Block­chain – more than cryptomoney

Block­chain rose to fame as a result of bitcoin and its ilk. Because of its trans­pa­rency, the tech­no­logy would make a good choice for nonpro­fit purposes.

The pros­pect of fast, easy money and the gene­ral air of mystery surroun­ding cryp­to­cur­ren­cies could, perhaps, account for their allure. Whate­ver the reason, the block­chain tech­no­logy behind bitcoin, Ether, etc. is attrac­ting a great deal of atten­tion. Beyond its use as a currency, the tech­no­logy holds poten­tial for the nonpro­fit sector. Hall­marks of block­chain include encryp­tion and decen­tra­li­sed storage: each new tran­sac­tion is linked to a previous data block. An encrypted copy of this new data block is then saved on all compu­ters in the selec­ted system. As such, the infor­ma­tion in the system is public. Even if there are private block­chains where the available data is only public for a handful of parti­ci­pants, Roger Watten­ho­fer sees block­chain as an inte­res­t­ing tech­no­logy for civil society and for nonpro­fit purpo­ses. The ETH profes­sor, whose rese­arch focu­ses on distri­bu­ted systems and networks, explains, ‘With block­chains, data is expli­citly stored publicly. Howe­ver, the data is often encrypted and anony­mi­sed, ensu­ring that private infor­ma­tion stays private.’ He menti­ons that there have alre­ady been seve­ral initia­ti­ves in the nonpro­fit sector, inclu­ding block­chain-based social networks. At the same time, howe­ver, he points out the obsta­cles that are likely to arise when attemp­ting to compete with exis­ting orga­ni­sa­ti­ons. ‘Private compa­nies will not give up their data mono­poly so easily,’ he stres­ses. The state will be reluc­tant to make its data public too. The tech­no­lo­gi­cal deve­lo­p­ment is, of course, chal­len­ging for the state. ‘In the past, the state was not able to work trans­par­ently because that wasn’t tech­ni­cally feasi­ble. Today, that is no longer an excuse,’ he asserts. He feels that, in a demo­cracy, the tech­no­logy could be used to support govern­men­tal proces­ses and could help re-estab­lish trust in the public sector. ‘Ballots can be veri­fied and moni­to­red using a block­chain. We wouldn’t need to rely on enume­ra­tors and ballot orga­nisers getting it right any more,’ he comm­ents. ‘Grea­ter trans­pa­rency in elec­tions and ballots would not go amiss even in a model demo­cracy like Switz­er­land. In count­ries where there’s a suspi­cion of elec­to­ral fraud, it would, of course, be even more welcome.’ The tracea­bi­lity affor­ded by the data recor­ded in the block­chain should be of inte­rest to the charity sector: ‘Block­chains could be used to bring about grea­ter trans­pa­rency, pinpoin­ting, for exam­ple, how the dona­ted money is actually spent,’ comm­ents the ETH professor.

‘Private compa­nies will not give up their data mono­po­lies just like that.’

Roger Watten­ho­fer,
ETH Profes­sor

Ideal entity for inde­pen­dent development

In Switz­er­land, those looking to build and publish a block­chain proto­col often choose to do so through the legal entity of a foun­da­tion. This allows the tech­no­logy to be deve­lo­ped and deployed without being subject to the indi­vi­dual inte­rests of share­hol­ders or members of an asso­cia­tion. ‘It is useful for non-commer­cial projects in parti­cu­lar,’ comm­ents Thomas Linder, a tax expert at consul­tancy MME who specia­li­ses in block­chain and fintech. He adds, ‘The foun­da­tion is ideal for funding open-source block­chain projects if they are looking to deve­lop a decen­tra­li­sed infra­struc­ture and make it available to the gene­ral public free of charge.’ The requi­re­ments during the deve­lo­p­ment phase and during the subse­quent deploy­ment of the block­chain differ. Prima­rily, it is important for the foundation’s mission to focus on rese­arch and deve­lo­p­ment. ‘But in the longer term, the aspects of decen­tra­li­sa­tion and the ecosys­tems and networks formed on the infra­struc­ture become more rele­vant. The foun­da­tion needs to tran­si­tion from a deve­lo­p­ment role to a network gover­nance role,’ he explains. When setting up the foun­da­tion, it is crucial to bear in mind the diffe­rent requi­re­ments that it will need to meet at diffe­rent stages. Thomas Linder comm­ents, ‘The disad­van­ta­ges of a foun­da­tion are its rigid legal struc­ture and its immu­ta­bi­lity. That makes it infle­xi­ble.’ The admi­nis­tra­tive costs are also rela­tively high. Nevert­hel­ess, he sees the foun­da­tion as a legal entity that is suita­ble for further digi­ta­li­sa­tion projects in addi­tion to block­chain. ‘Across the board, “crowd rese­arch and deve­lo­p­ment” is set to play a major role in future,’ he main­ta­ins. ‘The community’s trust in the chosen legal struc­ture is of key importance here.’

Commu­nity confi­dence in the chosen legal struc­ture is paramount.’

Thomas Linder, tax expert,
Consul­ting firm MME

Risk of tech­no­lo­gi­cal elitism

Even if the foun­da­tion as an entity brings signi­fi­cant inde­pen­dence from indi­vi­dual inte­rests – making it the ideal orchestra­tor in a decen­tra­li­sed ecosys­tem – at the end of the day, it remains a centra­li­sed struc­ture. Roger Watten­ho­fer comm­ents, ‘A foun­da­tion repres­ents a centra­li­sed orga­ni­sa­tion that many crypto purists would proba­bly reject on prin­ci­ple.’ He cites the bitcoin network, orga­nised without a foun­da­tion, as a prime exam­ple here, though points out that this set-up has led to bitcoin being so decen­tra­li­sed that tech­no­lo­gi­cal deve­lo­p­ments are diffi­cult to imple­ment, because no one has direct respon­si­bi­lity for them. This illus­tra­tes that the ques­tion of how deve­lo­p­ments are control­led is important for many of today’s crypto projects. ‘Some have built-in gover­nance. The parti­ci­pants in a Decen­tra­li­sed Auto­no­mous Orga­ni­sa­tion (DAO) like this can contri­bute sugges­ti­ons for change and then vote on them,’ explains Roger Watten­ho­fer. To enable block­chain tech­no­logy to play a rele­vant role for civil society, howe­ver, it is crucial that people are able to under­stand and use it. There is a risk of ‘tech­no­lo­gi­cal elitism’. Know­ledge of the tech­no­logy and the ability to use it can affect social stan­ding. If the tech­no­logy is to be applied, for exam­ple, in demo­cra­tic proces­ses, the ability to use it effec­tively is crucial. ‘By the same token, it’s important for schools to teach the prin­ci­ples of cryp­to­gra­phy,’ adds Roger Watten­ho­fer. ‘Yes, plenty of people have no problem getting on a plane without under­stan­ding avia­tion tech­no­logy. But when a new tech­no­logy has a direct impact on society, it is important that the broa­der public is educa­ted and informed.’ 

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