how the blockchain technology behind bitcoin can help resolve farmer distress in india

2015

Atul Khekade

Atul Khekade is Regional

Director at Monetago Inc. , a

digital currency exchange

headquartered in the US with

presence in over 40 countries.

How the technology behind

digital currencies can help

resolve farmer distress in India

ATUL KHEKADE, 2015

How the technology behind digital currencies can resolve farmer distress in India.

This article discusses about basics of currency and debt related to

agricultural production. The global financial system has evolved the

human race ; however it has not been successful in certain situations

which include “act of god”. This paper presents how the blockchain

technology behind peer to peer digital currencies can possibly solve the

problem of farmer distress in India.

Author : Atul Khekade

Atul Khekade is Regional Director at Monetago Inc. a b2b digital currency

exchange headquartered in US with presence in over 40 countries.

Email : atul at monetago dot com

Visit Linkedin profile of author :

https://in.linkedin.com/pub/atul-khekade/6/6b3/907

ATUL KHEKADE, 2015


Table of Contents

1. Introduction

2. The Origin of Money

3. The evolution of Money

a. The Barter Age

b. Precious Metals as currency

c. Paper Money

d. Central Banks

e. Debt

4. Dealing with Uncertainty of nature

5. Digital Currency

6. The New age of Peer to Peer digital currency

7. Blockchain, the technology that enables decentralized digital currencies.

8. How P2P Digital Currency can provide solutions for act of god

a. Enabling direct buying from farmers

b. Crowd-funding or P2P bailout

c. Meeting basic needs

d. Government Bailout

e. Debt Free start

9. The Challenges

10. Summary

ATUL KHEKADE, 2015


Introduction

Recently a farmer committed public suicide at one of the political rallies in Delhi.

Farmer distress and suicide has become a harsh reality that even the best minds in India

haven’t yet been able to find a solution for. Honorable Prime Minister of India, Shri

Narendra Modi recently invited proposals and ideas for the Government to help find

solutions to this problem that is hurting the most important class of grass-root

producers of India, farmers.

Causes that lead to farmer distress have been identified at many levels from lack of

irrigation to lack of training and knowledge e.g. usage of fertilizers. This article

addresses two primary factors towards this distress, uncertainty of nature and debt.

Although uncertainty of nature is a factor that is out of control of humans, how our

current financial system deals with it definitely has a lot to improve. After 2008 financial

crisis, peer to peer digital currencies like bitcoin have taken the world by storm.

“Blockchain”, the technology that enables Digital Currencies is considered the future of

technology as it enables managing currency, finance, assets, and contracts in a

decentralized way without compromising on the security. Although various factors

related to the technology of digital currencies, such as their security, stability and

governance remains a topic of debate, it definitely provides solutions for the many

economic problems including that of farmer distress in India. The reach of digital data

and technology has potential to help at the grassroot level.

The Origin of Money

We are at large a capitalistic society and the way we look at money might be an

in-box attitude. This might be a good time to take a look at the origin of money in the

time when the agricultural produce upon which the system of money was built is getting

costlier day by day. Inflation remains a major challenge in front of the Governments

worldwide. Even worse, the farmers which produce it are facing the toughest time to

even survive. Terms like “return on investment” are making agriculture a not so sought

after activity. Farmland is decreasing and the future shows even more woes of inflation.

Consider a small village where there are 4 families.

ATUL KHEKADE, 2015


Family A - poultry farmer, produces eggs

Family B – producers wheat/bread

Family C – produces cereals

Family D – produces oil

Family Production Needs Excess

A 40 Units 7 Units 33 Units

B 45 Units 8 Units 37 Units

C 50 Units 10 Units 40 Units

D 45 Units 9 Units 36 Units

The table above is the very reason the concept of money was born in the first place.

Family A produces 40 units but needs 7 units.

Family B produces 45 units but needs 8 units.

Family C produces 50 units but needs 10 units.

Family D produces 45 units but needs 9 units.

