First Published on LinkedIn April 2016
For most of us, I would guess, Panama until recently represented three things: a hat, a canal and a rather good palindrome. Now, it has suddenly forced itself into our consciousness with a tale of tax evasion/avoidance that has reached the cover of satirical magazines. Not only that, unless I tread carefully, this blog may result in a number of redactions.
The information that Mossack Fonseca would rather have kept under its hat incorporates 11.5m documents and 2.6 terabytes of information including the financial details of 12 national leaders, 131 other politicians and associates, twenty-three sanctioned people and 214,000 companies.
Now of course, most of these people have probably done everything by the book, and there may well be relatively few miscreants. However, in these days of Twitter storms and cynicism, we all need to be cleaner than clean. So the key question is – how can Governments and Banks reduce the chance of it ever happening again to this scale?
The answer may be as simple as embracing the blockchain technology.
To many people, blockchain is the same as Bitcoin, but although the two are closely linked, they are distinct concepts. One way of looking at the two is to think of them in terms of a railway. Consider blockchain as the rails on which trains and their carriages ride, while numerous types of transactions, one of which is bitcoin, represent the carriages themselves. More technically, blockchain is a decentralised ledger, duplicated across a global network, which records the existence of the bitcoin (as well as other transactions). This allows any individual, institute or even a government such as the Tax Office to see a true record of all transactions, and enables information to be stored securely in the Cloud.
Blockchain – it’s worth getting excited about
Many banks still see blockchain as simply representing a risk to their position as intermediaries in the transaction handling process, in which they add value and take a cut for providing that value. For me, this is a blinkered view.
Here’s the thing. It’s the level of certainty that an individual ledger can’t be manipulated fraudulently (since the network needs to validate and approve each entry and modification) which allows users, whether individuals or institutions, to trust blockchain implicitly. And that gives rise to a whole lot of exciting ideas of recognising its far greater potential, in both business and governmental contexts.
Imagine if, for example, blockchain became the heart of the voting system in the US, so avoiding the controversies of the 2000 and 2004 elections. It could easily happen. Nasdaq, for example, is already using blockchain to allow Estonians to vote in shareholder meetings even when they’re abroad. Meanwhile, in 2014 Denmark’s Liberal Alliance became the first political party to vote using a blockchain-based system for its internal elections. Similar systems have since been adopted in Norway and Spain.
Combining the security and flexibility of blockchain with the power of PSD2 (you may have seen this covered more fully in my colleague David Rimmer’s article) will give people more ability to manage all aspects of their financial profile, from savings and transactions to their full range of assets, using a unique personal identity such as an ID card and protected via technology such as ShoCard.
Digital currency – a tempting alternative
Imagine if countries moved over to digital instead of traditional currency. It’s a possibility already being investigated by a number of governments, who are now looking at whether replacing coins and notes could improve financial performance and economic health.
A report by the Treasury in March 2015 pointed out that although
‘digital currencies can offer a degree of anonymity to users, and that this factor could be a driver of criminal activity[…] the publically visible ledger (or blockchain) of historical transactions makes digital currency payments less opaque than traditional payment methods, especially cash.’
Visibility of these transactions, in fact, will allow agreed users to check that the customer/citizen is not fraudulently making or receiving payments.
The potential extends still further. Imagine if the tax office could have a view of all transactions being made without relying on the citizen submitting their returns at the end of each year. Good news for both David Cameron and Jeremy Corbyn.
Give blockchain the scope it needs
I’ve one concern. blockchain is exciting – but the financial sector should not limit itself to protecting its own interests. Already, a number of consortia have started to deliberate over their approach to blockchain, and as exBarclays IT chief Anthony Watson says:
‘ The blockchain […] blows up banks’ business models because they can’t charge people the same astronomical fees. So they’re forming this to block people. And that’s all it is, it’s a cynical tactic to block people and stop people innovating.’
Agreed, you can take this viewpoint with a grain of salt, given Anthony’s new venture’s involvement in the technology. Blythe Masters, for example, of Digital Asset Holdings, believes that it could be under 2 years before financial services companies use blockchain technology. Even so, if financial services – and in particular the consortia – continue to drag their heels, there is a risk that blockchain may never achieve all that it could.
So let’s think bigger. Let’s think trust and security. Let’s think customer satisfaction, or the national wellbeing, and see where this takes us. Its got to be better than the current solutions. What do you think?
The Technical Polyglot 