Use of two Public Distributed Ledgers to track the money of an economy (2404.13189v1)

Abstract: A tool to improve the effectiveness and the efficiency of public spending is proposed here. In the 19th century banknotes had a serial number. However, in modern days the use of digital transactions that do not use physical currency has opened the possibility to digitally track almost each cent of the economy. In this article a serial number or tracking number for each cent, pence or any other monetary unit of the economy is proposed. Then, almost all cents can be tracked by recording the transactions in a public distributed ledger, rather than recording the amount of the transaction, the information recorded in the block of the transaction is the actual serial number or tracking number for each cent that changes ownership. In order to keep the privacy of the transaction, only generic identification of private companies and individuals are recorded along with generic information about the concept of transaction, the region and the date/time. A secondary public distributed ledger whose blocks are identified by a hash reference that is recorded in the bank statement available to the payer and the payee allows for checking the accuracy of the first public distributed ledger by comparing the transactions made in one day, one region and one type of concept. However, the transactions made or received by the government are recorded with a much higher level of detail in the first ledger and a higher level of disclosure in the second ledger. The result is a tool that is able to accurately track public spending, to keep privacy of individuals and companies and to make statistical analysis and experiments or real tests in the economy of a country. This tool has the potential to assist public policymakers in demonstrating the societal benefits resulting from their policies, thereby enabling more informed decision-making for future policy endeavours.

• The paper proposes using two public distributed ledgers (blockchains) in tandem to track monetary units within an economy, aiming to enhance transparency and policy-making.
• The system features a primary ledger for detailed but anonymous tracking (except for government transactions) and a secondary ledger for transaction validation using hashed references to preserve privacy.
• Implementing this system could improve fiscal policy analysis and market transparency but faces challenges in integrating with existing banking systems and assigning/revoking tracking numbers.

Tracking Money with Public Distributed Ledgers

The paper under examination proposes a novel approach to tracking money within an economy using two public distributed ledgers, aiming to enhance the efficiency of public spending and improve policy-making processes. It advocates for assigning a serial or tracking number to each monetary unit, enabling comprehensive tracking of currency through digital transactions, a concept analogous to the historic use of serial numbers on banknotes.

Methodology

The paper outlines a system where two blockchains, or more, operate in tandem, catering to the dual requirements of data detail and individual privacy.

1. Primary Ledger: This ledger meticulously records the movement of every cent with the highest detail but ensures user anonymity. In transactions involving government entities, however, anonymity is partially lifted to increase transparency.
2. Secondary Ledger: Designed for validating transactions, this ledger maintains a higher level of anonymity by only storing hashed references to transactions, preventing reverse tracking while allowing the parties involved to confirm transaction accuracy.

The paper also proposes an alternative system involving three ledgers, potentially offering finer privacy controls by separating transaction details across additional layers.

Implications and Possible Extensions

The implementation of such a tool holds significant implications for economic policy and statistical analysis. By offering granular visibility into monetary flows, governments can better measure the impacts of fiscal policies, making informed adjustments to optimize economic outcomes. The tool facilitates experiments like adjusting VAT rates slightly in alternating months to observe their effects on transaction behaviors, which could illuminate previously obscure economic dynamics.

Moreover, the tool's capability to correlate monetary transactions with real market value promises to reduce informational asymmetries within the market, potentially narrowing the advantage of large corporate entities over smaller actors.

Nevertheless, the authors anticipate several challenges, particularly in integrating with existing banking systems. The assignment and revocation of tracking numbers when creating or extinguishing currency present logistical and operational hurdles, exacerbated in scenarios like bank runs.

Future Research Directions

The paper acknowledges the need for further scholarly engagement to refine this nascent concept. Suggested areas for development include:

• Privacy breach testing to ensure robustness against potential exploitation.
• Exploring ethical implications to prevent misuse, particularly concerning government surveillance.
• Defining appropriate levels of detail for recording information that strike a balance between transparency and privacy.
• Establishing a robust framework for economic experiments enabled by the comprehensive monetary tracking capabilities.

Conclusion

While ambitious, the proposed dual-ledger system could revolutionize economic policy-making and fiscal monitoring if implemented effectively. It offers a transparent mechanism for tracking the effects of public spending, thereby contributing to more effective governance. However, the complexity of the system necessitates further development and empirical validation to address potential practical challenges and ethical considerations. If surmounted, the widespread adoption of such a tool could significantly enhance public spending efficiency and economic transparency, laying the groundwork for sustained economic growth.