FM flags anonymity as ‘inherent risk’ in use of blockchain

Finance Minister Nirmala Sitharaman on Saturday flagged anonymity as an ‘inherent risk’ in blockchain technology and called for precautions in future with the increase in the use of the technology.

The Minister made it clear that using distributed ledger technology (DLT), also called as blockchain, is ‘absolutely imperative’ and that the government also supported the use of the same.

Her remarks come ahead of the unveiling of the budgetary announcement of the central bank digital currency (CBDC), which is based on blockchain technology and is billed as being similar to the paper currency carried in our wallets.

“The anonymity is… one unknown element in this whole thing. The anonymity of the person or whoever or the robot is the one which we have to be absolutely readying ourselves [for] as … a future challenge,” Ms. Sitharaman said, addressing an NSDL event here.

She said DLT was a ‘beautiful’ technology that would help in democratisation but flagged anonymity as an ‘inherent risk’ that “we need to guard ourselves from”.

Terming anonymity as a ‘powerful imponderable’ in the whole equation, Ms. 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 commended capital markets regulator SEBI chief Madhabi Puri Buch, who spoke before her at the same event, for “rightly warning us” about the risk of anonymity, and also for advocating DLTs.

Ms. Buch said the authorities did not ‘wish to have anonymity in the CBDC’, which is set to be introduced during this fiscal year by banking regulator RBI.

As per the central bank, considerable progress has been made regarding the introduction of the CBDC.

Ms. Buch said the strengths of DLTs included transparency, real time information, infinite divisibility and it being a cost-effective medium.

Ms. Sitharaman said the retail investment journey had transformed in the last two or three years, with new demat account openings zooming to 26 lakh per month in FY22 from 12 lakh in FY21 and just 4 lakh a month in FY20.

She said retail investors act as “shock absorbers” as foreign portfolio investors enter and exit the market as per global cues.

Pointing out to the total $4 trillion in custody value held by NSDL, Ms. Sitharaman said the buoyancy in retail account opening was a prime reason for the high asset value.

A postage stamp and cover commemorating NSDL’s 25-year-long journey were also unveiled at the event. The depository also kick-started a programme aimed at educating college students about capital markets.