By Nemitari Ajienka, Associate, Blockchain.
Bitcoin was introduced as a public participant-managed financial shared ledger network that permits peer-to-peer transactions without the need for ‘intermediaries’.
However while beneficial to the general public as can be measured by its adoption since inception, central banks, other financial institutions and Governments have come to terms with the downsides of such a decentralised model for them, and possibly the fear of being sidelined in the grand scheme of things. Some of these downsides for them include a lack of control over monetary policies, the use of the Bitcoin cryptocurrency in illicit transactions in the dark web, loss of revenue due to the inability to efficiently generate tax bitcoin transactions and also transaction anonymity. Coindesk reports that $650,000 of daily sales volumes reached by 6 dark markets in 2014 including Silk Road 2.0 and Agora.
Central banks and Governments alike do not want their institutions to own or use Bitcoin and have since undergone private experiments to determine the feasibility of implementing use cases using the distributed ledger/blockchain technology at the core of Bitcoin.
One such use case is welfare payments to citizens. Recently, the UK’s Department of Work and Pensions (DWP) trialled the use of the blockchain to pay welfare benefits to the unemployed and disabled, and this raised privacy concerns. The scheme would see claimants receive and spend money using an application on their phones. And with their consent, their transactions are being recorded on a blockchain to aid financial management.
Welfare campaigners have argued that this scheme will see the DWP spying on what users are spending their money on. This is a claim that the DWP has dismissed saying that the capturing of data will be anonymised without spending restrictions. However, if anonymised, it is unclear to see how this technology will support ‘unidentified’ claimants in the management of their spending. Notwithstanding, a report by the BBC claims that a departed member of the Government Digital Service sees the possibility that in the future the government could then use the technology to force people to spend benefits only on certain things – to make sure, for instance that pensioners spent their winter fuel allowance on their energy bills.
A report by the New York Times mentions that the promise of the blockchain technology for central banks is that it will allow the tracking of every pound on every step of its travels through the financial system, in real-time. Due to the immutable (though mutable by consensus depending on configuration) attribute of the technology, one can infer that if inaccurate data is entered, such data cannot be changed. Therefore, the security of such an application is important as a false transaction not made by the claimant but for example a friend, carer or their relative puts them at risk of being excluded from the welfare system. Not every data stored on the blockchain is ‘true’ by default. Faulty systems could for example record the wrong data on the blockchain.
However, the technology will require a lot of education for the recipients as well as a stigma attached to the use of ‘benefit coins’. Savings from fraud reduction in the welfare system can be offered to claimants who give their consent for their transactions to be audited by the Government.
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