Everyone knows Dracula, the cruel but popular Medieval ruler who punished corrupt people and criminals with death by impaling, earning him a particular boost in public support and the appropriate nickname Vlad the Impaler.
Centuries later, corruption is still a hot topic in our country and has a direct impact on its economic and social development. Every day we hear on the news about new cases of corruption. So, what can be changed in order to reduce corruption? Should we adopt an extreme method of punishment or there are ways to prevent corruption from happening?
Most people think that corruption is so powerful that it’s impossible to even fight against it. But, in lots of different processes of our daily lives, corruption can be prevented by implementing existing modern technologies. Depending on the processes, some forms of corruption can be reduced and some even eradicated, which in turn diminishes the need for punishment.
In this blog post, you will learn how blockchain technology can help to reduce corruption. First, we’ll focus on what makes blockchain different and then we’ll have a look at some practical ways this technology can be used against corruption. Let’s dive in.
What is blockchain?
You’ve probably heard about blockchain by now. It is one of the most talked-about technologies in the last few years, attracting attention from the moment when the first transaction of electronic cash was made by sending cryptocurrencies directly from one party to another without going through a financial institution. For this reason, most people associate the concept of blockchain with its first cryptocurrency Bitcoin. But Bitcoin is a cryptocurrency while blockchain is the underlying technology.
Blockchain is a shared, decentralized and open ledger of records to transact value in a peer-to-peer system without trusted third parties in between
It evolved from the desire to change the bureaucratic system of financial institutions in order to keep up with digital transformation and make transactions between people, regardless of their location, easier and faster. The need of imposing trust and ensuring security for such transactions between two or more parties led to the development of financial organizations. Their role was to maintain the transaction records, govern interactions, while enforcing trust and security.
The whole system of commerce relies on these financial institutions to serve as trusted third parties and process payments. But increasing cost and time to settle a transaction, and transaction size, together with the evolution of technology, led to further development of new technologies that can satisfy the actual limits while covering the initial need of trusting transactions. For this purpose, blockchain facilitates a trustless system in a cryptographically secure way without the need of intermediary and centralized systems.
In order to enable trust and security for transactions, blockchain technology is built around the idea of management of ownership. It’s basically a software that manages ownership in a decentralized peer-to-peer system of ledgers that operates in an open and untrustworthy environment.
The concept of ownership in blockchain involves three elements:
- an identification of the owner – Owner ID
- an identification of the object being owned – Property ID
- a mapping of the owner to the object – ledger or register
Every transfer of property ownership from one owner to another needs to be documented in a ledger that can be used to prove ownership. In this sense, the ledger has two apparent opposing functionalities: to prove the ownership and to document the transfer of ownership. Proving ownership is easier when the ledger is open to anyone and the process relies on reading historic data preserved in the ledger. Hence, transparency is the basis of proving ownership rights.
To document any transfer of ownership implies that new data are produced and written in the ledger. Transferring ownership must be exclusively restricted to the lawful owner, so privacy should be the basis of transferring ownership. Since writing in the ledger means changing ownership, only truthful entities should be given writing access to ledger.
This apparent contradiction of transparency vs. privacy is solved in blockchain by giving the same type of rights to all members of a peer-to-peer system. All members have a copy of the ledger and each of them can add new data and are all responsible to ensure that only valid and authorized transactions are added. They will supervise one another and point out any mistakes made by their peers.
In blockchain the transfer of ownership is described by transaction and the complete history of transaction is the key to identifying the current owners. One can trace the ownership starting from the current owner and following the list of previous transaction.
Since the transaction history is the core element in clarifying ownership, it is stored in a secure chain of blocks. Each block contains the corresponding transaction data and the cryptographic hash of the previous block so that the history cannot be changed, the data is immutable in order to avoid changes. This means the ledgers and therefore the transaction history cannot be changed once written.
How can blockchain prevent corruption?
There are several basic ways blockchain can be used to reduce or even eliminate the most common forms of corruption:
Eliminating third parties
The nature of blockchain enables new types of collaboration by eliminating third parties. Without a third party that can be bribed, threatened or just plain dishonest, there will be no bribery, no extortion and no more graft. Corruption acts which imply a third party make up for approximately 50 % of the most reported forms of corruption and could be eliminated by implementing blockchain, a shared, decentralized and open ledger of records to transact value in a peer-to-peer system without trusted third parties in between.
One of the main characteristics of blockchain technology is the immutability of data: once registered in the blockchain, data cannot be modified, deleted or erased – they are only for reading or presentation purposes.
The way the blockchain structure is built as a chain of blocks containing the hash of the previous block makes any change of blocks data noticeable because of the sensibility of the hash references regarding changes of the data being referred. To make a change in the data, one has to rewrite all blocks that are affected by the change and the costs of rewriting the blocks structure could be too high depending on the level of difficulty of the hashes.
The immutability of the blockchain data depends on the computational costs, effort and time needed to solve the hashes, therefore on the level of difficulty of hashes. In reality, blockchain applications do not utilize a constant difficulty level for all blocks but a dynamic difficulty level based on the speed at which new blocks are added, ensuring that the time needed to solve the hash stays at a level that prevents nodes from manipulating the history of transaction data while the actual computational effort may increase.
Therefore, the structure of the blockchain with immutable data provides a better quality for data verification and permits the elimination of those types of corruption that include modification of data. When applied in the procurement process, for example, immutability of data will not allow any suppression, tenders uncirculated, bid modification, specification changed, or data altered to accommodate certain suppliers whose scores don’t qualify them as the best applicants. In the most reported forms of corruption, 20% of types of corruption refers to modification of data. Immutability of data in blockchain permits to eliminate these types of corruption.
These two main characteristics that make blockchain attractive permit and facilitate combating 70% of reported forms of corruption. But what about the rest?
Blockchain cannot intervene and prohibit negative collaboration between bad intended people but since blockchain data is not only immutable but also transparent, any attempts to commit collaborative frauds will be detected and fined. Just the simple fact of knowing that any attempt of corruption will be caught and prosecuted could diminish the attempts of doing it. In addition, every act of corruption detected can affect the reputation of people involved. So, the combination of transparent and immutable blockchain data can prevent and reduce even the remaining 30% forms of corruption which involve the collaboration of bidders, in order to avoid getting fined and seeing their reputation tarnished.
As I see it, the possibility to fight corruption by using blockchain technologies is one feature of many, but a nice one to have, for sure. Any attempt of corruption remains visible and cannot be eliminated, just like a colony of vampire-bats cursed to be left hanging in the grip of the blockchain records. No more need for extreme punitive measures like impalement, just modern times legal actions and a business reputation broken forever.
Share your thoughts
Now that you’ve come to the end of this article, I’m curious to know what you think. Can blockchain be used to combat corruption? What other methods could we try? Share your thoughts in the comments section below.