Can cryptocurrencies help end corruption?
One of the biggest problems in publicly funded, and particularly in foreign-aid related programs is corruption. Money often disappears without a trace, and isn’t used for its intended purpose. But there’s no easy answer about how to eliminate corruption.
Technology, specifically blockchain, have inherent characteristics that can help eliminate corruption. For example, if a government decides to build a bridge, it can now track how each dollar is being spent, identify all the users of the funds, and ensure that only those authorized to spend money do so. The expenses can be checked against the original plan, and compared against a predetermined schedule.
Fraud and corruption investigations can take years, but could be performed at the touch of a button and at a fraction of the cost. This type of tracking would also be important oversight for bribes in the public sector, which amount to between $1.5 trillion and $2 trillion annually, roughly 2 percent of global GDP. The money would be used for the actual development programs, increasing the effectiveness and making things better for people around the world. The benefits are huge for adopting cryptocurrency and using blockchain technology.
Instant, traceable transactions
Another benefit is that the use of cryptocurrency also allows for instantaneous transactions and borderless transfer-of-ownership, reducing transaction time and cost.
Governments could create their own cryptocurrencies to distribute funds, and the value of the cryptocurrency could either be determined by the market or preferably be pegged to a physical currency to reduce volatility.
The underlying technology of cryptocurrency is the key to how to eliminate corruption. The blockchain is a constantly growing list of transactions (blocks) that are made using the cryptocurrency and recorded chronologically. The transactions are recorded by all of the users on the network according to a set of rules. Once the transaction data in a block is recorded, it cannot be altered, because that would require altering all the subsequent blocks.
Data encryption and verification
Because the data is stored on the same blockchain’s users’ computers, there is little risk of data loss. Encryption further protects the data from corruption. Because the blockchain is a public ledger of all cryptocurrency transactions, it’s visible to all and easily searchable to verify usage of funds.
Since users cannot be anonymous, and each transaction can be traced, it makes corruption more difficult. In addition to the oversight that the nature of blockchain provides, more information can be stored in the blocks. They could easily contain additional data to help with both fraud and corruption prevention and to identify the use of the funds for the end user.
For example, the block can store the nature of the expense and the project and activity linked to the funds. Further, the verification of a block can include checking that the extra data satisfies a smart contract. A smart contract contains logical clauses programmed in the code that triggers actions including the release of funds at certain times as milestones are met. These logical cases can prevent funds from being used unless progress is being made on the project they are intended for.
Cryptocurrency and blockchain to battle corruption
For generations, people and governments have debated how to eradicate corruption.
Cryptocurrency and blockchain have real potential to help end fraud and corruption, reduce the costs of enforcement, supervise implementation, monitor the effectiveness of spending, thereby increasing development impact. If cryptocurrency helps end this type of corruption, it will not only prove its effectiveness but also contribute to making the world a better place.