Blockchain

BLOCKCHAIN AND
CRYPTOCURRENCY
SUBJECT-INFORMATION
TECHNOLOGY
Imagination is more important than knowledge. For Knowledge is

limited to all we know and understand, while imagination
embraces the entire World”. – ALBERT EINSTEIN
THE NEW REVOLUTION?

“BLOCKCHAIN” HAS MANY MEANINGS
To understand the power of blockchain systems, and the things

they can do, it is important to distinguish between three things
that are commonly muddled up, namely the bitcoin currency, the
specific blockchain that underpins it and the idea of blockchains
in general.”
The Trust Machine, THE ECONOMIST, Oct. 31, 2015

WHAT IS BLOCKCHAIN ?
A Technology that:
Permits transactions to be gathered

into blocks and recorded
Cryptographically chains blocks in

chronological order; and
Allows the resulting ledger to be

assessed by different servers.
WHAT IS A DISTRIBUTED LEDGER ?
CENTRALISED DISTRIBUTED
LEDGER LEDGER
Node A
Client A
Node E Node B
Client D
BANK Client B
Client C
Node D Node C
•There are multiple ledgers, but Bank holds the •There is one ledger. All Nodes have some level
“golden record” of access to that ledger.
• Client B must reconcile its own ledger against that • All Nodes agree to a protocol that determines
of Bank, and must convince Bank of the “true state” the “true state” of the ledger at any point in
of the Bank ledger if discrepancies arise time.
• The application of this protocol is sometimes
called “achieving consensus.”
HOW MIGHT A DISTRBUTED LEDGER WORK?
ONE OR MORE NODES

USER INITIATE USER
NODES BEGAN AGGREGATE
THEIR BROADCAST
VALIIDATING VALIDATE
TRANSACTION THEIR
EACH TRANSACTIO
USING DIGITAL TRANSACTION
TRANSACTION N INTO
SIGNATURE TO NODES
BLOCKS
BLOCK
NODES CONSENSUS REFLECTING TRUE
BROADCAST PROTOCOL STATE IS
BLOCKS TO USED CHAINED
EACH OTHER TOPRIOR BLOCKS
WHERE MIGHT BLOCKCHAIN USE
CRYTPOGRAPHY ?
INITIATION AND • Digital Signature

BROADCASTING OF
TRANSACTIONS
• private/public keys
VALIDATION OF • Proof of work and certain

TRANSACTIONS alternatives
CHAINING BLOCKS • Hash Function

THE POWER OF DISTRIBUTED LEDGER
 It can be used without a central authority by

individuals or entities with no basis to trust each other.
It can be used to create value or issue assets.
It can be used to transfer value or the ownership of
asset.( A human being or a smart contract can initiate
the transfer.
It can be used to record those transfer of value or
ownership of assets. ( these record may be so difficult to
alter such that they are sometimes called effectively
immutable).
It can be used to allow owner of assets to exercise
certain rights associated with ownership, and to record
the exercise of those rights.
SOFTWARE, GAMING AND
CRYPTOGRAPHY
GAME THEORY
BYZENTINE’S GENERALPROBLEM
CRYPTOGRAPHY SCIENCE
SOFTWARE
WHAT IS CRYPTOCURRENCY?
•A Cryptocurrency is a medium of
exchange using cryptography to secure the
transaction and to control the creation of
additional unitof currency.
•Cryptocurrencies are a subset of alternative
currencies, or specifically of digital
currencies.
•To date, there are roughly 67,00
cryptocurrencies in the world that have a
total market cap around $1.6 Trillion, with
Bitcoin holding a majority of the value
BITCOIN
•Bitcoin and the Bitcoin Blockchain—
• Bitcoin is a virtual monetary unit and therefore has no physical
representation. A Bitcoin unit is divisible and can be divided into 100 million
“Satoshis,” the smallest fraction of a Bitcoin.
•The Bitcoin Blockchain is a data file that carries the records of all past
Bitcoin transactions, including the creation of new Bitcoin units. It is often
referred to as the ledger of the Bitcoin system. The Bitcoin Blockchain
consists of a sequence of blocks where each block builds on its predecessors
and contains information about new minutes.
•The first block, block #0, was created in 2009; and, at the time of this writing,
block #494600 was appended as the most recent block to the chain
WHAT IS THE VALUE OF BITCOIN ?
•Bitcoin are like Diamond or Gold – No Intrisic Value.
•As more people want to buy it , the sellers will charge more. It is
a free market which is as wild as you can imagine. No rules,
regulations or oversight.
•Speculators who think Bitcoin will be successful buy as many
bitcoin as they can.
WHO SELLS BITCOIN?

