On the Rise of FinTechs – Credit Scoring using Digital Footprints


NBER Working Paper by Tobias Berg, Valentin Burg, Ana Gombović and Manju Puri: “We analyze the information content of the digital footprint – information that people leave online simply by accessing or registering on a website – for predicting consumer default. Using more than 250,000 observations, we show that even simple, easily accessible variables from the digital footprint equal or exceed the information content of credit bureau (FICO) scores. Furthermore, the discriminatory power for unscorable customers is very similar to that of scorable customers. Our results have potentially wide implications for financial intermediaries’ business models, for access to credit for the unbanked, and for the behavior of consumers, firms, and regulators in the digital sphere….(More)”.

Blockchain Ethical Design Framework


Report by Cara LaPointe and Lara Fishbane: “There are dramatic predictions about the potential of blockchain to “revolutionize” everything from worldwide financial markets and the distribution of humanitarian assistance to the very way that we outright recognize human identity for billions of people around the globe. Some dismiss these claims as excessive technology hype by citing flaws in the technology or robustness of incumbent solutions and infrastructure.

The reality will likely fall somewhere between these two extremes across multiple sectors. Where initial applications of blockchain were focused on the financial industry, current applications have rapidly expanded to address a wide array of sectors with major implications for social impact.

This paper aims to demonstrate the capacity of blockchain to create scalable social impact and to identify the elements that need to be addressed to mitigate challenges in its application. We are at a moment when technology is enabling society to experiment with new solutions and business models. Ubiquity and global reach, increased capabilities, and affordability have made technology a critical tool for solving problems, making this an exciting time to think about achieving greater social impact. We can address issues for underserved or marginalized people in ways that were previously unimaginable.

Blockchain is a technology that holds real promise for dealing with key inefficiencies and transforming operations in the social sector and for improving lives. Because of its immutability and decentralization, blockchain has the potential to create transparency, provide distributed verification, and build trust across multiple systems. For instance, blockchain applications could provide the means for establishing identities for individuals without identification papers, improving access to finance and banking services for underserved populations, and distributing aid to refugees in a more transparent and efficient manner. Similarly, national and subnational governments are putting land registry information onto blockchains to create greater transparency and avoid corruption and manipulation by third parties.

From increasing access to capital, to tracking health and education data across multiple generations, to improving voter records and voting systems, blockchain has countless potential applications for social impact. As developers take on building these types of solutions, the social effects of blockchain can be powerful and lasting. With the potential for such a powerful impact, the design, application, and approach to the development and implementation of blockchain technologies have long-term implications for society and individuals.

This paper outlines why intentionality of design, which is important with any technology, is particularly crucial with blockchain, and offers a framework to guide policymakers and social impact organizations. As social media, cryptocurrencies, and algorithms have shown, technology is not neutral. Values are embedded in the code. How the problem is defined and by whom, who is building the solution, how it gets programmed and implemented, who has access, and what rules are created have consequences, in intentional and unintentional ways. In the applications and implementation of blockchain, it is critical to understand that seemingly innocuous design choices have resounding ethical implications on people’s lives.

This white paper addresses why intentionality of design matters, identifies the key questions that should be asked, and provides a framework to approach use of blockchain, especially as it relates to social impact. It examines the key attributes of blockchain, its broad applicability as well as its particular potential for social impact, and the challenges in fully realizing that potential. Social impact organizations and policymakers have an obligation to understand the ethical approaches used in designing blockchain technology, especially how they affect marginalized and vulnerable populations….(More)”

Livestreaming Pollution: A New Form of Public Disclosure and a Catalyst for Citizen Engagement?


NBER Working Paper by Emiliano Huet-Vaughn, Nicholas Muller, and Yen-Chia Hsu: “Most environmental policy assumes the form of standards and enforcement. Scarce public budgets motivate the use of disclosure laws. This study explores a new form of pollution disclosure: real-time visual evidence of emissions provided on a free, public website. The paper tests whether the disclosure of visual evidence of emissions affects the nature and frequency of phone calls to the local air quality regulator. First, we test whether the presence of the camera affects the frequency of calls to the local air quality regulator about the facility monitored by the camera. Second, we test the relationship between the camera being active and the number of complaints about facilities other than the plant recorded by the camera. Our empirical results suggest that the camera did not affect the frequency of calls to the regulator about the monitored facility. However, the count of complaints pertaining to another prominent industrial polluter in the area, steel manufacturing plants, is positively associated with the camera being active. We propose two behavioral reasons for this finding: the prior knowledge hypothesis and affect heuristics. This study argues that visual evidence is a feasible approach to environmental oversight even during periods with diminished regulatory capacity….(More)”.

The GovLab Selected Readings on Blockchain Technologies and the Governance of Extractives


Curation by Andrew Young, Anders Pedersen, and Stefaan G. Verhulst

Readings developed together with NRGI, within the context of our joint project on Blockchain technologies and the Governance of Extractives. Thanks to Joyce Zhang and Michelle Winowatan for research support.

We need your help! Please share any additional readings on the use of Blockchain Technologies in the Extractives Sector with blockchange@thegovlab.org.  

