- Blockchain offers a range of valuable qualities, particularly related to tamper-evident and permanent databases and record-keeping, that can help tackle government corruption.
- This technology must be paired with thoughtful legal frameworks and structures. Blockchain alone cannot prevent crimes.
Blockchain can serve a unique role in preventing government corruption. Its technology offers a singular combination of permanent and tamper-evident record keeping, real-time transaction transparency and auditability, and automated smart contract functionality.
To be sure, blockchain alone cannot wholly prevent crimes or thwart bad actors. While blockchain can complement and enhance existing legal frameworks and social structures, its efficacy is only as great as the system in which it is a part. In the absence of consistent law enforcement, accurate informational inputs, adequate technological know-how, cooperative political elites, and societal good will, blockchain-based governance may prove no more a corruption deterrent than status quo laws and policies.
Nonetheless, key use cases demonstrate how the technology could be deployed to address weaknesses in current systems. These use cases also highlight the importance of a comprehensive and multi-faceted approach to blockchain-based governance. In many cases, they also include critical limitations and downsides to the use of this novel technology. While these limitations may recede with technological advancements, it is essential that governments weigh both the costs and the benefits of blockchain-based governance systems.
Public procurement (or government contracting) is the single largest marketplace for government spending and the greatest source of official corruption worldwide. Various factors make this government process a hot bed of corruption in high-income and low-income countries alike. Vendor selection processes are complex and opaque, involving a high degree of human discretion. Not only do these vulnerabilities lead to massive financial waste, but they distort market prices, reduce healthy competition, and frequently result in substandard goods and ineffective services.
- How blockchain can help: A blockchain-based process can directly address procurement’s corruption-risk factors by facilitating third-party oversight of tamper-evident transactions and enabling greater objectivity and uniformity through automated smart contracts, thus enhancing the transparency and accountability of transactions and actors.
- Key limitations: A number of hurdles can complicate effective deployment. For example, the easier it is to access and use the blockchain platform, the more vulnerable it is to abuse. “Spamming” or “draining” attacks may cripple a system’s anti-corruption potential by flooding it with useless or malicious information or robbing it of the funds necessary to complete each transaction. Additionally, the blockchain platform may not capture the entire universe of relevant human interactions. If collusion, bribery, or even regular vendor selection continue to occur offline, the anti-corruption potential of blockchain-based procurement will be severely stunted.
Various governments have begun experimenting with blockchain-based land title registries. Some initiatives, like those in Sweden, are motivated by a desire to increase efficiency in a transaction-intensive industry. Others, such as those in Honduras and India, are intent on instilling and expanding property rights and enhancing transparency in a process vulnerable to corrupt practices.
- How blockchain can help: Blockchain-based land registries can potentially provide a secure, decentralized, publicly verifiable, and immutable record system through which individuals could definitively prove their land rights. These qualities reduce the opportunity for self-interested manipulation of land rights and increase the resilience of land ownership more generally.
- Key limitations: Blockchain technology itself cannot formalize property ownership or solve ineffective governance. Countries with nonexistent, incomplete, or incorrect land registries need to go through the difficult process of gathering, cleaning, and digitizing this information before a blockchain-based land title registry can function. Additionally, the degree of connectivity and tech savviness within a population may determine the feasibility of a blockchain-based land registry in the short-term.
Growing concern over election security, voter registration integrity, poll accessibility, and voter turnout has led governments to consider blockchain-based voting platforms as a means to increase faith and participation in essential democratic processes.
- How blockchain can help: Blockchain’s decentralized, transparent, immutable, and encrypted qualities could potentially help minimize election tampering and maximize poll accessibility.
- Key limitations: Given the high stakes of elections, electronic blockchain-based voting presents substantial risks. Any new technology systems, including those based on blockchain technologies, are vulnerable to cyber-attacks and other security vulnerabilities. These could cause vote manipulation, paper trail erasure, or electoral chaos. Furthermore, a voter verification system that uses biometric software, such as facial recognition, could lead to false positives or negatives in voter identification, thus facilitating fraud or disenfranchising citizens. Blockchain-based voting systems may also entail privacy risks and concerns. It is thus imperative that any such service be provided by an extremely vetted technology provider and system.
4. Beneficial Corporate Ownership Registries
Recent corruption scandals have raised concerns worldwide over opaque or undisclosed beneficial corporate ownership. Secretly operated companies can easily be used to launder money, pay bribes, or self-interestedly sway governmental investment.
- How blockchain can help: Many countries are beginning to develop central registries for beneficial corporate ownership in order to better track conflicts of interest and criminal activity. Tamper-evident and broadly accessible blockchain-based registries could provide much needed transparency and disclosure.
- Key limitations: Corporate ownership registries remain the exception and those which do exist overwhelmingly lack adequate verification systems. The recent emergence of beneficial corporate ownership registries combined with the novelty of blockchain technology may pose certain challenges to effective implementation. For example, most countries still do not require companies to maintain beneficial ownership information themselves. Furthermore, the adoption of a comprehensive and verifiable blockchain-based registry would require buy-in from politicians, lawyers, banks, and big business, many of whom may feel their interests are not served by the public transparency and auditability of such a system.
Many governments annually disburse millions of dollars to support education, arts, humanitarian aid, and social assistance, amongst other causes. This process is frequently convoluted, opaque, and inefficient, which causes money to be lost to banking fees and middlemen and opens the potential for corrupt financial diversions.
- How blockchain can help: Blockchain can potentially be used to build public trust in such systems. The ability to disintermediate and reduce the number of actors involved in grant awards, disbursements, and management could streamline the process, reduce costs, and minimize opportunities for illicit financial siphoning.
- Key limitations: The ability for recipients to effectively manage blockchain-based grant disbursements may prove challenging or limit the depth of transparency. Less technologically savvy or well-resourced individuals and organizations may face discrimination or exclusion from grant disbursement processes if they are unable to use the system. Moreover, a blockchain-based disbursement system does not adequately address the challenge of corrupt practices in the use of the grant itself – an issue which frequently arises in the context of humanitarian aid.
Balancing benefits and challenges
In addition to the application-specific concerns, overarching technological barriers may stymie effective blockchain-based governance. These barriers could range from implementation cost and scalability, to unknown negative externalities and underinformed policy-makers.
“Blockchain presents valuable qualities, particularly related to tamper-evident and permanent databases and record-keeping, that could enhance transparency, accountability, and citizen engagement.”
The World Economic Forum recently released a report to further assess blockchain’s ability to effectively reduce public corruption. The report, Exploring Blockchain Technology for Government Transparency: A Blockchain-Based Public Procurement System, focuses on the Forum’s ongoing project with the Inter-American Development Bank and Colombian Inspector General’s Office, which has investigated, designed, and tested the use case of blockchain-based procurement. The proof-of-concept, centered around a public permissionless Ethereum blockchain-based procurement auction, highlighted the potential applicability of this technology in a variety of additional corruption-prone areas of public governance.
More blockchain use cases will continue to emerge to tackle bad actors. As they do, the novelty and untapped anti-corruption potential of blockchain-based solutions should not distract policymakers from the downsides and trade-offs associated with employing the technology in the public sphere. Nonetheless, blockchain presents valuable qualities, particularly related to tamper-evident and permanent databases and record-keeping, that could enhance transparency, accountability, and citizen engagement in areas that materially impact democratic governance and sustainable development around the world.