RBI to study Blockchain technology to curtail paper currency

Blockchain: A distributed database that maintains a continuously-growing list of data records secured against tampering and revision

The Reserve Bank of India (RBI) on 24 June 2016 announced that it will soon set up a committee to study the use of Blockchain technology.

The technology will be used to reduce the use of paper currency.

What is Blockchain technology?

• The Blockchain database consists of blocks that hold time-stamped batches of valid transactions.

• Then, digital records are put together into blocks and then leaped together cryptographically and chronologically into a chain using complex mathematical algorithms. The encryption process is termed as ‘hashing’.

• The linked blocks form a chain, with each additional block reinforcing those before it, thus giving the technology its name.

• Hashing is carried out by different computers. If they all agree on the answer, each block receives a unique digital signature.

• Once updated, the ledger cannot be altered or tampered with.

• The Blockchain is seen as the main technical innovation of bitcoin.

How blockchain database can help in reducing the use of paper currency?

The distributed nature of a blockchain database makes it harder for hackers to attack it. The linked blocks make hacking tricky as the hackers would have to get access to every copy of the database simultaneously.

As the hash cannot be converted back into the original data, the blockchain database keeps data secure and private.

Therefore, if the original document or transaction were subsequently altered, it will produce a different digital signature. The network is highly vigilant towards a mismatch. Thus, the blockchain method makes fraudulent activities less likely and easier to spot.

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