Blockchain and the Future of Governance

Managing complex governance arrangements in the absence of trust is the new million dollar (bitcoin?) question.

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We currently have the lowest level of trust in financial institutions, following the economic downturn of 2008 and the multiple market shocks afterwards. We also reached a new low in trusting the government, which remains in a prolonged political crisis. The revelations of online mass-surveillance exposed by Snowden in 2013 and related leaks shed light on the links among political actors, Internet corporations and secret services, and on how each of them can operate as an intermediary for the others. More than half of the job of exposing what led to this generalized distrust was done using digital tools. But could the latter also help us reform institutions? Should we do away with the middleman via technology?

Moments of crisis are also windows of opportunity. Innovative approaches overcoming mistrust provide new avenues for thinking about our governance systems. One such innovation is blockchain, a technology that relies on cryptography to maintain a continuously growing database of records protected against tampering and revision (even by their operators). Blockchain requires a software that allows computers to communicate with each other directly, without an intermediary in a distributed network. With its recent applications (such as the famous cryptocurrency Bitcoin or the self-executing digital contracts that can run on the Ethereum platform), blockchain has the potential to reconfigure our systems of trust for purposes other than financial.

Blockchain architecture is based on consensus – generally through ‘proof of work’ (solving a challenge), verification (time-stamped information) and encryption. It is decentralized, functioning with a distributed database shared in a computer network. Its developing community maintains it open-source and transparent. These attributes make it censorship-free, thus providing innovative uses for e-voting, legislating and budgeting platforms (like Bitcongress).

But it’s not perfect, of course. A proof-of-work-based blockchain, like in the original design proposed by Bitcoin’s creator Satoshi Nakamoto, is susceptible to what is called a 51% attack, where joint or monopolistic forces could start to manipulate certain information by controlling the majority of the network. It also doesn’t rely on dispute resolution mechanisms, and perpetuates a risk of a fragmented internet through eventual alternations (see recent discussions in the Bitcoin community). For the moment, blockchain technology has a low rate of adoption compared to its future potential applications, but that is likely to change very soon. If we take the Bitcoin example, the system is skewed towards rewarding the early adopters, as the value of the digital currency tends to increase over time due to new use cases and the number of coins to be produced is limited (in this case, no more than 21 million bitcoins will ever exist).

Stumble blocks and innovation chains

Just like the TCP/IP enabled the evolution and multiple uses of the today’s Internet, blockchain as a foundational protocol opens the door for a set of technological breakthroughs. Some may be for personal interest only. Others may be for a broader societal use, and hopefully, some will also foster novel participatory tools. “Cryptographic proof instead of trust”, in the words of ‘Satoshi Nakamoto’, the pseudonym of the inventor of bitcoin, stands at the basis of this open-source system.

Yet, technology is never neutral. And blockchain is no exception. It was originally designed as a financial technology and most of its uses are currently skewed towards economic gains. The elimination of the middleman is one of the key principles embedded in its technical operation, thus routing around the imperative of trusting the intermediary. For Bitcoin, centralized institutions such as banks are obsolete. For Namecoin, a Bitcoin variation which contains an in-built peer-to-peer domain name system, there is no need for a hierarchical model of domain names (.com, .org, etc.) administered centrally (currently by the Internet Corporation of Assigned Names and Numbers), when this can be done in a decentralized fashion (such as with .bit, .tor).

But can some of these applications revolutionize the way we think about institutions from a social perspective? Among the most interesting services built on top of blockchain is www.proofofexistence.com, which stores anonymously and securely an online distributed proof of existence for any document. You can certify travel documents, diplomas, and potentially, even marriage certificates. In the long run, this can push for reconsidering some of the basic functions of public authorities, including authentication. With reduced transaction costs for pooling resources, it can speed up social innovations.

The popular UK singer Imogen Heap joined with the tech veteran Vinay Gupta, part of the Ethereum group, to build a decentralised system (ledger) in order to tackle money distribution for authors. The question of fair distribution between the artist and the showbiz has been in the spotlight for long time in the digital era. Heap’s proposed Mycelia seems to provide a solution: it includes simple contracts, revealing under what terms the music would be downloaded or used by third parties, such as advertisers, and how any money earned would be divided up among the creatives involved. All payment received – using crypto-currencies – will be routed to the recipients, as set out in the contract, within seconds.

For more than a decade now, digital technology was seen by the artists as part of the problem facing their industry, but it could become the solution to the very difficulties it helped create (enforcing intellectual property) by removing the middleman. As an immutable, public transaction record, blockchain allows people to run ‘their own’ variations. This also opens the door for engaging stakeholders differently, in the most direct and pertinent way possible. Most of these stakeholders will end up being citizens running blockchain software, as the burden of constant monitoring and compliance would no longer rest with an intermediary.

Financial gain aside, the great potential of blockchain rests in offering non-discriminating transparent services in a decentralized fashion for social purposes; equal access to a basic set of digital institutions (voting, payment systems, etc.) through infrastructure would revolutionize the way we think about our participatory tools. How we store and manage information now becomes an issue of governance design and authoritative decision-making.

About the authors:

Roxana Radu, PhD candidate in International Relations/Political Science at the Graduate Institute (Geneva); consultant, DiploFoundation

Gabriel Aleixo, researcher and project coordinator at the Institute for Technology & Society of Rio de Janeiro (Brazil); the co-founder and CMO of Brazilian startup Awe