Introduction

By providing new ways to securely identify individuals and organizations, and record transactions of various types in a distributed manner, blockchain technologies have been heralded as a new tool to address information asymmetries, establish trust and improve governance – particularly around the extraction of oil, gas and other natural resources. At the same time, blockchain technologies are been experimented with to optimize certain parts of the extractives value chain – potentially decreasing transparency and accountability while making governance harder to implement.

Across the expansive and complex extractives sector, blockchain technologies are believed to have particular potential for improving governance in three key areas:  

  • Beneficial ownership and illicit flows screening: The identity of those who benefit, through ownership, from companies that extract natural resources is often hidden – potentially contributing to tax evasion, challenges to global sanction regimes, corruption and money laundering.
  • Land registration, licensing and contracting transparency: To ensure companies extract resources responsibly and comply with rules and fee requirements, effective governance and a process to determine who has the rights to extract natural resources, under what conditions, and who is entitled to the land is essential.
  • Commodity trading and supply chain transparency: The commodity trading sector is facing substantive challenges in assessing and verifying the authenticity of for example oil trades. Costly time is spent by commodity traders reviewing documentation of often poor quality. The expectation of the sector is firstly to eliminate time spent verifying the authenticity of traded goods and secondly to reduce the risk premium on trades. Transactions from resources and commodities trades are often opaque and secretive, allowing for governments and companies to conceal how much money they receive from trading, and leading to corruption and evasion of taxation.

In the below we provide a selection of the nascent but growing literature on Blockchain Technologies and Extractives across six categories:

Selected Readings 

Blockchain Technologies and Extractives – Promise and Current Potential

Adams, Richard, Beth Kewell, Glenn Parry. “Blockchain for Good? Digital Ledger Technology and Sustainable Development Goals.” Handbook of Sustainability and Social Science Research. October 27, 2017.

  • This chapter in the Handbook of Sustainability and Social Science Research seeks to reflect and explore the different ways Blockchain for Good (B4G) projects can provide social and environmental benefits under the UN’s Sustainable Goals framework
  • The authors describe the main categories in which blockchain can achieve social impact: mining/consensus algorithms that reward good behavior, benefits linked to currency use in the form of “colored coins,” innovations in supply chain, innovations in government, enabling the sharing economy, and fostering financial inclusion.
  • The chapter concludes that with B4G there is also inevitably “Blockchain for Bad.” There is already critique and failures of DLTs such as the DAO, and more research must be done to identify whether DLTs can provide a more decentralized, egalitarian society, or if they will ultimately be another tool for control and surveillance by organizations and government.

Cullinane, Bernadette, and Randy Wilson. “Transforming the Oil and Gas Industry through Blockchain.” Official Journal of the Australian Institute of Energy News, p 9-10, December 2017.

  • In this article, Cullinane and Wilson explore blockchain’s application in the oil and gas industry “presents a particularly compelling opportunity…due to the high transactional values, associated risks and relentless pressure to reduce costs.”
  • The authors elaborate four areas where blockchain can benefit play a role in transforming the oil and gas industry:
    • Supply chain management
    • Smart contracts
    • Record management
    • Cross-border payments

Da Silva, Filipe M., and Ankita Jaitly. “Blockchain in Natural Resources: Hedging Against Volatile Prices.” Tata Consultancy Services Ltd., 2018.

  • The authors of this white paper assess the readiness of natural resources industries for blockchain technology application, identify areas where blockchain can add value, and outline a strategic plan for its adoption.
  • In particular, they highlight the potential for blockchain in the oil and gas industry to simplify payments, where for example, gas can be delivered directly to consumer homes using a blockchain smart contracting application.

Halford-Thompson, Guy. “Powered by Blockchain: Reinventing Information Management in the Energy Space.” BTL, May 12, 2017.

  • According to Halford-Thompson, “oil and gas companies are exploring blockchain’s promise to revamp inefficient internal processes and achieve significant reductions in operating costs through the automation of record keeping and messaging, the digitization of the supply chain information flow, and the elimination of reconciliation, among many other data management use cases.”
  • The data reconciliation process, for one, is complex and can require significant time for completion. Blockchain technology could not only remove the need for some steps in the information reconciliation process, but also eliminate the need for reconciliation altogether in some instances.

Blockchain Technologies and the Governance of Extractives

(See also: Selected Readings of Blockchain Technologies and its Potential to Transform Governance)

Koeppen, Mark, David Shrier, and Morgan Bazilian. “Is Blockchain’s Future in Oil and Gas Transformative Or Transient? Deloitte, 2017.

  • In this report, the authors propose four areas that blockchain can improve for the oil and gas industry, which are:
    • Transparency and compliance: Employment of blockchain is predicted to significantly reduce cost related to compliance, since it securely makes information available to all parties involved in the supply chain.
    • Cyber threats and security: The industry faces constant digital security threat and blockchain provides a solution to address this issue.
    • Mid-volume trading/third party impacts: They argue that the “boundaries between asset classes will blur as cash, energy products and other commodities, from industrial components to apples could all become digital assets trading interoperably.”
    • Smart contract: Since the “sheer size and volume of contracts and transactions to execute capital projects in oil and gas have historically caused significant reconciliation and tracking issues among contractors, sub-contractors, and suppliers,” blockchain-enabled smart contracts could improve the process by executing automatically after all requirements are met, and boosting contract efficiency and protecting each party from volatile pricing.

