Blockchain, the past, present and further

Go to the profile of Julien Hamou
Jan 03, 2018
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Last month, a discussion on blockchain and its applications took place at the OECD with:

  • Greg Medcraft, Director of the OECD Directorate for Financial and Enterprise Affairs
  • Loretta Joseph, Director of Business Development at the Sydney Stock Exchange
  • Joseph Weinberg, Co-Founder and CEO of Paycase
  • Ben Yablon Chief, Strategy Officer at Salt Lending

The discussion focused on the potential of blockchain technology and the opportunities it creates in many areas of our economies. Watch and react!

Do you know other successful use cases that you would like to share? 

Watch more: Understand the Blockchain in Two Minutes

Read on The Forum Network: How blockchain can change voting: the Colombian Peace plebiscite

Go to the profile of Julien Hamou

Julien Hamou

Campaign Co-ordinator, OECD

1 Comments

Go to the profile of Carlos Santiso
Carlos Santiso 2 days ago

There is indeed a lot of hype and hope on the potential of blockchain technology to restore trust in government. Blockchain will not solve all government problems, but can help curb corruption and restore trust in government.

Blockchain technology emerged in the financial sector, enabling cryptocurrencies such as bitcoin. While still being tested, its disruptive potential in the public sector cannot be overstated. Pilots and proofs-of-concept are mushrooming, driven by a myriad of tech start-ups in a wide variety of areas, such as identity management to property registration and diamond trafficking.  Given the hype, we need to think more critically of what it can and cannot do before policymakers embrace its allure.
 
This is especially true of expectations that blockchain will strengthen integrity and root-out corruption in government. How policymakers use blockchain to build more trust and transparency in government is a critical issue that will be on top of the political agenda in many countries, especially in Latin America. The World Economic Forum’s regional summit in March 2018 will look at harnessing the potential of digital disruptions to restore trust and foster integrity in government.  Early evidence suggests that that the technology has to be built on the foundation of strong institutions.

 Testing integrity solutions 
Blockchain makes corruption more difficult because it is a distributed-ledger technology that can certify records and transactions – or “blocks” – without the use of a central database and in a way that cannot be tampered with. It provides an unprecedented level of integrity, security and reliability to the information it manages, reducing the risks associated with having a single point of failure. It eliminates the need for intermediaries, cuts red-tape and reduces the risk of arbitrary discretion. It also makes it possible to track and trace transactions. The immutable trail of transactions can be used by law enforcement and government auditors. 

 
Blockchain technology is particularly suited to prevent corruption in the registry of assets and the tracking of high-risk transactions.
 
A first set of blockchain-based solutions relates to property registries and land titling. Building immutable title systems on a blockchain can prevent fraud and encourage banks to lend against land. Sweden is trialing a blockchain-powered land registry to make the details of real estate transactions visible to all interested parties. Georgia is making good progress in registering land titles using blockchain technology, while Ukraine is looking into it to reform its land registry process riddled with red-tape. However, Honduras sought but failed to create a decentralized database of land titles using blockchain.
 
Blockchain technology is also being tested to create tamper-proofed company registries, which would help determine their true beneficial owners and prevent money laundering. This application would make know-your-customer regulations easier to comply with and would allow for more effective oversight by financial regulators, law enforcement and tax administrations. Delaware allows corporations to utilize blockchain for the registration and transfer of ownership of stocks.
 
A second set of experiments evolve around high-risk government transactions, such as public contracts and cash transfers. These applications seek to mitigate the risk of fraud and leakage in the flow of funds. The OECD estimates that corruption adds up to 10% of the total cost of doing business globally and up to 25% of the costs of contracts in developing countries. Public contracting has become increasingly digitalized and transparent through e-procurement, and blockchain-based integrity solutions could add an extra layer of security to the process by locking-in critical information along the procurement chain. This information could be more easily monitored, tracked and audited. Mexico has recently started testing blockhain-based application to public contracting. “Smart contracts” could also eliminate arbitrary discretion in the contracting process.  They would allow the automatic exchange of assets to be programmed into an inalterable blockchain that would execute itself autonomously based on programmed conditions.
 
Hope beyond the hype

However, early experiments tell us that initial conditions matter. Georgia is adding blockchain technology onto a relatively efficient land registry system, adding an additional layer of security. Also, for blockchain to work, there are a number of pre-requisites that need to be met. Existing data must be accurate, registries digitalized, and digital identity reliable. This is not the typical situation in many developing countries, many of which need to “get the basics right first.” 

The governance of blockchains remains to be worked out. As a decentralised system, blockchain is supposed to govern itself. Michael Pisa and Matt Juden warn that governments opting for a public, permission-less blockchain would have to accept “that it will have virtually no control over how that system is governed.” This is why Don Tapscott expects that in the public sector blockchain platforms will mostly be permissioned and private, overseen by a set of trusted validators and distributed in a controlled fashion, where a single government agency vets the master ledger and data entry.

Another challenge relates to the reliability of records, especially first entries. “Like any other database, say Pusa and Juden, a blockchain is a ‘garbage-in-garbage-out’ system. This means that the reliability of records stored on it depends entirely on how they are originated.” For this reason, a “gate-keeper” will have to guarantee the veracity of the information entered into a blockchain.
 
Governments must tackle the weaknesses of underlying institutions and legacy systems. Blockchain technology, per se, will not replace government and solve all of its problems. It will work best where existing systems are already robust. Paradoxically, however, countries which have most to gain from blockchain-based solutions to fix broken legacy systems will also have the hardest time using them effectively.
 
Instilling digital trust

The potential of blockchain technology is enormous and the promise it holds to root-out corruption is simply too great to ignore, in a world scarred by corruption scandals. If it can solve critical challenge such as the point of entry, blockchain technology can help strengthen public integrity and trust in government. For all its uncertainties and risks, it could add a layer of security to records and transactions that are particularly exposed to high corruption risks. The time to pilot, experiment and learn is now .

Blockchain technology is not the panacea, however. It is still in its early days and governance models are still under development. It will take several years to go from pilot programs to broader, government-wide applications. We must also be clear about what its requirements are, what it can do and cannot do, and what value it can add. But blockchain technology is no “magic wand” and we should not expect is that it will replace the need for strong institutions.