Hence,

Family A has excess production of 33 eggs units.

Family B has excess production of 37 wheat/bread units.

Family C has excess production of 40 cereal units.

Family D has excess production of 36 oil units.

33 Units of egg

37 Units of wheat 40 Units of Cereals

36 Units of Oil

Money

ATUL KHEKADE, 2015


How your excess production can be traded for your needs became the foundation of

money and hence the financial system.

The Evolution of Money

a. The Barter Age

Barter age was the first step towards concept of trade. One could simply trade his

excess production for the one he needed.

i.e. Family A could go to Family B and trade eggs for bread/wheat

Family C could go to family D and trade cereals for oil.

Barter was the simplest peer to peer trade mechanism and was very successful when

the network of producers was limited in size. It however became difficult to manage

when the network increased in size.

b. Precious Metals

Barter age was self sufficient, but it failed to provide a common unit for trade,

exchange, storage and investment.

e.g. agricultural produce could not be stored because it had a limited usable lifespan.

So Family B had to exchange all of it’s wheat/bread before it could no longer be used by

themselves or anyone else.

Hence precious metals like silver, gold and copper were discovered as a common unit of

exchange. They could be stored and had lifespan of tens of years.

c. The Paper Money

The precious metals like copper, silver and gold did provide a promising unit of

exchange however they had their own limitations.

ATUL KHEKADE, 2015


With large economy, mining equivalent units of precious metals was vulnerable to

problems like shortage of production. The traders also found it very difficult to carry

precious metals while traveling for trade as they could be looted to wipe out their entire

fortune.

Paper became easier to produce and could be issued in almost unlimited quantities. The

cost of paper money production was negligible as compared to mining of precious

metals.

d. Central Banks

Producing, supplying and regulating the flow of paper money into the economic system

became a responsible task and hence central banks were formed specific to the country

for this purpose.

e. Debt

Producing a resource sometimes needs setting up infrastructure upfront. It also needs

raw materials and manpower. Debt system was introduced to arrange for the

infrastructure, raw materials or manpower upfront and then pay from the future

receivables of the production.

e.g. a farmer borrows to purchase tractor, fertilizers , setting up irrigation, buying seeds

before the harvesting season.

Uncertainty of Nature/Acts of God

The concept of debt works just fine in a normal economic scenario. The debtor is

responsible for the future cashflows of his produce and hence takes the burden of debt.

However the debt system fails to respond to the scenarios beyond human reach, such as

uncertainty of nature and act of god.

In a farmer’s scenario, his agricultural produce is primarily dependent on timely and

regular rainfall. The period of harvesting needs perfect timing of rains.

ATUL KHEKADE, 2015


However, there has been dramatic change in the cycles of nature and farmer has been

the most affected by them. Some regions experience back to back 2 to 3 years of

irregular rains, draught or wet draught.

Lets consider a following scenario where a farmer borrows debt for harvesting.

In a country like India, normal rate for borrowing of debt amounts from 15% to even

50% in certain Sahukari lending systems. The farmers rely on Sahukari lending systems

because they do not have access to cheaper capital.

Lets assume that a farmer borrows Rs. 1000 as debt for harvesting. He has to raise this

amount by mortgaging his land of equivalent value.

Rs. 1000 @15% Rs. 1000 @50%

Repayment at the end of the year

Rs. 1150 Rs. 1500

Now, if there is a draught or uncertain natural scenario affecting the harvesting season

and hence production, the farmer may not be able to repay his loans. Then at the end of

1 year, the refinanced debt grows by mortgaging even more share of his land.

Hence, at the end of second year,

Rs. 1332 becomes the repayable amount Rs. 2250 becomes the repayable amount

Effective rate of interest is 33.2% Effective rate of interest is 225%

If another year goes by like this, then at the end of 3rd

year

Rs. 1552 becomes the repayable amount Rs. 3375 becomes the repayable amount

Effective rate of interest is 55.2% Effective rate of interest is 337.5%

With limited profit margins, there is almost no possibility of getting out of such

astronomical interest rates even when the full production is restored and regular rains

are received.