Mawet, Pierre, and Michael Insogna. “Unlocking the Potential of Blockchain in Oil and Gas Supply Chains.” Accenture Energy Blog, November 21, 2016.

  • The authors propose three ways blockchain technology can boost productivity and efficiency in oil and gas industry:
    • “Greater process efficiency. Smart contracts, for example, can be held in a blockchain transaction with party compliance confirmed through follow-on transactions, reducing third-party supervision and paper-based contracting, thus helping reduce cost and overhead.”
    • “Compliance. Visibility is essential to improve supply chain performance. The immutable record of transactions can aid in product traceability and asset tracking.”
    • “Data transfer from IoT sensors. Blockchain could be used to track the unique history of a device, with the distributed ledger recording data transfer from multiple sensors. Data security in devices could be safeguarded by unique blockchain characteristics.”

Som, Indranil. “Blockchain: Radically Changing the Mining Paradigm.” Digitalist, September 27, 2017.

  • In this article, Som proposes three ways that the blockchain technology can “support leaner organizations and increased security” in the mining industry: improving cybersecurity, increasing transparency through smart contracts, and providing visibility into the supply chain.

Identity: Beneficial Ownership and Illicit Flows

(See also: Selected Readings on Blockchain Technologies and Identity).

de Jong, Julia, Alexander Meyer, and Jeffrey Owens. “Using blockchain for transparent beneficial ownership registers. International Tax Review, June 2017.

  • This paper discusses the features of blockchain and distributed ledger technology that can improve collection and distribution of information on beneficial ownership.
  • The FATF and OECD Global Forum regimes have identified a number of common problems related to beneficial ownership information across all jurisdictions, including:
    • “Insufficient accuracy and accessibility of company identification and ownership information;
    • Less rigorous implementation of customer due-diligence (CDD) measures by key gatekeepers such as lawyers, accountants, and trust and company service providers; and
    • Obstacles to information sharing such as data protection and privacy laws, which impede competent authorities from receiving timely access to adequate, accurate and up-to-date information on basic legal and beneficial ownership.”
  • The authors argue that the transparency, immutability, and security offered by blockchain makes it ideally suited for record-keeping, particularly with regards to the ownership of assets. Thus, blockchain can address many of the shortcomings in the current system as identified by the FATF and the OECD.
  • They go on to suggest that a global registry of beneficial ownership using blockchain technology would offer the following benefits:
    • Ensuring real-time accuracy and verification of ownership information
    • Increasing security and control over sensitive personal and commercial information
    • Enhancing audit transparency
    • Creating the potential for globally-linked registries
    • Reducing corruption and fraud, and increasing trust
    • Reducing compliance burden for regulate entities

Herian, Robert. “Trusteeship in a Post-Trust World: Property, Trusts Law and the Blockchain.” The Open University, 2016.

  • This working paper discusses the often overlooked topic of trusteeship and trusts law and the implications of blockchain technology in the space. 
  • “Smart trusts” on the blockchain will distribute trusteeship across a network and, in theory, remove the need for continuous human intervention in trust fund investments thus resolving key issues around accountability and the potential for any breach of trust.
  • Smart trusts can also increase efficiency and security of transactions, which could improve the overall performance of the investment strategy, thereby creating higher returns for beneficiaries.

Karsten, Jack and Darrell M. West (2018): “Venezuela’s “petro” undermines other cryptocurrencies – and international sanctions.” Brookings, Friday, March 9 2018,

  • This article discusses the Venezuelan government’s cryptocurrency, “petro,” which was launched as a solution to the country’s economic crisis and near-worthless currency, “bolívar”
  • Unlike the volatility of other cryptocurrencies such as Bitcoin and Litecoin, one petro’s price is pegged to the price of one barrel of Venezuelan oil – roughly $60
  • And rather than decentralizing control like most blockchain applications, the petro is subject to arbitrary discount factor adjustment, fluctuating oil prices, and a corrupt government known for manipulating its currency
  • The authors warn the petro will not stabilize the Venezuelan economy since only foreign investors funded the presale, yet (from the White Paper) only Venezuelan citizens can use the cryptocurrency to pay taxes, fees, and other expenses. Rather, they argue, the petro represents an attempt to create foreign capital out of “thin air,” which is not subject to traditional economic sanctions.  

Land Registration, Licensing and Contracting Transparency

Michael Graglia and Christopher Mellon. “Blockchain and Property in 2018: At the End of the Beginning.” 2018 World Bank Conference on Land and Poverty, March 19-23, 2018.

