B FOR

BLOCKCHAIN
INTRODUCING AND UNDERSTANDING BLOCKCHAIN-
ITS USES, LIMITATIONS AND MORE
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 INDEX
01 Word from our CEO 01

02 Our contirbutors 02

03 Intorduction to blockchain & 04

cryptocurrency

04 The role of institutional investors 10

in cryptocurrency markets

05 Is the cryptocurrency market still 13 THE STATE OF

at its nascent stage? CRYPTOCURRENCY
06 Bitcoin halving! explanation and 15 MARKETS
impacts?

07 Impact of Corona virus on global 18

cryptocurrency markets

08 CBDC - Cryptocurrencies, Central banks 20

and the future

09 Blockchain industry use cases - Preductive 22

markets
10 Blockchain industry use cases - Governance 24
BLOCKCHAIN USE
11 Blockchain to chain your customers 26
CASES
12 Chained together: Blockchain in supply chain 28

13 Distributed ledger technology in financial 32

services

14 The use of quantitative models in 36

cryptocurrency trading

15 A brewing concoction: AI, ML and 39

crypto-trading WHAT’S NEXT IN

16 Impact of sentiments in cryptocurrency 42

CRYPTOCURRENCIES?
trading

17 Data science meets cryptocurrency trading - 44

more than just friends

18 DAG plausible blockchain 3.0 47

19 Ethereum’s plasma: A scaling solution 49 SOLUTIONS TO

20 Lightning network – The only network which will 51 BLOCKCHAIN’S
matter?
SCALABILITY PROBLEMS
21 SegWit – A solution to majority of problems related 53
to Bitcoins

22 Blockchain sharding made sinmple 55

 01

WORD FROM OUR CEO

A s we all know, there is no stage at which

learning stops and the above quote is the
testament to that. When I was asked to write
this foreword to the magazine, little did I know
that, I would get a chance to learn so many
things in such a short duration!

I have been in this space for nearly 6 years now

and there are so many things I continue to
learn each and every day. These blogs were so
informative and we couldn’t be happier that
these are going to help educate and aware
people around the world This will help
everyone (including those who are currently
not in crypto) gain some understanding about
our crypto industry. We imagine a world where
crypto and fiat can co-exist together and
everyone has an option to choose the best for
their financial ecosystem

What I admired about the students who were

part of our internship, was their ability to learn
and grasp new concepts such as blockchain

xxxxxx
and crypto, right from A-Z. I have seen all their
articles, where they made crypto easy to
understand to their readers. They did a
wonderful job!

Crypto and blockchain are not easy concepts,

but I truly believe that it can be made easy in
the hands of the correct people. These
students showed us that if you want to learn,
Sumit Gupta, CoinDCX CEO all you need is the willingness. No excuses and
no shortcuts! I am glad to see the bright minds
of this country entering this space as writers,
educators, developers, and most importantly
EDUCATION IS A entrepreneurs.

PROGRESSIVE I am positive that wherever they go, they will

be the Bitcoin in their organizations! Numero
DISCOVERY OF OUR Uno!

OWN IGNORANCE. Well done and wishing you all the best in your
future.
-Will Durant,
American writer and historian Thank you so much!
 02

OUR CONTRIBUTORS
Abhishek Kumar is pursuing an MBA in Finance from IIM Lucknow.
A computer science graduate with work experiences in a fintech startup
and a public sector bank, he is always keen to learn about developments in
the financial sector, technology and innovation. And believes that
innovative products coupled with technology have the potential to disrupt
any industry. His interests include emotive acting, eclectic reading, and
experiential writing. A fitness enthusiast, a people's person, and a
conversationalist, he keeps the passion alive in everything he does and
stays eager for new experiences in life."

Ambika Sachdeva is currently pursuing her MBA from Indian

Institute of Management Lucknow. She has an inclination towards Finance
and Strategy. She had her short corporate stint at a leading private sector
bank. Ambika has always been an inquisitive kid, curious to learn more
about anything and everything. She is trying to learn more about
technology, to understand the Fin tech revolution better. Along with
academics she likes to skate and play basketball. in life."

Deeksha Reddy holds a Bachelor of Arts degree in Economics,

Public Administration and Political Science. Post graduation, she worked
for Deloitte as an HR Analyst for 2 years and is currently pursuing an MBA
(2019-21) from IIM Lucknow. She is an avid reader, an unapologetic foodie,
a baking enthusiast and nurtures an undying passion for sketching and
painting. Writing for her is something that gets a special mention on her
profile and in which she believes she finds unmatched solace. The one
quote that she says has shaped her personality and so swears by is, “Starve
the ego, feed your soul”
 03

OUR CONTRIBUTORS

Vaibhav Thakare is an MBA student from Indian Institute of

Management Lucknow with keen interest in Finance and Strategy. He has
worked in Trade Finance previously with a leading public sector bank in the
country. He is a CFA level 2 candidate and trying to dive deep in the FinTech
world. He has always been interested in learning about new technology and
innovative solutions. Vaibhav enjoys writing blogs and articles with a belief
that no idea is too difficult if we put it in simple and easy to understand
words. He has tried his hand in equity trading and is more excited to learn
about cryptocurrency.

Veenanjali Tandyala is currently pursuing her MBA from IIM

Lucknow. She comes from an Electronics engineering background with two
years of work experience in the financial services sector (Forex Markets).
She strongly believes in the potential of technology aids in business. Her
work ethos is focussed around the unlimited scope of technology in current
financial services and banking. Her pursuit of traveling around the world is
the motivation behind her quest to learn new languages.

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 04

INTRODUCTION TO BLOCKCHAIN
& CRYPTOCURRENCY

B lockchain's impact on industries is

increasing rapidly. The technology has the
decentralization. To understand
cryptocurrency, we need to understand what a
potential to disrupt all the industries of the decentralized system or a decentralized
modern world with its decentralization and ledger is.
mutual trust behavior. Financial services were
the early adopters of blockchain, but WHAT IS A DECENTRALIZED LEDGER?
presently, every industry wants to try this We will start with what is a Ledger? A ledger is
technology. Supply-chain, healthcare, social a written or computerized record of all the
media, entertainment, energy, gambling, transactions a business has completed.
gaming, robotics, analytics, marketing, real Usually, it is maintained by one centralized
estate, retail & e-commerce, education, body like banks or accounting departments of
charity, legal, art and social media industries the companies. In a distributed ledger, there
have their projects already proliferating in the are multiple participants to handle these tasks.
market. The biggest advantage of distributed When these tasks are distributed to everyone
ledger is maintaining an unchangeable shared in the network, it is called a distributed ledger.
ledger between two firms which gets When these tasks are distributed only to some
automatically updated after every transaction. people in the network, it is called a
decentralized ledger. Bitcoin's ledgers are a
Fiat currencies are those currencies that are type of decentralized ledgers.
issued by the government and regulated by a
central bank like RBI. They are based on a WHAT IS A BLOCKCHAIN?
centralized system which means they are Blockchain is a similar database which allows
operated by a single entity such as RBI or FED. multiple users to record and make changes in
These centralized systems, including your it. Once the data is entered, it cannot be
banks handle all your finances, do all the removed or changed as it only provides the
transfers, update accounts tasks and store all feature of adding the data. The data can only
the information about ‘Your Money’. be added to the blockchain once the majority
of the participants provides the consensus to
Cryptocurrencies are different from Fiat confirm the authenticity of the data with the
currencies as it is only available in a digital process called ‘mining’. The data (a
format and it's not controlled by any transaction in the case of Bitcoin’s blockchain)
will be represented as a block in the network.
central authority. This is called
The data gets broadcast on the blockchain
 05

INTRODUCTION TO BLOCKCHAIN & CRYPTOCURRENCY

network and it will validate the authenticity of are the way to solve the digital cash problem
the transaction using a consensus mechanism. and help to maintain integrity.
A new block is generated once the block is
deemed authentic by the network. After which As we all know the first cryptocurrency was
it gets added to the most current state of the Bitcoin launched in 2009. Its inventor Satoshi
blockchain. Nakamoto is still unknown as of today.
Bitcoin's success has spawned a number of
In the decentralized system the information is competing cryptocurrencies known as
not stored in one place. Every time a new "altcoins". Today, there are literally thousands
change occurs or new transaction happens, of cryptocurrencies in existence with an
the node first verifies the transaction and then aggregate market value of over $270 billion.
receives a copy of the new state of the ledger. Bitcoin currently represents more than 50% of
A full node is basically a device (like a the total market value.
computer) and not a human who is doing the
verification task manually. However, the entire HOW DOES A BLOCKCHAIN WORK?
blockchain data is publicly available on the Before understanding how a blockchain works,
internet and anyone can become a node by let's understand the Blockchain Architecture
downloading the same. All nodes on a and its components.
blockchain are connected to each other and
they constantly exchange the latest Hashes – One of the most important
blockchain data with each other so that all components of Blockchain Architecture is the
nodes stay up to date. They store, spread and hashes which are generated by hashing the
preserve the blockchain data. Hence, content of the block. Hashing is a randomized
theoretically a blockchain exists on nodes. algorithmic process to calculate a fixed-size
output (called as digest) for an input of any
WHAT IS CRYPTOCURRENCY? size. Look at figure 2, the output will be purely
Now the next question comes where is unique and even a single 'bit' of change in the
cryptocurrency in this infrastructure. The input will change the output completely. The
currency used to transact on a blockchain is algorithmic function used here is called a 'hash
called a cryptocurrency. There is already function' which is a one-way function
enough buzz in the market, which has termed (preimage resistant), which means it is
cryptocurrency as an asset, a commodity, a practically impossible to reverse the function
digital gold and even similar to real estate. and obtain a desired input from a calculated
Cryptocurrencies are digital currencies that output. Adding to this, it is practically
are able to operate as a medium of exchange infeasible to produce the same output from
at a person-to-person level and enable direct two or more different inputs (second
payments between individuals. Since the preimage resistant).
entire blockchain is developed using the Hash (x) = Fixed size digest
principles of asymmetric cryptography, it was
wise to call Bitcoin or any mode of exchange
on a blockchain, a cryptocurrency. The idea
behind the invention was to find a way to be
independent of a central authority while
producing a means of exchange which is
secure, immutable and verifiable.

They operate on decentralized platforms

which means it is not controlled by any central
authority. The decentralized nature of the
blockchain makes cryptocurrencies
theoretically immune to the old ways of
government control and interference.
Transactions made by this system can neither
be reversed nor be faked. Cryptocurrencies
 06

INTRODUCTION TO BLOCKCHAIN & CRYPTOCURRENCY

Most of the Blockchains use hashing algorithm only on a peer-to-peer principle.

called as Secure Hash Algorithm – 256
(SHA-256) which gives a fixed output of 256 1- Address
bits (32 characters each of 8 bits) this means The address is an alphanumeric string of
there are 2256 different possible values. With characters which are derived by applying a
the growing use of this technology, a larger hash function to the user's public key.
number of input values can exist with a fixed Addresses are usually shorter than the public
amount of outputs which brings with it the keys and are mostly used to send and receive
possibility of collusion (Hash(X) = Hash (Y)). digital assets. But in this paper, we will be
However, the probability of this collusion event using the addresses for different purposes.
is very low and thus, SHA-256 is called to be The address is generated by a simple process:
collision resistant. Every time the data is public key > hash function >address
added to the block, it generates a new hash
fingerprint' (digest) for the list of data. Even a These addresses are responsible for the
small change in any data among the list will pseudo-anonymity in the Blockchain
change the fingerprint of the block, making it ecosystem by acting as the participant's
very convenient to find any change occurring digital identity in the network.
in the database.
2- Wallets
1 -Private/Public Key Cryptography A wallet securely stores the public keys,
Private/Public Key cryptography is a very private keys, and the addresses of the user. It
fundamental feature provided to secure the can also store the digital signatures of all the
data flow between two users. A pair of keys is data which has been exchanged using the
generated, called as a public key and a private stored addresses and key-pairs. Getting your
key, which are mathematically related to each private key stolen will mean the stealer has
other. The public key can be made public, but complete access to the data stored in your
the private key needs to be kept secret to keep wallets using the private key. Usually we hear
the database owned by the user secure. This in the news about cryptocurrencies getting
process is also called Asymmetric-key stolen, this means that someone got access to
cryptography. Although the keys are related to the private key of the user and all the
each other, it is practically impossible to cryptocurrencies were transferred from one
evaluate the private key by knowing the public wallet address to another, and since
key. In a Blockchain system, the receiver's blockchain's ledger is irrefutable, the process
public key is used by the sender to send the cannot be undone.
data and the receiver, with the help of his own
private key can decrypt the data (see figure 3). 3-Block
The private key is usually longer than the A block contains a list of validated data
public key. Using this method, it is clearly (generally a transaction) and is generated or
evident that the data exchange is happening updated after the process of mining. Each

Figure 3
 07

INTRODUCTION TO BLOCKCHAIN & CRYPTOCURRENCY

block is hashed to its current state, which is in the block. The process can be seen in the
done to protect and trace the changes a block figure 4
is undergoing through.
looking at the figure 4, the 1st layer is the data
A block is made up of the following layer which contains A, B, C, and D. These are
components: the data elements which need to be
summarized. In the 2nd row, hash of each data
Block Height – Also known as block number is has been generated using a hash function. The
the number of blocks which precedes that hashes of the data are combined in the
particular block. The genesis block is the first following layers and the hash of the combined
block generated in a blockchain. Block Height hashes is generated. This process is repeated
can also be termed as the distance between until the tree is left with a single root hash
that particular block and the genesis block. which is on the top most layer. The Merkle root
is stored in the Block header and hash value of
1- Current Block Hash: the block header depends upon the Merkle
The newly generated hash value of the current Root Hash. Any change in any layer of the
state of the Block. hierarchy will result in the change of hash
values of Merkle Root Hash and the hash of
2- Previous Block Hash: Block Header.
The hash of the block formed just before that
block. The current block hash will be changed Timestamp – A timestamp is the stamp of the
if the hash of any block generated before the exact time when the block is generated or
current block changes. updated by the miner. The miner is responsible
for inserting the timestamp in the block. In
3- The Merkle Tree Root Hash: Page 7 of Ethereum's White paper, Vitalik
Since it is nearly impossible to store the hash Buterin says to check if the block is valid:
of every update the block is going through;
the block only stores the Merkle Tree Root "Check that the timestamp of the block is
Hash in the Block Header. A Merkle Tree keeps greater than that of the [median of the 11
combining the hash values of the data until previous blocks] and less than 2 hours into
only one root hash is remaining to be stored. the future"
This root hash is called as the Merkle Tree Root
Hash. This procedure can be used to Nonce Value – It is a one-time 32-bit random
summarize the data in the block and verify the number, manipulated by the miner to solve the
presence of each and every change happened hash puzzle, which when solved, enables the

Figure 4
 08

INTRODUCTION TO BLOCKCHAIN & CRYPTOCURRENCY

miner to add the block to the blockchain. HOW DOES A BLOCKCHAIN WORK?
Figure on next page is a step-by-step process
1- Data included in the block which explains the working of a blockchain.
2- Chaining the Blocks We are explaining this working based on
Bitcoin’s blockchain. To start with the process,
As observed in the list of components of a consider A wants to send money/data to B.
block, each block contains its own hash as well The transaction will be represented as a block
as the hash of the previous block and this is in the network. The architecture of block has
how the blocks stay connected and form a already been discussed earlier. The transaction
linear chain of blocks. Any change in a block is broadcasted on the blockchain network.
will result in a change in the hash of that block The network (miners) will work to validatethe
and in all the hashes of the succeeding blocks. authenticity of the transaction using a
This way, it is easier to locate the block which consensus mechanism (discussed later). A
has undergone a change. new block is generated once the block is
deemed authentic by the network. Once the
Below is the figure to summarize the block is generated, it will be added to the most
complete architecture of the blockchain. current state (the most recent block) of the
blockchain. After the block has been added,
the blockchain will be updated to its most
current state and the transaction will be
executed.

