Digital chain. Blockchain technology concept

Corruption undermines our developmental agenda. It diverts much needed resources away from key departments and the provision of essential services. Its effect could further exacerbate inequality and erode public trust in both government and the leaders elected to serve us.

As highlighted in the Sustainable Development Goals (SDGs), there is an explicit link between corruption and a just and equitable society. Its effects are not limited to emerging and developing economies. Corruption is widespread and occurs in some of the most developed nations.

To tackle corruption within both the public and private sector, many researchers have looked to the emergence of new technology to curb this pestilence. One game-change which has been highlighted is Blockchain.

What is Blockchain?

Blockchain is a digital database that is shared across a network of computers. Once a record has been added to the chain it is very difficult to change it. To ensure all the copies of the database are the same, the network makes constant checks. Using cryptography to keep exchanges secure, Blockchain provides a decentralized database of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.

At its core, Blockchain addresses the security and integrity of data. It allows us to record assets, transfer value and track transactions in a decentralized manner, ensuring the transparency, integrity and trace-ability of data without a central authority to authenticate the information. Fundamentally, it is a system to encrypt information. It is based on a consensus mechanism between trusted parties to certify the information and validate transactions.

As such, Blockchain makes corruption more arduous because it is not based on a central database and the data recorded can not be erased, altered or tampered with. It furnishes an unprecedented level of integrity, security and reliability to the information it manages. It also makes it possible to track and trace transactions. This trail of transactions can be used by law enforcement and government auditors, to track irregularities and root out corruption.

This technology emerged in the financial sector, which has enabled cryptocurrencies such as Bitcoin. Researchers are positive about the disruptive potential of Blockchain in the public sector, as a mechanism to root out corruption.

Will it work?

Early research suggests that this technology has to be built on the foundation of strong institutions.
Currently Sweden is undergoing a trial in Blockchain land registry, to make the details of real estate transactions visible to all interested parties, while Georgia is registering land titles using Blockchain. Both of which are showing positive results. However, Honduras tried but failed to create a decentralized database of land titles utilizing Blockchain.

Additional experiments with Blockchain are focusing on tracking transactions, especially high risk government transactions such as public contracts (tenders) and cash transfers, which seek to mitigate the risk of fraud in the outflow of funds.

While the allocation of tenders are becoming increasingly digitized through e-procurement applications, Blockchain could add an extra layer of security, by locking-in critical information along the procurement chain. As such, information can more easily be monitored, tracked and audited. An example of a country which has piloted this is Mexico.

For Blockchain to work, there are a number of requirements that need to be met. Existing data must be accurate, registries digitized and the existence of strong institutions within the public sector. In many developing countries, this is not the case. A paradoxical situation thus exists, as it is often perceived that countries most in need of Blockchain, are the ones which don’t necessarily meet its requirements for success.

In addition, because Blockchain is a decentralized system and “governs” itself, Michael Pisa from Center for Global Development, has noted that Governments would have to accept “that it will have virtually no control over how the system is governed”. For many governments, both in developed and emerging economies, this will be a major deterrent in the adoption of Blockchain technology.

As such, Don Tapscott, Founder and Executive Chairman of Blockchain Research Institute, believes that within the public sector, Blockchain technology should be partly permission based, overseen by a set (not an individual) of trusted validators. This will still enable it to be decentralized, but within the confines of the state.

Rooting out corruption

Blockchain’s potential is enormous and the possibility of rooting out corruption, makes this technology something which all governments should consider. Despite it still being in the inception phase and government models still being development, the general positivity around Blockchain is justified.

However, to see high levels of success, governments specifically within the developing world, will need to invest in building strong institutions within the state, and ensure digitization. Blockchain is not a panacea, but if all requirements are met by countries at the time of adoption, we could be achieving SDG 16 – Peace, justice and strong institutions – which is hampered by corruption, sooner than we think.