Avoiding Dystopias : building a fair credit scoring system on the blockchain

Original article was published by UTU on Artificial Intelligence on Medium


Avoiding Dystopias : building a fair credit scoring system on the blockchain

Social Credit Scoring — a dystopia in the making

Black Mirror is one of those shows that shows us how ugly things can become if we are not careful, it reminds us that we are just one step away from a real world Dystopia. Even more so it remind us that in some of the places on the globe this dystopia is already real.

In the nosedive episode (season 3, episode 1) of black mirror, a British SF anthology series, the creator of the series Charlie Brooker creates a society in which social media is essential for survival. The company is built based on a social rating system in which the ratings obtained overtime are necessary to receive discounts, obtain loans, or to get a free ride when you’re stranded, basically in order to live a normal life. The people in that imaginary society are careful how they interact with others because a simple mistake and drop in ratings might be detrimental, and a citizen with low ratings might be seen as a reject and to some extent a lower class, subhuman of sorts. . It’s really not hard to draw parallels to our present society, especially to the Chinese credit scoring system.

How does the Chinese credit scoring system work?

The Chinese credit scoring system was developed by the Chinese Communist Party (CCP) under the general secretary, Xin Jinping administration. Eight different credit scoring firms were operating separately. Those companies were unified in 2020 under a centralized system headed by the People’s Bank of China. Under this unified social scoring system, businesses, individuals, and government are scored based on trustworthiness through multiple data points. It relies heavily on CCTV networks and powerful facial recognition software that collects a huge amount of data collected and stored in a centralized database provided by the government. As a reward for “approved and acceptable behaviour” individuals and companies can get many benefits like lower interest rates on loans, special privileges, faster approval and access to public jobs or procurement. On the flip side things can get really ugly, as you could be blacklisted if your credit score drops below a certain level and you lose access to things that people take for granted, like public transport, airplanes, loans, bank accounts and more.

How Covid-19 affected the Chinese credit scoring system

The Covid-19 pandemic has brought about a different twist in the Chinese credit scoring system. Due to the coronavirus pandemic, many businesses in China closed and many citizens cannot pay back the loans they borrowed. The Chinese government has adjusted its credit scoring system. Under the new credit scoring system, companies adversely affected by the coronavirus pandemic punishments were withheld. A new plan has been given to them to return their loans.

The credit scoring system has been used to ensure compliance with the lockdown during the coronavirus pandemic, which manages the spread of the coronavirus. Individuals who hide their medical records can have their social credit scores reduced, and they are blacklisted. Behaviors such as spreading rumors and misinformation (which is determined by the Chinese government) can also land people in the blacklist. They are being prevented from traveling or getting their children into prestigious Chinese schools, and violators can also be banned from getting the best jobs.

While reading this one would think : “Yes but this is China, these kind of things could not happen in the west”. You would be dead wrong because the chinese social credit scoring system has been replicated in many countries with several countries building their own social credit solution. Many countries who are trying to create their credit system have two aims: to be generally accepted in society and to be credible. Recently, the New York department announced earlier this year that life insurance premiums should be based on the social media posts of people who are seeking to get life insurance. For example, using this system, insurance companies are not likely to give loans to people who participate in life treating activities like stunts, base jumping, partying late night in clubs etc.. but someone who lives a clean and “boring” life without drinking alcohol, smoking cigarettes and engaging in dangerous activities are more likely to be given loans. Car insurance companies also ensure compliance by installing trackers in cars to check your driving habits and calculate your risk score. The technology is there and they are using it in its full extent.

Scoring systems in other countries may be independent from the government but this is not a good thing as it may sound initially. Private companies like Palantir use it as a core part of their business to harvest, label, compare and process massive quantities of freely available data and can be easily turned into a chinese style social credit scoring system in very little time, it’s just a matter of decision for them. So… this could never happen in a modern democracy is a false and naive at best.

Cambridge Analytica Social Profile

Systems like this are dependent on the data received from your online footprint like posts on social media and they have been proven that they can’t be trusted with your data. Facebook Cambridge analytica scandal is the largest leak in the history of Facebook, millions of user’s data was harvested without the consent or knowing what it will be used for. And it was used to manipulate the US elections in what seems to be a nefarious campaign. Data leaks are not an exception and they just keep piling up, from Equifax data breach in 2017, Deutsche bank data leak, Panama papers, Yahoo data breach of 2014 where 3 Billion user accounts were compromised one thing became apparent : you cannot trust companies with your data.

Data can be harvested by hackers, even companies employees to make money by selling them to the highest bidder. Knowing all this one question that comes to mind is, which system can perfectly execute the chinese like social scoring system with credibility and trust. The solution lies in blockchain technology.

The blockchain solution

Blockchain technology was built in 2008 with Bitcoin whitepaper in the wake of the financial crisis, an anonymous man or a group named Satoshi Nakamoto imagined a decentralized peer to peer distributed ledger technology. The system Nakamoto built created an alternative to existing systems and made it permissionless, censorship resistant and completely transparent.

The power was given back to the people and all the transactions was monitored by everyone on the system and no one had the enough power to control the entire network. As of today many people use the cryptocurrency for many things like cross border payments , to escape sanctions from the government, to freely transact without intermediaries, create new products, even completely new industries. But, like any other great tool, it can be used for good and bad. Many bad actors are using the system to scam people of their valuable assets, exit scamps, pump and dump scams the so called “rug pulls” are also common in the blockchain system. That is the nature of permissionless and immutable systems. With great power comes great responsibility.

The perfect credit scoring solution

Trust score Visualised

There are many problems in this new industry but the largest one by far is trust. Our platform, UTU tries to solve that problem. One day, hopefully not that far away in the future, we would be able to determine the credit worthiness of an online persona using our trust infrastructure and in such a system manipulation would be almost impossible. A credit scoring system, online reputation system and a recommendation system where manipulating the data and pumping your scores would be almost impossible.

To see exactly how, here is our whitepaper that explains how exactly we will achieve all of that and if you are not a fan of in depth technical explanations here is an executive summary that explains it in simpler terms.

We believe that UTU will become an essential backbone of any online transaction but especially in the blockchain and more specifically DeFi space. To understand how refer to our Enabling DeFi article.

Conclusion :

We believe that the only way for us as a society to avoid a dystopian future from the black mirror episode is to build a better solution than anything existing today and we believe this is not mission impossible. We have the power of the blockchain ecosystem on our side, the tools built in the past 10 years and our own experience operating in markets where trust is a matter of life and death. Join us if you want to see this future materialize.