Figure 3

COMPLETE ARCHITECTURE OF A BLOCKCHAIN

 09

INTRODUCTION TO BLOCKCHAIN & CRYPTOCURRENCY

WORKING OF THE BLOCKCHAIN

 10

INTRODUCTION TO BLOCKCHAIN & CRYPTOCURRENCY

THE ROLE OF INSTITUTIONAL

INVESTORS IN CRYPTOCURRENCY
MARKETS

Written By: Deeksha Reddy

of central banks. What is equally intriguing is
the growing participation of other institutional

T he cryptocurrency battlefield is getting

increasingly crowded. This space is witnessing
investing options like hedge funds, private
equity funds, insurance companies, pension
funds and the like, in cryptocurrency markets.
an increasing amount of attention being cast
from multiple facets: governments, banks and According to Statista, the magnitude of global
other institutional investors alike. Historically a blockchain would balloon to around $23 billion
very precarious endeavour, organisations have by 2023, with the financial sector responsible
now set out to explore and reign over this for around 60% of that valuation. Morgan
uncharted regime of digital currencies. Creek Digital was the first pension fund to
Ecuador was the first country to launch its make an investment in crypto assets. PwC, in
own digital currency, the Dinero Electronico its 2019 report on crypto hedge funds claims
(DE) in 2014. Soon to follow were Senegal, that there are 150 active crypto hedge funds
Singapore, Tunisia and China, to name a few. managing around USD1 billion (excluding
China is preparing to take a step further and crypto index funds and VC funds). A myriad of
altogether replace its paper tender with a new platforms, like Fidelity Investments’
virtual currency. Only a couple of days ago, the Fidelity Digital Assets offering cryptocurrency
Supreme Court of India repudiated the ban on trading-related services specifically to
trading of cryptocurrency in the country. All institutional investors, are cropping up.
these substantiate the claim that Figure 3
Intercontinental Exchange (ICE), the parent
cryptocurrency is on the verge of becoming a company of NYSE, launched a Bitcoin futures
mainstream subject for governments. exchange called Bakkt, joining the forex giant,
CME Group and the exchange-holding firm,
As to the banks, top players across the globe Cboe Global Markets, that first offered future
are betting heavily on blockchain and trading options in cryptocurrency in 2017. Ivy
cryptocurrency. Investments are being made League university endowments have also
in that direction, almost assigning the title of started to consider investments in
an asset class to cryptocurrency. There is also cryptocurrency. Bloomberg reported in 2018
a speculation brewing that the advent of that hedge funds and endowment funds have
cryptocurrency, with its decentralized ledger been making gigantic purchases of digital
model, could potentially pronounce the death coins, in the tune of $100,000,000, through
 11

THE ROLE OF INSTITUTIONAL INVESTORS IN CRYPTOCURRENCY MARKETS

private transactions. Institutional investors are Institutional investment also ensures greater
leveraging over-the-counter currency sales access for individuals to crypto markets.
that have been thriving specially since 2017-18. Cryptocurrency will no longer be restricted to
Banks like the Goldman Sachs Group has a tech-savvy traders but will be in the reach of
bitcoin trading product on its portfolio. JP anyone who is looking to explore new arenas
Morgan has rolled out its own cryptocurrency, and diversifying their portfolios. With their
JPM Coin. Biggies like HSBC, Barclays, UBS, platforms, cryptocurrency products and
etc. are working together to develop a investment options in crypto markets,
Universal Settlement Coin, with the ultimate institutional involvement is spreading
aim of laying the foundation for a cashless awareness and, in a way, developing a level
world. playing field. Summing this side of the
argument, institutional investment can
Having laid down the magnitude of potentially ensure tighter spreads, increased
institutional involvement in cryptocurrency transparency, better security and accelerated
markets, it is now imperative to assess its innovation, and is definitely a trend worth
implications, positive and negative. watching.
Proponents of active institutional participation
in the cryptocurrency argue that such However, there are also a plethora of
organized and large investments bring about downsides to institutional investment in
some stability in this highly volatile space. It is crypto. One of the most primary of those is
believed that presence of large investors in that it contradicts the very ideology of
this market would make it an attractive cryptocurrency- absolute decentralization and
investment option which would in turn attract absence of one single custodian. This is linked
a diverse pool of investors, ultimately ensuring to the fear of recuperation. Internet today is
more stability. With increasing demand for censored, controlled, tracked, and spied upon
stablecoins, institutional investors are also by governments and big tech companies.
likely to come up with their own currencies, There is a rising fear that blockchain
adding to the overall supply of digital currency
and lessening potential volatility. Also, with
increased demand from pooled funds comes
the promise of increasing returns to investors, PROPONENTS OF ACTIVE
especially the earliest of them, as prices rise
substantially. Hence, the implication for early
INSTITUTIONAL PARTICIPATION IN
investors is highly positive, with them getting
THE CRYPTOCURRENCY ARGUE
a major share of the pie. According to Statista,
the value of bitcoin (BTC) was $968 in Jan THAT SUCH ORGANIZED AND
2017 and was almost 9 times that in Jan 2020
at $9,389. This could be attributed to LARGE INVESTMENTS BRING
intensified institutional involvement since 2017.
ABOUT SOME STABILITY IN THIS
It is also believed that with the presence of
institutional investors comes stricter standards HIGHLY VOLATILE SPACE.
of accountability and due diligence. The
cryptocurrency markets have witnessed poor
custodianship with exchanges getting hacked
or turning out to be fraudulent. Hackers stole
around $4 billion worth of cryptocurrency in technology and cryptocurrency will be
2019, according to Forbes. In this context, absorbed and manipulated by institutional
there has been a call for transparency investors, dramatically altering its intended
(transparency of trading volume, a recent purpose. Institutional involvement, then, is an
controversy) and it is believed that institutions insult to the basic tenets of cryptocurrency. It
with their reputation to uphold, catalyse this is also asserted by researchers that
process. institutional investors, with their big appetites,
could topple the market. In other words, there
 12

THE ROLE OF INSTITUTIONAL INVESTORS IN CRYPTOCURRENCY MARKETS

is a problem of limited liquidity and sudden Institutional investors are trying to address
heavy investment or divestment could send issues like consumer confidence, investor
the fiat currency balances for a toss. protection, transparency, and the related sort
of issues to carve out and secure their share in
Also, essential to note here is that the these markets.
ecosystem is still not completely conducive
enough for the growing institutional role in All in all, there is no denying that institutional
these markets. Lack of a suitable and well investors are warming up to the idea of crypto
established regulatory framework is an investments and growing their tech muscle to
impediment to institutional investments like accommodate more crypto-trades. How it is
hedge funds. Also, financial institutions with going to pan out and the implications it is
their status quo infrastructure would be under going to bear for all stakeholders, are yet to be
equipped to function in this field that is the ascertained in full-scale.
one of the most lucrative focus areas for
hackers.

PwC Crypto Hedge Fund Report, 2019

Figure 3
 13

IS THE CRYPTOCURRENCY
MARKET STILL AT ITS NASCENT
STAGE?

Written By: Vaibhav Thakare

t2017 was more than $500 billion. After a few
setbacks the market capitalization fell to as

W
low as $128 billion in 2018. But in 2019, it has
ill you be surprised if I say that we may again gone up to $237 billion. These variations
not be having banks ten years down the line? are the result of the changing regulations in
Will you be terrified if I say that the existence many countries and increasing confidence in
of intermediary institutions like the cryptocurrency markets. In 2017 alone, the
government is in danger in future? Will you be market cap of cryptocurrencies increased by
happily confused if I say that you may not have 3200%. These facts may sound unreal because
to give a commission to your credit card many of us are unaware about the change
company? Do you feel that bitcoin is the digital currencies are creating around the
second name of blockchain? If your answer to globe. Many studies have shown that over 50%
all above questions is a yes, then we can people in the United States were not sure if
peacefully agree that the cryptocurrency holding cryptocurrency is legal in the country.
universe is still at a nascent stage. But wait, If this is the situation in one of the most
let’s not jump to any conclusion without developed countries in the world, one can
digging deeper into the reality of this virtual easily guess the status of knowledge of virtual
world. You may call it cyber currency, virtual currencies in countries who are well down the
currency, payment token or cryptocurrency, development index. Many of us are aware
one conclusion that can be made slightly about bitcoin but are ignorant about Ethereum
comfortably is, it has surely made which is the second largest cryptocurrency by
governments to grapple with their regulations. market capitalization. There are many reasons
behind this limited knowledge about the
First things first, bitcoin is a kind of cryptocurrency world. One of them being the
cryptocurrency which uses the technology of hesitation by the government and central
blockchain. It is a technology with immense banks of different countries to adopt and
potential to change the way transactions accept the technology.
happen in the world today. There are a lot of
cryptocurrencies in use. Over 1600 to be To understand the current landscape of this
precise. And these are being traded on market it is important to analyse scenario in
hundreds of exchanges across the world. The few important countries. Starting with the
total worth of cryptocurrencies in the world in European Union, it defines the cryptocurrency
 14

IS THE CRYPTOCURRENCY MARKET STILL AT ITS NASCENT STAGE?

as digital representation of value which is

neither issued by central bank nor by the
public authority. However, the European union
has allowed the transfer or trading of these COUNTRIES WHICH HAVE TAKEN
currencies and has proposed to bring it under
the anti-money laundering directive. Germany MORE INTEREST IN USING THE
has qualified digital currencies as unit of
account and therefore financial instruments. TECHNOLOGY AND
United Kingdom hasn’t placed any regulations
RECOGNIZED THE BENEFITS
or laws in place for virtual currencies yet. The
governor of the central bank of the country ARE SWITZERLAND, BELARUS
has however recognized the need of
regulations considering the volatility and risks LUXEMBOURG, SPAIN AND
involved. On the other hand, Russia considers
the mining of currencies as entrepreneurial CAYMAN ISLANDS.
activity and is subject to taxation if the energy
consumption limit is exceeded. Initial Coin
Offerings are opened only for qualified
investors. Canada has also allowed the use of
cryptocurrencies for buying and selling of
goods and for trading on exchanges. Canadian Just to put things in perspective, the total
dollar remains the legal currency of the revenue generated by National Stock
country. The Reserve Bank of India had Exchange (NSE) per day is close to $4000
banned the trading of cryptocurrencies in the million. The current per day revenue of biggest
country. Recently, the supreme court of India exchange for cryptocurrency is not even $4
has overruled the decision. The way forward is million. Cryptocurrency being listed on the
still not easy. NASDAQ or being included in exchange
traded fund are things which should not have
Countries which have taken more interest in been a dream. But the reality is, we are far
using the technology and recognized the away from creating a world around digital
benefits are Switzerland, Luxembourg, currencies. The counter arguments which are
Belarus, Spain and Cayman Islands. The Swiss made stating it just as a hype also make us
Canton of Zug wants to establish itself as a think in opposite direction. It is said that
hub for cryptocurrencies and fintech start-ups. technology in the future will evolve at a much
These countries are focussing more on the faster pace than it has in last decade. We can
potential of the technology rather than the just hope for a speedy unfolding of events in
legality of the currency. Countries which have crypto world. Till then let’s settle down on
completely banned cryptocurrencies are what we agreed to in the beginning, we are
Bolivia, Cambodia, Ecuador, China etc. Bitcoin surely at a nascent stage!!
is more than ten years old now. The volatility,
uncertainty and fear about its validity has
forced many countries to ban it.
Cryptocurrency is based on the
decentralization and immutability principle of
blockchain. This can really provide a secure
way of doing transactions. E-commerce can
be hugely benefited using virtual currencies.
The elimination of middlemen in credit cards
and other similar industries can be a
revolutionary step. However, the situation right
now is not very satisfactory.
 15

BITCOIN HALVING!
EXPLANATIONS AND IMPACTS?

Written By: Veenanjali Tandyala

Lower fraud risk for buyers

B itcoin emerged in 2008 just after Occupy

Wall Street accused big banks of misusing
No risk of inflation; individuals can preserve
coins
Reduced transaction fees
borrowers’ money, duping clients, rigging the Easy to use in any situation
system, and charging boggling fees. Bitcoin No involvement of any third party
pioneers wanted to put the seller in charge, Quick payments
eliminate the middleman, cancel interest fees, Safer eco system
and make transactions transparent, to hack International payments made easy for
corruption and cut fees. smaller business venturens.

A pseudonymous software developer going Fiat currencies are printed by the central
by the name of Satoshi Nakamoto proposed banks to manage the supply demand of the
bitcoin in 2008, as an electronic payment country based on monetary and fiscal policies,
system based on mathematical proof. The idea in case of bitcoins, there is no central authority,
was to produce a means of exchange, Figurein
4 order to generate more bitcoins they need
independent of any central authority, that to be mined.
could be transferred electronically in a secure,
verifiable and immutable way. Bitcoin mining is performed by high-powered
computers that solve complex computational
Bitcoin is similar to conventional currencies as math problems. The chance of a computer
it could be used in the digital transactions like solving one of these problems is about 1 in
euro, pound etc.., several trillion.

It differs from fiat currencies in certain The result of “bitcoin mining” is twofold. First,
important ways like, when computers solve these complex math
Decentralization problems on the Bitcoin network, they
Pseudonymity produce new bitcoin . Second, by solving
Limited supply computational math problems, bitcoin miners
Immutability make the Bitcoin payment network
Divisibilit trustworthy and secure, by verifying its
transaction information.
These features of bitcoin comes with the
following benefits:
 16

BITCOIN HALVING! EXPLANATIONS AND IMPACTS?

Purchase or sale using bitcoin is called a

“transaction.” Transactions made in-store and YEAR No. OF BLOCKS REWARD
online are documented by banks, point-of-sale
systems, and physical receipts. Bitcoin miners 2009 1 50
achieve the same effect without these
institutions by clumping transactions together 2012 210,001 25
in “blocks” and adding them to a public record
called the “blockchain.” Nodes then maintain
2016 420,001 12.5
records of those blocks so that they can be
verified into the future.
2020 630,001 6.25
When bitcoin miners add a new block of
transactions to the blockchain, part of their job 2024 740,001 3.125
is to make sure that those transactions are
accurate. 2140 .. ..