Imagine a time when every morning when you wake up, you know that you cannot ever

get out of the burden of debt no matter what. What would you do then?

There comes the distress and depression leading to the unfortunate..

ATUL KHEKADE, 2015


Digital Currency

The world has experienced a revolution in technology and internet. The cost of

producing and storing data has dramatically reduced. The Moore’s law which predicted

that the number of transistor on every square inch will double every year has held it’s

virtue. Internet, technology and software have reached not just the urban population

but even the grass-root level in rural areas. The penetration of mobile apps and

messengers has reached almost population on earth. People are beginning to accept

technology as a medium for shopping, booking travel and even banking.

As the cost of storing and accessing data has dramatically reduced, the

technology like Blockchain has made it feasible to produce, circulate and regulate

currency through digits. I.e. digital currency.

Peer to Peer digital currencies and the rise of Bitcoin

Technology is an enabler in creating a global village or a flat world. We are

able to experience global brands such as Mcdonalds, Starbucks, KFC, Dominos, Hyatt,

Marriot, Marks & Spencer, Zara in almost every city almost in every country globally.

Over the internet, we are able to communicate, watch content as if we are on a flat

world without any boundaries. Fuel efficient planes have enabled direct flights between

any two destinations of the world in 14-15 hours.

The internet has been a revolution to make the world flat. It’s cheaper or almost

free to communicate with anyone in the world. All this has happened without the

boundaries of cities, countries and continents.

The idea of peer to peer digital currency has been in discussion for a while but it

has taken the world by storm after the 2008 financial crisis when the panic in specific

markets brought the world to a standstill creating severe liquidity crunch in fiat

currencies. Was it an act of god or a natural disaster? No. It was an account error that

led to liquidity crunch in the financial markets.


Peer to peer digital currencies are aimed at creating a global digital nervous

system for the financial world.

Here are some of the benefits of a global peer to peer digital currency system.

• Added medium of liquidity

• Bridge for fiat currencies

• Potential to reach grass

• Ability to act quickly and provide for basic necessities of the affected

without waiting for centralized approvals.

• Enabler to the internet commerce

Blockchain, the technology that enables

To explain in the simplest way, Blockchain is a technology that handles decentralized

public ledger in a way where trust is not compromised. T

and security makes it the technology for creating peer to peer digital currencies.

ATUL KHEKADE, 2015



system for the financial world.


Added medium of liquidity

Bridge for fiat currencies

Potential to reach grass-root level with minimum cost.

Ability to act quickly and provide for basic necessities of the affected

without waiting for centralized approvals.

Enabler to the internet commerce

Blockchain, the technology that enables decentralized Digital Currencies


public ledger in a way where trust is not compromised. The fact that it maintains trust


ATUL KHEKADE, 2015




Ability to act quickly and provide for basic necessities of the affected

Digital Currencies


he fact that it maintains trust


ATUL KHEKADE, 2015


How the the technology behind digital currencies can solve various

economic hurdles and even provide a definitive solution to farmer

distress in India

On 25th April 2015, people of Nepal woke up with a devastating earthquake that killed

over 8,000 people. Hundreds and thousands of families were left devastated. Billions of

dollars of property was lost and damaged. And the world came together to support

Nepal. Millions of dollars were sent to Nepal for relief efforts and helping those

affected. People across the world contributed for making Nepal stand on it’s feet again.

Such is the power of the people. When something beyond human control happens,

people stand for each other, support each other, no central authorities have to be asked

for.

Decentralized digital currencies can harness human potential that gets locked because

of lack of approval and lack of platform. The biggest benefit of decentralized digital

currencies is that they can free flow through the system and reach the needy and

distressed population with instantly. Reacting to act of god, accidents of uncertain

nature scenarios needs quick decision making. The most important need of someone in

distress is getting access to basic necessities of life like food, clothing, shelter and

medical help.

