Since its inception in 2009, Bitcoin—a digital currency secured by encryption—has attracted attention, interest, and controversy. Less attention (at least until recently) has been paid to other applications of the underlying technology, “blockchain,” that makes Bitcoin possible. And while the anonymity associated with Bitcoin is, if anything, often associated with illicit transactions in the “dark web,” other applications of the blockchain technology might be used to enhance transparency and promote integrity. Some of the early proposals along these lines are indeed encouraging; at the same time, blockchain is not a technological panacea, and recognizing its limitations can identify areas that may require particular attention in anticorruption efforts.
First, a bit more (non-technical) information on the technology. Blockchain functions as an online, public digital ledger. In the Bitcoin context, the technology makes it possible to track and record Bitcoin transactions in the ledger and distribute that information in real-time to all computers connected to the Bitcoin network. Because of this distribution, the ledger is updated independent of any central authority. Moreover, because each chronological “block” in the chain contains both unique information about each transaction and also a unique identifier of the previous block, which is then distributed to all computers on the network, it is very difficult (perhaps impossible) to tamper with or alter the transaction records.
While the blockchain technology made Bitcoin possible, its public and tamper-proof data storage function could assist with efforts to promote transparency and fight corruption. For example, in the context of land reform, Austin-based start-up Factom has reached an agreement with the Honduran government to transfer its land registry onto a blockchain-enforced digital database. The objective is to create a reliable land title-keeping system in a country where, as USAID notes, “only 14% of Hondurans legally occupy properties and, of the properties held legally, only 30% are registered.” In addition to a lack of registration, government officials currently can alter titles to those properties that are registered, allocating properties to themselves (or to others in exchange for bribes). Moreover, citizens often lack access to records, which may provide conflicting information, and are thus unable to defend themselves against infringement of property, use, or mineral rights. By recording land title in an immutable public registry (relying, according to reports, on the Bitcoin blockchain’s data-embedding function), the partnership between Factom and the Honduran government seeks to secure for the public a clear, trustworthy record of ownership in order to improve protection of land rights, and to incentivize registration.
This seems like a worthwhile initiative, and one that transparency and anticorruption advocates should watch closely. At the same time, it’s worth noting several reasons we should be careful not to lose sight of important corruption challenges amidst the excitement surrounding the digitized ledger:
- First, as land changes hands, someone—likely the intermediary entity overseeing the registry—must update the ledger. As the Economist notes, the data storage use of blockchain requires a certain amount of trust that the intermediary will make the entry accurately. In the case of land registries, users must trust that intermediaries or the government will adequately ensure that the chain will successfully record legitimate subsequent transfers of title. Factom, for example, compiles registry information into a data layer that it then anchors into the Bitcoin blockchain. Users must trust the means by which Factom receives and enters registry information into the Factom database.
- Second, and relatedly, although the blockchain ledger might increase transparency of land ownership records and make it difficult or impossible for corrupt officials to alter land registries after the fact, the technology does not address corruption in the decisions as to how land is registered in the public ledger. Intermediaries might either refuse to record illegitimate transactions, a process that could require intermediaries to make judgments on whether corruption underlies transfers, or refrain from making such determinations at all. Factom’s model leaves it up to the user to decide whether transfers are legitimate—it does not prevent people from entering false data to the registry office (or relevant partnered government entity), which makes a new entry to Factom. In addition, Factom can “publish and document the process for land records” based on administrative or judicial rulings. But those rulings might themselves be corrupt. Records can be changed to reflect those rulings, although the processes for doing so are transparent, not secret. Thus, while blockchain provides immutability of past records and ongoing transparency as ownership changes hands, it does not prevent the government from using corrupt means to create those transfers in the first place.
- Third, blockchain’s successful dissemination and use depends on governments’ willingness to adopt the technology. Government actors who personally benefit from a lack of transparency and from holding centralized power might be unlikely to adopt this technology. Moreover, governments may encounter regulatory issues—with such new applications to new technology, there may be a gap between the time it’s instituted and effective regulations are in place to monitor and prevent abuses. This may make blockchain technology even more difficult to administer because change within a blockchain is extremely difficult and requires community-wide agreement.
- Fourth, it’s unclear how much size/storage power this technology will require, or even how much energy the Bitcoin blockchain is using now, and whether that usage is sustainable.
Notwithstanding these concerns, blockchain technology has a number of promising pro-transparency, anticorruption applications. In addition to land registration, blockchain might be well-suited for tracking donations and payments, monitoring supply chains, and facilitating compliance with disclosure laws (though significant regulatory reforms might be required to digitize the relevant information and transfer it to a blockchain ledger). Nonetheless, blockchain’s anticorruption benefits are still largely unproven, and the early experiments with the technology, such as Factom’s project in Honduras, should be closely monitored to get a better sense of what this technology can and cannot achieve.