Digital information can be reproduced

relatively easily, so with Bitcoin and other there will be so many bitcoins in the circulation
digital currencies, there is a risk that a spender that they would have very little value.
can make a copy of their bitcoin and send it to
another party while still holding onto the One of the main reason is to keep inflation
original. Block chain comes to the aid in this under control. Bitcoin simulates the
scenario, every block created in the chain is commodity like gold instead of fiat currencies
verified by all the people in the network, in circulation. Quantity of gold remains fixed
thereby ensuring it isn’t duplicated. only the value keep changing, whereas fiat
currencies value and quantity can both
Verifying each of those transactions can be a change. Even with quantity fixed, gold is able
lot of work for miners, which gets at one other to sustain the value all these years. Bitcoin
key difference between bitcoin miners and the after reaching the optimum level, aims to
Federal Reserve, Mastercard or Visa. As achieve the same as there is no flexibility or
compensation for their efforts, miners are incentive of mining more when cost of mining
awarded bitcoin whenever they add a new becomes equal to the reward of mining.
block of transactions to the blockchain. The
amount of new bitcoin released with each Cost of mining = Reward from mining
mined block is called the "block reward."
Effect of halving on the price of Bitcoin:
When bitcoin started the reward was set to 50
coins per block, But Nakamoto put into the The price of Bitcoin has dropped right before
protocol a rule where every 210,000 blocks or and after the two block-reward halving events
roughly every 4 years the reward will be cut in in 2012 and 2016. BTC is demonstrating a
half, so is named halving event. similar trend approaching the May 2020
half, so is named halving event halving. Figure 3

At this rate of halving, the total number of A theory has emerged that miners tend to sell
bitcoin in circulation will approach a limit of 21 before the halving to accumulate enough
million, making the currency more scarce and Bitcoin to finance their operations for many
valuable over time but also more costly for months after the halving occurs, allowing
miners to produce. them to hold onto the majority of Bitcoin they
mine.
Reason for halving of bitcoin lies in the laws of
supply and demand. If the coins are created Theoretically, such a practice would be
too quickly and there is no end to the number beneficial for miners because the break-even
of bitcoins that can be created; eventually price of Bitcoin mining spikes significantly
 17

BITCOIN HALVING! EXPLANATIONS AND IMPACTS?

when a block-reward halving occurs. Bitcoins price eventually fell to around $220
and it remained below $1,000 for the next few
Following the Bitcoin halving, miners' years. Even at its bottom Bitcoin was still up
estimated breakeven costs will rise from 20x from its price before the halving.
~$7,000 today to ~$12,000–15,000 per BTC
after. The second halving:
The second halving took place in July 2016.
Because the halving drops the amount of BTC Bitcoin maintained a price of around
that is mined as Bitcoin approaches its fixed $600–$700 before reaching $20,000 in 2017.
supply of 21 million, miners will earn less BTC Bitcoin had grown over 33x from its price
after the halving for performing the same before the second halving and over 1,818x from
work. If the Bitcoin price does not increase its price before the first halving.
substantially after the halving, and if the
difficulty of mining remains put, miners will A halving event leads to a meaningful
see a higher break-even price with similar reduction in liquid supply. Bitcoin price starts
revenues as before. rising in anticipation of the upcoming halving
event. The rising price attracts fresh demand
For that reason, it would make sense for big from investors and speculators with
mining centres to accumulate large amounts increasingly deeper pockets, as Bitcoin finds
of capital before the halving to finance their acceptance among VCs, hedge funds and
operations in advance in case the price of institutional investors. The new demand
Bitcoin does not increase right away after the exceeds expectations and price continues to
halving. rise after the halving event. Increase in
demand resulting from a rising price was
The first halving: grossly underestimated in past cycles.
The first halving occurred on November 28th
2012 when one BTC was worth around $11. A
So far in 2020, the price of Bitcoin has not
year later, bitcoins price surged to $1,100 in
shown an inverse correlation with stocks and
2013.It had only been one year since the
gold even with the anticipatory halving in May.
halving and Bitcoin had grown 100x. Due to the coronavirus outbreak across Asia,
Europe and now the United States, investors
have started to frantically sell all sorts of
assets, regardless of their risk-on or risk-off
nature. In the last few weeks, Bitcoin, stocks
THE LAST BITCOIN HALVING and gold have moved similarly, all reacting in
HAPPENED ON 11 MAY 2020, Figurethe
4
same way to macro events. The big impact
coronavirus could have on Bitcoin is not
WHEN THE NUMBER OF BLOCKS necessarily on the price, but rather the supply
chain of miners and mining manufacturers.
HIT 630,000. THE BLOCK
REWARD FELL FROM 12.5
TO 6.25 BITCOINS.
 18

IMPACT OF CORONA VIRUS ON

GLOBAL CRYPTOCURRENCY
MARKETS

Written By: Abhishek Kumar

had nosedived to less than $7000 per coin at
the end of the last year. Does this reiterate the

C
beliefs of many cryptocurrency enthusiasts
orona Virus (COVID-19), already claimed that bitcoin and other cryptocurrencies are
lives of more than nine thousand and affected safe havens for investors in times of economic
more than two hundred thousand has created crisis? Or, is the current growth has been
an alarming situation among the masses. derived from other factors?
Initially, the outbreak was confined to the
Wuhan province of China, but now new cases Due to recent uprising of the bitcoin, several
are coming from middle east Asia, North investors believe that these cryptocurrencies
America, and other continents. It has taken a have joined gold as a safe haven asset in the
toll on several industries, aviation and tourism times of economic uncertainty. During the last
are a few to mention. Also, it has deeply week when the news of the outbreak started
affected the global supply chain since China is to pour from several countries, it was
a manufacturing hub and central to the world speculated that this will lead to further price
supply chain. But the sector which we are boosting of the cryptocurrencies. However,
looking here is the financial sector. the price of Bitcoin and other
cryptocurrencies had fallen or remained stable
There is a slump in almost all the stock market in the last week. This defies the hypothesis of
indices across the world amid the rising Bitcoin becoming a safe haven like Figure
gold in 3
tensions due to the recent outbreak. As economic turmoil. This is due to the fact that in
reported by CNN, the coronavirus crash has times of turmoil, the traders generally sell
wiped $9 trillion off stocks already with global equities and invest in gold. However, these
markets still falling. However, since the onset traders are not active in the coin markets,
of this year Bitcoin, Ethereum, and a few other therefore, it would be wrong to justify the
cryptocurrencies have seen a surge in their uprising of bitcoin to economic uncertainty.
stock prices amidst the rising global tensions.
Now, the question lies, what has contributed
Talking about the bitcoin, it is fairing over to the rallying of these coins? One of the
$9000 in the market, as on 7th March 2020. factors that may attribute to the uprising is the
The jump in the share price is more than 28 Bitcoin halving scheduled in May. Historically,
percent in the past two months as the prices whenever the supply is cut, it has resulted in
 19

IMPACT OF CORONA VIRUS ON GLOBAL CRYPTOCURRENCY MARKETS

boosting of Bitcoin prices. Many believe that

this may be the real reason of the boost rather
than the economic or political instability.

According to financemagnates, THE BANK NOTES

cryptocurrencies lack the scale or the
institutional adoption to prove its mettle as a INCREASE THE CHANCE
safe haven in times of political and economic
uncertainty. OF SPREADING OF
Usage of Bitcoin and other cryptocurrencies
for payment purposes can reduce the chances CORONA VIRUS, AS A
of the infection. Similarly, other digital
currencies and payment platforms like Alipay, RESULT, CHINESE
PayPal etc can reduce the chances of
infection. Moreover, Chinese authorities, in AUTHORITIES ARE
order to contain the spread, have begun
shutting down crypto miners. QUARANTINING THE
There are both sides to this development, the
USED NOTES TO CHECK
good is that it will reduce the heavy
centralization of bitcoin mining from China to
THE SPREADING. USAGE
other places and allow the retail miners to get OF BITCOIN AND OTHER
a slice of the action as mining will become
easier comparatively. The flip side is that it CRYPTOCURRENCIES
may affect negatively to the health of the
network. FOR PAYMENT
In recent times, it would be premature to PURPOSES CAN REDUCE
assume that cryptocurrencies have a
significant impact in creating safe havens for THE CHANCES OF THE
investors during economic turmoil caused by
Corona virus or other epidemics. We need to INFECTION.
wait to find suitable metrics to correlate them.
Till now, it can be concluded that a sustained
panic would lead to a fall in coin prices,
however, less than that of the broader markets.
Figure 4
 20

CBDC - CRYPTOCURRENCIES,
CENTRAL BANKS AND THE
FUTURE

Written By: Ambika Sachdeva

that countries are moving towards adoption of

C ryptocurrency has always been in news

since its launch, either due to price volatility,
cryptos. This move is in anticipation of host of
benefits like providing stimulus to financial
innovations, opening up of financial options to
ban or upliftment of the ban. There are places with no access to financial services,
multiple notions attached to the use of non- inflationary in nature, possibility of
cryptocurrency - will it replace fiat currencies additional income for Government by making
and reduce demand of central banks’ money, is legal cryptos taxable, lower transaction costs,
it potential enough to become an alternative maintenance of privacy due to
means of payment, is it as trustworthy as the decentralisation, elimination of frauds,
fiat money. quick-permanent and hard to fake
transactions. Despite a long list of pros there is
Cryptocurrency attracts much attention a possibility of fraud or theft, high mining
because it has challenged the paradigm of costs invested in mining, volatile markets and
state supported currencies and the dominant limited vendor acceptability of Bitcoins.
role of central banks in the traditional financial
system. The swift expansion of crypto market Then there are countries like Luxembourg,
is giving rise to a lot of central banks to Belarus, Spain, and the Cayman Islands which
struggle with their monetary regulation did not considered blockchain technology and
system. cryptocurrency as a threat. They focused more
Figure 3
on the disruptive potential of blockchain
The central banks interfere in the matter of rather than the legality of currency. They
cryptocurrency either by regulating or believe that this decentralized monetary
banning them, or by issuing CBDCs basis the system can act as a means to attract
respective jurisdiction. CBDCs are Central investments in the technology companies that
Bank Digital Currencies which can either be have been excelling in this sector, thus
digital form of fiat currency or by issuing state becoming a hub for fintech and fin innovation
issued cryptocurrency. companies. There's the upside of giving
people a secure and cheap way to buy thing.
With the recent lifting of ban on There's also serious privacy concerns. What is
cryptocurrency trade in India and South Korea more, they do not enjoy the same degree of
following the league there is a clear indication trust that citizens have in fiat currencies: they
 21

CBDC - CRYPTOCURRENCIES, CENTRAL BANKS AND THE FUTURE

have been afflicted by notorious cases of

fraud, security breaches, and operational
failures and have been associated with illicit
activities. THE MARSHALL ISLANDS WAS
On the contrary, countries like the Marshall THE FIRST COUNTRY TO MAKE
Islands, Venezuela, and many others are
seeking to go even further and develop their CRYPTOCURRENCY A LEGAL
own system of cryptocurrencies. Russia , in
particular, is interested in some sort of digital TENDER. IT IS USED AS A
currency to get around international sanctions
and possibly even allow the government to tax MAINSTREAM CURRENCY ALONG
its sizable black markets.
WITH THE USD WHICH IS THE
The Marshall Islands was the first country to OFFICIAL FIAT CURRENCY OF
make cryptocurrency a legal tender. It is used
as a mainstream currency along with the USD THE ISLAND NATION. CALLED
which is the official fiat currency of the island
nation. Called Sovereign (SOV), the currency SOVEREIGN (SOV), THE
is the world’s first national digital currency,
introduced as a local currency to reduce the CURRENCY IS THE WORLD’S
dependency on USD. CBDCs will help in
improving the process of foreign exchange as FIRST NATIONAL DIGITAL
they enable quicker and easier cross border
transactions, revenue savings on printed CURRENCY, INTRODUCED AS A
money, financial access to unbanked
individuals, prevention of money laundering LOCAL CURRENCY TO REDUCE
and crime funding by tracking centralised
cryptos. The SOV supply will be THE DEPENDENCY ON USD.
algorithmically fixed to grow at 4% each year
to prevent runaway inflation.

Like every coin has a flip side this one too has
– possible reduction of deposits in commercial
banks, core principle of decentralised crypto
will be sacrificed as centralised governments
maintains the blockchain. Figure 4

In either of the ways Crypto has some

advantages and some disadvantages, but
where are we headed? Many regulators around
the world have warned against trading in
Bitcoin whereas some countries have already
legalized it. Since the uncertainty prevails,
economists, central bankers, finance ministers
from around the world have been either
encouraging or warning the investors.
 22

BLOCKCHAIN INDUSTRY USE

CASE - PREDICTIVE MARKETS

Written By: Vaibhav Thakare

technology secure and immutable.

S
Having established the necessary
earch for the most disruptive technology of understanding of the technology, we can now
the present times and you will come across the explore prediction markets. Consider an event
term called blockchain. The uses of blockchain that is expected to occur sometime in the
and externalities on different sectors of the future. One can predict that the event will
economy are still under question. One of the occur, and one can also disagree. If we get into
most important and niche areas which can be a contract that binds us to pay a certain sum of
strongly affected by this technology is the money if the event occurs, the value of the
forecasting or prediction markets. To analyze contract will keep on changing depending
the case, we need to first establish a few basic upon the probability of the event occurring
concepts which make the technology unique. considering the changing environment. We
Blockchain is a secured and immutable chain will be in profit if we can correctly predict the
of blocks that can store information. The chain occurrence of the event. This is the core of
works on the peer to peer network wherein prediction markets. At first, this may sound like
every computer in the network can see the gambling but let me assure you that there is a
information. This makes it transparent. lot more to it and we are going to explore it all.
Transactions that are made must be approved The first key difference is knowledge. When a
by everyone in the network making it person predicts or guesses something, it is
Figure 3
decentralized eliminating the need for normally based on limited information. You
intermediaries. Each block carries some data would agree that the prediction becomes
and a hash of the data in the previous block. more correct as we gather more information
Simply put, hashing is a method of on the subject matter or seek expert opinion
cryptography that gives a fixed length of on the matter. Instances of investors
output irrespective of the input. A small benefiting from insider information are not
change in the input brings about a significant new to us.
change in the output. Because of this feature,
it is practically impossible for anyone to attack Current prediction markets make use of this
a block and change the data. Changes had to “wisdom of the crowd” and predict outcomes
be done in the complete chain as they are that prove to be more accurate than any
interlinked by a hash pointer. This makes the expert. The basic behind it is quite simple.
 23

BLOCKCHAIN INDUSTRY USE CASE - PREDICTIVE MARKETS

imagine a large sample of participants trying corruption. The identity of users is also
to predict an outcome. Their probability of the protected which incentivizes them to share
mean of the observations being closer to the the real opinion. Users in the network can buy
actual result is very high unless the predictions others’ bets and the price keeps on fluctuating
are totally nonsensible. Larger the number of in the same way as it does for a futures
contract. One thing to notice here is the
interaction between the blockchain and the
real world. We are dealing with the questions
THERE HAVE BEEN WEBSITES and issues of the real world and trying to
predict the outcome in the virtual setup. The
THAT HOSTED MANY important part of the process is the closure of
the contract. It is very critical to transfer the
PREDICTIONS AND THEY information from the real world about the
result of the prediction. Oracle does this job
PROVED TO BE QUITE for us. There can be two types of questions.
One can be of binary type where we are just
ACCURATE. THERE HAVE BEEN expecting a simple answer which can be
verified from some websites. These can be
WEBSITES THAT HOSTED MANY predicting the result of the election, the
market cap of the company or production of a
PREDICTIONS AND THEY crop. The other type of question may require
us to analyze the situation in detail and come
PROVED TO BE QUITE up with an answer. This type of task cannot be
done with sophisticated robots. Analysts must
ACCURATE.
have a human intervention to improve the
efficiency of the system in these cases.

