BY WILL HICKEY
Blockchain is the decentralized system that underpins cryptocurrencies. It offers a secure and impartial platform that can store vast amounts of transactional data for any asset that can be digitized. It cannot be manipulated or hacked due to its complex security features and the legacy of transactions that promote continuity, much like real objects in the physical world.
At its extreme, this means that blockchain has the potential to eliminate bureaucracy in governance, if ideally applied. This is of particular importance for developing countries with politically appointed and top-heavy bureaucracies and histories of corrupt practices. Although blockchain’s IT proficiency has already been proven, it remains to be seen whether it can gain acceptance from politicians and elites who stand to lose the most from disrupting the current structures of governance.
Blockchain traces its origins to 2009 with Bitcoin, an experiment by unknown authors under the pseudonym Satoshi Nakamoto to create a digital currency, based on data alone, that would be free of the political entanglements and compromises that have plagued many of the world’s socioeconomic systems. In late 2017, this experimental cryptocurrency had gained so much value that many believed it would usher in a new global currency free from government interference and fiat. As of early 2019, the price of Bitcoin has lost over 85 percent off its highs. But a silver lining has emerged in its core technology: the blockchain system that underpins it, which verifies all transactions by numbers and algorithms for data-driven decision-making and is inherently apolitical.
The core idea behind blockchain is simply to get computers to prove that they are trustworthy and stamp that trust on all of the “blocks” of digitally recorded transactions. Data are immutably recorded in the system—free of human interference—and cannot be changed or manipulated.
This structure could change the way business is done and governance administered and, in the process, enhance accountability and efficiency, minimizing corruption or making it simply too costly to engage in.
What Is Blockchain?
Blockchain is a distributed ledger—a database that is shared across a public or private computing network. Each computer is a “node” in the network that holds a copy of the ledger. This is storage intensive, but it also presents an incredible benefit: there is no single point of failure to the system. Every piece of information is mathematically encrypted and added as a new “block” to a “chain” of historical records. When a new block is added to the chain, the other nodes in the network use a variety of consensus protocols to reach agreement to validate updated information.
The blocks together create a perfect audit history of transactions. One can go back and see a former version of the database at any point in time, creating perfect transparency of all data recorded. If recording things like property titles, one can see all previous owners of the property (provided they were previously recorded) up to the current owner.
The key to blockchain’s potential is that it gives data the continuity of real-world assets. That is, it ensures that data cannot simply be “deleted” on the whim of one person or even a group of people. In fact, any asset that can be digitized—such as a certificate, deed, bank statement, spreadsheet, or diploma—can be recorded on the blockchain.
The entire world’s legal and political systems are based on continuity of assets—in other words, establishing a paper trail. Diplomas, passports, licenses, notaries, stamps, government-issued identifications, and titles, among other documents, create and extend this continuity to objects in the physical world. Without continuity, there is no foundation for trust in a system of transactions. Currently, we depend on intermediaries such as governments, banks, and insurers to create continuity.
Blockchain disrupts this tradition. Its continuity of transactions forms an encrypted chain of data to create veracity by the majority. Continuity of data can make all
digitized things pertaining to physical documents suffice without the need of any physical repository. The blockchain’s clear and unambiguous record cannot be corrupted or changed later, which has disruptive implications for traditional governance. Simply, any political decision can be complemented by truth in numbers not influenced by subjective compromises. This is referred to as a “decentralized autonomous organization,” or DAO, which means the automation of governance and decision-making., It must be noted, however, that the entire concept of these systems remains highly contentious.
The frictions and inefficiencies of traditional bureaucracy also open unintended opportunities for wrongdoing, from petty theft and pilferage to the large-scale corruption and rent-seeking activities of government officials and elite insiders. The blockchain mitigates this by veracity in numbers. Further, the implications of limiting corruption could have even bigger implications on mega-projects, such as refineries or nuclear power plants, which must come in on budget, as well as on longer-term government macro-initiatives, such as economic development and poverty alleviation.
Blockchain is already undergoing furious application development in a variety of other contexts. While financial technology, “FinTech,” solutions are predominant due to the cashed-up interests driving them, blockchain usage now encompasses food security, diamond registry, and musical and artistic creation. But its most useful application and biggest potential is yet to be seen: underpinning governance as a neutral and uncompromised data-verification system.
To be sure, blockchain is not without some serious limitations. First, it is an electricity hog, making it environmentally destructive and expensive. Second, it requires huge amounts of digital storage. Third, it can only process a limited number of transactions per minute. This presents challenges for scalability, particularly in a developing-world context where it could prove most useful in restoring trust to multitudinous government transactions.
The Blockchain and Peer-to-Peer Platforms
The consensus between parties creates the trust needed to engage in transactions. The identities of these parties on the network can be established definitively via their exclusive digital “signatures,” and in turn, these individuals can sign and verify transactions themselves or peer-to-peer. The integrity of the data is ensured between two participants without need for a third party, such as a bank or government, to officiate or referee the transaction. This reduces the potential for corruption and, ultimately, lowers transaction costs of routine processes currently fulfilled by government.
For example, the United Nations has used a blockchain-based distribution solution to deliver some of its aid to war-torn Syria. They authenticated individuals by using biometric data to ensure the aid was given to the right people and distributed equitably. This process reduced leakage in the form of illicit fees and commissions; in particular by rent-seeking officials.