  • This paper claims “blockchain makes sense for real estate” because real estate transactions depend on a number of relationships, processes, and intermediaries that must reconcile all transactions and documents for an action to occur. Blockchain and smart contracts can reduce the time and cost of transactions while ensuring secure and transparent record-keeping systems.
  • The ease, efficiency, and security of transactions can also create an “international market for small real estate” in which individuals who cannot afford an entire plot of land can invest small amounts and receive their portion of rental payments automatically through smart contracts.
  • The authors describe seven prerequisites that land registries must fulfill before blockchain can be introduced successfully: accurate data, digitized records, an identity solution, multi-sig wallets, a private or hybrid blockchain, connectivity and a tech aware population, and a trained professional community
  • To achieve the goal of an efficient and secure property registry, the authors propose an 8-level progressive framework through which registries slowly integrate blockchain due to legal complexity of land administration, resulting inertia of existing processes, and high implementation costs.  
    • Level 0 – No Integration
    • Level 1 – Blockchain Recording
    • Level 2 – Smart Workflow
    • Level 3 – Smart Escrow
    • Level 4 – Blockchain Registry
    • Level 5 – Disaggregated Rights
    • Level 6 – Fractional Rights
    • Level 7 – Peer-to-Peer Transactions
    • Level 8 – Interoperability

Thomas, Rod. “Blockchain’s Incompatibility for Use as a Land Registry: Issues of Definition, Feasibility and Risk. European Property Law Journal, vol. 6, no. 3, May 2017.

  • Thomas argues that blockchain, as it is currently understood and defined, is unsuited for the transfer of real property rights because it fails to address the need for independent verification and control.
  • Under a blockchain-based system, coin holders would be in complete control of the recordation of the title interests of their land, and thus, it would be unlikely that they would report competing or contested claims.
  • Since land remains in the public domain, the risk of third party possessory title claims are likely to occur; and over time, these risks will only increase exponentially.
  • A blockchain-based land title represents interlinking and sequential transactions over many hundreds, if not thousands, of years, so given the misinformation that would compound over time, it would be difficult to trust the current title holder has a correctly recorded title
  • The author concludes that supporters of blockchain for land registries frequently overlook a registry’s primary function to provide an independent verification of the provenance of stored data.

Vos, Jacob, Christiaan Lemmen, and Bert Beentjes. “Blockchain-Based Land Registry: Panacea, Illusion or Something In Between? 2017 World Bank Conference on Land and Poverty, March 20-24, 2017.

  • The authors propose that blockchain is best suited for the following steps in land administration:
    • The issuance of titles
    • The archiving of transactions – specifically in countries that do not have a reliable electronic system of transfer of ownership
  • The step in between issuing titles and archiving transactions is the most complex – the registration of the transaction. This step includes complex relationships between the “triple” of land administration: rights (right in rem and/or personal rights), object (spatial unit), and subject (title holder). For the most part, this step is done manually by registrars, and it is questionable whether blockchain technology, in the form of smart contracts, will be able to process these complex transactions.
  • The authors conclude that one should not underestimate the complexity of the legal system related to land administration. The standardization of processes may be the threshold to success of blockchain-based land administration. The authors suggest instead of seeking to eliminate one party from the process, technologists should cooperate with legal and geodetic professionals to create a system of checks and balances to successfully implement blockchain for land administration.  
  • This paper also outlines five blockchain-based land administration projects launched in Ghana, Honduras, Sweden, Georgia, and Cook County, Illinois.

Commodity Trading and Supply Chain Transparency

Ahmed, Shabir. “Leveraging Blockchain to Revolutionise the Mining Industry.” SAP News, February 27, 2018.

  • In this article, Ahmed identifies seven key use cases for blockchain in the mining industry:
    • Automation of ore acquisition and transfer;
    • Automatic registration of mineral rights and IP;
    • Visibility of ore inventory at ports;
    • Automatic cargo hire process;
    • Process and secure large amounts of IoT data;
    • Reconciling amount produced and sent for processing;
    • Automatically execute procurement and other contracts.

Brooks, Michael. “Blockchain and the Fight Against Illicit Financial Flows.” The Policy Corner, February 19, 2018.

  • In this article, Brooks argues that, “Because of the inherent decentralization and immutability of data within blockchains, it offers a unique opportunity to bypass traditional tracking and transparency initiatives that require strong central governance and low levels of corruption. It could, to a significant extent, bypass the persistent issues of authority and corruption by democratizing information around data consensus, rather than official channels and occasional studies based off limited and often manipulated information. Within the framework of a coherent policy initiative that integrates all relevant stakeholders (states, transnational organizations, businesses, NGOs, other monitors and oversight bodies), a international supply chains supported by blockchain would decrease the ease with which resources can be hidden, numbers altered, and trade misinvoiced.”

Conflict Free Natural Resources.” Global Opportunity Report 2017. Global Opportunity Network, 2017.

  • In this entry from the Global Opportunity Report, and specifically toward the end of ensuring conflict-free natural resources, Blockchain is labeled as “well-suited for tracking objects and transactions, making it possible for virtually anything of value to be traced. This opportunity is about creating transparency and product traceability in supply chains.

Blockchain for Traceability in Minerals and Metals Supply Chains: Opportunities and Challenges.” RCS Global and ICMM, 2017.

