First and foremost, could you please explain to us what exactly blockchain technology is?
Ledgers have always been used to keep track of operations and were stored in specific locations (accountant's office, banks, etc.). Following the computerization of data, ledgers were transferred into a digital format to improve efficiency and workload. But even digitalized ledgers were often concentrated in specific locations (local server or computer, etc.) .
The Distributed Ledger Technology (DLT) introduced the concept of disintermediation and dissemination of a ledger in similar copies across a network of “nodes” (computers). Thus, DLT took away the centralized aspect of ledgers stored within one single location (i.e. computer). In addition to being distributed across several locations, DLT data is updated and synchronized throughout the entire network providing a means to keeping track of any kind of operation and thus guaranteeing its transparency.
Blockchain is nothing less than a form of distributed ledger technology that uses blocks which are maintained by database replication and computational trust (encryption).
However, the blockchain is slightly different from other kinds of DLT as data is grouped together chronologically and organized in blocks which are then linked to one another and distributed securely on nodes by using cryptography. As a consequence, a blockchain is continuously growing. Any change must be approved simultaneously by a majority of nodes according to a consensus algorithm. This last meaure ensures that changes are made in conformity with past events: altering or deleting previously entered data on earlier blocks is impossible!
Blockchain is a technology that is often and wrongly confused with Bitcoin and other crypto currencies. The first blockchain was deployed in 1995 through a cryptic article published in the New-York Times, while crypto-currencies only appeared 13 years after. The crypto-currencies use blockchain as an enabling technology. But, this is only one of the multiple and potential applications of blockchain which has a huge potential to disrupt our economies and lives.
In short, blockchain is a distributed ledger where the data is stored chronologically in blocks linked to the last entry by a cryptographic signature. Its intrinsic characteristics of transparency, traceability and security make it well-suited for managing records, processing transactions, and tracing assets.
How could blockchain be used in the context of anti-bribery ?
Bribery is one of the world’s most destructive and challenging issues (over US$ 1 trillion paid in bribes each year), generating negative outcomes such as reducing quality of life, increasing poverty and eroding public trust.
In order to provide tools to tackle bribery, ISO has released a standard (ISO 37001) specifying a series of measures to help organizations prevent, detect and address bribery.
Many of these measures involve data management (compliance, training, risk assessments, due diligence, etc.) and traceability (digital identity, etc.). As mentioned above, blockchain could represent an immutable and traceable tool to empower the implementation of ISO 37001 measures and make corruption more difficult. As described below it can certify records and transactions providing trust and reducing risks associated with intermediaries and involved parties.
a. Ensuring secure and trustworthy data management:
Blockchain securely stores information and removes the vulnerability of a centralized system where an unauthorized access could potentially lead to data alteration or deletion.
Moreover, it provides a full overview of past operations offering an invaluable tool to build trust on data and documents (logistics, reports, audits, etc.).
In the context of anti-bribery, this could mean :
• Provision of an unprecedented level of security of the information and the integrity of records managed, guaranteeing their authenticity.
• Elimination of opportunities for falsification and the associated risks
• Prevention of fraudulent activities and a decrease in losses
• Improved compliance over completion of contracts
• Strengthening of corporate reputation by providing transparency in transactions
• Strengthening of data security and integrity
• Tracking of assets from production to delivery or use by end user. Provision of more visibility to both businesses and consumers (i.e. procurement processes)
• Help trace how data/goods/documents are passed through each subcontractor
• Help maintain more control over outsourced contracts
• Prevention of unauthorized changes in documentation
• Secure payment systems and cash transfers by limiting the physical interactions
b. Digital identity
The absence of a simple way to prove identity may feed bribery and contribute to fraud.
Blockchains can ensure that a user’s single digital identity is stored in a secure and incorruptible manner. This single digital identity can be kept up-to-date with the latest user information.
In the context of anti-bribery, blockchain provides a simple way to verify identities and fight against identity theft. Moreover, digitalization and automation of KYC processes (“know-your-customer”) can be enabled and secured by using blockchain making it easier to comply with laws and provide reliable information on the parties.
c. Smart Contracts
A smart contract is an agreement executed by computer applications running on top of a blockchain. It brings rules under which the parties agree to interact with each other. An agreement is automatically enforced if and only when the pre-defined rules are met.
In the context of anti-bribery management, the smart contracts would allow the automatic exchange of assets programmed under precise and unaltered conditions. This will reduce fraudulent activities and as a side-effect increase the speed of transactions. For example, researchers have developed a smart contract that can eliminate corruption within the public procurement sector.
How does that work?
• The public organization creates a blockchain tender by adding a smart contract on top of it
• Each bidder reviews the tender and securely stores on the blockchain its offer so that other bidders cannot see the information of other bidders
• After the deadline, the smart contract automatically stops accepting new bids
• The public organization selects the best bid and results are pushed to the blockchain
• Tender details and bid evaluation are accessible by anyone, including citizens
How do you envision the future and potential use of blockchain in the context of anti-bribery?
Sadly, corruption scandals are revealed regularly. The potential of blockchain is huge and the promise it holds on integrity and on restoring trust is highly relevant.
By design, blockchain will make corruption more difficult. As a distributed ledger technology it can certify records and transactions in a way that cannot be erased, altered or tampered. The level of integrity, security and trust it provides will reduce the impact and risks associated with intermediaries and involved parties. The traceability and transparency provided by blockchain will confer auditors and law enforcers an innovative tool to fight corruption.
About Dybaw Advisory SA
Based in Switzerland, Dybaw Advisory SA provides innovative services to businesses and the financial sector. We engage with global change to create trust and value from technology-based transformation using advice, expertise and commitment. We help our customers make sense of and realize the value from new technologies including blockchain, artificial intelligence and other disruptive trends.
As former entrepreneurs, industry professionals and mentors we naturally nurture a culture of innovation bred of creativity, leadership, accountability and trust.