Predictive markets can prove useful in many

observations, more accurate is the result. fields ranging from science, economics, sports,
Presently prediction markets are controlled by politics. There are questions to be answered in
intermediaries or platforms hosting such every sector and blockchain can extract the
predictions. There have been websites that true potential of predictive markets because
hosted many predictions and they proved to of its unique characteristics.
be quite accurate. The whole concept goes for
a toss given the possibility of these agents
manipulating the results for their benefit.
When people start predicting the outcome of
important future events, there is a distribution
of power. Some institutions in the real world
can find it really disturbing. That’s why some
of these platforms were banned. This is where
the blockchain technology can play a pivotal
role. As we discussed earlier the
decentralization characteristic, the use of
blockchain can eliminate these players and
make it truly a crowd knowledge-driven
phenomenon.

The use of blockchain eliminates powerful

third parties and the use of a centralized
server. As the transaction is stored in different
blocks in the normal blockchain, the bets are
also stored in the form of smart contracts. The
data is also better protected from any kind of
 24

BLOCKCHAIN USE CASES -

GOVERNANCE

Written By: Abhishek Kumar

of manual work

B
Speed, which ensures the transactions to
lockchain and Bitcoin are often happen instantly
misunderstood as synonyms of each other,
however, this is not true. Bitcoin is a use case With the help of the above features,
of blockchain, which is the technology that blockchain opens a plethora of doors of
facilitates moving coins from one individual to possibilities. It can be leveraged to streamline
another. Blockchain has the potential to many use cases in different industries like
address a number of complex problems financial services, advertising, forecasts, and
related to data integrity, consistency, governance.
double-entry, transparency, etc. In the case of
bitcoin, it addresses the money transfer There are several challenges in the governance
problem by providing: a distributed open paradigm that can be addressed by a
ledger obviating the requirement of a third blockchain-enabled government. What
party to facilitate the transatction and miners blockchain ensures with respect to the
to validate and update the transaction in the governance challenges is transparency,
ledger. Blockchain, being a decentralized enhanced data security, data integrity,
architecture have features discussed below streamlined communication and reporting.
Some of the use cases that will be discussed
Figure 3
Autonomy, which obviates the need for an below are manipulation of records,
intermediary or a third party institution government departments working in silos,
online identity, blockchain-enabled
Trust, which stems from the fact that government procurement, and online voting.
documents are encrypted on the shared
ledger For any democracy, conducting fair elections
is crucial. We hear a lot in the recent times of
Backup, documents are duplicated many a booth capture, manipulation of votes, EVM
time and all the nodes have a copy of tampering, etc. The current voting
the logged data infrastructure does not guarantee a fair
election. Voter turnout is another issue. There
Accuracy, as it avoids the errors arising out may be scenarios that the voter is not present
 25

IS THE CRYPTOCURRENCY MARKET STILL AT ITS NASCENT STAGE?

in his or her constituency or feel voting does it does not do away with the possibility of
not count amidst the widespread unfairness of recipients leaking the bids to other bidders.
the current system. Online voting system Blockchain can address this issue. The private
backed by blockchain will make it more copies of bids by various organizations can be
convenient as well as reduce the risk of placed and put on a blockchain network in
manipulation and hacking activities. hashed form. Blockchain due to its immutable
Blockchain voting will consist of following property will restrict the organizations to
necessary steps: change the bids further. The recipients can
view the documents by obtaining the key from
Remote voting booth: A voter has to the bidders and publish the results
download a remote voting booth in the form accordingly. Moreover, the public copy of the
of an app on his or her preferred device winning bid can be put on the ledger network
(mobile, laptop, etc.) for bidders to verify the authenticity of the
results. This implementation will bring
Information submission: The voter submits transparency to the process and do away with
his or her information which is verified by fraud and corruption.
the organization to check the eligibility
of the voter. The information of the voter is A major problems that the government face is
then securely added to the voter different departments of the government
blockchain. working in silos. As a result of which, it leads to
a multiplicity of processes across different
Ballot Issuance: Then, the ballot is issue to departments. Moreover, different departments
the voter to cast the vote. Blockchain of the government, run on different databases
ensures that vote is not cast twice as polling and are backed by different technology
station consults the voting blockchain to pieces. Such multiple systems lack data
ensure that the voter has not voted integrity and consistency, that is, the same
previously. data can be different across different
departments. Also, there is a good amount of
Transaction: The vote becomes a transaction time spent on cross-referencing from one
and put on the blockchain network. After department to the other. If the various
the vote is cast, it can not be changed and departments of the government use
due to the immutable property of blockchain, the data of individuals can be put
blockchain. on the blockchain from various departments
which can easily be accessed and at the same
System ensures transparency as the voter can time, ensuring data integrity and consistency.
check whether his or her vote has been cast
and counted. Anyone can audit the number of Blockchain can also do away with
votes in the blockchain to confirm the manipulation, forging or destroying records
accuracy of the results. Results can be which are major concerns in contemporary
published instantly after the elections and free times. Blockchain provides a log of data that
of any human error. Therefore, blockchain cannot be manipulated. For example, let us
ensures a fair, cheaper, faster, devoid of any suppose that we have a log of data for a city
human error, avoiding manipulation and and since the data is decentralized, it exists at
intervention in the online voting process. each node. Therefore, it is next to impossible
for a hacker to temper data at every node.
Procurement in government agencies can also Also, if someone changes the log, it is notified
be made efficient and transparent using in real-time.
blockchain. Today, sealed-bid auctions are
often used to gather competing offers from A blockchain enabled government will not
different bidders. The current system of only do away with corruption but also stem
bidding is vulnerable to corruption and fraud. the confidence of the citizens with the
Usually, a third party or trusted software is government.
used to tackle the corruption challenges but
 26

BLOCKCHAIN TO CHAIN YOUR

CUSTOMERS

Written By: Ambika Sachdeva

that will lead to more precise digital
attribution.

B lockchain and its tremendous power to

decentralize can truly solve the consumer
CREDIBLE REVIEWS
How do we shop online? Looking at the
engagement and targeting factor in the reviews and ratings generated by previous
advertising industry. Let’s try and understand buyers, things they brought with one product
how some companies are using Blockchain to and their experiences with the purchase.
gain a competitive advantage in this dynamic Online platforms are accused of faltering with
environment. the reviews or adding fake reviews using fake
ids. With Blockchain all the ids can be verified
DIGITAL MARKETING and only valid reviews from actual account
The term digital brings forward terms like AI holders can be retained on the platform. This
and ML, but they have already capitalised on ensures a credible feedback and review
the markets, now it’s time for blockchain to mechanism, gaining trust of consumers hence
disrupt the market. With the onset of digital generating high revenues with high volumes.
marketing and social influencers the
companies targeted revenue, but the actual GIFT CARDS
revenue generated came down to 40 cents per Gift cards are a great marketing tool for
dollar spent on advertising in the wake of fake businesses, as consumers tend to spend more
profiles, fraudulent ads etc. Blockchain can than the gift card’s value once they get to
make data-driven marketing more transparent shopping. And all of us have purchased a gift
by validating and analysing every consumer’s card either for ourselves or for gifting
journey through verified ad delivery, someone. Credit companies came up with
confirming that a real person saw the ad as per Prepaid Visa gift cards offering some loaded
the specifics of a media contract. Marketers value and credit facilities acceptable at
will be able to control how their assets are multiple sources of payment. Gift cards are
delivered by monitoring exactly where their often applicable across the members of a
ads are being placed, alleviating ad fraud from parent company, such as Reliance Group
automated bots by ensuring that real followers accepts gift cards across Reliance Jewels,
and consumers are engaging with their ads, Trends seamlessly. Taking this idea a step
and ensuring proper ad engagement tracking further, a system by which a greater number of
 27

BLOCKCHAIN TO CHAIN YOUR CUSTOMERS

businesses target to remain competitive, something to claim those rewards, hence has
consolidate their offerings, allowing a low customer engagement. Also the
customer to collate the sum of their gift card companies are not able to execute these
points on a single debit-like gift card, could programs efficiently as many intermediaries
result in greater earnings for all companies are involved and often customers are not
who join such a conglomerate. The blockchain addressed properly. Blockchain can help
companies to solve these problems. Since
most rewards systems require different
THE BLOCKCHAIN COULD companies to work together, blockchain can
help ensure that all parties work together on
SERVE AS A SECURE one database. As a result, processes are
simpler and more efficient not only for
LOCKER FOR THESE GIFT companies but also for customers. In addition,
smart contracts allow customers to easily cash
CARDS, UTILIZING out points or rewards on the blockchain. This
can significantly reduce the effort for
UNPARALLELED customers and increase their engagement.

AUTHENTICATION METHODS EMAIL TRUESIGHT

A lot of new ways to communicate have
TO TIE A SINGLE USER TO emerged over the past years. Among them are
social media or WhatsApp text messages.
THEIR GIFT CARD SUM, Email marketing is a traditional way of
communication but still one of the most
CREATING A MORE
effective ones. The problem here is that a lot
VERSATILE, SEAMLESS of emails are lost in a time of data overload.
This is a big challenge for marketing. Thus, it is
MEANS TO TAKE difficult to see how well a campaign has gone.
Blockchain can help companies to analyse
ADVANTAGE OF how effective an email campaign actually was.
It can track the engagement of a customer and
THEIR CREDITS. therefore, give a better insight into ad
campaigns. As a result, companies can target
their audience better and save money.

Blockchain combined with existing marketing

could serve as a secure locker for these gift technologies has gained exceptional results
cards, utilizing unparalleled authentication consumer satisfaction, relevancy and
methods to tie a single user to their gift card authenticity. Extracting its real potential can
sum, creating a more versatile, seamless truly benefit marketers in creating a secure,
means to take advantage of their credits. transparent and authentic customer
experience. Blockchain will have a huge
LOYALTY PROGRAMS impact in the marketing industry. We will have
Congratulations! you have earned 1000 full transparency and companies actually have
airmiles on your favourite airlines. All of us to keep their marketing promises. When a
receive such messages from various service company advertises that they donate money
providers and sellers as a return to being loyal for a project, we can look it up in the
to their company. And such loyalty programs Blockchain. That transparency will give us the
are all the more important when the trust that we are missing all the time.
competitor is providing a similar service at a
similar price. The loyalty points act as an
incentive to keep the customer chained to a
particular brand. But effectively anyone uses
those points as the customer has to do
 28

CHAINED TOGETHER:
BLOCKCHAIN IN SUPPLY CHAIN

Written By: Deeksha Reddy

is difficult to maintain an efficient and

E ver wondered where you get the clothes

you wear in your everyday life? Or here the
consistent supply chain system.

Supply Chain Management

food you eat or phone you use comes from? Supply chain management is the integrated
Well, besides the retail stores you go to, there planning and the execution of different
is a whole chain of different codependent and processes. This basically involves information,
interlinked elements working on delivering material and financial capital flow. Supply
these products to you. This interconnected chain management is the management of the
chain is called a Supply chain. flow of goods, services and information
involving the storage and movement of raw
A network of people and businesses involved materials, building products as well as
in making a distributing a particular product of full-fledged finished goods from one point to
service is called a Supply chain. Everyone all another. Within the Supply Chain Management
the way from the initial supplier of raw network a supply chain is a network of
material to the end users and customers make individual organisations, entities, resources,
up the supply chain. The most basic supply businesses as well as technologies that
chain is made up of the supplier of raw combine together in the manufacturing of a
materials, the manufacturers, the logistics product of service. A proper implementation
companies, and the final retailers. The of supply chain management can result in
estimated count of employees in this industry many benefits such as an increase in revenue
is approximately 60 million people globally. and sales, quality improvisation as well as
Due to this, the current supply chain is decreased frauds and overhead costs. This will
plagued by inefficiency and a lack of also lead to an acceleration in the production
transparency. Networks also face difficulties and distribution of products and services.
when trying to integrate all the parties Even though in theory this seems easy, the
involved in the supply chain. In an ideal implementation of a supply chain is a tedious
situation, all the products, materials as well as task and applying the blockchain technology
money and data needed should move to this process is a way of changing the overall
seamlessly throughout the stages of the chain. system.
Unfortunately, the current model impacts the
profitability of the companies negatively as it
 29

CHAINED TOGETHER: BLOCKCHAIN IN SUPPLY CHAIN

Blockchain and Supply Chain of RFID tags and embedded sensors. With the
Blockchains are highly resistant to help of blockchain technology, the product
modification since they are distributed and can be traced from its origin to its position in
decentralised networks and thus can suit the the present time. It is easier to detect fraud
supply chain industry very well. A blockchain using this type of provenance tracking in any
is a chain of blocks that consists of data which part of the supply chain.
are linked using cryptographic techniques.
This technique known as hashing ensures that Transparent and immutable records
the data stored cannot be altered or tampered As there are several companies and
with unless the entire network is in consensus. institutions working together, they may use
The blockchain network thus provides a the blockchain technology to record data
secure and reliable structure for conveying about the location and ownership of materials
information and even though it is generally and products. All members of the supply chain
used for recording cryptocurrency can see what’s going on as the resources move
transactions, the blockchain technology can from one company to another. As all the
be used for securing all kinds of digital data. information is on a blockchain network, no
Blockchain can be applied to many of the data can be altered, which ensures
challenges that the Supply Chain industry immutability and hence there would be no
faces such as tracking of products of question as to who the responsible party is if
complicated record keeping. It is a better something went wrong
automated and less corruptible alternative to
centralised databases. Applying blockchain to Cost Reduction
the supply chain industry can have the The inefficiencies cause a lot of waste within
following benefits.t the supply chain network especially in
industries that deal with perishable goods. The
improved data transparency and tracking help
companies identify these wasteful areas and
find cost effective alternatives to these.
IT IS A BETTER AUTOMATED
Applying blockchain technology also helps
AND LESS CORRUPTIBLE eliminate fees associated with funds passing
into and out of various payment processes and
ALTERNATIVE TO bank accounts which helps on saving as these
fees cut into profit margins.
CENTRALISED DATABASES.
With the help of blockchain technology,
Figuretracking
4 a product real-time in the supply
chain reduces the overall cost of moving
items.
Provenance Tracking
Companies have a lot of elements in their APQC and the Digital Supply Chain Institute
supply chains due to which it becomes almost (DSCI) conducted a survey of supply chain
impossible to record and keep track of workers, according to which more than one
information even for multinational third of the people cited reduction of costs as
corporations. The brand name also gets the topmost benefit of the application of
affected by the lack of transparency which blockchain in supply chain management.
leads to cost and consumer relations issues.
When supply chains use blockchain to speed
The blockchain based supply management up administrative processes in supply chains,
helps with record keeping and provenance the extra costs occurring in the system are
tracking becomes easier as the product automatically reduced. They also ensure the
information can be accessed through the help security of transactions. Eliminating the
 30

CHAINED TOGETHER: BLOCKCHAIN IN SUPPLY CHAIN

middlemen and intermediaries also saves Challenges

companies from the risk of fraud and product The blockchain technology has a huge
duplicity among other things. potential for the supply chain industry, there
are still some limitations and challenges worth
Creating interoperable data considering
Not being able to integrate data across every
partner is one of the most prominent problems
within the current supply chain. Blockchains Deploying new systems
being a distributed system maintain a Many systems are purpose built for a particular
transparent and unique data repository. New organisations supply chain and it may not be
data is contributed and verified by the capable of adapting to a blockchain- based
integrity of each peer of the network, which environment. Upper management may be
means that all the information stored on a hesitant to sign off on a blockchain based
blockchain is accessible to all the parties investment as overhauling a company’s
involved and so one company can validate and infrastructure and business processes is a
verify what information is being broadcasted significant undertaking and it could disrupt
by another. operations and take away resources from
other projects.
Replacing EDI
Electronic Data Interchange (EDI) systems are Getting partners on-board
used by many companies to send business It is essential to get everyone involved in the
information to each other. But this data tends supply chain to get onboard with the
to go out in batches instead of real time. blockchain technology but many times
Participants only get information on things partners aren’t willing to do so. Full advantage
such as a shipment getting lost of prices of the process covered by the blockchain
changing when the next batch of EDI goes out. cannot be taken by organisations if there are
With the use of blockchain technology, this holdouts from other partners. Also, many
information can be regularly updated and companies do not desire transparency.
quickly distributed to all entities involved.
Change management
Digital agreements and document sharing Businesses have to promote the adoption of
In a supply chain, a single version of the truth is the blockchain based system to their
important for any type of document sharing. These employees once it’s in place. A change
documents and contracts are associated with management plan addresses what blockchain
blockchain transactions and digital signatures, and all is , how to work with the new systems that
participants have access to the original version of the include it and ways that it improves their job
documents and agreements. As blockchain technology duties. The new features or innovations in
ensures immutability, organisations can spend less time blockchain can be addressed by an ongoing
going over paperwork and more time developing new training program, but that requires time and
products and promoting their business growth. resources.

