- The World Bank has outlined the qualities of blockchain technology and the setbacks hindering wide government adoption.
- The bank also proposes a “Three Layer” approach to curb the challenges identified.
Blockchain and distributed ledger technology (DLT) have gained several use cases in an array of industries globally. However, the technology still has milestones to achieve before its transformative power can be felt in governments.
According to a Dec. 2 blog by the World Bank Group, blockchain provides new ways for governments to organize processes and handle information.
Over the past few years, governments in several countries have been experimenting with the application of this novel technology to a wide variety of functions and services, including land registration, educational credentialing, health care, procurement, food supply chains, and identity management.
Despite these commendable achievements, the financial institution notes that certain human and institutional factors are necessary for the wider adoption of blockchain by governments, the most important being trust. Bitcoin’s inventor, Satoshi Nakamoto, prioritized trust when proposing Bitcoin and its ledger, over banknotes. The virtue is a “superpower” and it gives blockchain a “relative advantage over other tools and technologies used in transaction and information processing.”
Additionally, the bank highlights the trust-promoting qualities of blockchain’s cryptography and distributed networking. Among them are that its ledger is tamper-proof, append-only, and immutable with confirmed and validated transactions.
Blockchain and the plagues of traditional economic systems
Citing Nobel prize-winning economist Kenneth Arrow, the World Bank points out that the lack of trust is highly detrimental to financial systems.
“Virtually every commercial transaction has within itself an element of trust, certainly any transaction conducted over a period of time,” Arrow wrote.
Lack of trust, according to the bank, undermines financial exchange in more ways than one. Transacting becomes increasingly harder, subsequently increasing monitoring and transaction costs. On top of that, contract monitoring becomes inefficient and sanctioning breached contracts becomes difficult. All these disadvantages are wiped out with blockchain technology “not only promoting trust but also improv[ing]process efficiency.”
Another factor that holds back blockchain adoption, is the lack of understanding of the technology itself. Aspects include DLT protocols such as Hyperledger and Quorum and network options such as public and private. Others are security and government mechanisms, information that should be included and that to be excluded, initial investments, and annual operating costs. All these need to be put into consideration when developing blockchain tech for areas lacking social trust.
The “Three Layer” paradigm
Concluding, the World Bank proposes a “Three Layer” design and implementation framework, to prevent potential glitches between the technology and its intended application. The framework comprises the social layer, data layer, and technical layer. The social layer constitutes human actors and social aspects such as incentives and motivation among others. The data layer is the ledger itself and what it provides in terms of usability, security, authenticity, and reliability. The technical layer comprises DLT protocols, data storage, and consensus mechanisms among others. The bank views this as a significant tool in encouraging faster blockchain adoption and transformative outcomes for governments.
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