Blockchain A Beautiful Technology, But Anonymity Is An Inherent Risk: FM Sitharaman

Finance Minister (FM) Nirmala Sitharaman on Saturday (May 7) termed anonymity as an ‘inherent risk’ in blockchain and urged precaution while using the technology in the future. 

Speaking on the occasion of silver jubilee celebration of the National Securities Depository Limited (NSDL), Sitharaman said, “The anonymity of the person or whoever or the robot is the one which we have to be absolutely readying ourselves as … a future challenge.” 

However, the finance minister also said that using the distributed ledger technology (DLT), colloquially called the blockchain, is ‘absolutely imperative’, and added that the government also supports the use of the same. 

DLT is a beautiful technology which can help in democratisation, but anonymity is an ‘inherent risk’ the country has to guard itself from, Sitharaman said. “Unless we are able to guard ourselves against that anonymous element which can itself pose an inherent risk, we probably will be exposing ourselves much more than ever we would have imagined,” she added.

The securities depository launched a blockchain-based platform for security and covenant monitoring during the event.

SEBI Chairperson Madhabi Puri Buch highlighted the benefits of the technology during the event, but she also raised concerns about its anonymity aspect

Of late, Sitharaman has been very vocal about blockchain technology and cryptocurrencies, which are also based on the blockchain technology. Last month, she said that blockchain could be manipulated and used for money laundering or terror financing activities. Before that, she also called for global crypto regulations to counter money laundering and terror financing issues. 

A similar sentiment was echoed by RBI Deputy Governor T Rabi Sankar in February this year when he pointed out that cryptos were being used illegally for trade and terrorism. 

In addition, RBI Governor Shaktikanta Das had previously called private cryptocurrencies a threat to macroeconomic and financial stability.  

During her Budget speech this year, Sitharaman had announced plans for the launch of a Central Bank Digital Currency (CBDC). A CBDC is designed to be similar to cryptocurrencies, but may not necessarily require blockchain technology or consensus mechanisms. Additionally, CBDCs are pegged to the value of a country’s fiat currency and are less prone to volatility. 

Earlier this year, the US Federal Reserve also expressed interest in launching CBDC. Besides, Russia had also announced plans to launch a digital ruble in October 2017. In total, as many as nine countries have launched their own CBDC.

Meanwhile, the crypto market continues to grow in India despite policy uncertainty. According to a Chainalysis report, India’s crypto market grew 641% from 2020 to 2021, turning the country into one of the largest-growing cryptocurrency markets. 

This also comes in the wake of the US’ Federal Reserve Bank publicly expressing interest in CBDCs earlier this year. Add to that, Russia had first announced its plans to launch a digital Ruble in October 2017. In total, nine countries have fully launched a CBDC- with most of them being located in the Caribbean.