This is the first report on legal & policy aspects related to Web3 technologies, developed by VLiGTA, the research & innovation division of Indic Pacific Legal Research. In this report, we have offered a comprehensive overview of state of Web3 policy & governance outlooks in India. The report addresses the state of India’s successful Digital Public Infrastructure, and examines the state of technology governance as well. Further, the report focuses on several kinds of blockchain consensus algorithms, and the issues related to transitioning from using Web2 system infrastructure to Web3 system infrastructure. Sanad Arora’s contributions in Chapter 2 are remarkable. Akash Manwani’s contributions in Chapters 5 and 6 are unique, specific and relevant to the current discourse. It has been my honour to contribute to Chapters 3, 4 and 6, to offer informed perspectives and analyses. We have offered thought models and suggestions in the form of use cases of Web3 in areas such as data portability, voting, supply management, decentralised exchanges and zero-knowledge taxes. With this general technical report, we hope to offer more contributions in India’s Web3 policy space, in future.
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The conclusions and recommendations provided in the report are described here as well.
The choice between centralized and decentralized technology infrastructures should be made thoughtfully, considering the specific needs and objectives of each application. Decentralized approaches offer greater transparency and data integrity but may require careful scalability planning. On the other hand, centralized models can provide efficiency and centralized control but may face challenges related to transparency and accountability. Now, we already see that at Union and State levels, India is trying to develop and provide scalable and sustainable Web3 solutions. For sure, the CDAC proposals of a National Blockchain Service & the Unified Blockchain Network, termed under Blockchain-as-a-Service (BaaS) are ambitious and clear about their objectives. This report concludes with two kinds of recommendations – general and specific. We have offered tailor-made and practical recommendations, which may be workable and could be adapted with.
Recommendations from VLiGTA-TR-004
Mitigating Structural Limitations
Continuously assess the Digital Public Infrastructure (DPI) to identify and address structural limitations as Web3 technologies are integrated.
Adopt a Web 2.5 approach that combines the strengths of both Web2 and Web3 ecosystems to mitigate potential limitations.
Collaborate with stakeholders to develop strategies for a seamless transition to Web3 technologies while ensuring the DPI's robustness.
Using certain blockchain consensus algorithms could certainly be helpful for the Government to invent taxonomies of governance, compliance and transparency when DPI components are built on chains.
Utilizing open source Web3 and Web2 technologies in conjugation would change the economics of infrastructure-related solutions offered by the Government of India under India Stack, and even the proposed National Blockchain Service & the Unified Blockchain Network.
The National Blockchain Service (NBS) and Unified Blockchain Network (UBN) proposals present significant opportunities for enhancing data management, tax filing, voting systems, and global supply chain tracking within India. Leveraging blockchain technology can contribute to increased transparency, security, and efficiency across these domains.
Governance Clarity and Risk Mitigation
Establish clear policies and governance frameworks for the adoption of Web3 infrastructure, encompassing both political and technical aspects.
Ensure that decision-making processes are agile and effective, even in the face of complex challenges (polycrisis).
Safeguard against policy paralysis and potential disruptions to administrative and regulatory systems through proactive risk mitigation measures.
Decentralised Exchanges (DEXs) for Government-to-Government Transactions
The prospective advantages arising from DEX implementation in the sphere of inter-ministerial and governmental financial operations are substantial.
DEXs may be endowed with interoperability capabilities, enabling seamless fund transference amongst diverse governmental departments. This enhancement would serve to elevate the efficiency of financial transactions, concurrently mitigating the specter of fraudulent activities.
DEXs could be harnessed as a facilitative medium for the exchange of Indian Central Bank Digital Currencies (CBDCs) among various government entities. This envisioned application stands to foster the adoption of CBDCs and streamline governmental financial management.
DEXs hold the potential to abate the inherent risks associated with bureaucratic participation in financial transactions by endowing them with a secure and transparent conduit for fund exchanges. Consequently, governmental personnel could redirect their focus towards policy formulation and execution.
DEXs can assume either an open-ended or close-ended configuration, affording governmental authorities the prerogative to select the most pertinent model aligned with their specific requisites. An open-ended DEX would grant unrestricted participation, while a close-ended variant would restrict access to authorized users.
The degree of centralization, decentralization, and federalization of DEXs may fluctuate contingent upon the system's unique architectural design. Centralized DEXs would be subject to sole-entity control, whereas decentralized counterparts would operate within a network of nodes. Federalized DEXs would emerge as an amalgamation of these paradigms, featuring government-operated nodes and privately controlled nodes.
DEXs are adaptable for deployment either in retail contexts, catering to individuals and commercial entities in fund exchange, or in government-to-government scenarios, serving as the conduit for intergovernmental fund transfers.
However, judicious scrutiny and meticulous tailoring of the DEX system's specifications are imperative to ensure seamless alignment with the government's distinct exigencies.
Consequently, the government should engage in a comprehensive feasibility assessment concerning the prospective integration of such a system in the immediate future.
Purposeful Choices for Web3 Adoption
Embrace a technology-neutral approach to accommodate various Web3 use cases while aligning with India's policy vision.
Focus on development-oriented strategies that leverage Web3 technologies to address societal and economic challenges.
Encourage socio-technical mobility by fostering an environment where both public and private sectors can adapt and innovate with Web3 tools.
Leverage leapfrogged access points to ensure that Web3 technologies are accessible and beneficial to a broad spectrum of the population.
National Blockchain Service (NBS) Implementation
Implement the NBS infrastructure as per the proposed four-part regional approach to enhance accessibility and efficiency.
Ensure seamless integration of the NBS with existing government systems like India Stack and Web2 DPI solutions for improved service delivery.
Consider leveraging blockchain technology to enable data portability, following the principles of data fluidity.
Explore the use of Decentralized Applications (DApps) or Decentralized Autonomous Organizations (DAOs) for data portability within a blockchain framework.
Categorize data based on risk levels to determine the extent of portability.
Zero-Knowledge Taxes (ZKT)
Develop a secure and tamper-proof blockchain network for ZKT implementation, ensuring data privacy.
Consider adopting blockchain consensus algorithms for generating and verifying zero-knowledge proofs.
Assess the cost and security factors in choosing between trusting third-party applications or a decentralized blockchain network for ZKT.
Evaluate the potential benefits of blockchain-based decentralized voting, including enhanced transparency and security.
Consider the adoption of cryptographic credentials for voters to ensure anonymity and authentication.
Weigh the trade-offs between centralized and decentralized voting systems, taking into account specific use cases and the level of trust in centralized entities.
Global Supply Chain Tracking
Implement blockchain-powered supply chain tracking to improve transparency and traceability.
Leverage blockchain to verify product authenticity and ethical certifications, providing consumers with trusted information.
Carefully assess the choice between centralized and decentralized supply chain tracking based on the desired level of control and transparency.
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