New Kid in Town: Blockchain for Megaprojects?

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Blockchain technology promises fast payments combined with secure digital records and elimination of third-party intermediaries and delays. “Any contract, valuation, record or work process that can be digitized can be incorporated into a blockchain, representing enormous strides in processes, efficiency and transparency,” explains Will Hickey for YaleGlobal. “Blockchain technology’s capability to organize a vast number of details associated with a series of transactions may be ideal for managing infrastructure megaprojects throughout the developing world like those associated with China’s Belt and Road Initiative.” Emerging economies could gain a head start in using the technology, similar to how they leaped to smartphones before using landline telephones, and in turn strengthen legal and accounting standards. Blockchain’s rise depends on public acceptance and demand. Other challenges include high electricity needs, data storage capacity and entrenched special interests that may resist transparency and reduced red tape. – YaleGlobal

New Kid in Town: Blockchain for Megaprojects?

Emerging economies plan many cross-border megaprojects, and blockchain technology could provide efficiency and transparency
Will Hickey
Tuesday, August 7, 2018
 A cloud server firm could cut through mountain of data for business and contracts in countries like India
Leapfrogging in the ether: A cloud server firm could cut through mountains of data required for business and contracts in many countries

JAKARTA: Blockchain technology underpins Bitcoin and other cryptocurrencies. Unlike sovereign currencies, the digital versions, with an ascribed computational foundation, cannot be manipulated by fiat. Yet, the technology has utility in many other unrealized applications. Any contract, valuation, record or work process that can be digitized can be incorporated into a blockchain, representing enormous strides in processes, efficiency and transparency.

Blockchain technology’s capability to organize a vast number of details associated with a series of transactions may be ideal for managing infrastructure megaprojects throughout the developing world like those associated with China’s Belt and Road Initiative.

In most of recorded history, two strangers or partners engaging in transactions relied on third-party intermediaries for trust and asset continuity, often in the form of government institutions, accountants and notaries. Blockchain technology relies on vast and less expensive data storage space now available to create a verified history for any asset record that can be digitized. Any property or process including land, diamonds, energy or services can be placed on a ledger, or “block,” and distributed in a virtual community. This group of transactions then forms an encrypted “chain” of specific numbers demarcated with a hashtag, or #, allowing verification by participants who accept terms by workload consensus. Such consensus significantly reduces administrative hurdles, commissions, wait times and opportunities for corruption. Eliminating the need for many intermediaries along the way promotes efficiency and decentralization of transactions.

Namely, the blockchain allows the exchange of value without intermediaries becoming gatekeepers of data and money. Blockchain thus can offer substantial benefits for anyone managing multiple cross-border transactions, especially true for emerging economies. The technology offers a verification system – due to complex encryption that can digitize every transaction from origin to incubation to commission – allowing the creation of a record, or decentralized ledger, fully independent of bureaucratic or third-party interference.

Key savings are efficiency and time, as many intermediary players can slow processes. Consider, for example, traditional land title registry versus blockchain that is already being used in India. Such registration in India is rife with corruption and inefficiencies, creating a cost burden for the poor, and frictions with businesses seeking to invest or expand operations. The buyer and seller do not need cryptocurrency accounts, but blockchain technology works in the background to add speed and transparency and reduce administrative delays.

Blockchain technology could be useful for megaprojects. The world is embarking on massive energy and transportation demands to appease 7.6 billion people who desire the conveniences and lifestyles featured on their smartphones. The World Bank estimates that developing countries need $1.3 trillion worth of megaprojects to raise living standards and GDPs – including oil production in the South Atlantic, road and port construction in Africa, bridges in Asia, sand reclamation in the Pacific and island building in the South China Sea and Indian Ocean, nickel mining in Siberia – all with economic spillover and opportunity costs.