A few other benefits of adopting blockchain Blockchain Use Cases Figure 3

technology in the supply chain industry are: Blockchain technology has taken the role to be
Eliminating or reducing fraud and errors the problem solver of many of the industry’s
Scalability problems. The application of blockchain
Inventory management is improved technology can make a difference in many use
Courier costs are minimised cases within the supply chain such as the
Paperwork delays are reduced coffee industry or the automobile industry.
Issues are identified faster Supply chains are extremely populated with a
Trust between partner and consumer is single shipment of goods having at least 20-25
increased people or organisations in the process and
approximately 200 interactions between them
 31

CHAINED TOGETHER: BLOCKCHAIN IN SUPPLY CHAIN

which leads to a lengthy process. product reaches its destination. In the case of
The blockchain technology can assure retailers, they can identify and remove
provenance tracking and traceability across damaged products rather than having to
the supply chain. This, in turn leads to fewer check the whole batch of supplies. The
counterfeiters and an ensured safety in the blockchain treats consumers with
processes. The collection of data, study of transparency and openness and they are given
trends, and application of predictive assurance for the food products that they
monitoring process for better product consume.
experience is made easier by blockchain
technology. One of the most prominent use Conclusion
cases of blockchain in supply chain is the Food The blockchain technology has widespread
Supply Chain. applications in the supply chain platforms and
can help in streamlining the information
Food Supply Chain sharing and movement of materials,
It has become difficult for food producers, transforming not just the supply lines but also
suppliers and retailers to ensure the the warehouses and accounting systems.
provenance of the products due to the
complexity of the food supply chain. The transparent and immutable nature of its
Some food safety issues include cross ledgers along with automated functions
contamination and foodborne illnesses which governing the procurement and movement of
is made difficult by the lack of data and products would reduce the amount of human
traceability makes to find the source of capital needed to be employed in these supply
cross-contamination and root cause of chains and thus reduce the inefficiencies that
food-born illnesses. It can take from days or come with them.
months to find the cause which leads to loss of
revenues, an increased number of sick people With proper implementation of blockchain
and wasted food. technology, companies can centralise their
databases and automate the preparation and
Currently only 12% consumers trust brands procurement of products thus making the
that they purchase food from where as 94% process time and capital efficient. Further, this
consumers state that it is important for them also helps in reducing the paperwork that a
to learn all about the products they buy. supply chain company would have to process
Consumers are now becoming aware and as now the work would be executed on code
demanding transparency for the food they instead of clipboards.
buy and consume.
However, for all of this to be implemented,
Blockchain provides neutrality on the platform Figurewhat
4 is required is an optimal use of supply
thus resolving the issues of a complex supply chains along with automation technology and
chain. Both the users and the operators of the AI to make the optimal use of blockchains.
system have to follow a set of rules to keep the
system running as in a blockchain there are no
third parties involved in the transaction
authorisation and everything works on the
basis of a consensus. It brings huge
advantages for all the actors in the food
supply chain; for instance, food producers can
ensure the originality and quality of their
supplies by tracking the attempts of
tampering as the food item moves in the
supply chain. Another example is in case of
identification of fraud, where the supplier will
be intimidated and this notification can be
sent to the retailer even before the food
 32

DISTRIBUTED LEDGER
TECHNOLOGY IN FINANCIAL
SERVICES

Written By: Veenanjali Tandyala

time-consuming. Financial institutions and

W ith the everchanging regulations and

competitive landscape, just complying with
shipping fleets have been experimenting with
blockchain to create smart contracts between
parties. Clearing houses, custody providers
rules and providing essential services for and others looking at what blockchain can
customers is not enough to become the bring to clearing, settlement, and other
industry leader. However, that comes with a intermediated functions.
great risk given the complexity of the business
and billions at stake. Pace of adaption of Slowly, the world is moving from specifics of
technology is slow in financial services and blockchain code toward bigger issues.
banking than any other industry because of
various reasons. Blockchain looks like a What will a world running on distributed
promising resort to most if not all the ledger look like ?
problems in this industry. Despite its potential,
leading firms are still focusing on distributed How will firms work together in multi
ledger technology to solve practical issues. blockchain environment?

Several global security exchanges like Is data sharing between various financial
NASDAQ and NYSE launched blockchain services possible? If so, what data can be
based platforms. Regulators are working with shared? What should be shared? Figure 3
exchanges to get the oversight on the
working. Most industry players still struggle What businesses processes will be completely
with how to audit systems with almost instant redefined?
clearing and consensus-based verification.
Great opportunity or a Disruptive threat:
Major advantage of blockchain comes with its
trust and data sharing. Big industry players Distributed ledger technology, has the
can unite by sharing data and intellectual potential to transform well-established
property to achieve greater efficiencies and financial institutions and bring lower costs,
innovation using blockchain. faster execution of transactions, improved
transparency, auditability of operations, and
Trade finance is high volume, costly, and other benefits.
 33

DISTRIBUTED LEDGER TECHNOLOGY IN FINANCIAL SERVICES

Blockchains have the potential to displace any This helps to save the cost of middle man
business activity built on transactions charges.
occurring on traditional corporate databases,
which is what underlies nearly every financial When Blockchain is applied in the financial
service function. Any financial operation that services industry, it could remove the need of
has low transparency and limited traceability the fee-charging intermediaries such as
is vulnerable to disruption by blockchain custodian banks or clearing houses. As such,
applications. Blockchain offers better capital optimisation,
“Gartner predicts that the enterprise-ready due to a, significant, reduction in operational
blockchain solutions will be ready by 2023 and costs for banks.
by 2025 blockchain will incorporate
complementary technologies such as AI and Counterparty risks:
IoT, decentralised digital identity for delivering One of the major risk involved in bank
the full value proposition of blockchain.” transactions at any point in time is counter
party risks. With transactions being instant,
Blockchain in financial Services: significant part of the risk that the counter
According to the International Data party cannot meet its obligations can be
Corporation (IDC), global investment in totally removed, thereby reducing the
blockchain solutions is forecasted to reach substantial expense for banks.
$11.7 Billion in 2022.
Benefits of Distributed ledger technologies in Transparency:
banking and financial services: Improved regulatory reporting and monitoring
by central banks. Regulators can also have
Settlements: access to the blockchain.
With all the parties involved the settlements
will become instantaneous, and also Reconciliation:
technology being distributed verification of A key feature of Blockchain is that any data
identities of both the parties can also be recorded is immutable. Any data that is
performed within very less time. This will save recorded on a blockchain can be tracked in
significant amount of time and money as it real-time, leaving a very detailed audit trail.
would remove the manual touch points in the This will help in better error handling and
middle and back offices. reconciliation of records.

Blockchain solutions in banking and financial

services:
BLOCKCHAIN OFFERS
Figure 4
Capital Markets:
BETTER CAPITAL Capital markets refers to the pairing of issuers
with demand for capital, to investors with
OPTIMISATION, DUE TO A, corresponding risk and return profiles.
Whether issuers be entrepreneurs, start-ups or
SIGNIFICANT, REDUCTION large organizations, the process of raising
capital can be challenging. Firms face
IN OPERATIONAL COSTS increasingly stringent regulations, longer
times to get to market, volatility from interest
FOR BANKS. rates and liquidity risk. Particularly in the
emerging markets like logistics, edutech,
pharmatech, feintech must navigate the lack
of rigorous monitoring, thorough regulation
Capital optimisation: and sufficient market infrastructure for issuing,
One of the main features of Blockchain is that settlement, clearing, and trading. Blockchain
it removes the need for a trusted intermediary offers multiple benefits for several capital
and makes peer-to-peer transactions possible. market use cases:
 34

DISTRIBUTED LEDGER TECHNOLOGY IN FINANCIAL SERVICES

Elimination of a single point faliure through investors and stakeholders.

decentralized utilities.
Efficient cap table management.
Falicitation of capital market activities
streamlining process, reducing costs and Automated fund administration.
decreasing settlement.
Automated transfer agency in asset
Digitization of process and workflows, management .
reducing operational risks of fraud, human
error, and over all counteparty risks. Cross border payments and remittances.

Digitization or tokenization of assets and Global payments and remittances today are
financial intruments, making them executed by a number of intermediaries that
programmable and much easier to manage exact tolls for their service. It takes 2 to 7 days
and trade. In token form, they gain wider and costs a global average of 6.94% to send
market access through increased and the $200 between countries. This means that
possibility of fractionalized ownership. This remittances are directly reduced by $48B
results in increased liquidity and decreased through fees, intermediaries, and financial
cost of capital. institutions. Blockchain can streamline
payment and remittance processes, reducing
Investment Management: settlement times and significantly reducing
Venture capital firms, private equity firms, real costs. It allows:
estate funds, and specialty markets are facing
demands to improve liability risk Rapid and secure domestic retail payments.
management, adapt more dynamic
decision-making structures, and address the Rapid and secure domestic wholesale and
increasing complexity of ever-changing securities settlement.
regulations. Blockchain can effectively
streamline asset and stakeholder Rapid and secure cross border payments.
management. It allows:
Real-time gross settlement between
Automated fund launcrough. central banks, commercial banks, and
independent banks.
Seamless stakeholder engagement with
digitized assets and services. Digitized KYC/AML data and transaction
history, reducing risks of fraud and enabling
Digitization of portfolio and existing real-time authentication.
holdings for wider market access, liquidity
and fractionalization. Automated regulatory oversight and
auditing.
Customizable built-in privacy settings for
transaction confidentiality. Multiple forms of payment enabled on Figure 3
blockchain: Tokenized fiat, stablecoin, and
Voting and other shareholder rights and cryptocurrency.
obligations programmed into digital assets,
resulting in seamless user experience and Banking and lending :
reduced risks of human error. Core banking comprises of transaction, loan,
mortgage, and payment services. Many of
Creation and enforcement of incentive these services depend on legacy processes of
mechanisms to promote participation and execution. For example, between information
punish nefarious activity. verification, credit scoring, loan processing
and distribution of funds it takes 30 to 60 days
Improved governance and transparency for for individuals to secure a mortgage, and 60
 35

DISTRIBUTED LEDGER TECHNOLOGY IN FINANCIAL SERVICES

to 90 days for small or medium enterprises to that they had a new set of blockchain
secure a business loan. Blockchain can prototypes for decentralised inter-bank
streamline banking and lending services, payment and settlements.
reducing counterparty risk, and decreasing
issuance and settlement times. It allows: JPMorgan has teamed up with RBC and the
Australia and New Zealand Banking Group to
Digitized and authenticated documentation launch a new initiative, known as Interbank
(i.e. letters of credit and bill of lading) and Information Network(IIN).
KYC/AML data with real-time verification
of financial documents. In a bid to aid the transfer of payments
between its U.S. and Canadian banks, the
Asset digitization to enable faster settlement Royal Bank of Canada (RBC) is
times. experimenting with the blockchain.

Rapid and secure cross border payments. Microsoft and Bank of America Merrill Lynch
are working together on a project to use the
Creation of more efficient financing blockchain to make trade finance
structures through shared secure networks transactions faster, cheaper, safer and more
and digitized processes. transparent.

Goldman Sachs set up a microsite explaining

Creation of a consistent financing vehicle for the benefits of the blockchain technology.
the entire trade lifecycle, eliminating the
legacy practice of negotiating independent
finance vehicles for each stage of the trade.

Blockchain adoption across the world:

State bank of India tied up with a start-up

called Prime chain and created a consortium
of leading Indian banks called “Bank Chain”
to research potential of blockchain in
banking with a goal to put all core
transaction-related processes on a
blockchain.

Royal Bank of Canada introduced its

blockchain-based system to store credit
score records that will allow users to
understand how they are measured. Their
main objectives were increased
transparency and immutability.

Mizuho, Sumitomo Mitsui, and Mitsubishi

UFJ Financial, in Japan have joined forces
to create a cloud based DLT platform for
money transfers between individuals that
can be used by each of these banks.

