Section 6.2.2 — Mechanism Demo

Cryptographic Fund Segregation

Distinct addresses for distinct mandates. Unlike traditional accounting segregation that depends on accurate record-keeping, blockchain segregation is mathematically demonstrable: funds either reside at designated addresses or they do not.

Total Sovereign Wealth Fund Holdings
₿ 50,000
≈ $5,000,000,000 USD
100% verifiable on-chain — Any citizen can independently confirm these balances

Simulate Inter-Mandate Transfer

Try moving funds between mandates. Notice how every transfer is publicly recorded — there's no way to secretly commingle funds.

Accounting Convention → Structural Constraint

Traditional Fund Segregation

  • Depends on managers' accurate record-keeping
  • Commingling can be hidden in internal accounts
  • Auditors must trust provided documentation
  • Citizens cannot independently verify
  • Opacity enables corruption (Libya: 500+ subsidiaries)

Cryptographic Segregation

  • Mathematically demonstrable separation
  • Every transfer permanently recorded on-chain
  • Anyone can verify without permission
  • Funds either at designated address or not
  • Opacity structurally impossible

Libya Investment Authority — "Deliberate Opacity"

When Ali Mahmoud Hassan Mohamed took control of the LIA in 2016, he inherited a structure where funds flowed between subsidiaries without clear documentation of purpose or authorization.

500+
Subsidiary companies
$68B
Estimated assets (uncertain)
0
Financial reports published (despite law requiring annual statements)
Subsidiary Structure — Can you trace the money?
"Deliberate opacity that prevented even the fund's own leadership from estimating total assets"
— Chatham House Report (Eaton, 2021)

What is Subsidiary #247 holding?

Unknown
No public record exists

How much was transferred last month?

Unknown
Internal records only

Who authorized the London transfers?

Unknown
Documentation "lost"

What do Libyan citizens ($10k each) actually own?

Unknown
No way to verify

What Blockchain Segregation Would Have Shown

What Libya Had

  • 500+ subsidiaries with unclear holdings
  • Funds flowed without documentation
  • Leadership couldn't estimate total assets
  • No financial reports despite legal requirement
  • Citizens owned ~$10,000 each but couldn't verify

With Cryptographic Segregation

  • Each subsidiary → distinct public address
  • Every transfer permanently recorded
  • Total assets calculable by anyone, instantly
  • Transparency structural, not voluntary
  • Citizens verify their share with one click