Blockchain Is Transforming Government - Part I

How blockchain can steer eGov and help create better public services

Ramy Caspi
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Blockchain has the potential to cut through the hodgepodge of interfacing with government services”, says MIT’s Brian Forde.

An important function of government is to maintain trusted information about individuals, organizations, assets, and activities. Local, regional, and national agencies are charged with maintaining records that include, for instance, birth and death dates or information about marital status, business licensing, property transfers, or criminal activity.

Managing and using these data can be complicated, even for advanced governments. Some records exist only in paper form, and if changes need to be made in official registries, citizens often must appear in person to do so. Individual agencies tend to build their own silos of data and information-management protocols, which preclude other parts of the government from using them. And, of course, these data must be protected against unauthorized access or manipulation, with no room for error.

Blockchain-based solutions have the potential to make government operations more efficient and improve the delivery of public services, while simultaneously increasing trust in the public sector. In mature economies, proponents of government blockchain solutions must provide strong evidence that such investments will save money and improve services that are already “good enough.” In emerging markets, the lack or immaturity of certain essential public services could allow governments to leapfrog ahead to help policymakers achieve their aims. For both markets, education and determining the right applications for the technology will be key to success.

Governments are custodians of their citizens' most precious information. Now, using blockchain, governments can address the dual challenges of trust and transparency, and the need for data protection and privacy.

Citizens increasingly expect the same ease, efficiency and innovation from public services that they currently enjoy in the private sector. Conflicting data formats, longstanding interoperability challenges and a need to balance the benefits of openness against a need to protect privacy have made it difficult for governments to unleash the full potential of their data – until now.

Blockchain provides an immutable, transparent record of the truth, and it is changing how organizations carry out trusted transactions. Governments around the world are already exploring blockchain.

In the governmental sector, blockchain technology can be used to verify transactions and changes to key registers, transaction logs, agreements, and any other data, which are ordinarily labelled data-at-rest. This term comprises all data that are stored in a digital form (databases, spreadsheets, archives, backups, etc.) but excludes any data that are being processed, to which another label applies: data-in-use.

Traditionally, the main objective in protecting digital data has been confidentiality, or the restriction of information to a specific set of individuals. Yet this focus might not be appropriate for data protection in the context of democratic governments; a government’s legitimacy may require authorities to increase the transparency and accountability of their processes. In addition, prioritising confidentiality requires increasing the complexity of the overall system: confidentiality requires strong secret keys, which in turn require key management protocols that increase overall vulnerability surface and result in various performance challenges. It is important to understand the particular security objectives of the public sector and how to attain them within a democratic context.

How are governments using blockchain technology?

Government organizations across the globe are exploring the use of blockchain technology to improve operations. The ability to record transactions on distributed ledgers offers new approaches for governments to improve transparency, prevent fraud and establish trust. 

According to a recent survey conducted by IBM and the Economic Intelligence Unit, government interest in blockchain is high:

Government organizations the world over are eager to dismantle the bureaucracy that’s held them back. Budgetary pressures arising from economic stagnation and aging populations have severely constrained resources, including the ability to access and analyze data to create greater economic value. By facilitating the secure sharing of data between institutions and individuals, blockchain technology could help relieve those pressures.”

  • 9 in 10 government organizations plan to invest in blockchain for use in financial transaction management, asset management, contract management and regulatory compliance by 2018
  • 7 in 10 government executives predict blockchain will significantly disrupt the area of contract management
  • 14 percent of government organizations expect to have blockchains in production and at scale in 2017

What Is Blockchain?

Blockchain is a distributed "chain" of validated transactions secured through cryptographic hashing. Each block added is stored with timestamp and transaction data along with a cryptographic hash pointer to the previous block. Various open-source and commercial options for blockchain technology exist. The best-known example of the use of blockchain is for securing and recording of Bitcoin transactions. For another example, an organization can use blockchain to analyze whether a mobile device is valid for use inside its corporate systems using various internal identifiers for the device. Another way to think of blockchain is as a trusted ledger of transactions.

Blockchain owes its potential to its many valuable characteristics:

Reliable and available. Because a wide circle of participants share a blockchain, it has no single point of failure and is designed to be resilient in the face of outages or attacks. If any node in a network of participants fails, the others will continue to operate, maintaining the information’s availability and reliability.

Transparent. Transactions on the blockchain are visible to its participants, increasing auditability and trust.

Immutable. It is nearly impossible to make changes to a blockchain without detection, increasing confidence in the information it carries and reducing the opportunities for fraud.

Irrevocable. It is possible to make transactions irrevocable, which can increase the accuracy of records and simplify backoffice processes.

Digital. Almost any document or asset can be expressed in code and encapsulated or referenced by a ledger entry, meaning that blockchain technology has very broad applications, most as yet unimagined, much less implemented. These key characteristics of blockchain technology open the door to disintermediating third parties from myriad transaction types, lowering transaction costs, and increasing the potential for innovation in every major industry.

Blockchain's characteristics make it an attractive solution to help address some of the challenges faced by public service agencies, including:

  • Reducing inefficiency: By making transaction processing simpler and less prone to errors, blockchain presents a significant opportunity for public sector organisations to replace paper-based services with digital alternatives; or where the service is already digitised, to provide a simpler service. This is particularly true where blockchain implementations can support automated and AI solutions.
  • Ensuring data integrity: Blockchain is immutable, meaning it can’t be altered or removed. This characteristic means blockchain is ideally suited to creating clear audit trails, which prevents tampering and enables a more private network.
  • Reducing risk: Blockchain's cryptographic encryption provides an opportunity to help reduce instances of fraud, increase compliance and address corruption. Implementations could include, for example, the allocation of social security benefits, the management of some tax processes and the management of land registries.

Value of Blockchain for Governments

Governments have a complex web of rules, regulations, and processes. The term “red tape” is a necessary evil of government business. Blockchain can help improve current processes and provide value in multiple areas like:

1. Data Sharing: Governments have to share data between different organizations inside and outside of the country. Centralized systems are expensive and inefficient. Distributed and decentralized blockchains can make information sharing faster and more efficient.

2. Improved Trust: Whether it’s a passport or a driver's  license, a government document can be faked. Blockchain has in-built safeguards that help improve trust in government-generated documents.

3. Auditability: Blockchain transactions are immutable. It makes it easy to trace any transaction through the whole chain. Governments can audit blockchain to figure out any anomaly in financial or business transactions. Criminals and fraudsters have less opportunity to hide their illegal activities.

4. Automation: The trusted nature of blockchain means that a lot of current manual record verification can be automated. There will be no need for wasting human time and energy on menial tasks of figuring out conflicts in data entry and information sharing.

5. Smart Contract: Smart contracts are programmed code on the blockchain that executes when all the conditions of the code are met. It can take automation to the next level where complex tasks currently executed by trained professionals like lawyers and accountants can be achieved through the blockchain.

Barriers To Adoption

Questions that bring up the most pushback on adoption of blockchain revolve around security, some open source aversion, possible performance issues and reporting/analytics. There are potential security vulnerabilities when it comes to blockchain. For example, if a device is used as part of the security to validate a transaction and that device is later vulnerable, the transactions may become vulnerable, too. In several cases involving Bitcoin and Ethereum, two major uses of blockchain, hackers pinpointed a vulnerability of the digital wallet technology to steal large sums of virtual funds. Failover and continuity are concerns for implementation planning as well as the performance of the database.

Please come back tomorrow for Part II