Let us understand how the blockchain works. Blockchain formalises a process which the common man understands intuitively. When one signs a promissory note (IOU), or takes advantage of the hawala system, one is actually working out a system like blockchain. An IOU acknowledges a debt of say 1 lac rupees. An IOU holder will present the note, and one who signed it will have to pay 1 lac. That protects the reputation of the signatory among the business associates. The signatory thus gets branded as trustworthy. In a hawala system, a similar process operates. Here the IOU is notional. It is converted into different currencies while passing hands. Each operator trusts that the other will deliver on the promise to pass on 1 lac till it reaches the final recipient.

The amount of Rs.1 lac or whatever has been initially specified is called a block. The hands it passes through is called chain. The hands in the chain recognise that the value of the block is Rs. 1 lac and not some other amount.

All transacting parties recognise the exact size of the block. The block is simultaneously updated on their individual data bases called distributed ledgers and has unique security features which are temper-proof. The movement of the block can be verified by all parties in the chain. Each block carries a digital imprint or signature of wherever it has been. It creates instant trust. In a hawala transaction the parties put a premium on their trust. Being trustworthy is more important than reneging on it.