Why blockchain has not yet become widely used and what will it take to make it happen? – Part 2

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Are governance and politics holding blockchain technology back?

We continue observation of what is holding blockchain from its potential. A stated earlier in, “Are concerns of energy Scarcity Holding BlockChain Technology Back?,” we believe concurrent obstacles hold blockchain technology back: Energy Consumption, Governance and Politics, Regulatory Compliance, Timing and Technology. Recall the logic from Tolstoy’s “Anna Karenina Principle”¹; “deficiency in any one of several factors will doom an endeavor to failure.” Let’s look at how governance and politics influences acceptance of blockchain.

Governance and politics: Entropy – The ultimate authority²

This desire to govern and control problems often leads to confusion over what justifies policy and how to exact compliance. Legitimate businesses recognize it is not logical to expose themselves to risk. Meanwhile, bureaucracies work to protect consumers and maintain ethics. Large sums of money are spent to ensure compliance. The desire to remain compliant has created an industry dedicated to keeping client’s complaint in taxes, audits, and avoid unnecessary risk. Recent cases show compliance firms can quickly dissolve with failure. Failures lead to severe penalties exacted by authorities including fines and prison. Obviously, none of this is desirable.

Look at the largest regulatory compliance firms, we see enormous effort to maintain client’s privacy and compliance. However, due to the size of these firms and their clients, an unintended consequence has developed wherein they don’t compete to keep each other in check financially or ethically. Due to regulations dictating separation and requirements to rotate client’s contracts on occasion, the collective control of the entire regulatory compliance industry is guaranteed if they can just avoid connections to negative news. To this end, a hierarchy of smaller firms work directly with clients to provide a layer of protection between them and any potential negative news. Full public transparency isn’t necessarily desirable to them. As with magicians, remaining successful requires maintaining the mystery of how the craft is done. Absent the veil of mystery, the magic is no longer of value.

Blockchain is also challenged by technological conservatism; “don’t fix things that work well… for us.” Regulatory compliance firms all have visible efforts demonstrating they are looking at “legitimate methods” in earnest to incorporate blockchain, lest be blamed for not. They have “checked the box” that they indeed have a team working with blockchain, regardless enthusiasm. Ultimately, regulatory compliance firms collect enormous fees for creating and issuing reports requiring much high-priced human labor, and that drives their behavior.

Now consider negotiation, and governance. Politicians notoriously measure public opinion and craft messages back to constituencies. No tide of public sentiment is favoring immediate implementation, so there is no political benefit of being a visible proponent. Deliberate efforts to cast doubt and regulate into insignificance any threat to current regulatory compliance is uninteresting to most citizens. Some politicians intentionally focus debate away from transparency as it may clash with their interests. Consider how often money is reallocated from original intent to another project without public scrutiny or evidence of voter support. Meanwhile, professional lobbyists operate in the margin between elected government and private business. Influencing politicians is their purpose. Lobbyists are likely the last group seeking transparency. Open scrutiny using blockchain could quickly put them out of business. Adaptation to blockchain technology will require fundamental policy considerations in these categories:

a) Licenses
b) Taxes
c) Tariffs

Licensing: Licensing may be the easiest candidate to integrate into an immutable public ledger like BSV blockchain. For example: consider eliminating the complex methods to access public data records using the Freedom of Information Act. This rigorous, time-consuming, and “not free” method is employed to grant access to public records data that the public is entitled by law to see. If public records were available on blockchain, this would eliminate costs delay in securing access to records by entitled citizens.

Taxes: Tax collection has been the subject of dismal popularity since the beginning of time. So much a long-held nuisance that it is captured in the earliest writings of man. In fact, it is theorized that the concept of currency was driven by the need to collect taxes (otherwise it would be difficult to fund armies and civilian projects with random bartered goods).

For taxes such as sales property taxes, the integration may be straight forward and almost unnoticeable to anyone shopping with a credit card today. Personal income taxes will be more challenging, but with sophisticated software tying employment income and tax codes, there is no reason taxes couldn’t be calculated precisely for individuals. This would eliminate the “up-front over-tax / subsequent refund” tradition. Government will have a dilemma. They will no longer hold a surplus of cash from up-front overpayment, but on the other hand tax dodging and delinquency will make it nearly impossible to commit financial crimes and launder ill-gotten proceeds. Business taxes may become open to the idea, but the learning curve of every business doing this massive migration will certainly take time and effort. It’s irrational to think businesses will support this without something positive to gain.

If there is no gain to be seen, their efforts and cooperation would not be forthcoming. On the other hand, if businesses see advantages, such as reducing time and effort to manage taxation, or reduce taxes overall, they will rationally support blockchain integration. We leave tax policy open for a debate as these things will naturally evolve, just as they always have.

Tariffs: Tariffs may be the most complex and difficult of these to achieve even though using blockchain could remove many trust issues countries currently face. So how exactly can we envision these changes? Imagine “Coded Law,” rather than ink on paper. Testing methods such as the “Turing Test Method”³ could ensure tariffs are fair and enforceable and blockchain would serve as a trusted third party between the governments. Incentives could be created for consulting companies to invest in the blockchain trust. Incentives would be critical to adaptation of non-human trust to do the job of ensuring confidence.

Because of governance and politics mechanisms built into the economy, their influence and support will be essential in making such a remarkable shift in public behavior.  Unless governments and the political class are encouraged, compelled or if necessary, forced to adapt this idea of trust and transparency using blockchain technology, blockchain adaptation in regulatory compliance will be slow and filled with resistance. We will examine the issues associated with the regulatory compliance industry in a subsequent article in this series on what is holding back blockchain adaptation.

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[1] Leo Tolstoy, author 1877 novel “Anna Karenina,” published 1878 by The Russian Messenger

[2] Quote: Anton Chekhov, Russian Writer, translated Russian to English by Ben Greenman in his book “Celebrity Chekhov; Harper Perennial Publishing, 2010”

[3] Turing Test Method: Named for Alan Turing, English computer scientist, cryptanalyst, mathematician who devised a method of testing artificial intelligence (AI) to determine if computers are capable of decision making.

Ref: Alexander S. Gillis, Tech. Writer & Editor, AI technologies