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Blockhain Industry Questions MEITY Strategy On Blockchain, Says Centralisation Will Stifle Innovation

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Two industry groups representing the domestic Blockchain industry said that the government’s intention to create a national framework for the technology may have the opposite effects, in terms of encouraging innovation and decentralisation. In its response to the National Strategy for Blockchain, published by the Ministry of Electronics and Information Technology a few weeks ago, the Government Blockchain Association and Global Impact Fintech Foundation said government participation may be too early.

In its report, MEITY recommended that the government create a National Level Blockchain Framework (NLBF) to encourage the adoption of blockchain technology across a variety of public use-cases, and that various public projects should be brought on to a blockchain platform. It also said that the create a legal and regulatory framework for the adoption of blockchain technology in various public and private areas. However, a national policy and national agency for blockchain would actually centralise innovation in a technology that is aimed at the exact opposite.

“The technology and its ecosystem is still evolving and a government created ecosystem may not be useful for everyone. It may also result in some technologies, methods and platforms get accepted and by corollary others do not, creating a distortion and selection bias. It was not very clear in the proposed Blockchain framework what will be the role, access and scope of various constituents. It also gave an impression that the framework may result into a scheme wherein things are more centralised (like UIDAI) than distributed, thereby defeating the principal objective.”—Government Blockchain Association and Global Impact Fintech Foundation

Instead, the government should first take a supportive role to encourage Blockchain startups and collaboration amongst the private sector, before stepping in a becoming a rule-making authority as the MEITY strategy envisions, the two bodies said. The two bodies also said that the government needs to be more clearer on its encouragement of blockchain as a technology, on what is acceptable in terms of innovation and use of blockchain. They pointed to the ongoing issue regarding the government’s proposal to ban crypto-currency activity in India.

The Indian Government has consistently maintained that they believe in the promise of the application. However, the noise around cryptocurrency or virtual currency, especially the governments resistance to its adoption, leaves an unsaid question mark on other applications as well, given all Blockchain applications are Cryptographically secured and this in a very broader sense are also Cryptos. Even if one considers that the Government is clear on its encouragement of Blockchain as a technology, a clear gap still remains in the stand of government with regards to Tokenisation.”—Government Blockchain Association and Global Impact Fintech Foundation

Key Policy Recommendations

  • Do not create a national framework for blockchain for the time being and allow the ecosystem to evolve with government support. The government can be a customer of Blockchain applications and directly engage with developers
  • Allow frameworks and standards to develop within the ecosystem, like R3 or Hyperledger. The government can be part of these ecosystem group, rather than being in control
  • Blockchain implementation needs scale and governance capabilities. While large IT firms in India have some of these capabilities, more collaboration between the large firms and startups is required to bring about better solutions using blockchain
  • Government should create a Sandbox for testing new solutions, without needing to change regulatory or legal norms
  • Give domestic Blockchain consortium Self-Regulatory Organisation (SRO) recognition, based on common guidelines on their structure, conduct and functions. Different Ministries can provide the SRO recognition to difference Blockchain consortium based on their use-case
  • A National Blockchain Council can be created as the nodel agency to manage and monitor various SROs and the Government Blockchain Sandbox

Key Focus Areas

  • Blockchain may be in conflict with data protection principles like the Right to be Forgetten, some of these nuances need to be addressed through legal and regulatory relaxations. Clarity is required on how Blockchain solutions and projects will work under the proposed Personal Data Protection legislation
  • Need to give legal status to Smart Contracts, which involves multiple parties, under the Contract Act and IT Act
  • There are limited Blockchain-focussed support programs from the MEITY. The government should look at extending support to startups in the Blockchain space under the Startup India scheme and others
  • Create an Identity Blockchain so that all Know-Your-Customer agencies and startups are part of a common network. A consent-based architecture can be created so that individuals can share, access and amend their multiple identity documentation. Such a blockchain needs to be interoperable
  • Adopt Self Sovereign Identify (SSI) approach, where identification documents are issued digitally and can be shared with third-parties based on the individuals’ consent and also in Zero Knowledge Proof (True or False only).
  • The SSI approach for identity can be used for Electronic Health Record for Citizens. This would ensure the right data is shared at the right time, without any manual or internal processes.

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