Blockchains and Public Governance

By Arun Krishnan, Infrastructure Consultant & Policy Expert at Rashtram

Blockchain technology evokes polarising reactions among those in the know. Some people are excited by it while others think it is a hype not worth pursuing. No matter what your belief, this technology is here to stay. This article will explain some applications of blockchain in governance and public policy domain.

What Is Blockchain?

To put it simply, blockchains are data that have been stamped with identifiable information and replicated in all computers (nodes) connected to the blockchain network. Encryption, along with the data being distributed among all nodes of the network, makes it almost impossible to counterfeit the identifying information. A crude analogy of blockchain technology is BitTorrent. The latter works on peer-to-peer (P2P) technology – where distributed nodes are used for storing and distributing information.

However, blockchains are more than P2P transfers. Blockchains have a ledger that records all the transactions done on the blockchain. They are also more secure thanks to encryption. Using this as the base technology, a number of use cases have been developed – including use cases for governance and public policy.

What Is the Relationship Between Blockchain and Cryptocurrencies?

The most visible use case for blockchain is of course cryptocurrencies, which as of today are around 7,500 and still growing. The most likely steady-state scenario is that most of these cryptos will go bust within a decade and we will be left with few consolidated coins. 

There are two ways of creating cryptos – mining and by consensus. Mining can be further divided into proof of work (PoW) and proof of stake (PoS) methods. 

Mining is nothing but solving some math problems (for the network) by dedicating computing resources to it. Why this method? After all, we don’t solve math problems to get fiat money. Two reasons: 

 1.     To legitimise the system – to bring in objective rules for issuing the money and to prevent the value from crashing and 

2.     To keep participants invested in the system – because you need their computing nodes to (a) mine or transact using the coins and (b) store the blockchain data (since this data is decentralized, it has to be present in every node in the system) 

PoW mining (which Bitcoin & other cryptos use) is energy-intensive – for e.g., it is estimated that Bitcoin transactions in a year consume as much power as the Netherlands does! Also, Bitcoin transactions are prone to hack attacks which would cause the trust to break down in the system. 

The PoS method limits the user to mining only the percentage of crypto they hold. If they hold 25% of the crypto in circulation, they can only mine for 25% of the remaining amount. This aligns the incentives for miners – if they hold more, they can mine more and are more invested in keeping the system stable. Also, incremental energy consumption is less for this system

Other than mining, where even the PoS system is energy-intensive, the consensus system is closer to the fiat system. An organization will release all the coins at one go and establish rules for their purchase and use. Example, $1 can buy x units of the currency. Ripple uses this system for its in-house coin XRP. 

Cryptocurrencies require a wallet (which holds the coins) and an exchange (where they are traded). You have standalone wallets and standalone exchanges. Players like Coinbase combine both functions. Like any currency market, it runs 24×7 and works purely on supply and demand. 

The extreme volatility of cryptos and the cultish nature of the crypto community have given blockchain a bad reputation. However, cryptos are only one of the many applications of blockchains.

Use of Blockchains in Public Policy and Governance

Some select use cases for blockchain in governance include:

  1. Land Titling

Imagine that all land titles in India, which provides information on the extent of land owned and the entity/individual who owns it, are made accessible to every Indian citizen. Imagine that the information of these land titles, which are now with every Indian, are also updated in real-time as and when any transaction occurs. It is close to impossible for a land shark to forge details of a particular land title because the forged document can be easily compared with the true copy held by others and the forgery can be quickly found. Hence, if an individual wishes to buy/sell a piece of land, the seller/buyer can have full confidence that the land title details are true. Blockchains are ideal for land titling because of the distributed nature of ledger and its encryption. The Republic of Georgia, for example, has already implemented blockchain for land titling. However, the land is an emotive issue in India and hence if the government were to consider implementing blockchain in land titling in India, it has to be done with sensitivity and planning. 

  1. Establishing Ownership of Goods

Encryption & transparency of blockchains mean they can be used for stamping digital goods – digital art, music, videos etc. Marketplaces like Opensea help with this. Counterfeiting of the underlying product is not possible because the blockchain publicly establishes ownership. 

Similarly, goods such as financial securities, stocks, bonds, gilts, mortgages etc. can be stamped by blockchain technologies. This would reduce financial fraud and improve transparency in the system. 

  1. Reducing Friction and Costs in the Financial System

The same features of blockchain technology can help the financial system lose barriers in international transactions. Currently, players like SWIFT provide services to financial institutions to do global money transfers. Blockchain can do the same but faster. For example, Ripple’s consensus-based coin XRP, where a customer of Bank A in the US wants to transfer to a customer of Bank B in Spain. Earlier, Bank A & B would do anti-money laundering checks before and after transactions – this would cause delays. Moreover, the SWIFT system takes its own time to transmit the message of the transfer leading to further delays. With blockchain verifying identity & recording transactions, Bank A sends USD to Ripple which converts it to XRP and sends it to Bank B where XRP to EUR conversion happens before finally depositing into the customer’s account. The entire process will be both transparent and quicker. 

Other areas where blockchain’s encryption and transparency will be useful: health records, financial services, supply chains, government records, contracts etc. Thus, blockchain has huge implications for the infrastructure sector as well. This decade will see an explosion in applications of blockchain technology and this will happen sooner than we expect!

India Should Develop its Public Blockchain for Strategic Depth and Security

Scalable transactions require an underlying blockchain software. Ethereum is one such public blockchain. Companies like IBM have developed their own private blockchains. Public blockchains are the platforms on which cryptos and distributed apps (dapps) are built and on which they function.

The blockchain platform is a strategic asset like a financial network. India should be at the forefront of this technological and security curve by developing its own public blockchain platform, on which several technological applications can be built. Like Aadhaar, this public blockchain platform can be a stepping stone to several unique offerings. From a security perspective, it is unwise for India to base its critical applications on private or public blockchains built and based in other countries. Hence, it is imperative that the Indian government develops its own proprietary public blockchain.  

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