Blockchain technology. Photo: iStock
Blockchain technology is here to stay, and the US risks getting left behind. Photo: iStock

Democratic nations have gone through many changes over the course of time. Of all the various systems of governance such as absolute monarchy, authoritarianism, communism, democracy, in spite of the unpredictable challenges it has faced, is highly favored.

We always prefer the term “undemocratic” to criticize other systems that are less transparent and more autocratic. But the true meaning of democracy is that the people should not be made to do what they don’t like and they should also not tolerate what it don’t like. The pragmatic form of democracy considers the people to be the best decision makers and state to be the sole guardian of protecting the public interest.

Additionally, democratic process is the ideal way to ensure that policymakers and elected professionals do not abuse state power in order to serve their personal interests while ignoring the larger public interest.

Over the course of time as democracy has evolved, a gap has emerged between those who exercise power and those on behalf of whom power is exercised. As modern democracy becomes more capital-centric in nature, it is facing a dilemma of sustaining its true nature. The interests of the few are becoming bigger and policymakers are less able to serve the larger public interest. The 2008 financial crisis was an excellent example of this.

End of the trust in centralized democracy

The 2008 global financial crisis could have largely been avoided if policymakers and central institutions in the US had done their jobs responsibly. It was mainly caused by risky behavior by bankers, lack of proper corporate governance and poor regulation by authorities.

The repeal of the Glass-Steagall Act was the main factor that allowed banks to engage in the investment business and derivatives. These mortgage-backed securities needed houses as collateral, which created more demand for mortgages. Such policies as zero-interest NINJA (no income, no job and no assets) loans helped increase the demand, which led to the overheating of the US economy and creation of a huge housing bubble.

But after the US Federal Reserve raised interest rates, housing prices eventually fell by more than 30%. There were too many owners with questionable credit who couldn’t afford the payments, nor could they sell their houses. That led to the biggest economic crash of this century.

One of the worst legacies of the 2008 financial disaster was the great drop in the level of trust that citizens placed in the system and its institutions. Recent data from the Edelman Trust Barometer reveals the largest ever drop in trust across government institutions, business or media. More than 53% of respondents believe that the current system has failed them and it is unfair as well as offering very little hope for the future.

How blockchain will act as a medium of trust

Trust has an essential role in today’s economy. In the modern world, trust acts as a high-value currency. Generating trust from nothing is one of the major feats for institutions as well as states or corporation.

These days, disruptive technology is playing a crucial role in creating new gauges of trustworthiness as well as disrupting the existing trust protocols such as banking systems, financial institutions and legal instruments that make transactions between parties possible. The new trust economy is mainly built on person-to-person technology whereby transactions are fully supported by blockchain technology.

The blockchain is a distributed public ledger that facilities the recording of transactions and assets on an open shared network. Every piece of information is recorded in the form of a block and shared by the community. Each member maintains his own copy of the information and all members must validate the updates collectively and simultaneously. The information may represent transactions, contracts, identities or anything that can be put in digital form.

The fundamental need of government is to maintain trust among people, groups, organizations and societies. In modern-day democracies, trust in government has broken down on many occasions either because of corruption, improper regulation, or corrupt bureaucracies.

The blockchain can replace government trust. In the coming decade of trust-based economy, the blockchain can act as an unbreakable trust system that has the power to do what governments are doing currently.

With the help of its public ledger, we can record everything, whether the trading of goods, transfer of property, deeds, births, marriages, deaths, loans, election results, legal rulings and anything else of note. Those records are impossible to manipulate and the rules on which the blockchain is based are impossible to change.

The absence of transparent contract procedures is one of the major obstacles to economic and social development. The blockchain-based smart contract can help in evolving the mechanism as well as bring in more transparency and keep the whole procedure clean.

Smart contracts will eliminate the role of third parties by facilitating the transfer of digital assets between parties under the agreed-upon set of conditions through computer protocol. It will have a major impact on every sector, whether the stock market, insurance, banking, real estate, health care and information technology by eliminating the need for lawyers, brokers and other mediators.

Soon blockchain technology will reform democracy itself by enhancing and changing how voting systems work. It will permanently record every vote so that no one can change it. This will be quite helpful in the removal of manipulation of votes or multiple voting.

The blockchain is like a black box, and no one knows how big its impact will be on our society, but it will certainly improve governance, bring transparency and make the state more accountable.

Ravi Kant is a columnist and correspondent for Asia Times based in New Delhi. He mainly writes on economics, international politics and technology. He has wide experience in the financial world and some of his research and analyses have been quoted by the US Congress and Harvard University. He is also the author of the book Coronavirus: A Pandemic or Plandemic. He tweets @Rk_humour.