Now, the UK is testing the most intriguing example yet: blockchain-based tracking of welfare spending.
The proposition is simple: have a blockchain-based system monitor exactly where the money handed out to welfare recipients is being spent. That’s it. It’s always been possible on the small scale, but difficult to impose as a wide ranging policy for two main reasons: There are way too many people receiving welfare for human-driven oversight to be practical, and because people are inherently resistant to the idea of a human being following another’s financial life like that.
Distributed ledgers can undoubtedly remove the first problem, providing a means to actually deliver oversight on the scale required — but can it, and should it, remove the second problem?
A big issue is security. One thing that makes distributed ledgers secure is that they are publicly viewable, and long-lived by being distributed across many computers. As we’ve seen over and over in the past several years, however, no security regime in flawless. And even if it is flawless today, the information indexed in that ledger remains sensitive for a long time, meaning that some future computing breakthrough could retroactively expose a bunch of people who aren’t even receiving welfare any more!
There’s a fairly simple fix for this, however: use only non-identifying signifiers for welfare recipients in the ledger itself, and maintain the database of signifier-to-legal-name associations on a more classically protected government database unconnected to the ledger itself. Any attacker would need both the ledger info and the database of associations — and if we’re worried about attackers getting our information from classically secured government databases, we need to worry about a lot more than stolen welfare tracking.
The bigger issue is not the security of the data, but the use of it. So, you’ve tracked welfare spending — what now? The obvious application is to take punitive measures against those who misspend, to lower the payment amount as a disincentive to spend poorly, and to lower waste of money intended for the essentials.
According to a UK government report released earlier this year, “the [Department of Work and Pensions] pays out roughly £166 billion of taxpayer’s money in welfare support per year. Some £3.5 billion of that sum is overpaid through fraud (£1.2 billion), claimant error (£1.5 billion) and official error (£0.7 billion) 2 of which £930 million is recovered.”
However, given the passion that currently exists for privacy and digital liberty, it seems far more likely that any such spending-tracking system would have to be fully anonymized to be implemented on a wide scale. It would track statistical-level trends in welfare spending, following faceless numbers and looking at population-level spending habits. This could have all kinds of utility without having to record who buys what, when.
In the case of a welfare distribution scheme, this means that the recipients would be using a digital currency to make their welfare purchases — not so much physical food stamps as digital stuff stamps. Adoption wouldn’t be the biggest problem, since a government could theoretically require some or all business to accept their crypto-currency when offered. There are some nice aspects to this right off the bat, such as that drug dealers and other frequent recipients of misspent welfare funds are likely to have a harder time redeeming government crypto-bucks than supermarkets and children’s clothing stores.
Food stamps have some pretty major downsides associated with them, more notably the stigma associated with receiving and spending them. A digital stamp could possibly alleviate that, making the use of this welfare currency visually indistinguishable from the use of, say, Apple Pay. It could also do away with the restrictive nature of physical service vouchers, allowing people to, say, hunt for a good deal online and make a purchase without having access to credit.
The current, relatively primitive level of advancement in the software could actually undercut it from a cost-saving perspective, as cryptographically securing all these transactions and could take an enormous amount of electrical power. Unless the distributed ledger system itself is improved, this and most other applications of it will be pretty much unachievable on a large scale. But with so many big powers working to get a more efficient solution in place, it makes perfect sense to be thinking ahead to the potentially revolutionary ways we might apply it, once we’re able.