Singapore’s central bank and financial

regulator along with the Association of
Banks in Singapore revealed in October
 36

THE USE OF QUANTITATIVE

MODELS IN CRYPTOCURRENCY
TRADING

Written By: Vaibhav Thakare

computers doing millions of transactions in
small time frame and decision making in

R
milliseconds without nearly no human
eal life investment scenarios, may it be intervention is the speciality of using quant
personal investment decisions or business models in high frequency trading. They make
decisions are more complex than what we use of the price and volume data to make
learn in classes. You can’t afford to make decisions.
mistakes because of the shear scale of these
decisions. The use of models can be of a great
help in such situations. Models help us
picturise the uncertainty in future and act HIGH SPEED COMPUTERS DOING
accordingly in present. Anything which can be
MILLIONS OF TRANSACTIONS IN
stated or measured in number can be
quantified. The quantified information coupled SMALL TIME FRAME AND
with mathematical and statistical modelling
gives rise to something known as quantitative DECISION MAKING IN
models.
MILLISECONDS WITHOUT
There are two types of analyses, qualitative NEARLY NO HUMAN
and quantitative. Qualitative analysis depends Figure 3
on meaning of the scenario and focuses more INTERVENTION IS THE
on the sensitivity of the context.
SPECIALITY OF USING QUANT
Quantitative models are used more in financial MODELS IN HIGH FREQUENCY
sector institutions. They make use of complex
mathematical and statistical formulae to spot TRADING.
investment opportunities having small
horizons. In many cases the margin is smaller
but the funds in use are huge making it viable Arbitrage opportunities are also exploited by
to use these techniques. High frequency the algorithms in place. As these techniques
trading, algorithmic trading uses quantitative need high speed computers, institutional
models in equity markets. High speed investors are benefited at the expense of small
 37

THE USE OF QUANTITATIVE MODELS IN CRYPTOCURRENCY TRADING

pocket investors. The idea has met criticism in What do you mean by currency trading?
the past because of various disadvantages it When we have a forex trading account, we
brings with it. The high liquidity it creates can decide on a pair of currencies which we want
disappear in seconds as it is brought in for to trade. Buy or sell one currency in exchange
transactions which are executed in matter of of another depending on our interpretation of
milliseconds. The algorithmic trading is the current market scenario and expectations
gaining popularity among small investors as in the rise or fall of the currency value. In
well. Companies are trying to use amateur simple words cryptocurrency trading is also a
traders or code writers to write better kind of currency trading with one currency
formulae for them in exchange of commission. digital and other the fiat one or both digital.
In 2006 the share of algorithmic trading was There can be numerous pairs of currencies like
as low as 25% and within ten years it went on Bitcoin-USD where one buys or sells the
to more than 80%. The question at hand is cryptocurrency and gains from the price
whether these models and techniques can be movement.
used for cryptocurrency trading.
Cryptocurrency trading is a bit different in

BTC-USD Chart (Source: Yahoo Finance)

EUR-USD Chart (Source: Yahoo Finance)

 38

The Use of Quantitative Models in Cryptocurrency Trading

Cryptocurrency trading is a bit different in the complete order to the market thus
many ways. The markets are open 24/7 unlike preventing other users from acting in reverse
traditional currency markets. It is still at direction. The complete order is thus divided
nascent stage because of which it is not in smaller orders which doesn’t lead to a
saturated by big bulls using algorithmic heavy price fluctuation.
trading. The most important thing about
cryptocurrency market is the volatility. These These are very few of many strategies which
markets move up and down in a big way are used in algorithmic trading. There can be
because of numerous things including simple formulae used for spotting
regulations, perceptions, technological opportunities and there can be difficult
advancements etc. It can be understood from statistical techniques as well. To the core of
the fact that, the variation in BTC-USD pair in everything is the need of being the first to get
last 2 years has been from as low as $3000 per there and exploiting the chance to earn profit.
bitcoin to $10000 per bitcoin. On the other Quantitative models are still not as popular as
hand, the variation in EUR-USD pair has been they are in traditional markets. There are
quite nothing in that comparison. great challenges and opportunities in this
area which still looks unexplored.
The cryptocurrency market is fast and volatile
market and there is a need of fast trading
strategies and techniques to make full use of
the opportunities. There can be a huge dip at
one point and a good peak at the next
THE CRYPTOCURRENCY
moment. You need high execution speed and MARKET IS FAST AND VOLATILE
great monitoring of the changing prices.
Quantitative models like algorithmic trading is MARKET AND THERE IS A NEED
a best fit in such situations. Following are few
strategies which can be used: OF FAST TRADING STRATEGIES
AND TECHNIQUES TO MAKE
Arbitrage: The best example of arbitrage is
when there is price difference for the same FULL USE OF THE
security in different markets or exchanges. You
can buy at low price on one exchange and sell OPPORTUNITIES. THERE CAN
at higher price on another exchange. It may BE A HUGE DIP AT ONE POINT
sound easy on paper but can be a big task
when it comes to execution. A faster and AND A GOOD PEAK AT THE
smarter quant model can be of a great help.
NEXT MOMENT. YOU NEED HIGH
Market Making: There are many players taking EXECUTION SPEED AND GREAT
part in the market. These are brokers, buyers,
sellers, market makers etc. Brokers just play a MONITORING OF THE
role in connecting buyers with sellers. Market
makers generally keep securities with them CHANGING PRICES. Figure 3
thus helping the buyers to buy securities as QUANTITATIVE MODELS LIKE
and when they want it. They are rewarded for
the risk of keeping securities. There can be ALGORITHMIC TRADING IS A
times when the price of securities goes down
after the market maker buying it from the BEST FIT IN SUCH SITUATIONS.
seller. Generally, they try to earn on the spread
between the bid and the ask price.

Iceberg Technique: Few orders can be so huge

that they have the potential to halt the market
or change the course of actions to the least. In
such situations, it is better not to reveal the
 39

A BREWING CONCOCTION: AI,

ML AND CRYPTO-TRADING

Written By: Deeksha Reddy

based on blockchain’s principle of
decentralization, develop cost-effective and

A
easily accessible neural networks to power AI
I and ML, call them mere conundrums or efforts. With the cryptocurrency markets
established axioms, there will be multiple being highly speculative and volatile on one
proponents from varied fields that would hand and the world witnessing an
readily vouch for the value they continue to unprecedented growth in the adoption of
bring in. Most of us don’t realize it but these blockchain and distributed ledger
technologies are a greater part of our lives technologies (DLT) on the other, there is huge
now than we can possibly fathom. Virtual potential of AI and ML to be leveraged in these
personal assistants, navigational predictions, markets. Santiment, is one such tool that
video surveilling, face recognition in social collects and sells live markets data feeds, by
media services, email spam and malware employing AI and ML, to crypto traders. On a
filtering, customer service chat bots, refined very high level, investors in the crypto markets
search engine results, are just a few of a are benefitting hugely from tools like
plethora of touchpoints. The curiosity and NeuroBot, Senno and ThinkCoin, that aid in
buzz around these inventions are still in their quick and timely technical analysis of large
nascent stages and technophiles are laying volumes of market data with high efficiency.
their focus on identifying opportunity areas Dig deeper and one can discover more
and decoding intriguing potential future intricate and fundamental ways in which
applications. It was in this setting that experts technologies like AI and ML can solve the
and companies recently took to embracing the crypto market enigma.
convergence of AI, ML and blockchain. This
tripartite coalition, due to its resulting synergy Persona matching is an interesting application
is now gaining traction exponentially. of blockchain for cryptocurrency trading,
crypto-to-fiat and fiat-to-crypto transactions.
TraneAI is leveraging blockchain’s property of Cryptocurrency being a highly volatile asset, is
distributed computing to speed up the often characterized by unstable liquidity. Due
machine-learning process and consequently to this, there are only a handful of merchants
eliminating the need for a centralized that accept crypto as a mode of payment.
infrastructure. Then there are softwares like Such merchants, liquidity lenders or even
DeepBrain Chain and SingularityNET, again banks, more often than not, levy a heavy
 40

A BREWING CONCOCTION: AI, ML AND CRYPTO-TRADING

surcharge to compensate for the high volatility and alerts, showing the market’s views of
and liquidity gaps. Coinsbank, a crypto individual coins. Traders then use these
exchange, for instance is a major provider of insights to chart out their strategies, now
crypto-to-fiat transactions and starts from being better-informed.
$50 as transaction fee for every transfer. To
deal with this, TradeConnect, a
ThinkCoin-powered trading platform AUGUR, IS A PLATFORM THAT
employed blockchain to enable trade and
exchange between traditional and crypto COMBINES SUCH ALGORITHMS
assets. This platform, based on the tenet of
persona matching, identifies the optimal WITH BLOCKCHAIN TO MAKE IT
combination of financial assets and traders. To MORE ACCESSIBLE.
explain it further, the platform generates a
digital persona for users and tries to find a
broker or bank that would be its best fit based
on the user’s trading activities and the
lender/broker’s price quotations, in turn
benefitting both parties. On similar lines, algorithms enabled by AI and
ML are also being used to make more accurate
Furthermore, AI has already proven to be forecasts and predictions. Augur, is a platform
more capable at decision-making than human that combines such algorithms with
beings. While it is almost inevitable for blockchain to make it more accessible.
humans to decouple decision making from NeuroBot is another tool that makes use of
their emotions and biases, machines as we neural network for speedier and more precise
know them, never encounter these constraints. price predictions. The algorithm is used to
AI-based automated trading is being carried crunch data perpetually and arrive at probable
out by technologies that are pre-programmed future prices that are claimed to be accurate
with entry, invest, divest and exit conditions 70-90% of the times. It takes into
for taking trading decisions. With this, decision consideration essential technical analysis like
making is devoid of even the slightest traces of patterns and signal indicators like the
irrationality. According to Bitcoin.com, Fibonacci retracement and Elliot wave that
Renaissance Technologies’ Medallion Fund is a also capture trends in investor psychology,
relevant case in point. It was reliant on AI for among other factors.
taking trading calls and during the 2007-08
global financial crisis, this fund gave returns of Apart from those already cited, there is a slew
over 85% annually. of platforms that are capitalizing on the
amalgamation of AI, ML, blockchain with
Trading in financial asset markets can be made cryptocurrency trading and this is
profitable by exploiting the market undoubtedly becoming a promising industry
inefficiencies and information asymmetry. in itself. AdHive, Cryptoindex, MATRIX,
Sentiment analysis through data crunching, Sentigraph and Peculium have gone on to
hence, becomes a key game-changer. AI and become few of the most successful onesFigure 3
in the
ML are already being leveraged to analyze last couple of years
large tracts of textual data from blogs, articles,
social media posts, etc. to ascertain a market’s Hence, it can be established that AI, ML and
sentiment on any political, global or economic blockchain are proving to be irresistible to
development. Senno is one such platform. It is cryptocurrency investors. However, it is also
also blockchain-enabled in order to make the pertinent to be cognizant of the flipside. It is
market sentiment-analyzing algorithm believed that AI-fueled version of wash trading
accessible to a larger audience. In relation to caused the illusion of increased market
the crypto market, Senno has come together activity and believed to have driven up the
with CryptoScanner to scan various price of bitcoin on the Mt. Gox exchange
cryptocurrency channels and create reports between November and December 2013.
 41

A BREWING CONCOCTION: AI, ML AND CRYPTO-TRADING

Rogue trading algorithms called trading bots

named Willy and Markus bought 650,000
bitcoins on Mt. Gox that eventually led to a ON SIMILAR LINES,
bubble-like situation creating artificial scarcity,
consequently leading to its collapse and ALGORITHMS ENABLED BY AI
subsequent bankruptcy. Regulation can bring
AND ML ARE ALSO BEING USED
about some vigilance but it brings with it its
own set of cons. TO MAKE MORE ACCURATE
All in all, while there is no denying that these FORECASTS AND PREDICTIONS.
technologies have proved to be disruptive in
AUGUR, IS A PLATFORM THAT
terms of providing deep insights distilled from
vast amounts of informationt, it is tstill COMBINES SUCH ALGORITHMS
expected of investors to temper their
expectations and exhibit guarded faith in WITH BLOCKCHAIN TO MAKE IT
them. Only time will tell if these tectnologies
will really be able to crack the crypto market
MORE ACCESSIBLE. NEUROBOT
fully and also guarantee responsible and IS ANOTHER TOOL THAT MAKES
rightful implementation.
USE OF NEURAL NETWORK FOR
SPEEDIER AND MORE PRECISE
PRICE PREDICTIONS. THE
ALGORITHM IS USED TO
CRUNCH DATA PERPETUALLY
AND ARRIVE AT PROBABLE
FUTURE PRICES THAT ARE
CLAIMED TO BE ACCURATE
70-90% OF THE TIMES.
 42

IMPACT OF SENTIMENTS IN
CRYPTOCURRENCY TRADING

Written By: Abhishek Kumar

Sentiment analysis are mainly polarity based,
aspect-based or emotion detection-based.

H
How polarity-based sentiment analysis works
ow many of you go through reviews before is, it focusses on the text and classifies the
purchasing a product or a service on any words into positive, negative and neutral
e-commerce marketplace? I bet, many of you. terms. The higher the number of types of
But, how many reviews do you read? Five, ten terms, the text is categorized into that polarity.
or at maximum twenty. Ever thought of a Emotion detection, as the name indicates,
system that can analyze the reviews for us and detect the emotion like happiness, sadness,
save us from the painful process of going and anger based on the text. Whereas,
through the reviews manually and that too in aspect-based sentiment analysis determines
few seconds. And since the system has the aspects or features of the products that
considerable computational capabilities, it just the customers are interested in
does not restrict itself to five or ten reviews
but tens of thousands of reviews at once. The Like stock or commodity markets, it is
above process of analyzing is made possible believed that news and social media tend to
using sentiment analysis and just one use case affect the cryptocurrency trading as well. And
out of many use cases of sentiment analysis.

According to Wikipedia, “Sentiment analysis Figure 3

refers to the use of natural language THIS HAS LED TO AN INCREASE IN
processing, text analysis, computational
linguistics, and biometrics to systematically USAGE OF SENTIMENT ANALYSIS
identify, extract, quantify, and study affective TO GAUGE A SIGNIFICANT
states and subjective information.”
RELATIONSHIP BETWEEN THE
In today’s world, it is quintessential for
companies to know what their customers are NEWS AND THE PRICE OF
talking about their products online, and CRYPTOCURRENCIES.
sentiment analysis helps in the same, that is, to
gauge the perception of customers or the
general public towards a product or a service.
 43

IMPACT OF SENTIMENTS ON CRYPTOCURRENCY TRADING

based on the sentiments of the

unprecedented news, there may be price
fluctuations in the crypto-market. This has led I SEE BITCOIN AS ULTIMATELY
to an increase in usage of sentiment analysis
to gauge a significant relationship between BECOMING A RESERVE CURRENCY
the news and the price of cryptocurrencies. In
FOR BANKS, PLAYING MUCH THE
the past few years, many such instances lead
us to believe that the theory holds. One such SAME ROLE AS GOLD DID IN THE
instance comes from November 2017; crypto
markets, specifically Bitcoin saw a drastic EARLY DAYS OF BANKING. BANKS
surge in the prices which got fuelled from
COULD ISSUE DIGITAL CASH WITH
positive reviews from the business houses and
an increase in retail investors. Further, after GREATER ANONYMITY AND
one month, Bitcoin faced a great slump in their
history as a result of attacks from government LIGHTER WEIGHT, MORE
authorities, skeptical influencers, and other
business communities.
EFFICIENT TRANSACTIONS.
– HAL FINNEY
Crypto markets are unregulated, unlike the
stock, commodity or currency markets. As a
result, any news, positive or negative,
regarding the markets tend to influence it
substantially. Moreover, unlike broader
markets, cryptocurrencies are decentralized
networks and are managed by a diverse set of
retail investors spread across the world.
Therefore, it is believed that sentiment analysis
in the field of cryptocurrencies can help in
gauging public sentiment.

