How can Public Service Delivery be transformed with blockchain?
This was the topic of the recent UNDP workshop in Tashkent, Uzbekistan, on 8 June, 2021, where I presented on the new developments in #blockchain and #cryptocurrency as they apply to the public sector.
Here is a quick summary of what I believe could be the most important implications of these new developments for the public sector:
Public blockchains are a new system of property rights; hence crypto is the basis for property rights, which are the foundation of any civilised society and commerce in that society.
Crypto - particularly bitcoin - is an option (as a legal tender and a reserve currency) - for those countries that do not necessarily want to align themselves with the U.S. dollar or the Chinese yuan. El Salvador is the first sovereign country to adopt bitcoin as legal tender. Panama, Paraguay, Brazil, Mexico and Argentina are likely to follow. And despite its current hostility to bitcoin, there is a strong case to be made for India to consider embracing bitcoin as a reserve currency.
Blockchains allow new corporate - and perhaps government? - forms of on-chain incorporation, such as DAOs (decentralised autonomous organisations) and futarchies. DAOs are member-owned communities without centralised leadership which are governed by a set of software rules enacted by smart contracts on a blockchain. It can be used as an alternative governance system to promote a democratic decision-making process in a company, community or state. DAOs could make use of prediction markets to evaluate a possible future outcome of events - for example, when voting on proposals to support developmental projects. Vitalik Buterin explains the idea of futarchy:
"The idea behind futarchy was originally proposed by economist Robin Hanson as a futuristic form of government, following the slogan: vote values, but bet beliefs. Under this system, individuals would vote not on whether or not to implement particular policies, but rather on a metric to determine how well their country (or charity or company) is doing, and then prediction markets would be used to pick the policies that best optimise the metric. Given a proposal to approve or reject, two prediction markets would be created each containing one asset, one market corresponding to acceptance of the measure and one to rejection. If the proposal is accepted, then all trades on the rejection market would be reverted, but on the acceptance market after some time everyone would be paid some amount per token based on the futarchy’s chosen success metric, and vice versa if the proposal is rejected. The market is allowed to run for some time, and then at the end the policy with the higher average token price is chosen".
Blockchains and crypto can also become the foundation of a network city or state - a social network with an integrated cryptocurrency and a sense of national consciousness that eventually crowd funds territory. Cloud-first, territory last.
DeFi - decentralised finance - is the future of finance. Not A future, but THE future. A prototype of the entirely new financial system is already being built - pay, lend, borrow, save, trade, invest, hedge, bet. The legacy financial infrastructure has contributed to the inequality of opportunities, as some 2 billion people on the planet are still unbanked. According to a recent paper, "[t]he true potential of DeFi is transformational. Assuming DeFi realises its potential, the firms that refuse to adapt will be lost and forgotten. All traditional finance firms can and should begin to integrate their services with crypto and DeFi as the regulatory environment gains clarity over time...we see DeFi as the greatest opportunity of the coming decade and look forward to the reinvention of finance as we know it". Perhaps we can finally have hope for financial inclusion. And with algorithm-determined stablecoins, it would be possible to re-invent the way the Central Bank manages monetary policy.
If DeFi is new, then NFTs - non-fungible tokens - are literally in its infancy. NFTs are unique tokens, representing on-chain digital certificates of ownership of off-chain assets. What can be tokenised with NFTs? Almost anything, both physical and digital, and we are just starting to understand the opportunities opened up by this incredible invention. In the public sector, the most beneficial applications could include personal identity, land registry and medical records, to name just a few. The Hague municipality is currently experimenting with sovereign digital identity using NFTs.