Cryptocurrencies and their underlying blockchain technology have been newsmakers in recent years. Some governments such as those of Japan and the US have looked to embrace this disruptive technology, while China and Russia have tried to shun it to retain their hold on the monetary system. Banks and major financial institutions who initially opposed the idea seem to realise that adopting the technology may be critical success factors to being the preferred financial institutions for the next generation. Yet, the technology is likely to make deep inroads into multiple sectors, with the financial sector likely to be the main beneficiary.

To make sure that they are not left out, financial institutions have used blockchains to supplement their existing systems and make them more efficient and cost-effective. KB Kookmin, one of South Korea’s largest banks, has partnered with a blockchain startup firm to provide blockchain-based services to clients. Similarly, Japan’s SBI Holdings has acquired stakes in over eight blockchain firms to enhance existing services. Some governments and institutions in Asia have been slower adopters and this conservative approach in experimenting with the new technology may cost them in terms of time, revenue and future dominance in these sectors.

There are many applications in which blockchain technology provides much needed efficiency, transparency and cost effectiveness, that is superior to existing technologies. When the present money transfer system can take up to five days to settle a transaction with risk of possible counterparty failures, $2 to $3 billion worth of transactions are carried out through cryptocurrencies on a daily basis with great precision, accuracy and immutability. These transactions are carried out seamlessly in a very short time without the need for any intermediary, clearing house or central bank. Many of the existing systems will become obsolete if blockchain technology is used to carry out transactional services.

In India, Yes Bank, ICICI Bank, Axis Bank and RBL have accelerator programs running specifically to develop blockchain-related applications. We also have on the anvil Clearchain, a collaborative permissioned blockchain project by Indian banks to share anti-money laundering-related information between banks. Andhra Pradesh has identified blockchain as one of the four key areas that can help the State on governance and modernisation.

A few applications where blockchains are being experimented with relate to how payments can be processed faster, how shares and other asset classes can be seamlessly transferred, how vehicle registration systems can be brought on to the blockchain and how health records can be shared between hospitals. But the technology has wider applications in areas such as the public distribution system.

Blockchains can also be used to empower communities with access to efficient funding mechanisms. For example, a paddy farming project at a remote village can be run using a smart contract on a blockchain, wherein the funding is provided by customers frequenting a supermarket. Investors in such a blockchain can earn dividends from the income on the smart contracts used, and can additionally be compensated through supplies of organic produce. Using the technology only needs some out-of-the-box thinking by fintech firms and Indian financial institutions.

The writer is chairman and CEO-Belfrics Global

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