adapt to the upgraded version. This divergence makes it impossible for policy makers to keep track and govern the society in an effective way. The transparency that blockchain enables users to have their own opinion on things which makes the decision-making process even slow than what is already existing in the traditional form of governance. The potential developments in technology is difficult for every person to understand. The distributed ledger process and encryption principles require extensive knowledge by a person to understand its full potential. “It is difficult to comprehend, for the common folk, the regulation and its impact”. 

Although adding any new change in the node, would mean that old forks cannot adapt and upgrade themselves, but it is purely due to security concerns. It is under rare circumstances that a new change is implemented in blockchain. Since hark forks are programmed to alter or programme a particular Dabb, it is under extreme circumstances that such an intervention will take place. The main purpose of giving hard fork an added advantage over the soft fork was in defence against any sort of hacking DAO (Decentralised Autonomous Organisation) by altering the programme of the Ethereum Blockchain, to enable the users to withdraw their stolen funds. The soft fork, on the other hand, was programmed differently from the hard fork. The primary function of soft fork is to blacklist the child DAO’s account so that the hacker could not transfer any funds.

Future transactions via Blockchain

Blockchain maintains a limit of transactions in the block. As a result, Bitcoin is limited to processing seven transactions per second and Ethereum is twenty per second whereas the typical traditional methods such as visa is around two thousand per second on average (Livingston., 2019). The peer-peer interaction takes up a lot of time due to which the daily usage becomes nearly impossible (Marr). For example, if a person goes out for shopping, she/he must wait for a certain amount of time to process the transaction. The complexity of this network is immense. 

To some extent, one can infer that blockchain does take time for transactions to occur but with the up-gradation of the cryptography, and increasing the size of nodes, over time and this can help resolve this issue. The current size of the block is 1 MB and by increasing the size of the block to about 2MB or more means processing more transactions and adding more transactions in the ledger at the same time in one second (Berg, Feb. 1, 2018).

As far as the concern of a common man not being able to use blockchain technology, it is due to the financial exclusion. Blockchain technology is proving to be a boon for rural areas where majority population is illiterate and are denied the benefits of financial institutions like a bank account and are thus financially excluded (Berg, Feb. 1, 2018). Many individuals are not able to open a bank account since they cannot prove their identity. But in the digital era, one only needs biometric of individuals to prove their identity. Blockchain being a part of digital era accepts the same norm. BanQu being a software corporate firm relies on blockchain technology to connect such financially excluded individuals to global economy by providing them with identities which are secure and portable. Such a platform enables the user the check their data and share their identity to create a credit history which users can benefit from in global economy.  

Lack of Central Authority and Environment Issues

Due to the lacks of regulatory body, there is a high risk of scam and manipulation that can take place. There is always a risk when you use blockchain in cryptocurrencies where the wallets having the money can be hacked, evident from the numerous cases of money laundering and illegal practices having taken place using this technology. Many issues have also been raised with respect to environmental hazards, since it uses a lot of energy to run the distributed networks and to keep the servers running all the time (Marr). Bitcoin reported that it had used energy equivalent to 150 world nations energy to keep its network running. Over time these problems can be solved by the technological advancements. The lack of regulatory body over blockchain counts for its decentralised feature. The intension behind no central authority over the leadership of blockchain is to create an egalitarian society where power and wealth is distributed among the stakeholders to foster public engagement which helps individuals to make grounds for decisions. When power is not rested to benefit a handful players, the chances of scams and manipulations are very rare. (McMullen, June 2018)

Even the power elites who make use of technology to gain hegemony and financial power, leading to scams cannot by-pass the algorithms of blockchain since it is works on various layers and one such layer is cryptography. Cryptography is a method or means which protection to information by using code. It is very difficult to di-cipher or decode (McMullen, June 2018). In the public key perspective only individuals with access will have control of all the information which is why this technology is discouraged by people around the world. Hash functions are algorithms that takes in how much ever data is given to them and forms it into a code. Every time the same input is given the given code will remain the same. This is very secured and difficult to crack because even if a single letter in the information is changed the whole code for the information will change. These two functions give raise to the immutability and auditability of blockchain systems. The information given to the blockchain systems cannot be changed very easily by anyone even if they do blockchain records the time stamp from whom it’s changed by the people who have access to the network this is immutability. People have no power to change and the information is known to everyone which brings in the transparency in the economy.

Although blockchain technology requires a lot of energy to function but bitcoin mining comes from energy which is clean or replenishable. The energy used for mining bitcoins does not come from any finite sources of energy like coal. On the other hand, bitcoin miners often migrate to cleaner cities like Ireland and Pacific Northwest where the infrastructure for clean energy is efficient, as claimed by Katrina Kelly Pitou, a research associate in electric and computer engineering from the University of Pittsburgh. (Team, 2018)


Although there are added advantages when a platform like blockchain is introduced to transform the world of finance, many countries are not in a position to invest in such platform. The prime reasons being that countries like China, Turkey, Iran and Tunisia denying access to various websites and in some cases denying the internet access as well to the masses. Such external environment for blockchain makes it difficult to profit from the blockchain network. Since it is a decentralised network which does not involve any intermediary, it is autonomous. Therefore no one has the ability to exercise any sovereign power to coerce the network into performing tasks that it is not programmed for. 

However, the power exercised by the government and power elites via off chain governance rules has limited impact on the blockchain network operations. It has limited impact since any change in the protocol must be acceptable by all relevant stakeholders, i.e. the actives nodes, miners, cryptocurrency etc. If there is a denial by any of the stakeholder, they may fail to upgrade their software which would cause the network to fork into sperate networks. This proves the point that the actual power lies in the ideology of miners and token holders, where no central authority can curb the system to implement coercive practices.  


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About the Author

Harsh Jain is a second year student at Jindal Global Business School. He is also an in-house researcher with The Digital Future.

Perumalla Hari Hara Prasanna is a second year student at Jindal School of Government and Public Policy. He is also an in-house researcher with The Digital Future.

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