The reality of implementing blockchain in such situations faces significant challenges from political leaders and human systems with vested interests. Still, blockchain presents an opportunity to reform systems where vast economic and development programs have been unsuccessful.
For example, take what blockchain can potentially do for land ownership and transfers. On a planet of 7.5 billion people, arable land is a finite scarcity and a historical family legacy for many. However, proving clear title and ownership to that land becomes a business in itself, particularly in developing countries. In some cases, officials or politicians in countries with weak legal rights will carefully observe unclaimed or unaccounted land over time. Then, when opportunity arises, they will adjust books, deeds, and vague titles to usurp it for themselves. Additionally, transferring land, or any scarce resource, becomes an opportunity for all types of bureaucracy to insert themselves: tax officials, notaries, surveyors, environmental authorities, and others. This results in tremendously slowing down the process or making it outright impossible for the poor to transfer land or prove ownership.
If transactions could instead be rooted in verifiable data—and outside of government file cabinets, which are overseen by people who can be compromised—unbiased veracity of all transactions could be assured. Limiting opportunities for corruption would be extremely valuable in the further economic development of developing countries.
For example, blockchain is currently assisting multinational diamond retailer DeBeers, with a real way to ensure that the diamonds in its supply chain were not mined in conflict areas using forced and child labor. Today, blood diamonds are laundered into the system by paying off customs officials and border guards to make them appear as if they were mined somewhere else. An encrypted blockchain database could be used to allow only those with permission to record the diamond’s journey—from mining to cutting to selling—on an immutable record. Anyone involved in future transactions could go to the blockchain ledger and seek the entire history of that particular item.
Blockchain in Deeper Introspect for Governance
Governance entities, whether democratic, authoritarian, theocratic, or of some other type, claim monopoly on violence over a specific territory. In return, they are expected to provide government services such as police and military, dispute resolution, and civil enforcement for citizens. Thus, the verifiability of public and civil records are essential. If these can be made verifiable via blockchain, much bureaucratic meddling, inefficiency, and opportunities for corruption could be mitigated.
Blockchain technology, in tandem with the unprecedented power of computing in the 21st century, enables, for the first time, a way to verify transactions of government without a single authoritative third party. Now may be the best time in recorded history to revisit and question reliance on the traditional Westphalian nation-state framework that has structured global politics for over 350 years. In the face of new technology, it may now be an outdated governance system blocking human social and economic evolution and discourse.
Governments themselves need not be adversarial to developing blockchain. They could drive transformative applications in identity, health care, and digital currency systems in desperate need of updates. They have the incentive and the critical mass, in particular in developing countries, to be receptive to blockchain technology.
Perhaps the greatest benefit of disrupting the traditional structure of government power and nation-state monopoly on record keeping is that nation-state borders continue to represent oppression for millions, particularly in the developing world. Oil and gas can flow freely under borders, but humans cannot go freely over them. The tensions created by arbitrarily drawn state borders are perhaps exemplified by both the Berlin Conference of 1885 and, 30 years later, the Sykes–Picot Agreement in 1916. In the former, borders were arbitrary drawn by European powers (with no Africans present) under a German king, to satisfy his craving for territorial hegemony. In the latter, during the waning years of the Ottoman Empire, Middle Eastern borders were crudely drawn pursuant to European colonial interests of that period. Both continue to this day to exacerbate fighting and ethnic disagreement. It is noted that attempts to redraw borders in Africa or the Middle East based on ethnic and tribal identity has largely failed, only to be met with war, as the Westphalian system gained root quickly and became intoxicating, forever empowering an elite base in each country that had no incentives to return to former ways.
A blockchain is simply a method for any data or information to be stored electronically and distributed across an entire userbase for public disclosure. This information for any transaction past and current is, therefore, transparent, with an exact time stamp. By contrast, government data siloed in bureaucratic offices are inherently nontransparent. The blockchain ideally serves to simplify citizens’ interactions and access to information, while reducing corruption.
The blockchain is not merely about IT and computer code for accounting. It represents a fundamental shift in thinking—away from the purely physical realm of transactions conducted under the watchful gaze of government officials, lawyers, and bankers. It makes possible a virtual realm where an interaction can be completed between two parties with their trust underpinned by encrypted data that ensures asset continuity. In other words, the technology is there to create an entirely new world of governance.
In order for blockchain to be most effective and useful for society, it has to overcome significant problems of political acceptance and scalability. In the developing world, where blockchain could offer some of the most transformative solutions, problems with current governance—technical barriers, in particular—could make its adoption incredibly difficult. While entrenched interests may fight structural political change in creating an unbiased and uncompromisable record, blockchain has the real potential for societal governance transformation.
Dr. Will Hickey is a full professor of management and international business, distinguished ASEAN scholar, and two-time former Fulbright professor for HRD and Energy at Guangdong University of Foreign Studies in Canton, China. He has worked internationally researching and teaching economics, policy, and IB in the areas of localization, investment policy, benchmarking, and human resource audits/evaluation for upstream energy projects. He also is a frequent contributor for YaleGlobal and Project Syndicate.
Edited by: Dee Yusuf
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