How to solve pressing problems with the state apparatus? - FFC Media
Real Blockchain

How to solve pressing problems with the state apparatus?

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Many people don’t like the current government order. They’re constantly decrying their country’s
system of management and dream of overhauling it. Can blockchain — one of the cutting‐edge
technologies in recent years — help get rid of particularly pressing problems?

A state is organized power headed by a government which ensures order within a country. One of its
primary functions is due consideration of citizens rights. To ensure that, states maintain registries
which contain information on citizens’ wealth, taxation, and retirement status, as well as property rights
and so on.

Registries keep track of citizens’ rights. But not always.

States are obligated to prevent extralegal changes to database records. Every time a major change
happens in a citizen’s life, the state records it in their registries. In the United States, for instance,
every state — and there are 50 of them in all — maintains its own database. Nationwide registries don’t
exist. Every time a citizen, say, acquires real estate or opens a business, officials are obligated to
reflect this in the state’s database. Considering how many of them there are, the scope of this work is
increasing.

To this end, the government hires a large number of civil servants. They ensure the integrity of data in
registries, coöperate with citizens, businesses, and other state agencies, and receive new data and
record it in the registry.

Due to the large number of registries and the volume of data they contain, problems arise: agencies
are slower than citizens would like, and glitches and information losses can occur. All of that costs a
lot of money, which citizens pay for out of their pockets through taxes.

For example, in 2011 Spain collapsed into a protracted crisis caused by, among other things, an entire
army of bureaucrats: 3.04 million of them to be exact. Keeping that number of people on the
government’s payroll was a burden.

Sometimes, civil servants perform their job functions poorly. That causes chaos, and citizens lose their
trust in the state. As one example, Ukrainian officials recently annulled Saakashvili’s citizenship over
the fact that his application allegedly contained incorrect information — he allegedly did not report
criminal cases that Georgian officials had launched against him. Poroshenko’s presidential
administration publicized a scan of Saakashvili’s application shortly after the scandal broke out over
him stripping his political opponent of citizenship, but Saakashvili retorted that the scanned copy wasn’t even the form that he signed, and moreover that his signature had been forged.

It is also important to understand that in many countries, especially developing ones, the majority of
data are stored on paper, which is one of the most insecure methods of data storage. Paper can catch
fire, fade, or get lost, and documents in paper form are not hard to forge or redact.

Problems often arise because documents are maintained on paper copy alone. As one example,
Honduras had been maintaining its cadastral records for over 200 years almost exclusively on paper.
Data went missing, and it used to be easy to falsify and destroy records for bribes, which sparked
serious conflicts between the public and the so‐called “land mafia.”

Private businesses are running into the same problem — even large ones. Case in point: in 2015, a
court ordered American agricultural company Dole Food to buyout all of its shareholders. 12 million
more shareholders than were recorded in the registry applied to receive a buyout.

To solve problems, we need dependable technologies

And so, if we want to solve fundamental problems, such as confirming the authenticity of documents
and making it impossible to retroactively change them, citizens will be much more loyal to the state.

Retroactively changing records in blockchain is impossible, since it is a “distributed database” — one
which is simultaneously stored on scores of computers. Anyone who desires can join this network and
become yet another database storage location. All participants in the blockchain registry can see any
changes in the blockchain. Moreover, if one computer in the network comes under a hacker attack,
other equipment will remain intact. Consequently, the database will remain unchanged.

Blockchain helped Honduras solve its problem with forged cadastral records. The Honduran state
digitized all documents and recorded them in blockchain in partnership with Factom.

This technology also helped the state of Delaware simplify its dealings with businesses. Officials
teamed up with Pillsbury Winthrop Shaw Pittman LLP and Symbiont to automate the process of
company registration and track the status of market shares using blockchain technology. Delaware
awarded IBM a $738,000 contract to develop a pilot project for an electronic distributed ledger which
will be based on Hyperledger Fabric.

Today, registered corporate agents and legal companies can only make requests to pre‐register
assets under their custodianship by hand, as stipulated by the Uniform Commercial Code. But running databases on blockchain will enable companies, as well as their creditors, debtors, and regulators, to
keep track of their asset status and how and if they are being used as collateral, and so on, in real
time. Speeding up this process increases transparency and makes the state a more appealing place
for registering businesses.

Another unique opportunity that blockchain opens up is smart contracts. Smart contracts are
programs which execute upon the completion of a previously specified event. Here’s how a smart
contract would work in the context of betting on a soccer match: both sides place their bets using a
smart contract on blockchain. At the appointed time, the smart contract will receive data on the match
results from its source which both sides trust and which they chose in advance, and depending on the
match result the prize will automatically be paid out to the winner. Smart contracts eliminate the need
to involve a middleman, such as a betting outfit, and prevents both sides from reneging on the
responsibilities they assumed. This decreases transactional expenses, speeds up transaction times,
and eliminates the lack of trust between the parties to the deal.

If you apply smart contracts to state registries, you could downsize a large number of civil servants.
Today, if you want to obtain a document, for example, you usually need to gather a whole ream of
paper: birth certificates, citizenship documents, photographs, and special forms…and then enclose the
prepaid receipt, and so on. As a result, the entire process can drag out for many days, and if you don’t
make it in time you’ll have to pay a fee.

Bureaucrats oversee passport issuance, but their involvement boils down to mechanical checking: all
they do is verify that citizens have met all the requirements established by legislation. If not, they deny
the citizen’s application. If the documents they provided satisfy legislative requirements, then they
carry out whatever actions are prescribed by law. Everything that bureaucrat does can be replaced by
a smart contract — which means that superfluous labor can be freed up for something more
constructive.

Granted, using smart contracts in one branch of the government means that other registries would
have to be transferred to the blockchain so that the smart contracts could communicate with each
other using the same protocols and automatically make changes if one such registry is changed.

On the way to an ideal world

State systems are constantly developing and improving. It’s unlikely that anyone will oppose the idea
of leaders fulfilling their campaign promises and bureaucrats not taking bribes; petty civil servants
don’t like bureaucracy anyways. Blockchain is a small but important step on the path to this ideal

model. And we believe that it can truly help existing states improve the majority of their agencies and
simplify the life of citizens.

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