  • This report is based on insights generated during the Materials Stewardship Round Table on the potential of BCTs for tracking and tracing metals and minerals supply chains, which subsequently informed an RCS Global research initiative on the topic.
  • Insight into two key areas is increasingly desired by downstream manufacturing companies from upstream producers of metals and minerals: provenance and production methods
  • In particular, the report offers five key potential advantages of using Blockchain for mineral and metal supply chain activities:
    • “Builds consensus and trust around responsible production standards between downstream and upstream companies.
    • The immutability of and decentralized control over a blockchain system minimizes the risk of fraud.
    • Defined datasets can be made accessible in real time to any third party, including downstream buyers, auditors, investors, etc. but at the same time encrypted so as to share a proof of fact rather than confidential information.
    • A blockchain system can be easily scaled to include other producers and supply chains beyond those initially involved.
    • Cost reduction due to the paperless nature of a blockchain-enabled CoC [Chain of Custody] system, the potential reduction of audits, and reduction in transaction costs.”

Van Bockstael, Steve. “The emergence of conflict-free, ethical, and Fair Trade mineral supply chain certification systems: A brief introduction.” The Extractives Industries and Society, vol. 5, issue 1, January 2018.

  • This introduction to a special section considers the emerging field of “‘conflict-free’, ‘fair’ and ‘transparently sourced and traded’ minerals” in global industry supply chains.
  • Van Bockstael describes three areas of practice aimed at increasing supply chain transparency:
    • “Initiatives that explicitly try to sever the links between mining or minerals trading and armed conflict of the funding thereof.”
    • “Initiatives, limited in number yet growing, that are explicitly linked to the internationally recognized ‘Fair Trade’ movement and whose aim it is to source artisanally mined minerals for the Western jewellry industry.”
    • “Initiatives that aim to provide consumers or consumer-facing industries with more ethical, transparent and fair supply chains (often using those concepts in fuzzy and interchangeable ways) that are not linked to the established Fair Trade movement” – including, among others, initiatives using Blockchain technology “to create tamper-proof supply chains.”

Global Governance, Standards and Disclosure Practices

Lafarre, Anne and Christoph Van der Elst. “Blockchain Technology for Corporate Governance and Shareholder Activism.” European Corporate Governance Institute (ECGI) – Law Working Paper No. 390/2018, March 8, 2018.

  • This working paper focuses on the potential benefits of leveraging Blockchain during functions involving shareholder and company decision making. Lafarre and Van der Elst argue that “Blockchain technology can lower shareholder voting costs and the organization costs for companies substantially. Moreover, blockchain technology can increase the speed of decision-making, facilitate fast and efficient involvement of shareholders.”
  • The authors argue that in the field of corporate governance, Blockchain offers two important elements: “transparency – via the verifiable way of recording transactions – and trust – via the immutability of these transactions.”
  • Smart contracting, in particular, is seen as a potential avenue for facilitating the ‘agency relationship’ between board members and the shareholders they represent in corporate decision-making processes.

Myung, San Jun. “Blockchain government – a next for of infrastructure for the twenty-first century.” Journal of Open Innovation: Technology, Market, and Complexity, December 2018.

  • This paper argues the idea that Blockchain represents a new form of infrastructure that, given its core consensus mechanism, could replace existing social apparatuses including bureaucracy.
  • Indeed, Myung argues that blockchain and bureaucracy share a number of attributes:
    • “First, both of them are defined by the rules and execute predetermined rules.
    • Second, both of them work as information processing machines for society.
    • Third, both of them work as trust machines for society.”  
  • The piece concludes with five principles for replacing bureaucracy with blockchain for social organization: “1) introducing Blockchain Statute law; 2) transparent disclosure of data and source code; 3) implementing autonomous executing administration; 4) building a governance system based on direct democracy; and 5) making Distributed Autonomous Government (DAG).  

Peters, Gareth and Vishnia, Guy (2016): “Blockchain Architectures for Electronic Exchange Reporting Requirements: EMIR, Dodd Frank, MiFID I/II, MiFIR, REMIT, Reg NMS and T2S.” University College London, August 31, 2016.

  • This paper offers a solution based on blockchain architectures to the regulations of financial exchanges around the world for trade processing and reporting for execution and clearing. In particular, the authors give a detailed overview of EMIR, Dodd Frank, MiFID I/II, MiFIR, REMIT, Reg NMS and T2S.
  • The authors suggest the increasing amount of data from transaction reporting start to be incorporated on a blockchain ledger in order to harness the built-in security and immutability features of the blockchain to support key regulatory features.
  • Specifically, the authors suggest 1) a permissioned blockchain controlled by a regulator or a consortium of market participants for the maintenance of identity data from market participants and 2) blockchain frameworks such as Enigma to be used to facilitate required transparency and reporting aspects related to identities when performing pre- and post-trade reporting as well as for auditing.

Blockchain Technology and Competition Policy – Issues paper by the Secretariat,” OECD, June 8, 2018.

  • This OECD issues paper poses two key questions about how blockchain technology might increase the relevance of new disclosures practices:
    • “Should competition agencies be given permission to access blockchains? This might enable them to monitor trading prices in real-time, spot suspicious trends, and, when investigating a merger, conduct or market have immediate access to the necessary data without needing to impose burdensome information requests on parties.”
    • “Similarly, easy access to the information on a blockchain for a firm’s owners and head offices would potentially improve the effectiveness of its oversight on its own subsidiaries and foreign holdings. Competition agencies may assume such oversight already exists, but by making it easier and cheaper, a blockchain might make it more effective, which might allow for more effective centralised compliance programmes.”

