Stamping out corruption with blockchain tech

Some of the main functions of government institutions include redistribution of resources and maintaining official records. These are precisely the domains where blockchain technology — with its focus on facilitating secure, traceable transactions and maintaining immutable records to build trust — is well-positioned to make a strong impact.

A recent report by Denmark’s Ministry of Foreign Affairs is the latest to highlight blockchain technology’s potential to serve as a powerful tool in the fight against government corruption. This proposition, however, is only the latest in a long string of policy proposals and analytical reports that document the immense promise that distributed ledger technology holds for government-transparency advocates — as well as the many limitations that its implementation will inevitably face.

Technological solutions to the perennial problem

Any government is a gigantic knot of procedures, records, transactions and human bureaucrats who enact formal rules within the limits of their jurisdiction. These bulky, convoluted organizational structures often lack transparency and are difficult and costly for an outsider to make sense of, let alone oversee.

Officials who directly handle resource flows or have signatory authority can be incentivized to abuse their powers for monetary gain if they realize that the risk of getting caught is minimal. According to one estimate, corruption in the public sector eats up between $1.5 trillion and $2 trillion globally every year, which amounts to some 2% of the world’s gross domestic product.

Many anti-corruption experts pin their hopes on various digital technologies to help make a decisive breakthrough. The Danish foreign ministry’s report presents an overview of several potential avenues in the fight against administrative and political corruption. One of these avenues is to make all public sector data open to everyone and thus improve transparency by letting activists and watchdog organizations conduct independent audits and spot suspicious patterns in public spending.

The second suggested approach is to shrink the scope of corruption opportunities by expanding the reach of e-governance and moving most government services online. Within this domain, the authors envision using blockchains to facilitate transparent, tamper-proof transactions of value and data. Yet another suggestion is to use crowdsourcing platforms to facilitate whistleblowing and complaints over episodes of petty corruption.

Finally, the authors of the report suggest deploying blockchain-based solutions to ensure the integrity of public records and digitally secured rights to property and government aid. They emphasize how this can not only enhance integrity of public records but also empower groups that are underbanked or have limited access to government services — for example, due to the lack of a state-issued ID.

Restoring trust

The enthusiasm for these and other anti-corruption uses of blockchain is not new. In a 2018 article for Stanford Social Innovation Review, Carlos Santiso, an expert with the Inter-American Development Bank, observes that an “expectations bubble” around the technology’s potential to mitigate government corruption has been already building up among both the public and the tech community.

Santiso argues that in the digital era, technology in the service of government invariably boosts the public sector’s transparency. In his view, blockchain technology is particularly suited to produce this effect because of its unique ability to guarantee the authenticity of records and eliminate inefficient data management practices inherent to traditional bureaucracies. In doing so, blockchain-based systems could help restore the deteriorating trust in government.

Other observers contend that rather than fixing the declining trust in authorities, blockchain can provide an entirely new mechanism for building trust. A team of analysts representing anti-corruption nonprofit Transparency International suggest in a research note that the technology can be particularly useful in countries riddled with corruption where trust in institutions is very low.

Experts from another anti-corruption think tank, Norway-based research institute U4, echo this assessment in a 2020 report, stating: “Blockchain is designed to operate in environments where trust in data/code is greater than trust in individuals or institutions.”

Use cases

Three key uses of blockchain technology in the fight to alleviate government corruption consistently emerge throughout all expert accounts: authentication of transactions, registry of official records such as ownership rights, and identity verification.

Moving government transactions such as public procurement contracts to an open ledger where they can be traced could deal a decisive blow to the sort of corruption that arguably costs taxpayers the most: large-scale schemes whereby unscrupulous officials rig the process in favor of particular contractors. Taking this one step further and encoding procurement operations into smart contracts on a distributed ledger could drastically shrink the space for shady activity.

While the sheer scale of the industries that thrive on public sector contacts would render such a transition extremely difficult in the near term, development-focused organizations such as the World Economic Forum are lending much-needed spotlight to the notion of blockchain-enabled procurement.

Uses related to the registry of records appear to be closer to fruition. The Denmark Ministry of Foreign Affairs report lists the examples of Kenya and Rwanda, where government records of education and land rights are migrating to distributed ledgers. In these countries and beyond, corrupt officials are finding it increasingly difficult to leverage their positions within public records systems for personal gain.

In the domain of identity management, blockchain-based IDs can be particularly useful for vulnerable groups such as refugees or people who have never had a government-issued identification in the first place. Securing their identities on a distributed ledger helps ensure the fair distribution of aid and access to other essential services.

Not a panacea

According to U4 analysts, whether blockchain becomes a valuable tool in the fight against corruption in a particular national setting largely depends on contextual factors such as “infrastructures, legal systems, [and] social or political settings.”

For one, rebuilding entire government data management systems to make them run on blockchain might not sit well with existing data privacy regulations. The immutable character of records entered into the ledger is at odds with one of the tenets of the European General Data Protection Regulation law — the right to be forgotten.

Another major consideration to keep in mind is the “garbage in, garbage out” nature of blockchain systems: The data stored in them is exactly as good as the input. This means that there will still be human gatekeepers responsible for data entry, as well as the need for built-in data audits. Therefore, it would by design be impossible to entirely eliminate human participation from such a system, allowing some room for corruption to remain.

To the decentralization absolutists’ chagrin, public sector blockchains are also unlikely to be open and permissionless. While it would make sense to make most of the data available for outside audit, it’s naive to expect governments to hand control over their databases to a distributed network of nodes potentially located in outside jurisdictions.