Reimagining the future of digital payments with blockchain

Digital payment platforms are ubiquitous in India. Every day, Indians are actively making transactions using digital wallets and payment platforms because of their efficiency, simplicity, and swift functionality. However, it’s not all roses; data breaches and hacks have been plaguing the traditional payment system for a while, causing their users a great deal of trouble. Nonetheless, blockchain-based payment systems can help resolve these incredibly vulnerable situations to a larger extent with better levels of privacy and security.

A noteworthy tipping point for the growing digital-payment-habit in India was catalysed by the 2016 demonetisation. During this time, the Paytm Wallet user-base shot up from 125 million to 185 million in three months, continuing to onboard a total of 280 million users by November 2017. This trend was complemented by the earlier onset of NPCI in 2009, which brought digital payments instruments like RTGS, IMPS, UPI and Rupay. Shaktikanta Das, Governor, RBI, stated that on average, payments systems in India processed over 100 million transactions worth almost Rs 6 trillion on a daily basis.

However, the scale of usage in the digital payments space is paralleled by its degree of vulnerability to falling prey to hacking and data theft. India is overrun with these reports of fraud; for instance, a Mumbai-based investment banking analyst lost Rs 87,000 while buying beer online via a Unified Payments Interface (UPI)-based digital payments platform whilst a New Delhi-based man lost Rs 91,000 in a digital wallet fraud. In another similar case, an individual lost Rs 38,989 from his Paytm wallet under the pretence of KYC verification.

These are just a few of the many cases that highlight the potential to lose funds. However, it’s not just money at stake, personal information is equally susceptible to such attacks. In 2019, 1.3 million debit card users’ personal details were exposed online. The RBI did direct the banks to investigate but what was done - was done. Yet, unfortunately, it still prevails. Symantec, a cybersecurity company, reported that India was among the top three countries in the world for phishing and malware attacks.

The real problem, however, is not in the platforms, but with the architecture. Traditional payments portals are built on centralised infrastructures and this simply makes them more susceptible to these malicious attacks. Why? Because in a centralised network, one ‘hub’ runs and controls everything, as well as holds all the data. This means it is easier to identify and target that ‘hub’ to disrupt the whole system. In contrast, due to their distributed nature, blockchain-based, decentralised payment architecture can potentially counter such attacks by being a far more difficult and therefore less attractive target.

Payment infrastructures built on blockchains are essentially:

- democratic,

- securer,

- tamper-proof, and

- transparent.

This means a decentralised architecture-based payment portal is virtually hack-proof, way safer than payments platforms built on traditional, centralised infrastructures.

Let me explain with an example.

The 2018 malware hack of the Cosmos Bank’s servers saw Rs 90 crore siphoned off to thieves. The failure to detect this malicious activity was caused by a lack of efficient security and transparency in the system. Perhaps this could have been prevented if blockchain technology was in use. Blockchain technology is capable of maintaining transparency, thanks to its distributed ledgers, which enable early detection as transaction data is shared between all the participating users in a given network.

Moreover, blockchain-based infrastructures are far more resistant to the kinds of attacks that centralised structures are exposed to, by the sheer beauty of the design. Data on a blockchain is marked with cryptographic signatures that can be cross-verified by the users (nodes). If there are attempts to change the data, then the signature is rendered invalid. Blockchain also uses ‘consensus protocols’ among its users, allowing them to validate and record transaction data. This process of verification and validation makes a transaction immutable and tamper-proof.

Additionally, with multiple nodes attempting to reach a consensus for a transaction, it becomes much easier to resist malicious attacks by circumventing any single-point-of-failure. In simpler words, it’s safer, because it’s democratic.

Another important aspect of blockchain technology is protecting user data with digital identities. Most cryptocurrency and blockchain-based user platforms investigate and verify user identities via KYC/AML verifications with government-sanctioned identification, such as a driver's licence. This helps prevent potential fraudulent activities like terrorist funding, tax offences, money laundering, etc. Needless to say, user data is better protected on a blockchain; they can be used to create digital identities, and to verify and secure them with the help of cryptography and its ‘zero-knowledge proofs’.

Thus, as compared to traditional models, it is much easier for a blockchain-based payment system to maintain not only data security but also user-privacy. The industry is already starting to see a steadily growing adoption, with 47 million+ consumers using blockchain wallets, as per a report by Statista. With the growing number of data thefts and hacks, stakeholders in this space are trying to learn from the past while seeking new solutions. Thanks to novel blockchain protocols and intuitive decentralised applications, a more efficient synergy between technology and businesses can be created, which in turn, will help devise sustainable infrastructure to provide top-notch data security and privacy to users everywhere.