Michael Pisa and Matt Juden. “Blockchain and Economic Development: Hype vs. Reality.” Center for Global Development Policy Paper, 2017.

  • In this Center for Global Development Policy Paper, the authors examine blockchain’s potential to address four major development challenges: (1) facilitating faster and cheaper international payments, (2) providing a secure digital infrastructure for verifying identity, (3) securing property rights, and (4) making aid disbursement more secure and transparent.
  • The authors conclude that while blockchain may be well suited for certain use cases, the majority of constraints in blockchain-based projects fall outside the scope of technology. Common constraints such as data collection and privacy, governance, and operational resiliency must be addressed before blockchain can be successfully implemented as a solution.

Industry-Specific Case Studies

Chohan, Usman. “Blockchain and the Extractive Industries: Cobalt Case Study,” University of New South Wales, Canberra Discussion Paper Series: Notes on the 21st Century, 2018.

  • In this discussion paper, the author studies the pilot use of blockchain in cobalt mining industry in the Democratic Republic of Congo (DRC). The project tracked the movement of cobalt from artisanal mines through its installation in devices such as smartphones and electric cars.
  • The project records cobalt attributes – weights, dates, times, images, etc. – into the digital ledger to help ensure that cobalt purchases are not contributing to forced child labor or conflict minerals. 

Chohan, Usman. “Blockchain and the Extractive Industries #2: Diamonds Case Study,” University of New South Wales, Canberra Discussion Paper Series: Notes on the 21st Century, 2018.

  • The second case study from Chohan investigates the application of blockchain technology in the extractive industry by studying Anglo-American (AAL) diamond DeBeer’s unit and Everledger’s blockchain projects. 
  • In this study, the author finds that AAL uses blockchain to track gems (carat, color, certificate numbers), starting from extraction and onwards, including when the gems change hands in trade transaction.
  • Like the cobalt pilot, the AAL initiative aims to help avoid supporting conflicts and forced labor, and to improve trading accountability and transparency more generally.

International Data Flows and Privacy: The Conflict and its Resolution


World Bank Policy Research Working Paper by Aaditya Mattoo and Joshua P Meltzer: “The free flow of data across borders underpins today’s globalized economy. But the flow of personal dataoutside the jurisdiction of national regulators also raises concerns about the protection of privacy. Addressing these legitimate concerns without undermining international integration is a challenge. This paper describes and assesses three types of responses to this challenge: unilateral development of national or regional regulation, such as the European Union’s Data Protection Directive and forthcoming General Data Protection Regulation; international negotiation of trade disciplines, most recently in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP); and international cooperation involving regulators, most significantly in the EU-U.S. Privacy Shield Agreement.

The paper argues that unilateral restrictions on data flows are costly and can hurt exports, especially of data-processing and other data-based services; international trade rules that limit only the importers’ freedom to regulate cannot address the challenge posed by privacy; and regulatory cooperation that aims at harmonization and mutual recognition is not likely to succeed, given the desirable divergence in national privacy regulation. The way forward is to design trade rules (as the CPTPP seeks to do) that reflect the bargain central to successful international cooperation (as in the EU-US Privacy Shield): regulators in data destination countries would assume legal obligations to protect the privacy of foreign citizens in return for obligations on data source countries not to restrict the flow of data. Existing multilateral rules can help ensure that any such arrangements do not discriminate against and are open to participation by other countries….(More)”.

Digital Identity: On the Threshold of a Digital Identity Revolution


White Paper by the World Economic Forum: “For individuals, legal entities and devices alike, a verifiable and trusted identity is necessary to interact and transact with others.

The concept of identity isn’t new – for much of human history, we have used evolving credentials, from beads and wax seals to passports, ID cards and birth certificates, to prove who we are. The issues associated with identity proofing – fraud, stolen credentials and social exclusion – have challenged individuals throughout history. But, as the spheres in which we live and transact have grown, first geographically and now into the digital economy, the ways in which humans, devices and other entities interact are quickly evolving – and how we manage identity will have to change accordingly.

As we move into the Fourth Industrial Revolution and more transactions are conducted digitally, a digital representation of one’s identity has become increasingly important; this applies to humans, devices, legal entities and beyond. For humans, this proof of identity is a fundamental prerequisite to access critical services and participate in modern economic, social and political systems. For devices, their digital identity is critical in conducting transactions, especially as the devices will be able to transact relatively independent of humans in the near future. For legal entities, the current state of identity management consists of inefficient manual processes that could benefit from new technologies and architecture to support digital growth.

As the number of digital services, transactions and entities grows, it will be increasingly important to ensure the transactions take place in a secure and trusted network where each entity can be identified and authenticated. Identity is the first step of every transaction between two or more parties.

Over the ages, the majority of transactions between two identities has been mostly viewed in relation to the validation of a credential (“Is this genuine information?”), verification (“Does the information match the identity?”) and authentication of an identity (“Does this human/thing match the identity? Are you really who you claim to be?”). These questions have not changed over time, only the methods have change. This paper explores the challenges with current identity systems and the trends that will have significant impact on identity in the future….(More)”.

