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4 Ways Governments Could Misuse the Blockchain

Alex Lielacher
Last updated: | 4 min read

Blockchain technology has enabled the birth of a new decentralized economy, which is taking power away from centralized authorities and giving it back to the people. Most blockchain advocates believe that the widespread adoption of this innovative new technology will lead to a freer, fairer and more transparent society where peer-to-peer transactions will be the norm.

Source: iStock/filo

However, there is also a flipside to the blockchain that has not yet been widely discussed in the media. Blockchain technology could also be misused by malicious governments to foster authoritarian regimes.

In this article, you will be introduced how governments could leverage blockchain technology to increase their position of power in a way that would drastically limit the individual liberty of its citizens.

Track all financial transactions through a sovereign digital currency on a permissioned ledger

One of the easiest ways for malevolent governments to increase control over their citizens is to enforce a cashless society in which the country’s sovereign currency is a digital currency that runs on a permissioned ledger to which only the likes of the central bank, the finance ministry, and other government branches have access to. This would enable the state to have de facto 100% financial transparency about every individual using its sovereign currency in real-time. While this scenario may be a dream come true for financial regulators and central banks, for the financial sovereignty of the individual this would be detrimental.

This scenario is actually not as far-fetched as it may seem in light of the fact that several governments have announced plans to issue their sovereign currency in the form of a blockchain-based cryptocurrency. Moreover, Venezuela has already launched its – albeit controversial – own digital currency, the Petro.

Should these digital versions of a country’s fiat currency be put on a permissioned ledger, this threat to individual liberty could quickly become a reality.

Use blockchain-based digital identities to track citizen’s digital footprints

Storing digital identities on a blockchain network can enable undocumented citizens such as refugees or individuals living in rural parts of developing countries to receive adequate identity documentation in digital format. Digital identities are, therefore, rightfully cited as one of the most promising blockchain use cases for unstable regions and developing countries.

However, blockchain-based digital identities could also be misused by malign governments if identity management system has been set up in a way that gives the state control of the data and allows it to leverage this data to track its citizens’ digital footprints.

For example, if a citizen’s digital identity can be linked to their social media accounts, payment services, workplace attendance, and mode of transport, the government could effectively track everyone’s moves in real-time.

One could argue that this exists already in countries such as the U.S. or the U.K. where law enforcement and intelligence agencies are already using their targets’ digital footprints such as credit card payments, text messages, and phone calls to pursue them. However, through the interlinkage digital identities with all digital services as well as facial recognition technology, there would be substantial room for abuse by malicious authorities.

Create an immutable social credit scoring system

Blockchain-based digital identities could be taken a step further to create an immutable social credit scoring system that ranks individuals according to their “social value”.

This “social value” could then be used to determine what educational and employment opportunities a person is being given, where the person may or may not reside, what social or public gathering they may attend, whether they are allowed to start a business, or – in extreme cases – whether they are even fit to be a free member of society or whether the state deems it better for the person to be locked away.

While this may sound like a futuristic Minority Report-like scenario, the reality is that China has already started to implement such a social credit scoring system within the confines of the Great Wall.

According to Wired, China has started testing its planned credit scoring system that aims to gauge the “trustworthiness” of its almost 1.4 billion citizens. The program was launched in 2014 and is supposed to be fully operational nationwide by 2020. Currently, the social credit ranking system is reportedly already preventing those with low rankings from purchasing airline and train tickets, attending particular social gatherings, and even sign for specific dating sites.

Such a social credit scoring system could be “upgraded” using blockchain technology by making all stored data immutable and easily shareable with permissioned third parties. This system could then be used by governments to suppress those it deems of lesser value as well as those that it considers as threats to its position of power.

Store falsified records on a public sector blockchain

An important aspect of blockchain technology implementation that is seldom discussed is the quality of the input data. Once data is recorded on the blockchain and all participants agree that it is true, it becomes stored in an immutable way. However, what if the data put onto the blockchain was falsified beforehand?

Truly decentralized blockchain networks can prevent wrong data from being stored on the blockchain. However, a heavily centralized digital ledger whose nodes are run by a central authority does not provide this level of trustlessness. In effect, any central government-run blockchain can posses falsified data, which – of course – would relief the blockchain of one of its key value-adding features.

Totalitarian governments and power-hungry politicians, however, could set up a centrally-government digital ledger to record any type of information with the argument that all data on it is true and correct and probably get away with it, even if the data stored has been falsified.