India’s Cashless Economy Gets Re-Examined
On November 8, 2016, to curtail the black economy and to eliminate the use of illicit and counterfeit cash for terrorism and illegal activities, the Government of India announced the demonetization of all ₹500 and ₹1,000 bank notes of the Mahatma Gandhi Series. In the weeks that followed, further progress was made to go cashless when the Committee of Digital Payments, headed by former Finance Secretary Ratan P Watal, endorsed testing the digital rupee and the annual Indian Union Budget highlighted a plan to eventually migrate to a completely digital economy.
Security Electronic Technology (SETHK) Limited, a Hong Kong based security consulting firm for the global financial sector, trusts that the emergence of the digital rupee can boost competition, influence greater consumer protection, and allow for a transparent economy.
However, the firm believes blockchain technology is not currently reliable enough in regard to application security to foster a stable digital fiat currency. According to Cheng Luoyang, Head of Research & Development of SETHK, “The technology itself still needs work in respect to gaps in the stability of the system as a whole together with application security.” Cheng Luoyang is referring to vulnerabilities that occur due to nodes having the freedom to enter and leave the network. This makes them susceptible to encryption key theft, address spoofing attacks, route deception, and algorithm cracking.
According to SETHK, information leakage is another possibility that companies and governments should consider since every node in the network maintains a record of every transaction. The release states, “Therefore, the cost of the digital fiat currency should be minimal with the loss of physical logistics costs and benefits of riding on existing digital transaction infrastructure.” It goes on to say that since the cost of replicating, transmitting, and storing the full payment history within every node would become expensive, banks, governments, and companies should focus on solutions that don’t utilize peer-to-peer network capabilities.
SETHK further elaborated that the security strength of the Indian rupee is based on hardware and security elements that go beyond cryptographic algorithms. As a result, the distribution of the Indian rupee should be the sole responsibility of the Ministry of Finance and the Bank of India.