Blockchain’s potential to prevent corruption in public procurement has been tested in Colombia, with a trial prompting “cautious optimism” over its potential, according to a World Economic Forum (WEF) report.
‘Exploring Blockchain Technology for Government Transparency: Blockchain-Based Public Procurement to Reduce Corruption’ is described by the WEF as the most comprehensive study to date of the feasibility and value of using blockchain technology in public procurement.
A blockchain is a decentralised, distributed and public digital ledger used to record transactions across many computers, so that any record cannot be altered without the change being obvious to all. Transactions are grouped in blocks, recorded one after the other in a chain of blocks: the ‘blockchain’.
The WEF partnered the Office of the Inspector General of Colombia (Procuraduría General de Colombia) and the Washington DC-headquartered Inter-American Development Bank to design and trial blockchain’s use in the South American country’s public sector.
What is being described as a “software proof-of-concept” focused on a school meals programme, Programa de Alimentación Escolar, which feeds youngsters from low-income households – and has seen various corruption scandals in recent years. Engineers at the National University of Colombia (Universidad Nacional de Colombia) developed a public blockchain procurement system designed to track the process of supplier selection for the school meals programme in Medellín, the country’s second-largest city. The blockchain was based on global open-source platform Ethereum.
The WEF report says that “integration and regulatory hurdles” mean “the tentative expectation is that the programme will be piloted towards the end of the 2020 calendar year”.
‘Multiple challenges and unanticipated vulnerabilities’
The Switzerland-headquartered WEF announced that it was undertaking the project last year, describing school-meal procurement in Colombia “as a smaller-scale yet salient microcosm of the problems that arise in public procurement”. The project’s goals were to identify the value of blockchain in increasing transparency and accountability in public procurement, and to accelerate similar research and experimentation worldwide.
Unveiling the project’s findings in this month’s report, the co-authors say that it has revealed “multiple challenges and unanticipated vulnerabilities with fully permissionless blockchain networks, despite their benefits”.
The most notable challenges relate to “scalability and vendor anonymity (or more generally, privacy). However, future technological developments or alternative configurations may remedy these issues,” it says.
The project included a “civic engagement strategy” to encourage and empower “citizen monitors” to flag “risky behaviour” in the system. What is referred to as “public write access” meant that citizens, journalists and “other parties monitoring the process” could comment within the system and raise alerts regarding suspicious and potentially corrupt behaviour by the tenderer or bidding parties.
In a section entitled ‘Challenges and limitations of blockchain-based e-procurement’, the report describes the “crowding out of legitimate comments with numerous fraudulent or low-value comments”.
On the technical side, the report says that most major permissionless blockchain networks have “constrained transaction throughput. Today’s Ethereum mainnet can process roughly 15 transactions per second for all global participants, and thus is not currently suitable for a large-scale deployment”.
It concludes that blockchain technology provides “several unparalleled qualities and capabilities towards combating procurement corruption” but that with “today’s technology challenges and limitations, the argument for implementing a blockchain-based solution is equivocal”. Policymakers, it argues, “should identify their priorities and requirements given their specific social, political and economic conditions and the trade-offs associated with various blockchain technologies.”
Technical framework development
The WEF report’s two lead authors, Rachel Davidson Raycraft and Ashley Lannquist, reflected on the Colombia experiment in cryptocurrency media Coin Telegraph, saying that “when it comes to public procurement, blockchain’s promise warrants cautious enthusiasm and thoughtful experimentation.”
“The overarching goal of the WEF’s report is to provide hopeful yet realistic analysis of how blockchain can fill the current void in accountability and transparency in public procurement, and it offers governments a technical framework for doing so,” they concluded.
Reacting to the 48-page report, Stefaan Verhulst, co-founder of the Governance Laboratory (GovLab) at New York University – a research foundation that works on how to transform governance using advances in science and technology – told Global Government Forum: “The report establishes evidence that combining collective intelligence with distributed ledger technology can provide a unique hybrid disclosure methodology to establish transparency and proof in procurement, decreasing the potential for corruption.”
Verhulst discussed blockchain technologies at a Global Government Forum event last year. Considering new technologies’ tendency to move through “hype cycles”, he said of blockchain: “I believe we have passed the peak [hype]. Many people believe blockchain is not such an important technology any more but I think we are becoming more sophisticated about what we can do with blockchain.”