Solving problems for the common man

While the intentions are great for demonetization, it wouldn’t be wrong to claim that the government is not capitalizing the cash crunch(which is going to last a while) with the right tools, to nudge people to adopt digital modes of transactions and instead falling back to dependency of cash as before. If the bigger goal is to make India a less cash economy and eventually a cashless economy, this is a wasted opportunity to not equip the common man with streamlined adoption of digital means.

There is a clear need for all the people to transact and keep their lives going; and with constrained cash flows — the economy is taking a big hit. People are hoarding the little cash that they have restricting the money flow in the market. What if everyone had the tools to transact digitally, people would be willing to go beyond their inhibitions to adopt digital means with the cash crunch literally forcing them to look for alternate options.

While Aadhaar, Jan Dhan Yojana and UPI are brilliant solutions for the society at large and are already working in order, it is irresponsible for the government to be not capitalizing them at this juncture of demonetization.

With the need across the spectrum of people (from digital adopters; digitally equipped but not so incentivized folks to use digital modes; to even lesser privileged folks without digital tools) to transact and participate in the economy, it is disastrous to not provide a streamlined way to get them on-boarded into the digital framework.

People could have been brought to a state where anybody could be transacting just by knowing the phone number of other party. Imagine somebody being able to pay an auto rickshaw person at the end of the trip or paying a street food vendor, buying from the nearby kirana store who couldn’t afford a Point of Sale device, to even making the merchants to make digital payments to his/her suppliers. There couldn’t have been a better time to boost and create a snowballing effect for people to adopt the framework that is already available but was just simply not provided or pushed for the masses.

The common man would have hardly needed to go through the hardships and more importantly reducing the dependency on cash for his daily needs and installing the behavior shift to reach the cashless economy sooner than later. Instead, everyone is hoarding cash and falling back to cash. This demonetization process simply becomes a painful reset process for the common man and it is even more saddening when the loopholes to convert the black money are wide open and accessible by the same people who was meant to have been impacted.

Coupling cash crunch with demonetized note exchange process

Besides the solving problems for the common man to freely participate in the economy and possibly accelerating the digital adoption by people — from creating bank accounts to getting them signed up with UPI, there is an ubiquitous need for everyone from the rich to the lesser privileged folks to exchange their demonetized notes.

The case today is that a good portion of the demonetized notes are only getting converted into new banknotes and getting locked up again, particularly as far as the hoarders are concerned. Even if this is achieved at a discount it destroys the overarching goal of destroying those black money or at least getting them back into the economy. Only the common man ends up on the receiving end for an ineffective cause.

With the limited banks as trusted sources and acting as gatekeepers to convert the notes, it stifles and puts pressure on both the bankers and the people to get them converted. A more decentralized(permissioned blockchain though) and distributed trust solution as described below could possibly alleviate the travails for the common man significantly. And more importantly, the process also gets them equipped into a state to participate in the digital economy be default.

Permissioned Blockchain Network

With the need clearly established for people to convert their demonetized notes, it would be helpful in having more trusted touch points beyond what is available today (i.e limited bank branches). These are essentially trusted entities to make sure they do the following 3 things:

1. Convert your demonetized note into legal currency

2. Link your legal currency into bank accounts and/or banknotes(limited)

3. Collect old demonetized notes

The blockchain network decouples the above the components and empowers individuals or more trusted entities with decentralized trusted framework and it works in the following way

1. Authentication and Authorization

We have about 1 billion registered Aadhaar people in the country also having a digital biometric fingerprint linked with it. If there was a simple app in the play store where people could download freely, provide all the details to establish their identities with Aadhaar, fingerprints or IRIS scanner, etc — as part of the registration process to go about converting their demonetized notes; and if we get them on-boarded onto the Jan Dhan Yojana, UPI and India Stack simultaneously, they are ready to participate in the digital economy going forward. Once the identity is established and having gotten them to an end state where they could transact just with their phone numbers without any restrictions. A maid in city for the first time gets a bank account created and also registered with the UPI network. With the cash crunch her employee could pay her salary just knowing her phone number — and without having to know her net bank account details. Having enabled her, she could again use the same way in purchasing the groceries or food supplies and all without being dependent on cash. The cycle goes on and the network grows slowly driving change the behavior. This could be a momentous point to get traction with the above said initiatives accelerating into the future sooner.

2. Tokenizing Demonetized Notes

The mobile client connects to the blockchain network with the identity established above. The notes are scanned, the legitimacy of the note is established in capacity available on digital medium, unique identifier is captured from the image which is then fed into the network for proof of work. The first step in the proof of work matches up with a list of known identifiers printed by the federal reserve bank to prove its legitimacy. The network also makes sure there it is the first time the notes are being tokenized and prevents duplication so as to avoid double spending. Once the proof of work is complete, the digital equivalent is attached to the identity of the person (and therefore the bank account and therefore UPI) and is only a step away from being able to use those digital tenders. The digital money is now put on hold and completing the third step would help release it to be able to participate in the economy.

Leveraging the possibility of smartphones and play store distribution, a democratized solution is made available to the masses directly to convert their demonetized notes (even if it is a single note) into digital tenders and also enabling them to participate in the digital economy. For the people without smartphones, other people with could pitch in — like the employer getting the maid on-boarded — or even dedicated touch points for the same. It is to be noted that the trust here is drastically reduced here with the network doing the chunk of work and the touch points merely facilitating access to the network, something similar to how people got themselves registered with Aadhaar.

Sample Tokenized Vault

In the process, every physical demonetized note gets a digital footprint to be able to track down the cash supply in the market and also determine the percentage of notes that would not be recovered.

3. Capturing Demonetized Notes

It is important for the federal bank to retrieve the demonetized note and this completes the process of converting old notes and releasing digital money that was captured earlier. These need more trust bearing a physical aspect and have to be restricted to banks nonetheless. This is perfectly fine as still the workload is significantly reduced at scale, with merely needing to collect the notes and verifying the identity of the depositor from the decentralized network and unblocking their linked digital money. It is magnitude better again as the trust of the identity and tax implications are by default taken care by the network and the trust of the banks are restricted to collect the demonetized notes from the right person (the identity that they used while capturing those same notes).

With the money being released now, people could freely transact just using the phone numbers. People with smartphones have a better experience with the fingerprint and other metadata to the 2 factor authentication; while those with feature phone would have to work with USSD and SMS along with OTP for transaction. Nonetheless, every person would have gotten to a state where they have been enabled with the tools to transact digitally and obliterating the need for cash for most parts. Going forward, with all the people having been on-boarded into the different systems like JAM, UPI, etc, they would be in position to enjoy the benefits going forward and rapidly bringing efficiency in the way economy would work.

Setting up such touch-points even post demonetization date is quite a reasonable expectation and one that is quite scalable. Only the blockchain need to have been thought out well beforehand and that could have possibly been done as proof of concept internally prior to demonetisation insinuating for other needs.