In the last few years a new technology called Blockchain has drawn attention from entrepreneurs, venture capitalists and large corporations. Thousands of articles and posts have been written to explain this new technology; and I must admit it took me quite some hours of reading to fully grasp why some compare this rather amorphous phenomenon to the advent of the World Wide Web. In fact, many articles propose that a decade from now, we will wonder how society ever functioned without it, even though most of us barely know what it is today. I am not often spurred to write about new technologies, but what excites me about Blockchain is its potential to combat corruption in developing countries. My aim with this post is to explain at high level how Blockchain works and indeed how Latin America can leverage it to achieve a more transparent, democratic government.
Blockchain is a type of distributed ledger, a decentralized database that allows people to edit a shared ledger (like a record book) with only the agreement of the majority of the parties who have access to it. The records are public (for permissionless blockchain), cannot be controlled by a single entity, and are distributed among multiple independent network participants (“nodes”). This renders it almost impossible to hack them all at once, resulting in a largely impermeable record.
A helpful analogy is to think of Blockchain as a Google Doc, of which there is only one version, and to which all parties have access at the same time. Changes occur in real time, and are permanent. By contrast, a regular Microsoft Word file would need to be edited and then shared among its users, with changes only taking effect once it has been circulated, moreover the document shared is never the original file, it is a copy. One cannot easily tell who changed the document and which of all the document is the original. In short, this mechanism holds users to the highest degree of accountability. As mentioned, there are numerous websites explaining how this technology works, and I invite you to explore them if you want a more than rudimentary understanding.
The first and most common use of Blockchain is in Fintech: indeed, in the last five years many startups aiming to buy and sell digital currencies, such as Bitcoin, have spawned and caught the attention of venture capitalists and banks alike. In fact, the World Economic Forum estimates that some 80% of banks are actively working on Blockchain projects. As an example, Argentina is one of the countries with the highest penetration of Bitcoin. Interestingly though, this popularity was borne not out of technological curiosity, but sheer necessity. In Argentina, it was exceedingly difficult to buy foreign currency legally, on account of poor government decisions—thus the attraction of a secure, globally recognized medium such as Blockchain. This technology allowed many Argentineans to save in a “foreign” currency and avoid the unbearable depreciation of the peso. This is but one example of how this technology can overcome deeply entrenched societal inefficiencies.
Blockchain is decentralized, transparent and secure. It has several potential uses, but I would like to share a few that can help attack the until now presumed "incurable" cancer of Latin American countries: corruption. Corruption is present in every stratum of Latin American governments and, sadly, has grown worse over time. The Petrobras scandal in Brazil is described as one of the most astonishing corruption schemes ever to be uncovered and in Argentina, former president Cristina Fernandez de Kirchner has also been linked with countless allegations of corruption. However, due to lack of records or proper due diligence, she has not been convicted and, unfathomably, intends to run again in the next elections. After closely experiencing the atrocities of her government over the past 12 years, and now contemplating that she may once again run this country, I have realized that unfortunately we cannot trust in today's institutions. I see the Blockchain technology as a potential remedy to this disease if implemented properly. In this post, I want to share 3 main potential uses that could improve the lives of millions.
First, Blockchain can help these countries become more democratic by bringing full transparency to elections. While Blockchain was created for monetary transactions, its characteristics are ideal to support voting systems. For example, the prevention of double spending of digital currencies can ensure there is no double voting, and its transparency and public openness make it easily auditable. Similar to the scenario where you have, and can spend, only one digital coin at a time, Blockchain could be used to allocate one single vote per citizen. Because the information is not stored in a single location, but rather many times across thousands or millions of independent nodes, it is theoretically impossible to modify. It would require an enormous amount of resources and computation power that no single party could have by itself. Moreover, this system could eliminate the myriad opportunities for fraud that threaten paper-based voting, such as replacing ballot boxes or deliberate miscounting of votes (including those of the deceased).
Follow My Vote is a startup based in Virginia, USA, whose bold plan is to build a secure online voting platform that will facilitate greater election transparency using Blockchain-based voting. A similar startup, Democracy Earth, was conceived in Argentina to create online voting systems. While the technology is incredibly promising, there are still barriers to overcome before a country credibly switches to a Blockchain-based voting platform. The system itself is very secure; however, the use of passwords and private keys can become a point of compromise if they fall into the wrong hands. Further, relative difficulty of use may pose another hurdle—voting should of course be accessible to everyone, and not merely the tech savvy minority. However, if these obstacles can be surmounted, this technology could strike a powerful blow against corruption and populism on the Latin American continent, among other regions.
Second, Blockchain can provide a clear record of land titles. Today, keeping track of who owns a particular piece of land is onerous, and depends on mountains of hand-signed documents. Unfortunately, this is a "luxury" only enjoyed by countries with a developed land registry department. Indeed, the World Bank estimates that around 70% of the global population does not have access to land titling. Further illustrating the magnitude of this problem, in present-day Honduras the records are held in some books in a basement of a public building. Anyone with access to these books can modify title records; and unsurprisingly, many Hondurans have suffered from this outdated and distrustful system. There have been many instances of land title fraud, for instance by bureaucrats who changed the records to secure themselves beachfront properties. Accordingly, Honduras was the second government who attempted to update its system using Blockchain technology; but sadly, a strong bureaucracy and a glacial pace implementation were enough to halt the project. More promisingly, Sweden is the country that is furthest along in putting land registries on a blockchain. This implementation is intended to save Swedish taxpayer around 106 million dollars a year by reducing fraud, accelerating transactions, and eliminating paperwork.
Third, Blockchain is also very useful in tracking and reviewing government income and expenditures. This technology fosters transparency and has the ability to track who owned a specific coin and when it was spent. Anyone with access to the network can enter into the database and verify where certain money was spent. I would love to see this technology applied in Argentina where, although millions of dollars are earmarked for the construction of schools and hospitals with every new president, we still have essentially the same infrastructure we had in 1930. Having access to a public database and knowing exactly where the funds were allocated will considerably diminish corruption, and will help the government to regain the trust of its people.
With all that said, the big question on everyone’s lips is whether Blockchain can actually eliminate corruption in Latin American governments in the foreseeable future. My answer is that, given how deeply entrenched corruption and bribery are within their politics, there is a long way to go yet. However, this technology brings us hope. For it to be immediately effective, the government would need to implement it on a large scale; but because in many cases it will not be (economically) convenient for them, we cannot expect such drastic or rapid change from the top. As such, I firmly believe we need to implement from the bottom up, via grass-roots movements. Startups such as the Argentinean Democracy Earth, or the North American Follow my Vote, have made a promising start. It is my hope that many more venture capitalists and entrepreneurs realize Blockchain’s disruptive power and continue to build on this early momentum.