Image: Pascal Bernardon (Unsplash)
Blockchain has become the new ‘buzz’ word, unsurprisingly so, due to its transformative potentials. The World Economic Forum (WEF) projected that 10% of the global Gross Domestic Product (GDP) could be stored in Blockchain technologies by 2025. Blockchain is a network technology which can be used to record and track transactions. The blockchain is created by chronologically linking blocks containing information. This data can represent anything of value. There are many diverse applications for Blockchain technology, this article will examine how Blockchain technology could be used to tackle international issues such as trade fraud, cybersecurity and international cooperation.
Imagine being able to scan an item in a shop, a cup of coffee for example, and being able to reliably trace when, where and how it has been grown, picked, shipped and processed. This is exactly what a traceable supply chain using blockchain technology would allow. Apart from informing the customer, a traceable supply chain could prevent illicit financial flows by means of mis-invoicing which robs states of valuable tax revenue. According to a United Natiosn (UN) report, 60% of Illicit Financial Flows (IFF) occur through mis-invoicing. Furthermore, in 2016, it was estimated that South Africa (SA) lost $3.4 Billion in tax revenue due to trade mis-invoicing. Trade mis-invoicing involves falsifying imports or export transactions. This deliberate action is done for numerous reasons, including to illicitly transfer value across international borders, evade tax or customs duties, launder the proceeds of criminal activity, circumvent currency controls and hide profits offshore. This fraud can have detrimental effects on the victim state. SA’s International Relations and Cooperation Minister Naledi Pandor expressed that mis-invoicing can pose a serious threat to a state’s development and economic stability in addition to hindering efforts of domestic resource mobilisation.
How could Blockchain technology prevent these illicit activities? Blockchains are unchangeable. Each block in the chain is given a unique digital signature created by a cryptographic algorithm which acts as a digital fingerprint. Additionally, each new block in the chain includes the ‘digital fingerprint’ of the previous block, this acts at the time stamp. Consequentially, once a transaction has been recorded, no participant can change or tamper with the transaction because if anything changes in any of the blocks, the digital fingerprint of the block will change , and the blockchain will be broken. This makes the blockchain immutable, and therefore reliable and trustworthy. If Blockchain technology was implemented to create a traceable supply chain, the records of the transactions would be unchangeable and fraud such as mis-invoicing would not be as easy.
The engagement of people with social media has increased greatly in recent years. Users often share their personal details with these platforms. Additionally, the internet has become increasingly centralised. Major centralised online platforms are vulnerable to a single point of hacking, for example Facebook which owns Instagram, WhatsApp and Google which includes YouTube, the centralised nature of these networks mean that if Google or Facebook are compromised, everything connected to it is also vulnerable. A recent example of hacking of high-profile Twitter accounts, including Kanye West, Elon Musk and Bill Gates in July 2020 demonstrates the need to avoid a centralised system. The hacker initially hacked into Twitter’s internal Slack channel where he stole user credentials to access the Twitter accounts.
Another issue with the centralised nature of online platforms is the possibility of the central authority falling under the influence of government authorities and undermining democracy. The Cambridge Analytica scandal during the 2016 United States (US) elections is an example of this. A data firm named Cambridge Analytica, accessed personal information of more than 50 million Facebook users during the election campaign. The firm provided software tools to predict American voters’ behaviour and personalities and influenced their choices of the ballot. Investigations are underway into a similar scandal of a Brexit campaign, Leave.EU, using datasets created by Cambridge Analytica to target voters with online political messages to potentially sway public opinion in the 2016 referendum.
The use of online platforms and social media is unlikely to fade. Decentralising these platforms by implementing Blockchain technology could decentralise them and increase their safety. Blockchain requires no central authority and because there is no central authority, there is no single point vulnerable to hacking nor influence.
A major issue for international law and international cooperation is the lack of central authority which can implement and enforce laws and agreements. Although most states abide by international norms of cooperation, the lack of enforceability of international commitments is worrying. For example, in 2017, US President Donald Trump withdrew from the Paris Agreement which aimed to strengthen the global response to the threat of climate change. This withdrawal greatly undermined the effectiveness of the agreement.
Blockchain technology could provide an insurance for international cooperation if interstate agreements are singed as smart contracts. Smart contracts are computer code that run on top of a blockchain and adopt all of Blockchain’s properties including immutability, censor-proof and transparency. Smart contracts automatically execute when pre-specified conditions are met. The state would stake resources upon their commitment as part of the smart contract. The smart contact would automatically execute when the commitment, the pre-specified conditions, have been completed. Contrastingly, if the pre-specified conditions, the commitment, has been ignored, the non-complying party will lose their resources which they staked upon their initial commitments. These smart contracts could give interstate contracts and agreements more credibility and minimise the ease with which a state can withdraw from the contracts as they cannot be stopped and there is a guaranteed punishment for non-compliance.
Blockchain technology is widely associated with cryptocurrencies such as Bitcoin. From the above examinations, however, it has been demonstrated that Blockchain Technology has the possibility of decreasing illicit financial flows, increasing the safety of personal information stored online and even further legitimise international commitment to agreements which aim to tackle global issues such as climate change.
Laura is in her final year of BPolSci International Studies degree at the University of Pretoria and is concurrently completing a level 4 NALP paralegal diploma. She hopes to complete her honors in International Relations in 2021 and pursue a career in the field of Public International Law and Human Rights. Laura is one of the permanent members of the writing staff at The Art of Politics.