- The World Economic Forum (WEF) is launching a proof-of-concept (PoC) blockchain, based on the Ethereum blockchain, to reduce corruption across governments’ public procurement deals.
- The “Transparency Project” will first be tested in Colombia to distribute the tenders for PAE public school meals program.
Global public procurement consists of over ten trillion dollars in expenditure but close to 10-30 percent of this money is swallowed up by corruption; something the WEF seeks to solve. The process offer tenders have switched from manual systems to a digital system to increase accountability, but certain loopholes still exist in the chain.
The close relationship between governments and private sectors with vast resources involved raises the incentives for corruption to take place. Moreover, the digital systems also increase the level of corruption due to low transparency levels, a highly bureaucratized system, and no reporting platform, all of which encourage acts of fraud.
Colombian Government Adopts Blockchain to Fight Corruption
An insight report compiled by the Inter-American Development Bank (IDB) and WEF, the Office of the Inspector General of Colombia, agreed to test the Transparency Project. The PoC aims at improving government contracting processes starting with the public meals program worth billions of dollars in Colombia.
The adoption of a public and permissionless Ethereum blockchain platform provides transparency, immutability, and direct access to records of the government procurement contracts reducing the cases of corruption. Additionally, the system decentralizes the processes involved in vendor bidding and bid evaluation phases of procurement. Ashley Lannquist, the WEF’s project lead for blockchain and digital currency said,
“I think the strongest value proposition is that you could have high confidence that no records are being deleted, no vendor bids are being denied.
This came out as a key value-add and, of course, it comes the most from permissionless blockchains like Ethereum.”
A Work in Progress
Public blockchains features of data permanence and censorship resistance qualities make a case for the integration of these systems in procurement. However, the platform is far from perfect as questions of data privacy and scalability on public blockchains arise. How does this affect the Colombian government’s PoC integration?
According to Colombian law, the process of procurement must be anonymous to avoid collusion by suppliers or unfair selection of tenders. As such public blockchains, which are pseudonymous, do not meet the cut of total anonymity.
In a bid to solve this issue, WEF and the Colombian IG are looking into the possibility of launching hybrid blockchains, employing the anonymity of a permissioned blockchain, but keeping the permissionless features alive. Lannquist said,
“We thought of the pairing of public Ethereum with Hyperledger Fabric, for instance.”
“Some transactions happen on either one or the other, and you do want public [Ethereum] for the permanent record keeping.”