Governments in China and Japan are increasingly turning to such domestic and foreign projects to manage underemployment and replace low-skilled manufacturing and service endeavors decimated by automation, 3D printing, artificial intelligence and other technologies with other work opportunities. Proposals like a universal basic income, paying citizens a government salary whether they work or not, are unaffordable and unrealistic for developing countries. Hence, many nations turn to large-scale development  – and rely on debt such as with China’s Belt and Road initiative or foreign aid  such as the US Government’s Millennial Challenge Corporation to employ vast numbers in a sustainable way. Consider, for example, the English Channel tunnel, at its peak in 1990, employing more than 13,000 workers. The trends are inevitable, and other countries like Brazil and Russia will soon follow suit.

Yet, even closely monitored megaprojects, whether the “Big Dig” in Boston Harbor or the Three Gorges Dam project in China, are subject to cost overruns and corruption, burdening host communities over the long term. Such inefficiencies are especially true with energy and resource contracts in developing countries. There has been much handwringing over the so-called “resource-curse” during the past 50 years, as oil and commodities enriched elites while leaving much of the host population severely wanting in terms of social services, education and jobs. Proprietary contracts – secret agreements between governments and companies – can cheat society via corruption, particularly where democratic institutions and oversight are weak or nonexistent.

Megaprojects offer fertile ground for blockchain penetration due to their operational scale and need for independent accountability and instantaneous verifications with vast numbers of contractors, investors, accountants, regulators and operators – all are complex and some with traditionally secretive business models that facilitate inefficiency at best and corruption at worst. Blockchains could facilitate transparency and independent verification of contract and vendor relationships via tokens, or digitized assets; ensure corporate social responsibility, community development, or climate change initiatives; and encourage public-private partnerships and participation of small enterprises.

Blockchain technology offers real political and economic solutions for emerging economies. Developing nations, many former colonies, have not had time to build robust institutions that promote transparency and egalitarianism. Agnostic blockchain technology could allow these countries to leapfrog to new legal and accounting standards, similar to how many poor nations, which never had fixed landlines and utility poles, embraced cellular phone technology in the 1990s.

This may be an idealistic pipedream. Blockchain technology exists for seamless economic and financial integration, but actual implementation requires widespread public demand and, ultimately, legal certainty. Special interests including legacy political parties, unions, military juntas, industry leaders and statist executives will resist, fighting to protect their privilege. Nonetheless, the tide is turning with social media already creating “transparency on demand” that no one government or special interest can mitigate.  Simply, the atomization of information with the average laptop now offering more computing power than the Saturn XI moon rocket project combined with data overload have led to a new social dynamic of personal empowerment never before seen in history.

The first step to acceptance requires teaching the benefits of blockchain. Otherwise the technology’s true potential will be handicapped by human rather than technical issues. Consider the Extractive Industries Transparency Initiative, EITI, developed by the United Kingdom in the early 2000s to track oil and mining company expenditures in developing countries, including bribes associated with the resource curse. Many non-transparent governments and energy companies ignored the initiative’s proviso, and efforts of this voluntary, politically sensitive organization largely failed.

The second step is perfecting the technology. Despite the efficiency and trust promotion, blockchain has limitations: Processes for unprecedented numbers of ledger entries for the calculation, transmission and storage of transactions are electricity- intensive, and the Bitcoin network alone consumes more electricity than Ireland. There are also scalability problems: Only a finite number of transactions can take place at a time. Enormous storage capacity is rquired for billions of hashtags from participants to synchronize and update the ledger, continuously balancing the books for consensus.

Megaprojects for energy and infrastructure are irrefutable for lifting living standards and generating economic activity. Yet, developing nations with good intentions cannot afford the same old ways of conducting secret business among elites. Blockchain technology presents a robust avenue to challenge these precepts, and likely civil society, not entrenched bureaucracy, will demand the change.

Will Hickey is an associate professor with the School of Government and Public Policy – Indonesia. He is also author of Energy and Human Resource Development in Developing Countries: Towards Effective LocalizationMacmillan, 2017. 

The article appeared in Yale Global on 7 August 2018

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