By Ritwik Shrivastava, fourth year student (5 year B.A.LL.B.), National Law Institute University, Bhopal
The National Payments Corporation of India (“NPCI”) is developing a new Distributed Ledger Technology (“DLT”) platform for automated payment and settlement. Named Vajra, the NPCI promises it to be a highly secure, automated evidence-securing platform for payment, with the evidence stored on immutable distributed hashes.
The platform seeks to set up a permissioned network of distributed ledgers, so that only the authorized personnel or parties approved by the Network Administrator, or the owner of the permissioned blockchain, in this case the Government, can be a part of the network. A public blockchain is permission less blockchain, available for anyone to read and edit. They are completely decentralised and immutable. On the other hand, a private blockchain, like the one Vajra is set to operate upon, is a permissioned blockchain, wherein there are restrictions placed on who can participate in the network and the type of transaction one can undertake. It promotes transparency, and can minimise the transaction time to a fraction of a second.
What makes Vajra a unique payment solution is accordingly the security aspect derived out of its DLT-based functionalities. DLT trumps traditional database management in terms of replication and authorization of data, as consensus of the majority of peers is required to confirm or authorize any given transaction. Other benefits of this platform are that it provides for real-time clearances, higher resilience and automation of digital payments, minimizing financial risks by providing for an audit trail, dispute management, elimination of intermediaries, and data security.
The entire network is based on permissioned blockchain technology, and utilizes all the basic functionality of a blockchain-based system. Currently, the following components make up the Vajra architecture: [1]
1. Clearing House Node (“CHN”)
2. UIDAI Node (“UN”) or Notary Node
3. Participant Node (“PN”)
The CHN is maintained by National Corporation of India (“NCI”). It is the admin node, and issues certificates and authorization to access to the participatory nodes. The UN are nodes which come into picture when AADHAR or biometric is used by participants for authorization. The validation starts after receiving the transaction authorization from the CHN. The last node, the PN includes all banks/PSPs/PPIs, etc. These nodes can view, post and receive transactions on the platform. For example, for a transaction involving a bank and a PSP, only the concerned 2 PNs will post, receive and involve themselves in the transaction. Other banks and participants will be able to view the summary information of the undertaken transaction.
The NPCI in its White Paper [2] has provided for real-time scenarios as examples of how transactions shall be undertaken on the Vajra platform. One is summarily discussed hereinunder of a UPI payment from Bank A to Bank B.
For the first payment request, 10 DLT requests shall be initiated on the DLT platform, all linked to the first hash (the data-bit which contains the information). Post reconciliation of information across payee’s and payer’s bank details, the hash 1 is validated and added to the ledger. For the second payment request, a similar process is undertaken by creation of hasg 2 created being linked to hash 1. At the end of every 15 minutes, the NPCI shall upload all the information on the RBI NTRGS system for record preservation purposes.
As novel as the idea of such a platform is, its real-time extrapolation and societal uptake is riddled with obstacles and challenges. Some of them are:
– Getting banks and PSPs, some of which are developing their own ledger-based solutions, on-board with the notion of a private blockchain to be regulated by the central government has numerous policy-related complications.
– The existing infrastructure in the internet banking sector needs to be revamped and equipped with the requisite computing capabilities.
– Blockchain does not have its own disaster recovery mechanism. Additional problems arise if an infrastructure failure occurs in-between an ongoing transaction.
– The user interface of the platform needs to be so created as to be accessible to a layman. Moreover, the gaps between existing awareness of a common man, and the degree of awareness needed to effectively understand and operate a DLT-based payment platform needs to be filled by the government.
Other such wallets are already in existence all over the world. Some are worth looking at to understand the potential of Vajra. Eversend is a multi-currency, DLT-based e-wallet. It has partnered with organizations like the United Nations Refugee Agency, and the French Tech Ticket, and is currently operational across Europe, Africa and the US, since 2017.[3] It is touted to be the forerunner in terms of realization of DLT in finance, cutting down as much as 70% in foreign-exchange costs. There are several other blockchain-based wallets which are operational and country-specific, like Change, in Singapore, Kirobo in Israel. IBM has also launched a worldwide blockchain-based real-time payment network called IBM World Wire [4] now operational in over 50 countries.
The government has visibly remained cautious of adopting cryptocurrency and recognizing crypto-assets as negotiable instruments. The adoption of Vajra however is a welcome step by the government, wherein one of the features of the DLT is being adopted to facilitate transactions via blockchain. Vajra is reminiscent of the rising importance of DLT in banking.[5] The Finance industry has been indulging in the DLT since long. Beginning with cryptocurrency, the industry has divulged into all aspects of management, exchange and insurance of crypto-assets. This has come at a time when existing financial institutions are beginning to join other such regulated ledgers in order to expand their financial horizons. A strong example of such a deference is that of the ICICI Bank joining JP Morgan’s blockchain platform called Interbank Information Network.[6]
Endnotes
[1] Narang Gupta, Vajra- A New Blockchain-Based Payment Platform Announced By NPCI in India, TechQuila (January 1, 2020), https://www.techquila.co.in/vajra-new-blockchain-payment-platform-by-npci/. [2] Narang Gupta, Vajra- A New Blockchain-Based Payment Platform Announced By NPCI in India, TechQuila (January 1, 2020), https://www.techquila.co.in/vajra-new-blockchain-payment-platform-by-npci/.
[3] Kenneth Ntende, African Tech Success Story: Eversend, the Mobile Only Banking Alternative, DuSuPay Blog (April 18, 2018), https://blog.dusupay.com/blog/african-tech-success-story-eversend-the-mobile-only-banking-alternative/. [4] Vardaan, IBM Launches ‘World Wire’, A New Global Blockchain-based Payment Network in Over 50 Countries, IndianWeb2 (March 20, 2019), https://www.indianweb2.com/2019/03/20/ibm-launches-world-wire-a-new-global-blockchain-based-payment-network-in-over-50-countries/.
[5] Vishal Anand Kanvaty, The rising significance of blockchain in the banking sector, NPCI, https://www.npci.org.in/rising-significance-blockchain-banking-sector. [6] IW2 Research Team, India’s ICICI Bank Joins JP Morgan’s Blockchain-based Payment Project, IndianWeb2 (October 3, 2018), https://www.indianweb2.com/2018/10/03/indias-icici-bank-joins-jp-morgans-blockchain-based-payment-project/.
Recommended Reading:
1. https://inc42.com/buzz/npci-launches-blockchain-based-vajra-platform-to-secure-payments/