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How the blockchain could revolutionize welfare — or undermine the poor

The blockchain (more accurately called “distributed ledger technology”) has long been a fixation for nerds of all stripes, but lately the real world has been taking notice as well. No longer solely the domain of crypto-security nuts and techno-utopians looking to restart society on a sea platform, the inherently prosaic new software technology has enough real-world potential for change that it’s beginning to appeal even to large corporate interests and other traditionally stodgy groups. New applications are being driven by the large hubs for tech progress you’d expect, your IBMs and your MITs, but recent entrants also include major diamond mining companies, several of the largest banks on Wall Street — and recently, even governments. From organizing municipal services in China to distributing excess grid power in New York, there are widespread experiments in farming out the minutia of governance to distributed software.

Now, the UK is testing the most intriguing example yet: blockchain-based tracking of welfare spending.

Bitcoin logo from WikipediaThis is a bit of a weird one in the modern history of the blockchain. Whether it’s micro-trading stocks down to the millisecond or coordinating drivers in a car-share fleet, for the most part the blockchain’s past practical applications have achieved something we’ve already been doing in the past, just easier, faster, with greater security, or with fewer human employees.  What we’re talking about here, on the other hand, is a fundamentally new thing: the ability to use software as a government agent, and thus the ability to assign “government agents” to achieve all new levels of social understanding, and social control.

The proposition is simple: have a blockchain-based system monitor exactly where the money handed out to welfare recipients is being spent. That’s it. It’s always been possible on the small scale, but difficult to impose as a wide ranging policy for two main reasons: There are way too many people receiving welfare for human-driven oversight to be practical, and because people are inherently resistant to the idea of a human being following another’s financial life like that.

Distributed ledgers can undoubtedly remove the first problem, providing a means to actually deliver oversight on the scale required — but can it, and should it, remove the second problem?

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A big issue is security. One thing that makes distributed ledgers secure is that they are publicly viewable, and long-lived by being distributed across many computers. As we’ve seen over and over in the past several years, however, no security regime in flawless. And even if it is flawless today, the information indexed in that ledger remains sensitive for a long time, meaning that some future computing breakthrough could retroactively expose a bunch of people who aren’t even receiving welfare any more!

There’s a fairly simple fix for this, however: use only non-identifying signifiers for welfare recipients in the ledger itself, and maintain the database of signifier-to-legal-name associations on a more classically protected government database unconnected to the ledger itself. Any attacker would need both the ledger info and the database of associations — and if we’re worried about attackers getting our information from classically secured government databases, we need to worry about a lot more than stolen welfare tracking.

At that point, the biggest problem is corruption on the part of people who are supposed to be able to have access to that information — and that’s not a threat many Westerners are going to be willing to bear in the age of surveillance.

The bigger issue is not the security of the data, but the use of it. So, you’ve tracked welfare spending — what now? The obvious application is to take punitive measures against those who misspend, to lower the payment amount as a disincentive to spend poorly, and to lower waste of money intended for the essentials.

According to a UK government report released earlier this year, “the [Department of Work and Pensions] pays out roughly £166 billion of taxpayer’s money in welfare support per year. Some £3.5 billion of that sum is overpaid through fraud (£1.2 billion), claimant error (£1.5 billion) and official error (£0.7 billion) 2 of which £930 million is recovered.”

To outright reject this proposition, on ideological and not practical grounds, seems to fundamentally misunderstand what welfare is. It’s not a statement that the poor should always have money, but that the poor should always have the essentials — if the idea is that the most efficient, effective, and humanitarian way of doing that is to provide the money necessary to acquire those essentials, then it’s not irrational to want to check whether the funding is actually having that effect. If someone is habitually spending a welfare check on frivolous things, then depriving them of the check deprives them only of frivolous things.

However, given the passion that currently exists for privacy and digital liberty, it seems far more likely that any such spending-tracking system would have to be fully anonymized to be implemented on a wide scale. It would track statistical-level trends in welfare spending, following faceless numbers and looking at population-level spending habits. This could have all kinds of utility without having to record who buys what, when.

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There is also the fact that distributed ledgers require computational time to be donated, which classically means that inclusion of a crypto-currency in the system. Many people say that the blockchain was the technology that allowed Bitcoin to exist, but it’s just as true to say that Bitcoin is the technology that allowed the blockchain to exist. The acquisition and trading of cryptocurrencies with real monetary value is what motivates users to do the hard work of keeping crypto-currencies crypto-currencies, and thus secure.

In the case of a welfare distribution scheme, this means that the recipients would be using a digital currency to make their welfare purchases — not so much physical food stamps as digital stuff stamps. Adoption wouldn’t be the biggest problem, since a government could theoretically require some or all business to accept their crypto-currency when offered. There are some nice aspects to this right off the bat, such as that drug dealers and other frequent recipients of misspent welfare funds are likely to have a harder time redeeming government crypto-bucks than supermarkets and children’s clothing stores.

Food stamps have some pretty major downsides associated with them, more notably the stigma associated with receiving and spending them. A digital stamp could possibly alleviate that, making the use of this welfare currency visually indistinguishable from the use of, say, Apple Pay. It could also do away with the restrictive nature of physical service vouchers, allowing people to, say, hunt for a good deal online and make a purchase without having access to credit.

The people who should really be looking at this sort of technology with interest are those who are into the concept of a guaranteed minimum income. One of the strongest arguments against such a scheme is the institutional and bureaucratic waste that would be associated with such a massive government project, but a sufficiently advanced public ledger might be able to handle it. Privacy and security becomes infinitely more important at that point.

The current, relatively primitive level of advancement in the software could actually undercut it from a cost-saving perspective, as cryptographically securing all these transactions and could take an enormous amount of electrical power. Unless the distributed ledger system itself is improved, this and most other applications of it will be pretty much unachievable on a large scale. But with so many big powers working to get a more efficient solution in place, it makes perfect sense to be thinking ahead to the potentially revolutionary ways we might apply it, once we’re able.

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