In country like India, Peer to Peer digital currencies has many ways of enabling farmers

with resources that can help them better their lives.

a. Enabling direct buying from farmers

Internet commerce and logistics infrastructure has experienced phenomenal growth in

last several years. Many layers in logistics chain have hampered margins on agricultural

produce that a farmer can get. However with internet profiling, ecommerce backbone

and digital currency wallets on smartphones that can cause as little as Rs. 1000, a farmer

can enjoy higher margin on his produce.


b. Crowd-Funding or Peer to Peer bailout

When a severe draught hits the

over the globe can send help to direct farmers

day. The farmer can then either utilize the digital currency for purchase of

necessities or directly trade them for fiat currency .e.g Indian rupees and pay off the

loan.

ATUL KHEKADE, 2015


eer to Peer bailout

When a severe draught hits the farmers, well wishers from all over the country or all

over the globe can send help to direct farmers’ digital currency wallet and save their

. The farmer can then either utilize the digital currency for purchase of

them for fiat currency .e.g Indian rupees and pay off the

ATUL KHEKADE, 2015


farmers, well wishers from all over the country or all

and save their

. The farmer can then either utilize the digital currency for purchase of basic

them for fiat currency .e.g Indian rupees and pay off the

ATUL KHEKADE, 2015


c. Meeting Basic Needs

Liquidity crunch and reeling under heavy debt gives zero buying power even to meet

basic necessities of life for the farmers. This becomes the reason for major distress.

Having a digital currency wallet with every farmer gives them buying power to use

basic necessities using internet based systems.

� E.g. Each class in the school has capacity for seating 50 students. However there

are only 35 students. Schools can accept fees in digital currency to provide

schooling for farmer kids based on the resources of excess student seats in every

class.

� Online travel sites can provide travel e.g. bus tickets, train tickets or even flight

tickets.

� E-commerce sites can provide basic necessities like home accessories .e.g. tv,

fridge, bed etc.

� Transport and farm equipment manufacturers can accept digital currency and

supply scooter, or even tractors.

ATUL KHEKADE, 2015


d. Speedy Government bailout

Loan waivers or bailouts are an impossible task even for the governments due

to centralized accounting and can take months or years to pass resolution or vote for.

Governments also find it difficult to issue loan waivers because most Governments

already have debt. However, peer to peer bailout enables direct bailout without any

centralized approvals & delays without causing any accounting adjustments to Central

or State Government balance sheets.

A Government can raise digital currency against Sovereign guarantee or even

issue it’s own digital currency to quickly bail out the farmers in distress. The digital

currency issued by the Government can be utilized by the farmers to purchase various

resources or even basic needs. Merchants all over the country or globe can accept the

digital currency issued by the government.

e.g. US Government financed critical expenses during 1860s by issuing Demand

notes or Greenback currency.

ATUL KHEKADE, 2015


Debt free Start

In peer to peer crypto currencies, debt is a non-

existent concept.

I.e. When A sends digital currency to B, the

repayment does not include astronomical interest

rates. Hence when a harvesting season is lost, a

farmer can take a new start to the year by being debt

free and staying free from distress.

The Challenges

The technology behind digital currencies

has infinite applications and scalability and

can reach grass root level.

However there are various factors that

need to be addressed:

� Governance and supply

� Price Stability

� Online wallet security

� Supplying e-wallet enabled phones to farmers

Summary

Peer to Peer digital currencies can provide a bridge mechanism to fiat currencies

of the world and compliment on many fronts that fiat currencies fail to address.

Governments and Central banks should have a open policy and guidelines towards peer

to peer digital currencies as they enable a digital nervous system to the economy

reaching grass root level people and handle situations that need immediate relief

without a centralized approval.

how the blockchain technology behind bitcoin can help resolve farmer distress in india

Presentations & Public Speaking

peer digital currency

p2p digital currency

atul khekade atul khekade

b2b digital currency

blockchain technology

problem of farmer distress

future of technology

basics of currency