The Practice and Potential of Blockchain Technologies for Extractive Sector Governance
Important questions are being raised about whether blockchain technologies can contribute to solving governance challenges in the mining, oil and gas sectors. This report seeks to begin addressing such questions, with particular reference to current blockchain applications and transparency efforts in the extractive sector.
It summarizes analysis by The Governance Lab (GovLab) at the New York University Tandon School of Engineering and the Natural Resource Governance Institute (NRGI). The study focused in particular on three activity areas: licensing and contracting, corporate registers and beneficial ownership, and commodity trading and supply chains.
Key messages:
- Blockchain technology could potentially reduce transparency challenges and information asymmetries in certain parts of the extractives value chain. However, stakeholders considering blockchain technologies need a more nuanced understanding of problem definition, value proposition and blockchain attributes to ensure that such interventions could positively impact extractive sector governance.
- The blockchain field currently lacks design principles, governance best practices, and open data standards that could ensure that the technology helps advance transparency and good governance in the extractive sector. This analysis offers an initial set of design principles ("GENESIS") that could act as a starting point for a more targeted approach to the use of blockchain in improving extractives governance.
- Most blockchain projects are preliminary concepts or pilots, with little demonstration of how to effectively scale up successful experiments, especially in countries with limited resources.
- Meaningful impact evaluations or peer-reviewed publications that assess impact, including on the implications of blockchain’s emissions footprint, are still lacking. More broadly, a shared research agenda around blockchain could help address questions that are particularly ripe for future research.
- Transition to a blockchain-enabled system is likely to be smoother and faster in cases when digital records are already available than when a government or company attempts to move from an analog system to one leveraging blockchain.
- Companies or governments using blockchain are more likely to implement it successfully when they have a firm grasp of the technology, its strengths, its weaknesses, and how it fits into the broader governance landscape. But often these actors are often overly reliant on and empowering of blockchain technology vendors and startups, which can lead to “lock-in”, whereby the market gets stuck with an approach even though market participants may be better off with an alternative.
- The role played by intermediaries like financial institutions or registrars can determine the success or failure of blockchain applications.