•Larger Buyers go to exchanges.
•An Exchange is a website with significant software and
funding.
•There are atleast 25 Blockchain exchange in India.
•We can buy and sell the bitcoins using our bank account.
WHY IS ALL MONEY FLOWING INTO BITCOINS
?
90% of Bitcoin buyers are speculators
•A Speculator is a person who trades derivatives,

commodities, bonds, equities or currency with higher
than average risk in return for higher than average profit
potential.
•Speculators takes larger risks specially with reference to
anticipating future price movements, in the hope of
making quick larger gains.
CRYPTOCURRENCY REGULATION IN INDIA
B. Bills proposed by Inter-Ministerial Committee

On November 2, 2017, the Centre constituted an Inter-
Ministerial Committee ("IMC"), which introduced two bills.
The IMC first recommended the Crypto-token Regulation
Bill of 2018 ("First Draft Bill"). The initial approach of the
IMC did not lean towards an outright ban and it was not
opted for on the pretext of it being an extreme tool. It
recommended (i) to prohibit persons dealing with
activities related to crypto tokens from falsely posing
these products as not being securities or investment
schemes or offering investment schemes due to gaps in
the existing regulatory framework and (ii) to regulate VC
exchanges and brokers where sale and purchase may be
permitted.
A. RBI PRESS RELEASES- The first instance of reluctance

towards cryptocurrency can be traced back to
December 24, 2013 when the RBI vide a press
release6, cautioned the users, holders and traders of
VCs, including Bitcoins, litecoins, bbqcoins,
dogecoins etc., inter alia, about the potential
financial, operational, legal, customer protection and
security related risks that they are exposed to.
Additionally, two cautionary press releases were made
on February 1, 20177 and December 5, 20178,
respectively, through which RBI reiterated the risks
and clarified that it has not given any licence or
authorization to any entity or company to operate
schemes or deal with Bitcoin or any other VCs.
Instead, the Banning of Cryptocurrency and Regulation
of Official Digital Currency Bill, 2019 ("Second Draft
Bill") was introduced. It proposed to ban usage of VC's
as legal tender. Further, mining, buying, holding,
selling, dealing in, issuance, disposal or use of
cryptocurrency in the country would be prohibited.
The use of cryptocurrency: (i) as a medium of
exchange, store of value or unit of account; (ii) as a
payment system; (iii) for providing cryptocurrency
related services to customers/investors such as
registering, trading, selling or clearing; (iv) for trading
with Indian currency or foreign currencies; (v) for
issuing cryptocurrency related financial products; (vi) as
a basis of credit; (vii) as a means of raising funds; and
(viii) as a means for investment was proposed to be
prohibited
C. Imposition of a ban
The cautionary measures took a steep incline when the RBI
vide circular dated April 6, 2018 - Prohibition on dealing in
Virtual Currencies11 ("RBI Circular"), imposed a substantial
ban on dealing with the VCs.
The RBI Circular, with immediate effect, directed that
entities regulated by the RBI shall not deal in VCs or provide
services for facilitating any person or entity in dealing with
or settling VCs. Such services included maintaining
accounts, registering, trading, settling, clearing, giving
loans against virtual tokens, accepting them as collateral,
opening accounts of exchanges dealing with them and
transfer / receipt of money in accounts relating to
purchase/ sale of VCs.12
Therefore, the private individuals or businesses dealing
with VCs that required assistance from such entities were
virtually precluded from continuing their operations.
D. Landmark judgement by Supreme Court
The tide shifted when the Hon'ble Supreme Court on
March 4, 2020 in Internet and Mobile Association of
India V. Reserve Bank of India13 ("Judgement"), with a
three-judge bench comprising of Justices Rohinton
Nariman, Aniruddha Bose and V. Ramasubramanian,
lifted the ban imposed by the RBI Circular. The court
predominantly examined the matter from the
perspective of Article 19(1)(g) of the Indian
Constitution, which is the freedom to practice any
profession, or to carry on any occupation, trade or
business, and the doctrine of proportionality.

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BLOCKCHAIN AND

Imagination is more important than knowledge. For Knowledge is

THE NEW REVOLUTION?

To understand the power of blockchain systems, and the things

The Trust Machine, THE ECONOMIST, Oct. 31, 2015

Permits transactions to be gathered

Cryptographically chains blocks in

Allows the resulting ledger to be

ONE OR MORE NODES

INITIATION AND • Digital Signature

VALIDATION OF • Proof of work and certain

CHAINING BLOCKS • Hash Function

 It can be used without a central authority by

WHO SELLS BITCOIN?

90% of Bitcoin buyers are speculators

•A Speculator is a person who trades derivatives,

B. Bills proposed by Inter-Ministerial Committee

A. RBI PRESS RELEASES- The first instance of reluctance

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