A practical guide to how blockchain could end corruption in South Africa

There’s more to blockchain than bitcoin.
There’s more to blockchain than bitcoin.
Image: Reuters/Benoit Tessier
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The blockchain revolution is fascinating. With the rise of crypto-currencies, the world has watched how its implementation could revolutionize (pdf) the finance and banking sectors, creating new crypto-millionaires and mining rushes.

There is one mechanism of blockchain that could be applied more broadly to benefit the public at large: The idea of an exposed, or public, ledger that accompanies the blockchain. In South Africa, where corruption has blighted the image of Africa’s most advanced economy, the exposed ledger offers a solution that could be applied across state departments, and perhaps even beyond the border.

The one-line summary is that blockchain is a decentralised public ledger that allows all participants to keep track of and verify transactions without the need for centralised banks. The advantage of blockchain is its persistence, meaning prior transactions are never deleted, and its transparency, meaning anyone can view a complete record of all processed transactions.

Now picture a scenario where this technology was implemented by all government departments. Transactions on most cryptocurrencies that use a blockchain are sent to a public ‘key’ address which is anonymous. In our scenario, each government department, employee, supplier and contractor would be publicly identifiable by their own single public key.

For example, the national treasury would have a unique key, as would the department of education, perhaps even every public school (where corruption has been found to be among its highest levels in South Africa) and every associated supplier or contractor.

The implication would be that any citizen could look up a specific school or supplier’s public key and track each and every transaction from any government entity into their account, or wallet as it’s known in blockchain terminology. In effect, any government transaction would be auditable by any person in South Africa.

Currently, auditing the governments’ public accounts is a massive, complicated and costly process. There is, after all, an entirely separate department to serve this function. Accessing the transactions of any single government department or supplier by a member of the public is for all practical purposes impossible. The auditor-general “is the only institution that, by law, has to audit and report on how the government is spending the South African taxpayers’ money”. Why have only one form of oversite when you could potentially have 50 million?

The second fascinating implementation of the blockchain are rules for transaction processing. This is already possible with more advanced forms of the blockchain such as Ethereum contracts which can be set up to require multiple signatures or levels of rules for transaction approval.

Using South Africa’s public education system as an example again, in its annual budget the South African government allocates a certain amount for education, as most states do. These funds would then only be able to be used in transactions to accounts approved for educational budget monies. The contractual rules for every rand of spending could be tightly monitored, to avoid the billions of rands spent on school textbooks that never materialized in 2013.

Schools could monitor their own funding in a more transparent manner. For example, a specific school may be authorised to spend a certain amount on teaching materials, acquired from a vetted supplier. Any attempts to pay more than this amount, or to make payments into unapproved accounts would be rejected automatically.

Education is just one area where blockchain technology could be implemented. Of course, technology cannot solve every loophole nor stop every crooked public servant. There would still be a need for auditing and internal governance controls, but the implementation of a blockchain can improve the situation dramatically —revolutionising the accountability and transparency of public finance and the overall welfare of the people of South Africa.

Jeffrey Dinham is an economist and writes in his personal capacity.