A New Model for Industry-Academic Partnerships


Working Paper by Gary King and Nathaniel Persily: “The mission of the academic social sciences is to understand and ameliorate society’s greatest challenges. The data held by private companies holds vast potential to further this mission. Yet, because of its interaction with highly politicized issues, customer privacy, proprietary content, and differing goals of firms and academics, these data are often inaccessible to university researchers.

We propose here a new model for industry-academic partnerships that addresses these problems via a novel organizational structure: Respected scholars form a commission which, as a trusted third party, receives access to all relevant firm information and systems, and then recruits independent academics to do research in specific areas following standard peer review protocols organized and funded by nonprofit foundations.

We also report on a partnership we helped forge under this model to make data available about the extremely visible and highly politicized issues surrounding the impact of social media on elections and democracy. In our partnership, Facebook will provide privacy-preserving data and access; seven major politically and substantively diverse nonprofit foundations will fund the research; and the Social Science Research Council will oversee the peer review process for funding and data access….(More)”.

Prediction, Judgment and Complexity


NBER Working Paper by Agrawal, Ajay and Gans, Joshua S. and Goldfarb, Avi: “We interpret recent developments in the field of artificial intelligence (AI) as improvements in prediction technology. In this paper, we explore the consequences of improved prediction in decision-making. To do so, we adapt existing models of decision-making under uncertainty to account for the process of determining payoffs. We label this process of determining the payoffs ‘judgment.’ There is a risky action, whose payoff depends on the state, and a safe action with the same payoff in every state. Judgment is costly; for each potential state, it requires thought on what the payoff might be. Prediction and judgment are complements as long as judgment is not too difficult. We show that in complex environments with a large number of potential states, the effect of improvements in prediction on the importance of judgment depend a great deal on whether the improvements in prediction enable automated decision-making. We discuss the implications of improved prediction in the face of complexity for automation, contracts, and firm boundaries….(More)”.

Blockchain: Unpacking the disruptive potential of blockchain technology for human development.


IDRC white paper: “In the scramble to harness new technologies to propel innovation around the world, artificial intelligence, robotics, machine learning, and blockchain technologies are being explored and deployed in a wide variety of contexts globally.

Although blockchain is one of the most hyped of these new technologies, it is also perhaps the least understood. Blockchain is the distributed ledger — a database that is shared across multiple sites or institutions to furnish a secure and transparent record of events occurring during the provision of a service or contract — that supports cryptocurrencies (digital assets designed to work as mediums of exchange).

Blockchain is now underpinning applications such as land registries and identity services, but as its popularity grows, its relevance in addressing socio-economic gaps and supporting development targets like the globally-recognized UN Sustainable Development Goals is critical to unpack. Moreover, for countries in the global South that want to be more than just end users or consumers, the complex infrastructure requirements and operating costs of blockchain could prove challenging. For the purposes of real development, we need to not only understand how blockchain is workable, but also who is able to harness it to foster social inclusion and promote democratic governance.

This white paper explores the potential of blockchain technology to support human development. It provides a non-technical overview, illustrates a range of applications, and offers a series of conclusions and recommendations for additional research and potential development programming….(More)”.

Selected Readings on Blockchain and Identity


By Hannah Pierce and Stefaan Verhulst

The Living Library’s Selected Readings series seeks to build a knowledge base on innovative approaches for improving the effectiveness and legitimacy of governance. This curated and annotated collection of recommended works on the topic of blockchain and identity was originally published in 2017.

The potential of blockchain and other distributed ledger technologies to create positive social change has inspired enthusiasm, broad experimentation, and some skepticism. In this edition of the Selected Readings series, we explore and curate the literature on blockchain and how it impacts identity as a means to access services and rights. (In a previous edition we considered the Potential of Blockchain for Transforming Governance).

Introduction

In 2008, an unknown source calling itself Satoshi Nakamoto released a paper named Bitcoin: A Peer-to-Peer Electronic Cash System which introduced Blockchain. Blockchain is a novel technology that uses a distributed ledger to record transactions and ensure compliance. Blockchain and other Distributed Ledger technologies (DLTs) rely on an ability to act as a vast, transparent, and secure public database.

Distributed ledger technologies (DLTs) have disruptive potential beyond innovation in products, services, revenue streams and operating systems within industry. By providing transparency and accountability in new and distributed ways, DLTs have the potential to positively empower underserved populations in myriad ways, including providing a means for establishing a trusted digital identity.

Consider the potential of DLTs for 2.4 billion people worldwide, about 1.5 billion of whom are over the age of 14, who are unable to prove identity to the satisfaction of authorities and other organizations – often excluding them from property ownership, free movement, and social protection as a result. At the same time, transition to a DLT led system of ID management involves various risks, that if not understood and mitigated properly, could harm potential beneficiaries.

Annotated Selected Reading List

Governance

Cuomo, Jerry, Richard Nash, Veena Pureswaran, Alan Thurlow, Dave Zaharchuk. “Building trust in government: Exploring the potential of blockchains.” IBM Institute for Business Value. January 2017.

