The COVID-19 pandemic has brought us face to face with what economists are calling one of the worst economic downturns of all time. Thousands of businesses have shut down all around the world causing people to lose their source of income. Others who still have their jobs have been suffering from temporary business closures without paycheques, salary cuts, and reduced work hours.
While remote working has been initiated in many sectors, it does not cover the entire working class. In the US alone, it has been reported that more than 10 million people have already filed for unemployment claims.
People staying in rentals are living under the fear of getting evicted as they fail to make payments. House owners are worried about mortgage payments. On the other hand, many college students have already been evicted due to the failure to pay the rent.
All over the world, the scenario is almost the same, with minor differences in numbers. Although financial relief packages have been announced by most of the governments, there is still the question of how they are going to distribute among the people. The time frame is also unclear to the general population.
The problem here is fundamental. The existing financial and other systems are not sophisticated enough to streamline such time consuming and complex processes, with minimum human interference.
People within the technology community are claiming that the situation can be mitigated in a better way with the help of blockchain integration.
How Blockchain can Help?
The crucial part of relief management and the critical response is the commitment towards the people. It demands that a plan of action be made and governments should stick to their respective plan of dispersing the relief.
Many governments at this point are struggling to find a way to streamline the financial stimulus payments and make it available to the ailing people at the earliest. It would not have happened if there had been an existing system that would automatically initiate the stimulus payments as soon as the economy hit a recession.
However, there are lessons to learn from this current scenario and proper technologies to be adapted to avert the same in the future. With blockchain integration, governments can be more committed to the general population through a quick and coordinated response.
DLT helps in the following ways:
- It enables a group of stakeholders or network participants to collaborate and coordinate on an open-source distributed network for a common purpose. DLT allows instant verification of any kind of information that is being shared within the network participants. This reduces the operational and communication cost of sharing valid data from one to another.
- DLT along with smart contracts allow participants to commit to their future actions and the results as well by using codes to enforce them. It minimizes inefficiencies caused by incompleteness of the contracts.
- The technology allows network participants to retain control of the data. This increases the bargaining power of the participants. Due to that, they can capture more of the created value, which increases the incentives for both investment and participation.
The moral of the story is, blockchain or DLT technology can add credibility to the relief responses, automate, verify and track the payments.
The Use of Smart Contracts
What the government needs to do is pass legislation that will specify that relief payments will be made as soon as the economy starts showing macroeconomic patterns. During those situations, the transfer of relief and funds can be implemented through smart contracts that are verifiable publicly on a DLT platform.
Due to blockchain integration, the system will allow individuals to have a wallet of their own, where the payments get directed. No sooner than the economic downturn hits, the system automatically activates and smart contracts get engaged to process payments. The best part is that all the payments and relief data can be tracked since everything happens on an immutable distributed platform.
Powered by the Consensus Mechanism
Since the platform is distributed among multiple participants, none of the data can be unilaterally altered or deleted. Here the consensus mechanism has a major role to play. In DLT a supermajority of nodes is required to update the ledger.
The nodes can be institutions that are responsible for maintaining the health of the economy. In the case of the USA, the Federal Reserve Banks can serve as nodes. Such a system makes it impossible for any other party within the economy, like the head of the state, the congress, etc. to delay or cancel the payments during a crisis. If any last-minute changes need to be made, all nodes have to come to a unanimous agreement to do so.
The implementation of blockchain and the use of smart contracts will ensure that the people get their payments fast and also ensure that no one interferes with the dispersal process.
On a concluding note, implementation of such an elaborate architecture needs serious technical and political advances. Hopefully, as governments reform their existing systems in the post-pandemic world, DLT will be one of the primary advancements to look forward to.