Tech, ExplainedFintech
Concept

Blockchain and stablecoins

Ownership with no one in charge.

HOW IT WORKSAn owner signsa transfer witha secret keyThe transfer is sentto many computers inthe networkThey check theowner and agreeon the next blockThe block is added toevery copy, linked tothe one beforeOld records cannot bechanged without everycopy disagreeingMany copies that must agree replace a single keeper of the record.HOW IT WORKSAn ownersigns atransfer witha secret keyThe transferis sent tomanycomputers inthe networkThey checkthe owner andagree on thenext blockThe block isadded toevery copy,linked to theone beforeOld recordscannot bechangedwithout everycopydisagreeingMany copies that must agree replace a single keeper of the record.HOW IT WORKSAn owner signs a transferwith a secret key↓The transfer is sent to many computers inthe network↓They check the owner and agree on thenext block↓The block is added to every copy, linkedto the one before↓Old records cannot be changed withoutevery copy disagreeingMany copies that must agree replacea single keeper of the record.
An owner signs a transfer with a key, computers in the network check it and agree on the next block, and the block is added to every copy of the record.
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A blockchain is a record of who owns what, kept in identical copies on many computers, with no single company in charge of it. A stablecoin is a token recorded on a blockchain whose value is pegged to a currency, usually the US dollar, so that one token stays worth one dollar. Bitcoin is the best-known blockchain.

Here is how a blockchain works in general. Each owner has a key, a long secret number. Whoever holds the key can move what it owns. To send a token, the owner signs the transfer with the key and sends it to the network. Computers in the network check that the sender really owns the token. They then agree on the next batch of transfers, called a block. The block is added to every copy, and each block is linked to the one before it. So nobody can quietly change an old record without every other copy disagreeing.

A stablecoin works on top of this. A company issues one token for each dollar it receives, and holds the dollars, or safe assets such as government bonds, as reserves. A customer of the company who returns a token, after passing its identity checks, can get a dollar back. Other holders usually sell their tokens on an exchange.

In India, gains on crypto are taxed heavily, and the rules are still uncertain. The industry builds anyway, and many global exchanges and custodians build their products in Bengaluru.

Take, for example, a person buying ₹1,000 of Bitcoin. A crypto exchange matches the buyer with a seller, and a wallet holds the key that proves the coins are theirs.

Consider an investment fund that holds crypto for its clients. With MPC custody, each key is split between several parties, so no single person can move the money.

Say a company issues a bond. On an asset tokenisation platform, the bond is issued as a token and settles in minutes instead of days. Platforms like this often use permissioned blockchains, which only approved members can join.

How is a blockchain different from a depository? A depository is one institution that keeps the official record of who owns which shares. A blockchain is a shared record with no single keeper. And the word token here differs from card tokenisation, which replaces a card number with a stand-in number. The RBI's digital rupee is also different: it is issued by the central bank itself.

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