However, there are certain limitations in using

sentiment analysis for cryptocurrencies
markets. One of the limitations is the
inapplicability of general NLP (Natural
Language Processing) technologies in
domain-specific problems like cryptocurrency
market analysis. In a general API, we need to
train the model in such a way that they
recognize the domain-specific terminologies
used to implement sentiment analysis. Further,
sentiment analysis itself has drawbacks that
limit its usage in the crypto markets as these
markets are still in a nascent stage. It is difficult
to analyze the sentiments with NLP
techniques, which form the backbone of
sentiment analysis if the text contains ironies,
bad grammar, sarcasm, etc. For an example, a
response to ‘Did you like our services
pleasant?’ can be ‘I could not agree more’, this
response can be taken as negative by the
model as it contains terms ‘not’ and ‘agree’
together. Similarly, there are multiple instances
like this where NLP techniques will not be able
to deliver results.
 44

DATA SCIENCE MEETS

CRYPTOCURRENCY TRADING -
MORE THAN JUST FRIENDS

Written By: Ambika Sachdeva

account is created, full value of the asset to
open a position is maintained and
cryptocurrency tokens are stored until the
investor wants to sell them. Cryptocurrencies
H
how
ow does a crypto exchange functions and
is data science shaping these
exist merely as a shared digital record of
ownership, stored on a blockchain unlike the
transactions? To start with lets understand traditional currencies. The transfer of
what is cryptocurrency trading and how these cryptocurrency from one user to another
transactions are executed. Cryptocurrency happens via the users digital wallets. For the
trading is the act of speculating on transaction to be considered final a
cryptocurrency price fluctuations via a CFD ( verification and addition to blockchain in
Contract for Differences) trading account, or mandatory, the process is called mining. This is
trading in the underlying coins via an how new tokens are created in the ecosystem.
exchange.
Though cryptocurrency markets are
CFDs trading are derivatives that provide the decentralised, i.e. they are not issued or
option to speculate on cryptocurrency price backed by a central authority such as a
fluctuations without actually taking the government, but the exchange can be
ownership of the underlying coins. CFDs centralised or decentralised (DEx). Centralised
trading has the potential to execute both long Exchanges involve the role of a third party
Figure 3
(buy) and short (sell) options with the between buyers and sellers to execute the
cryptocurrency price movements. Both are trade, whereas in a decentralised exchange the
leveraged products, that means only a small trade is facilitated via blockchain eliminating
deposit known as margin is required to gain the need of a third party. Both have different
complete exposure to the underlying market. characteristics in the sense though centralised
The profit and loss is calculated in respect to systems are exposed to hacking frauds but a
the full size of position, hence leverage user can recover an account password if
magnifies both profits and losses. forgotten, the opposite is true for
decentralised exchanges. When using
On the other hand while trading in centralized exchanges the users send their
cryptocurrencies via an exchange, purchasing funds to wallet under controlled conditions,
the coins itself is required. An exchange managed by one entity known as the
 45

DATA SCIENCE MEETS CRYPTOCURRENCY TRADING- MORE THAN JUST FRIENDS

the exchange. While on decentralised in the market and it is no surprise that it is a

exchanges, digital signatures are relied on to focus of crypto investment data analysts. A
directly authorise the transactions. This is large number of historical Bitcoin price data
precisely the reason behind slow working of pulled from numerous exchanges is utilized for
decentralised exchanges vis a vis the this analysis.
centralised exchanges. Decentralised
exchanges permit the payments in
cryptocurrencies alone whereas centralised
ones allow the use of traditional payments as
well. Along with serving as a trading platform ANACONDA IS ONE OF THE MORE
centralised exchanges store private POPULAR PYTHON DATA ANALYSIS
information as well. Another additive feature
of centralised exchanges is the possibility of TOOLS. WHEN ALL THE PRICE
exchange of FIAT into a cryptocurrency and DATA HAS BEEN COLLECTED AND
vice versa. COALESCED INTO A SINGLE
Most analysts in any trading market use highly DATAFRAME, THE BEHAVIOR OF
speculative models which aren’t necessarily THE BITCOIN IS THEN STUDIED.
based on numbers and statistics. There is a
growing movement within the crypto and
blockchain community that is striving to
actively use a scientific approach to creating
useful crypto investment strategies.
Depending on the programming skill of the
There is a buzz in the tech community with analysts, they can choose to use an Anaconda
Artificial Intelligence and Internet of things interface due to the high level of dependencies
becoming fully functional realities. Both Data that are involved in the study. Anaconda is one
Science and Blockchain Technology play an of the more popular Python data analysis
important role in this new digital revolution. tools. When all the price data has been
There is a growing intersection between Data collected and coalesced into a single
Science and Blockchain Technology, especially dataframe, the behavior of the Bitcoin is then
in the use of the former to conceptualize studied. The next step involves a probabilistic
certain elements pertaining to extrapolation that is used to predict the future
cryptocurrencies. price of Bitcoin. This same procedure can be
used for Ethereum and other altcoins.
The crypto market faces high volatility and
price fluctuations with a lot of speculative Altcoin Price Correlation
activity. Price charts over time show a lot of With more than 1,300 different altcoins
sharp peaks and troughs indicative of an present in the market, price correlation is an
unstable price environment. Analysts are using important parameter when developing
the opportunity to use a data- driven cryptocurrency investment strategies. Price
approach to make sense of the cryptocurrency correlation refers to the relationship between
market. The following are some of the the prices of two commodities in the same
data-driven approaches to crypto market. It is a useful tool for predictive analysis
investments. models that are frequently used in investment
analysis. Price correlation answers the
Bitcoin Price Prediction question, “is there any relationship between
Python plays a big role in the field of Data these two assets?”
Science, Big Data, and Machine Learning.
Using basic Python scripts, analysts are able to Investors like to diversify their portfolio across
develop algorithms that study the price of different asset classes and the crypto market
Bitcoin and predict the future price of the is no exception. Large hedge funds are
cryptocurrency. Bitcoin is the most valuable beginning to enter the crypto market,
cryptocurrency in the market and it is no
 46

DATA SCIENCE MEETS CRYPTOCURRENCY TRADING- MORE THAN JUST FRIENDS

spreading considerable investment sums The Road Ahead

across a number of altcoins. This increases the It would be extremely premature to say that
level of speculation on these altcoins and these data-driven approaches to crypto
causes their prices to behave differently. With investments have successfully been able to
price correlation data, analysts can begin to understand the market
pinpoint which altcoin pairs behave alike in A lot of it is still theoretical with a great deal of
terms of price volatility. Using a number of testing and finetuning required. Analysts are
computer programs and algorithms capable of still coming to grips with certain nuances that
handling big data, these price correlations can are unique to the crypto market and creating
be obtained. The effect is that similar contingencies for such in their programming
investments are being seen in specific altcoin models. Also centralised exchange platform
pairs as crypto price correlation data is poses challenges for programming and
becoming more refined. majority of the daily trade takes place on
centralised exchanges. If successful, these
Using social data to predict consumer scientific approaches to crypto investment
behavior could help investors become more successful
For the conventional monetary system, using in the
big data to predict consumer behavior could market.
be tricky. Most financial instruments depend
on various factors which make it difficult to Using these technical Indicators becomes all
predict the direction in which the market will the more important as Bitcoin is a currency
move. However, for the cryptocurrency, this is and not a company with balance sheet and
not the case because demand depends solely other financials to reflect on future
on supply. performance.

Big data gathered from social media profiles,

especially twitter can gauge the market
sentiment by reflecting a clear picture of
people’s feelings towards the current state of
the cryptocurrency market, latest events
which concern cryptocurrency, etc. The
demographics related to social media and BIG DATA GATHERED FROM
cryptocurrency trade are the same, the trade
SOCIAL MEDIA PROFILES,
relies on individuals more than on large
companies, and all the events that can affect ESPECIALLY TWITTER CAN
cryptocurrency are predominantly first, and in GAUGE THE MARKET
the largest scale published on social networks
SENTIMENT BY REFLECTING
Theft prevention A CLTEAR PICTURE OF
No matter how secure a system may be, it can PEOPLE’S FEELINGS
still leak information or suffer a hack attack.
Cryptocurrencies, especially Bitcoin, are very TOWARDS THE CURRENT Figure 3
secure and provide a limited amount of public STATE OF THE
data; however, with the rising tide of CRYPTOCURRENCY MARKET,
data-based. hacking and quantum computer
technology, the risk of losing all your LATEST EVENTS WHICH
hard-earned cryptocurrency is very real. In CONCERN
order to identify the potential leaks and
CRYPTOCURRENCY, ETC
security hazards, security analysts use big
data analysis so they could improve the overall
safety and prevent theft.
 47

DAG PLAUSIBLE
BLOCKCHAIN 3.0

Written By: Veenanjali Tandyala

the records and decentralized database makes
DLT, a plausible innovative technology in the

M
areas of finance, operations, supply chain, etc.,
ost of the time, in our daily conversations, Few popularly known types of DLTs include
DLT and Blockchain are used interchangeably. Blockchain, Hash Graph, DAG, Holochain so on
This can be attributed to the popularity that so forth. Blockchain is the most commonly
Blockchain has gained over the years with used and talked about of all. In a blockchain,
Bitcoin and the like. Distributed Ledger every time a transaction occurs, it is verified,
Technology, like the name suggests, is a the blocks store information about the
decentralized ledger of transactions or transaction like time, date, and each block is
contracts that is accessible to all the then given a hash, a unique identification.
participants across different geographies. This Every participant will have a copy of the
decentralization eliminates the need for a Blockchain, thereby reducing the security
central authority to keep track and validate the concerns. Its structure might seem similar to
transactions within the chain. To explain this, our linked list structure, linearity on the face of
Consider security personnel of a gated it. But it is more complicated than the
community, who takes the details of every traditional list-like structure. One major
person entering through the gate in a shortcoming of this entire structure is the low
book(ledger). The case above is a centralized number of transactions per second. If we are
database; if someone wants to manipulate the going to scale it up for much more extensive
data, all they need to do is to make changes in and diversified uses, this set back needs to be
that particular ledger. Now, imagine an app, addressed.
which requires each guest to fill in the details,
and the details will be sent as a message to all Directed Acyclic Graph is one of the highly
the occupants. In this case, every occupant will scalable alternatives to Blockchain technology.
have data in their mobiles in the form of a text In layperson's terms, this structure could be
message. If the person wants to manipulate viewed as a tree structure, which will address
the data, he needs to do that to all the the scalability issues in a list type
databases(mobiles), which makes it arrangement. IOTA with Tangle Protocol and
complicated if not impractical. Hashgraph with Gossip Protocol are few
examples of DAG that are in usage. DAG
Immutability of data, instant updating of all comprises of a network of nodes confirming
 48

DAG PLAUSIBLE BLOCKCHAIN 3.0

transactions. Each node will perform two and invalidating the node so that ancestors
functions, validating transactions and don't get altered.
representing transactions themselves. Two
tasks at hand are initiation and validation; any The graph becomes more and more robust
node can initiate a transaction, but for a node with increasing nodes/transactions. DAG
to get verified, it needs to perform at least two requires no miners to confirm the authenticity
validations. The graph will not be allowed to of each transaction. Two ascendants
grow further in the case of invalid transaction validations confirm the validity of
descendants. a descendant node transaction, human
intervention becomes trivial, resulting in a
vastly accelerated process. This implies
transactions happen almost instantaneously
due to reduced human intervention. In case of
Blockchain significant part of cost involve the
miner fee, given DAG reduces miner
interaction, this cost is notably reduced. This
low-cost structure leads to the possibility of
nano transactions.

More significant, the depth of the particular

node, the more the weightage attributed to it,
and also non-terminal node selection in case
of low volume (nodes/ transactions) make
DAG vulnerable to attacks. However, this
might not be the issue as applications of large
scale use DAG.

Recent days, few papers have been published

Highest Weighted node in the above graph on DAG in Distributed ledger technology
applications on smart grid networks, IoT,
Validated two transactions(min limit) ,
hence valid node in the above graph
Cryptocurrencies, Smart mobilities, Smart
Cities etc., Applications that require high
Validated less than two transactions, need
to validate more to become valid node in
scalability and speed along with features of
the above graph DLT can opt DAG as one of the solutions.
However, like other DLT processes, DAG is in
its nascent stage, and its potential needs to be
investigated more for its applications other
than cryptocurrency. Future, where minimum
transaction fee and high functioning chains
The width of the graph is the number of nodes are possible, doesn't seem farfetched with
that are the same depth. Depth implies the DAG at the helm. This means all our day to day
maximum length of the path from a node to its transactions (micro and nano) can beFigure 3
carried
ascendants. In the initial phase of the graph, out without hefty fees, unlike other DLTs with
we might not have enough descendants to improved security.
validate, in which case DAG goes for
non-terminal parent selection. However, this
might lead to an issue where there is a rapid
increase in the width of the graph, to avoid this
transaction time out can be used. In the case
of an invalid node, descendants will also get
affected, which is quite not right. Parent
reselection can be used to avoid this situation
and invalidating the node so that ancestors
 49

ETHEREUM’S PLASMA:
A SCALING SOLUTION

Written By: Abhishek Kumar

(transactions per second) by more than one
thousand. And in the later versions, it can be
improved to million transactions per second. It
is not the first time that Ethereum has come up
E thereum is often misinterpreted just as a
cryptocurrency, however, it is much more than
with scaling solutions. Previously also, it
deployed a scaling solution named state
a simple cryptocurrency. It is an open-source channel that aimed to reduce the congestion
platform that allows developers to build and by off-loading the transaction to the child
deploy decentralized applications. On the chains or side chains.
other hand, its cryptocurrency, Ether, is used
to support and empower the applications
developed on the Ethereum blockchain.
Ethereum allows computers to run without PLASMA FRAMEWORK
using any third party, on a network of many ALLOWS USERS TO CREATE
private computers, thus, decentralized.
However, like other cryptocurrencies,
‘CHILD’ BLOCKCHAINS THAT
Ethereum is also plagued with certain USE THE ETHEREUM MAIN
drawbacks, some of them are – congestion, CHAIN AND ARE
and lack of scalability. Congestion occurs
because all the transactions are pushed and ASSOCIATED WITH IT AS
verified on the main blockchain chain itself ROOT CONTRACTS. IT ALSO
which in turn hampers the number of PROVIDES THE FLEXIBILITY
transactions per second.
TO THE OPERATORS OF THE
Ethereum’s Plasma is one of the promising SIDE CHAINS TO DECIDE ON
solutions to both the drawbacks
THE COMPLEXITY,
aforementioned. It aims to scale the
blockchain as well as reduce the congestion. It CONSENSUS MECHANISM,
was proposed by Ethereum cofounder Viltalik BLOCK SIZE, AND
Buterin and Joseph Poon in Aug 2017 as a
scaling solution. It is estimated that in the
CONFIRMATION TIME.
initial versions of Plasma will increase the TPS
 50

ETHEREUM’S PLASMA: A SCALING SOLUTION

Plasma framework allows users to create up on Plasma or it still is in the race of

‘child’ blockchains that use the Ethereum main deployment. It depends on how the firm deals
chain and are associated with it as root with the limitations. But a scaling solution is a
contracts. It also provides the flexibility to the dire need for Ethereum, either Plasma or
operators of the side chains to decide on the something else.
complexity, consensus mechanism, block size,
and confirmation time. The ultimate goal is to
bring transactions to the side chains from the
main channel if it does not require the
transactions to be verified directly on the
Ethereum main channel.

