Written evidence submitted by Dr Grammateia Kotsialou and Dr Luke Riley (DGC0035)
Dr. Grammateia Kotsialou & Dr. Luke Riley
Research Associates
King’s College London
https://www.kcl.ac.uk/sspp/departments/politicaleconomy/People/academic/Kotsialou-Grammateia.aspx & https://uk.linkedin.com/in/luke-riley-36484221
1. Preliminaries:
In the following we answer some of the questions that are detailed on your website. We highlight these questions in yellow and follow immediately with our response.
Note that our particular area of expertise in the Distributed Ledger Technology (DLT) domain relates to the application of DLT to voting systems, which we discuss at the end of our submission.
2. The role of digital currencies in the UK, including the opportunities and risks digital currencies may bring to consumers, businesses and the Government (and associated bodies).
Cryptocurrencies and the associated Distributed Ledger Technology (DLT) are potentially the next evolutionary step in the development of digital technologies that link people together in a network. The Internet is the most famous example of a large distributed digital network, but it actually encourages the creation of centralised bodies to add trust (e.g. Uber, AirBnB, Amazon, Facebook, etc…). DLT is another type of distributed network, where trust can be self enforced through the participants of the network, without using any central bodies. This is due to the algorithms that each participant of the network has to run in order to stay a member of this DLT network. The connection of DLTs to cryptocurrencies is that some DLTs allow anyone to become a member, known as public DLT networks, and use the reward of cryptocurrency to incentivise the important participants (known as miners or validators) to operate in a trustworthy manner. Permissioned DLTs is another category which only allow selected people to participate. In Permissioned DLTs, cryptocurrency incentives are not usually needed because the consortium operating the network usually already know each other (such as in the bank or energy sector).
There are some obvious benefits of promoting DLT networks: they are significantly more difficult to censor as there is no central body in control; data stored on a DLT network is significantly more difficult to hack; and a DLT network can be designed to provide individuals with more control over their own data – which should minimise the likelihood that personal data is misused.
Additionally we think that it is a good strategic move for the UK Gov to support DLT, as it has the potential to disrupt many industries within the next few years (just as the Internet disrupted many industries approximately 20 years ago).
3. The potential impact of distributed ledger technology on financial institutions, including the central bank, and financial infrastructure.
Cryptocurrencies are a new way to transfer value between individuals without a central authority, thus they are a possible competitor to traditional financial institutions. However, there is no way that we will have a situation where one day everyone uses banks for monetary transactions and the next day everyone uses cryptocurrencies. Traditional financial institutions have an opportunity here to embrace this change by using DLT to improve efficiency between different companies in their sector (i.e. by not having to maintain all of their own documentation), automate contracts between companies (i.e. interest rate swap [1]), or automate monetary transfers (e.g. using the Ripple’s DLT [2]). Currently traditionally financial institutions are investigating permissioned DLT networks, such as using R3’s Corda [3].
4. Are digital currencies ultimately capable of replacing traditional means of payment?
Of course! So many payments happen digitally now and there are countries (e.g. Sweden) that may become cashless [4]. Thus, using a cryptocurrency should not be a problem in theory. However, the main issue of cryptocurrencies is their scaling (the more users are added the slower they become). For this reason, scaling DLTs is an active area of research and progress is being made [5].
5. To what extent could digital currencies disrupt the economy and the workings of the public sector?
We think the main focus for the public sector is not the cryptocurrencies but the DLT underpinning it. Governments can take advantage of DLT to improve efficiencies in the public sector. Dubai is one of the main examples of this, who are aiming to save $1.5 billion per year by using DLT for key government services, including visa applications, license renewals and bill payments [6].
Our academic project has a specific use case which is online voting and decentralised governance using blockchain technology (which is a type of DLT) [7]. Our project has been funded from the EPSRC [8] and focuses on a few aspects.
Firstly, we are working with the Electoral Reform Services (ERS) [9] (who run the main non-governmental offline/online elections in the UK – such as selecting political party leaders). We are helping the ERS to add the following properties to their online voting system through integrating a permissioned blockchain: eligibility verifiability (making sure only eligible people can vote); individual verifiability (allowing a user to check that their vote has been cast); and universal verifiability (allowing anyone to check that the votes have been correctly counted).
Secondly, we are working with Crowdcube [10] (the UK’s largest equity crowdfunding website) to integrate a permissioned blockchain for shareholder voting and decentralised shareholder governance. Currently the majority of shareholder rights management documentation for small companies are paper based, but efficiencies can be gained by moving to an technology that enables trust between shareholders.
Lastly, we are theoretically investigating more engaging types of democracy (e.g., direct and liquid democracy). These types can become easier to implement now that DLT is becoming more advanced and established, as DLT should enable more secure online voting systems to be developed.
Note that we intend to publish our main results, which we have already started doing in a leading artificial intelligence conference [11]. Additionally we intend to open source code that we develop, and also make it applicable to public DLTs.
Additionally to our project, we have recently co-authored a forward to the Scottish government’s open submission on electoral reform [12]. This forward focuses on online voting secured with blockchain.
One final point on the online voting topic is that we believe that the government can immediately benefit from utilising an electronic voting system within the House of Commons. In our modern society, it seems unnecessary that our elected representatives waste time every year queuing to vote, when online voting options (that can be secured in part by DLT) are available. Securing voting within the House of Commons is a significantly easier use-case compared with securing national elections, because the vote that each MP casts becomes public knowledge either way. An online voting system, which is only accessible from the House of Commons internal network and backed up with DLT, would seem like a secure way to modernise MP voting. Online voting in this way would also provide the infrastructure for proxy voting if an MP is missing for some reason.
References:
[1] Barclays Smart Contract Templates. Website link: https://www.youtube.com/watch?v=YIH4MJf6kH8&t=281s
[2] Ripple. Website link: https://ripple.com/
[3] R3’s Corda. Website link: https://www.corda.net/
[4] Why Sweden is Close to Becoming a Cashless Society, BBC News. Website Link: http://www.bbc.com/news/business-41095004
[5] The Lightening Network. Website link: https://lightning.network/
[6] Dubai Sets Its Sights on becoming the World’s First Blockchain Powered Government. Forbes. Website link: https://www.forbes.com/sites/suparnadutt/2017/12/18/dubai-sets-sights-on-becoming-the-worlds-first-blockchain-powered-government/#9fd5d7e454ba
[7] Voting Over Ledger Technology. Website link: http://volt-project.org/
[8] Trusted and Transparent Voting Systems, EPSRC. Website link: http://gow.epsrc.ac.uk/NGBOViewGrant.aspx?GrantRef=EP/P031811/1
[9] Electoral Reform Services. Website link: https://www.electoralreform.co.uk/
[10] CrowdCube. Website link: https://www.crowdcube.com/
[12] Webroots Democracy’s Submission to the Scottish Government on Electoral Reform. Website link: https://webrootsdemocracy.org/scottish-government-consultation/