This paper from the IBM Institute for Business Value culls findings from surveys conducted with over 200 government leaders in 16 countries regarding their experiences and expectations for blockchain technology. The report also identifies “Trailblazers”, or governments that expect to have blockchain technology in place by the end of the year, and details the views and approaches that these early adopters are taking to ensure the success of blockchain in governance. These Trailblazers also believe that there will be high yields from utilizing blockchain in identity management and that citizen services, such as voting, tax collection and land registration, will become increasingly dependent upon decentralized and secure identity management systems. Additionally, some of the Trailblazers are exploring blockchain application in borderless services, like cross-province or state tax collection, because the technology removes the need for intermediaries like notaries or lawyers to verify identities and the authenticity of transactions.

Mattila, Juri. “The Blockchain Phenomenon: The Disruptive Potential of Distributed Consensus Architectures.” Berkeley Roundtable on the International Economy. May 2016.

This working paper gives a clear introduction to blockchain terminology, architecture, challenges, applications (including use cases), and implications for digital trust, disintermediation, democratizing the supply chain, an automated economy, and the reconfiguration of regulatory capacity. As far as identification management is concerned, Mattila argues that blockchain can remove the need to go through a trusted third party (such as a bank) to verify identity online. This could strengthen the security of personal data, as the move from a centralized intermediary to a decentralized network lowers the risk of a mass data security breach. In addition, using blockchain technology for identity verification allows for a more standardized documentation of identity which can be used across platforms and services. In light of these potential capabilities, Mattila addresses the disruptive power of blockchain technology on intermediary businesses and regulating bodies.

Identity Management Applications

Allen, Christopher.  “The Path to Self-Sovereign Identity.” Coindesk. April 27, 2016.

In this Coindesk article, author Christopher Allen lays out the history of digital identities, then explains a concept of a “self-sovereign” identity, where trust is enabled without compromising individual privacy. His ten principles for self-sovereign identity (Existence, Control, Access, Transparency, Persistence, Portability, Interoperability, Consent, Minimization, and Protection) lend themselves to blockchain technology for administration. Although there are actors making moves toward the establishment of self-sovereign identity, there are a few challenges that face the widespread implementation of these tenets, including legal risks, confidentiality issues, immature technology, and a reluctance to change established processes.

Jacobovitz, Ori. “Blockchain for Identity Management.” Department of Computer Science, Ben-Gurion University. December 11, 2016.

This technical report discusses advantages of blockchain technology in managing and authenticating identities online, such as the ability for individuals to create and manage their own online identities, which offers greater control over access to personal data. Using blockchain for identity verification can also afford the potential of “digital watermarks” that could be assigned to each of an individual’s transactions, as well as negating the creation of unique usernames and passwords online. After arguing that this decentralized model will allow individuals to manage data on their own terms, Jacobvitz provides a list of companies, projects, and movements that are using blockchain for identity management.

Mainelli, Michael. “Blockchain Will Help Us Prove Our Identities in a Digital World.” Harvard Business Review. March 16, 2017.

In this Harvard Business Review article, author Michael Mainelli highlights a solution to identity problems for rich and poor alike–mutual distributed ledgers (MDLs), or blockchain technology. These multi-organizational data bases with unalterable ledgers and a “super audit trail” have three parties that deal with digital document exchanges: subjects are individuals or assets, certifiers are are organizations that verify identity, and inquisitors are entities that conducts know-your-customer (KYC) checks on the subject. This system will allow for a low-cost, secure, and global method of proving identity. After outlining some of the other benefits that this technology may have in creating secure and easily auditable digital documents, such as greater tolerance that comes from viewing widely public ledgers, Mainelli questions if these capabilities will turn out to be a boon or a burden to bureaucracy and societal behavior.

Personal Data Security Applications

Banafa, Ahmed. “How to Secure the Internet of Things (IoT) with Blockchain.” Datafloq. August 15, 2016.

This article details the data security risks that are coming up as the Internet of Things continues to expand, and how using blockchain technology can protect the personal data and identity information that is exchanged between devices. Banafa argues that, as the creation and collection of data is central to the functions of Internet of Things devices, there is an increasing need to better secure data that largely confidential and often personally identifiable. Decentralizing IoT networks, then securing their communications with blockchain can allow to remain scalable, private, and reliable. Enabling blockchain’s peer-to-peer, trustless communication may also enable smart devices to initiate personal data exchanges like financial transactions, as centralized authorities or intermediaries will not be necessary.

Shrier, David, Weige Wu and Alex Pentland. “Blockchain & Infrastructure (Identity, Data Security).” Massachusetts Institute of Technology. May 17, 2016.

This paper, the third of a four-part series on potential blockchain applications, covers the potential of blockchains to change the status quo of identity authentication systems, privacy protection, transaction monitoring, ownership rights, and data security. The paper also posits that, as personal data becomes more and more valuable, that we should move towards a “New Deal on Data” which provides individuals data protection–through blockchain technology– and the option to contribute their data to aggregates that work towards the common good. In order to achieve this New Deal on Data, robust regulatory standards and financial incentives must be provided to entice individuals to share their data to benefit society.