Under the Covid-19 pandemic, financial support is flowing in to strengthen health systems and purchase personal protection equipment (PPE). Billions are being spent on medical preparedness, supplies and support. Yet validation of the price, quality, and origins of technology and equipment is often challenging.

At the same time, millions of people have lost their income. Cash-transfer programmes have been launched in many countries to provide support to individuals during lockdowns and travel restrictions.

The risks of corruption – for example, misuse of funds, overpricing of equipment, or the production of counterfeit goods – are overwhelming. Blockchain technology can, in the right circumstances, be a tool to overcome some of these challenges.

What is blockchain?

The technology was originally created to support digital currencies. Here, software code, encryption, and a network of computers host the database and validate the transactions. As the data residing on a blockchain are difficult to cheat, the technology was later introduced in areas such as provenance tracking, supply chain management, and to secure identity registers.

The design of a blockchain database is based on linked records called ‘blocks’. If attempts are made to change the content in one block, all following blocks need to be recalculated. The content of a blockchain database, therefore, is referred to as being ‘immutable’. This property can make it suitable to store information that is not supposed to change. Examples of this kind of information include the tracking of a shipping container over the continents or secure storage of a person’s medical records.

Examples of use

Examples of blockchain currently in use or under investigation include the following:

• Blockchain technology is already in use for medical supply chain management. It is deployed by hospitals to ensure the quality and origin of medical equipment.
• The immutable entries and encrypted information of a blockchain are being investigated as a tool to hold and share medical records. Blockchain technology is also used in contact-tracing applications – part of ‘track and trace’ systems to contain the spread of Covid-19.
• The properties of tamper-proof records and transparency (which are associated with blockchain) are attractive when governments or donors are seeking to protect cash-transfer programmes from corruption.
• To reach individuals with cash support, a secure ID is a prerequisite. Blockchain is also being investigated for this.

Digital experts, coders, and developers are aware of the opportunities afforded by the technology and eager to sell their services. Decision makers, along with development and anti-corruption practitioners, need to make themselves familiar with the core functions of blockchain. They will then be better equipped to make sensible decisions for when and where to possibly apply such tools.

This is one reason for our attempt to explore not only what is at the core of blockchain technology, but in which environment to deploy it.

Whether a deployment of blockchain technology is successful or not largely depends on contextual elements such as digital infrastructure and digital literacy among its users, rather than the technology itself. Legal systems, as well as social or political settings, are also important.

Secure and transparent — but slow

The origin of blockchain is as a basis for cryptocurrencies. These are digital coins that are independent of national banks or fiat currencies such as dollars or the euro. Trust in the currency is secured by chained records validated by the parties involved. The formula behind the currency itself prevents a coin being spent twice. Meanwhile, transparent transactions give evidence for how all the coins that ever existed have been spent. The entire ecosystem of the cryptocurrency has its life online.

The algorithms that ensure trust, and which constitute security for a cryptocurrency, are also among its major challenges. The computational processes to verify transactions are time-consuming and demand large amounts of computing power. This makes open blockchains, which are open for participation from anybody, slow in processing transactions. They are also hungry for electricity, due to the computing-intensive verification processes. The democracy embedded in a distributed system of ‘decision makers’ – the computer nodes involved in operating the system – is another element that slows it down.

As a result of these challenges, in practice most commercial applications of blockchain for purposes other than cryptocurrencies are not open, not transparent to the outside, and not spread on random servers. Rather, they are governed by the companies or organisations involved in the project, whether it be datasets for tracking freight-papers for container vessels, tracking vegetables for Walmart, or monitoring cash programmes in Jordanian refugee camps.

Trust is still essential

When a digital currency is converted into physical cash, this normally happens through an authorised exchange. These exchanges are regulated under similar laws as banks, including mandatory reporting of suspicious transactions or reporting of crypto assets for taxation.

The other way around – when assets such as people, diamonds, or the life of a freight container are to be documented on a blockchain – it is important to pay particular attention to the process of entering the data. This is where fraud can happen. Iris-scans, fingerprints, or RFID (radio-frequency identification) tags are used to create a trusted link between the physical entity and its digital representation.

Once the data has been entered on the blockchain, it is safe. It will never change and will always be accessible, unless the internet drops out or there is a power cut.

Nonetheless, blockchain technology can’t prevent a seal being broken and the goods inside a container being replaced. Nor can it hinder someone charging a share of a cash transfer in exchange for protection. When digital information is converted to physical items or when information is entered on the blockchain, trust in humans is still needed. This transition phase is the fragile part of the process, where fraud and corruption may happen.

Blockchain technology is therefore not a one-stop remedy to combat corruption. The tool needs surrounding structures in place to support its successful application

Read more in U4 Issue 2020:7 Blockchain as an anti-corruption tool. Case examples and introduction to the technology