Blockchain technology is often cited as a means to make illicit transactions while avoiding detection. The truth, however, is that these systems also offer unprecedented traceability and transparency across digital transactions.

The growing popularity of ledger systems in cryptocurrencies and financial management has incredible implications for shining a light on corruption. Through 100% traceable transactions, a blockchain network restores transparency even to an anonymous system. Meanwhile, smart contracts made possible by the blockchain automate the enforcement of conditions between parties.

From political bribery to embezzlement, this tech has become a tool for fighting corruption. The more the blockchain is integrated into our global financial infrastructure, the easier it will be to root out lies and suspicious activity. It may even play a role in preserving democracy.

Shifting perceptions of blockchain morality

Blockchain technologies like cryptocurrencies frequently receive a bad reputation. They are seen by some segments of the vocal public as a vehicle for underground activity linked to crime or money laundering. While crime does occur with these digital tools, the rate of suspicious activity is actually much lower than you might think. The Financial Crimes Enforcement Network (FinCEN) tracks suspicious activity reports (SARs) across various currencies and found that crypto-related incidents have only made up 0.59% of all SARs since 2013.

Statistics like this have helped transition public perception of blockchain technologies away from a criminal element. However, real-world demonstrations of crypto being used to fight corruption have helped more than anything else.

Take the role of Bitcoin in the country of Nigeria. A few years back, most Nigerian citizens associated crypto with Ponzi schemes and other scams. Then, protests against a violent branch of the police led to Nigerian protesters’ accounts getting frozen. The government locked these demonstrators out of their traditional banks, leaving them few options but to turn to Bitcoin for donations and financial management. The reputation of crypto (and the underlying blockchain) began to shift as a result.

Across the world, citizens are seeing the value of cryptocurrencies wherever corrupt institutions are shutting down financial access. The Russian invasion of Ukraine is another example. The people of Ukraine are in the midst of having their country and all its services crippled. This includes the banks. With cryptocurrencies, access to funds transcends countries, meaning Ukrainian citizens can complete transactions as they move their families to safer territory. Ethereum founder Vitalik Buterin donated $25 to every Ukrainian on his platform as a demonstration of this decentralized financial solidarity.

These examples show how blockchain technology can serve as a common economic ground for people all over the world, regardless of the decisions of their government. The implications are great for fighting political corruption, but these cryptographic links go even further.

Traceability and automation

Two of the key features of blockchain technology are its ability to track information and its corresponding role in the automation of financial audits and investigations. Both of these features can play a role in fighting corruption. As blockchain systems increase in popularity, acceptance, and accessibility, individuals and institutions alike will be better prepared to discover and prevent illicit or oppressive financial activities.

However, this would require the adoption of a separate blockchain for public and private transactions, with clear encryption and privacy standards to support transparency and automation. The blockchain, under these conditions, may serve as one of our best tools for fighting corruption in the near future.

Immutable data storage

Because of the nature of blockchain data once it is recorded, no one can go back into the ledger and alter the data without also modifying the rest of the chain. That’s because data nodes are cryptographically bound together (like a chain). As a result, blockchain ledger technology is more secure than most other data systems, allowing for both anonymous or identifiable transactions to be recorded in a relatively hack-proof manner.

The immutability of this data could change the way we oversee the use of funds, both publicly and privately. For instance, a company might use the blockchain to record business transactions on multiple nodes, where information on every change can be traced back to its source to prevent embezzlement. Similarly, public works like infrastructure projects can be made more transparent to the public on a searchable blockchain revealing the details of allotted government funds and everywhere they were spent.

The traceability of data on blockchain ledgers can reduce corruption, but the chain and its applications have to serve that purpose.

Smart contracts

Smart contracts are agreements coded in layers over the blockchain to automatically execute an action under predetermined conditions. This means that two parties commit to an exchange of funds on a specific timeframe, made automatic by the program. Blockchain systems are helping the fight against corruption with the help of smart contracts, giving investors new tools for avoiding scams and fraud.

For instance, creating a self-directed IRA requires careful consideration. You have to vet everyone involved and thoroughly investigate tangible assets. Even still, you put yourself at risk for potential breaches of the agreement. A smart contract over a blockchain can mitigate these risks, guaranteeing the use and payout of funds under mutually determined conditions. In turn, private investors have less to worry about from bad actors in the market. Meanwhile, the same tools can be applied to verifying ledger information to strengthen financial oversight.

With the help of blockchain systems, accountants gain the potential for risk-reduction processes like triple-entry accounting. As information gets immutably stored in multiple locations, all it takes is an algorithm to automate the validity of financial data. This can help catch misuses of funds and other forms of corruption.

Leveling the playing field

Through transparency and automation features atop a decentralized and secure method of data transfer, blockchain technology supports a less corrupt world. Many blockchain networks already offer the means to track transactions through searches and identifying information, as you might with a platform like Venmo. Blockchain technology, however, is customizable to all kinds of private and public needs to support a system free from corruption.

However, there are still mistakes you need to avoid in the blockchain ecosystem. From deployments to issues of governance, overlooked details can incentivize fraud and misuse. Additionally, just as cryptocurrencies on a blockchain can support oppressed dissidents, tyrannical regimes like Russia can also use them to help circumvent sanctions they face from all over the world.

Blockchain, like any tool, is neither good nor bad. Its potential is determined by its application. Fortunately, blockchain users from all over can implement features like traceability and smart contracts to fight corruption where they can.