A key role that government plays is the enforcing of contractual obligations. The government also provides the definitions that both parties use as the basis for their contracts. When parties agree to a contract, they are incentivized to stick to the contract because of the potential legal implications of reneging. Without the threat of legal repercussions, there would likely be a high percentage of unfulfilled contractual obligations. This would affect commerce as well as civic relationships.
However, with the blockchain, there is the possibility of digital self-enforcing contracts, widely known as smart contracts. The stipulations in a smart contract are hard-coded into its software meaning it only executes once all requirements are met.
If they were to be implemented on a wide-scale, governments would not need to act as enforcers of these agreements. Moreover, smart contracts can also be designed with an inbuilt conflict resolution. This would also remove the need for the government to act as an intermediary with regard to resolving conflicts among parties.
In a democracy, public elections are used to choose a country’s leaders. In many nations across the world, however, elections are marred with irregularities which call the integrity of the process into question. Moreover, it also undermines the authority of the elections’ winners because of the uncertainty related to the results. In some cases, disputed elections have resulted in widespread violence and even civil war.
In most cases, elections are run by independent bodies. While they are within the government, these bodies usually run parallel in that they are supposed to be impervious to any external force or coercion. However, these bodies are regularly compromised.
If elections were to be held using blockchain-powered platforms, there would be no need for electoral bodies due to the transparency and immutability that the blockchain can provide to an election process.
Transparent tracking and auditing of the financial system
One of the most important functions of the government is to oversee its country’s financial system. This includes the collection of taxes and the allocation of these monetary resources. Proponents of blockchain technology believe it can be used to better manage the finances of a country.
Dan Larimer, the creator of blockchain-powered social media platform Steemit and decentralized application platform EOS explained his views on how the blockchain can affect the creation and management of currency stating: “You use a blockchain to create and manage a currency of a country in a transparent way. You give the government a cap on monetary inflation. This would be constitutional: Five percent of the money supply every year is what they’re allowed to spend.”
In addition to an inbuilt inflationary mechanism, the blockchain could be used to align the interests of the public with those of the government, ensuring that citizens do not have to bear the brunt of loss in value of the currency.
Larimer expands the concept of a government blockchain further: “[…] If you have a Universal Basic Income where everybody received a fixed quantity of tokens – not a guaranteed purchasing power, but a guaranteed share – you could replace all the welfare and all those systems. Now you align the government incentives to the people. The government has to grow the value of the currency greater than the inflation rate, or the government’s spending/purchasing power goes down, which is very different than how it is today.”
Larimer added that the use of blockchain technology could result in a greater degree of privacy for citizens while reducing the amount needed to ensure the government machine keeps working efficiently. “This could save $100 billion-plus a year in tax compliance and enforcement costs, give great financial privacy (you don’t have to report everything to the government – you can avoid it), and more important for my mission: There’s no more need for violence to enforce it. No more IRS audits. No more fear of not filling out the right form at the right time.”
While Larimer clarifies that these are hypothetical suppositions, it does bring to light the things that are possible with regard to the financial systems of sovereign nations and blockchain technology.
Can countries be ruled by the blockchain?
While it may be the dream of many cypherpunks, crypto-anarchists, and libertarians, it is difficult to imagine a scenario where the blockchain could replace governments in their entirety.
The notion of being ruled by computers will be anathema to those already in power and to all but the most futurist of citizens. Furthermore, due to the level of corruption found in many ruling governments across the globe, the idea of tracking government funds on a blockchain for all to see will likely not find many takers among lawmakers.
Having said that, the blockchain and decentralized applications definitely have the ability to streamline government services, which could result in less government and a more decentralized public sector. Fairer elections on the blockchain, a more transparent financial system and the use of smart contracts, for example, has the potential to reduce government spending.