Often concerns are being raised regarding the

security of Plasma. There lies the possibility
that the side chain operators may be
scammers and operating maliciously. In that
case, if there is any conflict or malicious
operations going on, users are provided with
the option of moving the tokens back to the
main channel. As already mentioned, the main
Ethereum network and side chains are
coupled together with root contracts that lay
the rules guiding each side chain.

Root contacts ameliorate the trust of the users

as it guarantees the token to its owners if it has
never been redeemed. For an example, if a
user moves few crypto tokens to a side chain
and can prove that the tokens have never been
spent by him or her, then the right lies with the
owner to withdraw the tokens from the side
chain and use the same on the main Ethereum
network.

However, there are certain limitations of

Plasma which makes people skeptical about
its deployment. The first one being the
limitation in the withdrawal of the funds. It is
proposed that it will take nearly one to two
weeks in order to withdraw the fund from the
side chains. This keeps the users at a
disadvantage who have limited funds and Figure 3
wants the token withdrawal process to be
responsive. Apart from this, there are many
practical issues in this approach. It makes the
users with the computationally intensive task
of verifying the side chains continuously. Also,
in the case of a security compromise, all the
history would need to be posted on the main
channel. This may lead to overloading of the
blockchain network difficult to control.

It is quite unsure whether Ethereum has given

 51

LIGHTNING NETWORK – THE

ONLY NETWORK WHICH WILL
MATTER?

Written By: Vaibhav Thakare

transaction amount and second the scalability.
The probable solution to these issues is

A
Lightning Network.
transaction is recorded on the blockchain
when it has been verified by the computers on
the network. The nodes in the network are
rewarded with cryptocurrency for the work
they have done. Thus, we are giving fees for
using the blockchain technology. What if the
amount of the transaction is lesser than the
fees we are giving? It does not make any sense
to use this technology in cases like these.
Second point is regarding the feasibility of the
use. If we are talking about blockchain
replacing the current payment system, then it
is pertinent to think about whether it will be
able to handle the number of transactions
happening daily in the whole world.

As per the National Payment Corporation of

India, the country witnessed more than 920
transactions per second in the month of
January’20. One of the leading payment
gateway Visa can handle more than 65000
transaction messages per second.

On the other hand, bitcoin blockchain can

guarantee not more than seven transaction
per second even if we talk aggressively. So,
these are two major problems in the use of
blockchain as the payment system. First,
nobody likes to pay more fees than actual
 52

LIGHTNING NETWORK- THE ONLY NETWORK WHICH WILL MATTER?

What is Lightning Network? network. If one user wants to transfer some

The concept of lightning network relies on a amount to another user with which he doesn’t
basic idea of reducing the time to verify the have a payment channel. Then there is no need
transaction. If a transaction is done on the to establish a new payment channel if these
blockchain then it takes time to verify and fees two users are connected by some third user.
is charged. What if we eliminate the main The network tries and find out the shortest
blockchain and it is used only when possible way to connect these two parties and
necessary? Imagine two parties being involved perform the transaction. The funds which are
in frequent transactions. Lightning network kept with the exchange can be considered as a
requires these two parties to establish a wallet secured by two keys. These keys are
payment channel between them. The creation known to the parties involved. The keys are
of this channel will be verified by the used to sign the statement.
blockchain with initial deposit of prespecified
amount of bitcoins by both parties. Whenever Is the picture as rosy as it looks?
The efficiency of the lightning network is in the
reach of its network. If the facility is adopted
by large number of users, then it will be
WHAT WE ARE DOING practically used for smallest of the
HERE IS JUST CREATING transactions. However, more complex the
network more will be the fees for making the
ANOTHER LAYER AND transactions. The fees for using the lightning
BYPASSING THE ORIGINAL network is charged for finding out the shortest
route for completing the transaction.
BLOCKCHAIN THUS
Main problem of this concept is the
INCREASING THE SPEED centralization of the power. Blockchain boasts
OF WHOLE OPERATION. of eliminating the central authority of
institutions and giving power to everyone
involved. In lightning network, if one party in
the network is responsible for high number of
a transaction occurs between these two transactions then it may lead to centralization.
parties, the funds are transferred, and the new The failure of this party can lead to failure of
statement is signed by both parties. The latest the whole system. This party can be an
copy of financial statement is kept by both institution like banks through which users like
parties with them. Transactions can continue to route their transactions. Another problem
to take place till there are funds kept with the which can prove more serious is the security.
exchange. If these two parties decide to end Blockchain is believed to be the most secure
the relationship and scrap the payment technology but it reduces the speed of
channel, anyone of them can do so as both operation. We are moving away from the
have the recent copy of the statement. The blockchain and creating a second layer which
funds are distributed as per the statement. comes with a trade-off. The speed can be
This end transaction is again recorded in the gained if we compromise with the security.
blockchain and verified by the network. Thus, The hacks and theft need to be addressed Figure
and3
there are only two transactions which are there has to be some innovation on this front.
recorded in the main blockchain, the creation
and scrapping of the payment channel. This The truth is, the technology is really in its
reduces the burden on the blockchain and nascent stage currently. It needs to be seen if
makes the system scalable. What we are doing it becomes the future of the payment system
here is just creating another layer and landscape or just remains on paper.
bypassing the original blockchain thus
increasing the speed of whole operation.

There can be multiple channels like these

between number of users which creates a
 53

SEGWIT – A SOLUTION TO
MAJORITY OF PROBLEMS
RELATED TO BITCOINS

Written By: Ambika Sachdeva

SegWit has helped the evolution of several
hardware bitcoin wallets by separating the

T
data as it also improves the processing speed
he Bitcoin Core development team due to reduced size of transactions. The
introduced SegWit to fix the issue of primary difference with SegWit is that there is
malleability bug and scalability. But what is no longer a need for witness data while
SegWit? calculating a transaction ID, which is later used
for spending the funds in upcoming
Bitcoin transactions compose of two parts transaction. Whereas in the non SegWit
primarily, one is “base transaction data”, that infrastructure while composing a new
covers which bitcoins are moved and where transaction the wallet streams the previous
are they are moved to, along with some other transaction from blockchain and ask for
crucial data. The other part is called the specific output along with it’s value. After
“witness”, that contains a code with receiving the value, the wallet starts hashing
cryptographic signature data establishing the the entire transaction, only if the hash matches
validity of the transaction. SegWit stands for exactly with the hash published the
Segregated Witness, which means separating transaction is executed. This process becomes
the signature data. It’s this signature data that time consuming and unproductive when the
can be slightly altered by anyone without number of inputs are large. As hardware
invalidating the signatures, the process being wallets do not hold much computing powers
referred to as “malleability bug”. This signifies like a computer, it becomes challenging for
that the whole transaction appearance and hardware devices to execute the transaction.
identifier can be altered by relaying Adoption of SegWit eliminates the inefficient
transactions over the network. SegWit helps procedure. Instead of separating outputs
solve for this by separating the transaction SegWit incorporates the value of previous
and the witness data. Its malleability fix also outputs in the signature itself. Thus hardware
provides a better platform for second-layer wallets can fetch outputs of past transactions
solutions like Lightning which are capable of in a short span of time. Hardware wallets like
executing transactions with substantially Trezor and Ledger have adopted SegWit and
lower fees or micropayments on the Bitcoin have witnessed significant reduction in
Blockchain network. transaction verification time and process.
SegWit also serves a crucial role in enhancing
 54

A SOLUTION TO MAJORITY OF PROBLEMS RELATED TO BITCOINS

digital signatures occupy approximately 65%

of the space in a given transaction. SegWit
HARDWARE WALLETS attempts to ignore the data attached to a
LIKE TREZOR AND signature by separating the signature from
LEDGER HAVE within the input and placing it to a structure
towards the end of a transaction. This process
ADOPTED SEGWIT AND increases the 1 MB limit for block sizes to a
HAVE WITNESSED little under 4 MB. Along with slightly
SIGNIFICANT increasing the capacity size of blocks, SegWit
also solves for a situation where a receiver
REDUCTION IN could intercept and modify the sender’s
TRANSACTION transaction ID in an attempt to get more coins
from the sender. Since the digital signature is
VERIFICATION TIME
separated from the input, the unscrupulous
AND PROCESS. SEGWIT party has no means of altering the transaction
ALSO SERVES A ID without also nullifying the digital signature.
CRUCIAL ROLE IN Another positive of SegWit is the reduction in
ENHANCING SECURITY the transaction cost by approximately 35
MEASURES AND percent. With the reduced fees the users can
easily send Bitcoin transactions with fees
EFFICIENCY OF below $1.
HARDWARE
BITCOIN WALLETS. Along with numerous benefits and future
opportunities, some risks are also attached
with SegWit. SegWit opens the pathway for
formation of mining cartels and methods of
security measures and efficiency of hardware collusion which could undermine the bitcoin
bitcoin wallets. network. With the Non- SegWit infrastructure
there are quantitative restrictions with regards
Reduction in the verification and discovery miners, but with SegWit mining cartels can be
period of outputs can eliminate or prevent the formed and may harm the network as a whole.
possibility of several attacks like Fee Attack Also there are notions that it might not
vendor, wherein users can lose a significant actually reduce the burden on the network.
amount of funds due to a attack targeted
towards an input within a transaction. When examined using the legal lens another
potent risk is authentication. Once the witness
The upgrade to SegWit improves the user is separated, establishing legal proof and
experience as well, as there is less need for authenticity of electronic contracts and
them to wait for earlier slow confirmations. transactions would be difficult. This legal issue
But how? If signature changes from one valid could create some major practical problems in
signature to another valid signature, the the business world globally. Figure 3
transaction ID does not change. It becomes
reasonably safe for transaction 2 to be created The upgrade to SegWit is optional, and must
and broadcasted to the network, before be decided after properly analysing the
transaction 1 has been verified in the business use case of the network. The wallets
blockchain network. that have adopted SegWit share a positive
outlook towards it.
For Bitcoin, a vital question has always been
hovering around regarding how to increase
the network’s scalability to achieve faster
transactions and greater use. SegWit solves
for the scalability issue as well, as the digital
 55

BLOCKCHAIN SHARDING MADE

SIMPLE

Written By: Deeksha Reddy

solution is sharding. Its relevance becomes all
the more obvious when employed alongside

D
blockchain technologies.
ata and large tracts of it is what is defining
business and revenue models of companies Sharding, comes from the word ‘shard’ which
across domains and industries today. means a small piece or portion of a whole. It is
Humongous amounts of resources are being a data architecture technique by which data is
expended in mining this data to draw insights partitioned into horizontal logical shards. Then
about the market, consumer behavior, demand these shards are distributed across separate
and supply patterns, etc. in an effort to arrive nodes, commonly referred to as physical
at forecasts with razor-sharp precision. shards, which have the ability to store multiple
Websites and applications, that collect and logical shards. This doesn’t obstruct the data
store huge volumes of data every second, have held within all the shards from collectively
inevitably becomes invaluable assets to representing an entire logical dataset. Thus, it
businesses. With data of this nature and is said that database shards are based on the
volume establishing itself as a gold mine, tenet of a shared-nothing architecture.
storing and preserving it becomes a Sharding is based on the premise that if heavy
commitment of paramount importance to and big are databases are broken into smaller,
enterprises. The scale at which data thefts are more manageable portions, it would enhance
becoming commonplace demands proactive performance and bring down the processingFigure 3
measures to be taken at the firm’s end. Any time. In the context of blockchain, sharding
online interface, if witnessing persistent facilitates managing and transacting at a
growth, should be prepared to encounter speed almost as fast as a Visa or MasterCard.
significant scaling in terms of exponentially Bitcoin has the bandwidth to processes
growing online traffic. It is imperative that around 3-7 transactions per second, while
scaling to newer heights should be preceded Ethereum’s tally stands at 12-30, much lower
by adequate steps being taken to ensure data than that of a bank card. This is only one of the
security and integrity. Hence, agile business problems. For blockchain to become
models today enterprisingly adopt such data ubiquitous and indefatigable, it needs to build
architecture solutions that enable them to the capability of unhindered scalability,
scale to mightier proportions with little worry overcome latency issues while achieving high
about losing the sanctity of the data. One such throughput.
 56

BLOCKCHAIN SHARDING MADE SIMPLE

With blockchain sharding, each node of the

block will have only a part of the data of that
chain, and not the entire information. Nodes HOWEVER, ONE CAN’T
that maintain a shard maintain information SKIP THE FACT THAT AN
only on that shard in a shared manner, so,
within a shard, the property of
UNDISTRIBUTED
decentralization is still upheld. Each node DATABASE WILL
doesn’t load the information on the entire ALWAYS BE
blockchain, thus helping in scalability and
building a capacity to store large volumes of CONSTRAINED BY
data in portions. It is being employed by LIMITED STORAGE AND
new-age companies like Telegram, which is COMPUTING POWER.
developing its Telegram Open Network (TON),
to enable users of its cryptocurrency GRAM to
send funds across borders within no time and
without worrying about remittance fees. A
use-case particularly benefitting out of the more complexity to its users. Another issue
reduced process time is in the context of that could crop up in a sharded database is
database query response. When a query is that over time it could potentially become
made in a database that has not been unbalanced. Consider a sharded scenario
horizontally sharded, the system has to wherein shards are created in an alphabetic
rummage over multiple line items of data to order, by the way of example say the
identify the data point in question. And so, transaction data of customers’ names that
with websites or applications with an start with A-F are on one shard, G-L on
inexplicably large and monolithic database, another and so on. Over time, in all probability,
queries tend to become prohibitively slow. the shard with names starting with letters G-L
There are other valuable uptakes, too. It is could be heavier with more line items than its
undoubtedly easy to have a database up and co-shards. This could potentially cause the
running on one machine and scaling up would application to slow down and stall out for a
mean to only upgrade to newer computer or significant portion of users. Needless to say,
software resources. However, one can’t skip there is also the constraint of database
the fact that an undistributed database will engines not being compatible with sharding.
always be constrained by limited storage and Lastly, a major drawback is that once sharded,
computing power. Thus, having a sharded data it is close to impossible to return the database
architecture offers scalability and flexibility on to its unsharded form.
the same platter. Sharding also brings more
value to the application by boosting its It should also be mentioned here that this
tenacity against outages. With an unsharded arena still remains under-explored and in a
database, an outage would jeopardize the continuous work in progress. There are also
accessibility of the entire data, which in the burning unsolved questions about sharding
case of a distributed data structure would like the one on the blockchain trilemma and
hinder the availability of only a part of the data Figure 3
cross-shard data transfer. The blockchain
or a single shard. trilemma between scalability, decentralization
and security is another one of those burning
Sharding, however, can also impose a certain questions. All in all, while some experts look at
amount of limitations. Primarily, building and sharding from a positive lens and celebrate its
deploying a sharded database structure is no benefits that were unheard of until recent
mean task. A minute slip up can cause the loss times, there are also those who don’t advocate
of data or corrupt it. With sharding, the team its implementation due to its operational
workflows also get impacted. In an unsharded complexity. Conclusively, companies should
situation, one could access all related data at answer the question of whether or not one
one single entry point. In this sense, sharding should implement a sharded database
with its multiple shards and locations, brings in architecture with utmost caution.
 THANK YOU
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