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Tuesday
Jan302018

Selva Ozelli: Canada (yes, Canada) focuses on blockchain to fight graft

With Vitalik Buterin, Ethereum Blockchain’s principal inventor residing in Toronto, Canada it is no wonder that Canada ranks third in the world behind the United States and the United Kingdom when it comes to blockchain technology adaptation.

Toronto is currently home to one of the world’s largest blockchain research organizations -- The Blockchain Research Institute. This Institute is dedicated to over 50 research projects that will propose ways in which blockchain technology can be used to impact various industries.

In June 2017, Canada's National Research Council (NRC), an official Government of Canada agency, hosted a blockchain kickoff session that brought together people from across the Canadian Government at the Innovation, Science and Economic Development Canada (ISED) Service Lab. At this meeting, NRC’s plan to test the viability of blockchain technology in the administration of the Program’s Contribution Agreements was unveiled.

On January 19, 2018, the Canadian government announced that would it be trialing the Ethereum Blockchain in a bid to provide public transparency for disclosures relating to research and grant funding. 

If successful, this trial of a public-facing database powered by the Ethereum Blockchain may lead to other government agencies using the same technology to achieve a similar measure of transparency transactions as a weapon against corruption particularly concerning government procurement contracts.

"Blockchains provide the ultimate in transparency and trust, making this technology a brave new world for organizations that strive to conduct transparent business. The trial for the pilot project will be spearheaded by the NRC via the Industrial Research Assistance Program (NRC IRAP), an organization that operates as the Canadian government's premier research and development organization. An Ethereum Blockchain-compatible software service called Catena Blockchain Suite, built by Bitaccess, is the platform upon which the government database will rest” according to NRC IRAP.

With procurement corruption estimated to be $2 trillion of world public/taxpayer funds by the OECD, blockchain technology, by bringing transparency to the public procurement funding process, may address corruption, fraud, or misappropriation of funds. Because, transactions are tracked on multiple blocks using blockchain, which is a digital ledger distributed over a network of computers rather than located on a single or multiple servers. Transactions are recorded chronologically and publicly. It is almost impossible to alter the historical records on a blockchain and more importantly, access to a blockchain can be restricted.   

Buterin explained, “All transactions under blockchain come with auditable trails of cryptographic proofs.  Rather than simply hoping that the parties we interact with behave honorably, we are building blockchains that inherently build the properties in the system, in such a way that they will keep functioning with the guarantees that we expect, even if many of the actors involved are corrupt.”

The blockchain’s main disruptive element in today’s commercial and economic ecosystem is its ability to eliminate the necessity to trust intermediaries to certify a transaction. This feature lends Ethereum Blockchain well to being used to create smart contracts.

Smart contracts are computer protocols, or algorithms, which can verify the negotiation process or performance of contracts--to the extent, legal relationships can be reduced neatly into code-whereby clauses are automatically enforced once the pre-programmed conditions are satisfied. They are coded instructions, which execute on the occurrence of an event -- including public funding/grant contracts.

The Ethereum Blockchain experiment brings together a perfect mix of Canadian Small Medium Enterprises (SME) like Bitaccess, funding from Public Services and Procurement Canada’s Build in Canada Innovation Program (BCIP), and NRC, whose work with SMEs across Canada generates a large volume of financial transactions and recordkeeping that requires transparency and public disclosure.

Hosted on Canada's NRC website, anyone can see amendments to all existing grants created by the NRC, as well as any proposals for new ones in real-time, providing a layer of clarity and assurance for the public.  

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Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for TaxNotes, Bloomberg BNA, other publications and the OECD.