Blockchain and distributed ledger technology can make the state more accountable
The rise of the regulatory state in India in the past couple of decades has resulted in an explosion of information that governance bodies at all levels have to grapple with. Apart from the traditional channels of information supply, such as property and land records, population data, geographical information, social welfare schemes and the like, corporate compliance requirements with the different branches of the state have led to newer sources of data including under the securities laws, banking and finance regulations, intellectual property and competition legislation, and corporate social responsibility compliance. The information architecture to preserve and access this data currently resides in a set of disparate ledgers, books and databases. This allows the government — as with the coalgate scam — and private actors — as with Kingfisher’s recent claims on its account books — to conveniently hide behind “missing files”. The relative ease with which this information can be altered or manipulated leads to a lack of trust in government and private actor records. The centralised control over information governance — meant to infuse trust into the system — normally results in blocking access to important data and cluttering real-time decision-making.
Blockchain technology, initially perceived with scepticism for its dismantling potential on centralised currency exchange, merits immediate attention for its potential to resolve the trust and centralisation problems of the present information architecture. This technology, first popularised by its use in bitcoins and other cryptocurrencies, uses single shared ledgers to store information. Instead of one centralised agency with access to a single ledger, different nodes in a suitably designed peer-to-peer network will have access to multiple copies of the same distributed ledger. By using advanced cryptography technology, blockchains ensure that information once entered into the ledger cannot be altered except if the changes comply with certain pre-set parameters. The ledger is also less vulnerable to attacks from outside, such as cyber-hacks, because the decentralised system does not present a high-cost single point of breach the way centralised information architecture does. At the same time, all trusted peers can effect changes to the ledger so long as they comply with the pre-set parameters. These changes will be immediately reflected in the ledger and be accessible to all trusted peers for quick decision-making. The design of the distributed ledger can also be tweaked to create hierarchies within the structure, with a suitably tailored degree of access and modifying authority to each level.
The early deployment of blockchain and distributed ledger technology in India can revolutionise the management of land records. Currently, trust is at an all-time low in the real estate market due to the inefficient and non-transparent functioning of property registries. These registries thrive on centralised access to land records and associated property transaction deeds. Using distributed ledger technology to access, manage and modify this information can protect the public from fraudulent land transactions. Similarly, corporate compliance can be streamlined and integrated across sectors and regulatory areas by using distributed ledgers that contain all compliance information made available in real-time to government departments and third parties including banks and investors. The implementation of social welfare schemes can be tracked better by integrating data points from multiple schemes and providing quick feedback on how beneficiaries access these schemes.
In addition to direct benefits for governance, it is imperative that the state invests in blockchain technology to send the right signals. Presently, the technology is at a nascent stage of adoption and development, but ready for basic implementation. This is the classic phase in any innovation’s growth cycle where the government can, with its resources and capability to influence standards-setting, significantly guide the innovation’s future trajectory. Moreover, early adoption by the government could encourage the private sector to move to a similar decentralised information architecture.
The state’s big concerns would naturally be the initial cost of transitioning to a data storage system so unique in its architecture, the identification of peers or hierarchies within the network that can be trusted to access the data, the privacy and security dimensions brought on by decentralised access and possible changes to the Information Technology Act. Most of all, there will be resistance from government staff to the massive shift in state-citizen interaction ushered in by blockchain technology. All these are valid concerns, and it is about time India takes initiative not only in early adoption of blockchain technology but also towards shaping the regulatory framework guiding its application.
First appeared at India Express