What’s up with the Blockchain in government?

Why blockchain?

Many believe (including myself) that distributed ledger technologies (like blockchain) are a significant breakthrough that will create a wide variety of new and exciting services and business applications. The blockchain has the potential to reshape industries by enabling trust, providing transparency, and enabling value exchange across business ecosystems, while lowering costs, reducing transaction time and promoting automation through smart contracts.

It can manage something extraordinary, not seen before in history: trustworthy transactions between strangers without a trusted third-party. One of the fundamental roles of the public authorities is to be an intermediary that maintains trusted information about individuals, organizations, assets, and activities to provide official documents or certificates like birthdates, business permits, property transfers, driving licenses, land properties, etc. The blockchain is argued to be a revolution of trust and the promise of disintermediation, so it is imperative that public agencies build their knowledge in this area and consider blockchain’s possible applications if they do not want to become irrelevant in the future.

What is the current situation?

Because of this potential, the blockchain has created hyped expectations. After a few years of experimenting with the technology, we have to admit that it is not a panacea. There have been inflated opportunities, misunderstandings and much confusion about how it really works, what its strengths and its weaknesses are, which too often are not known or underestimated (have a look at my previous article, “Blockchain for the public sector: ideas to move from hype to reality“).

Taking aside the cryptocurrency initiatives (which are a completely different subject that requires a specific article), the reality is tough, and the blockchain revolution in government has not lived up to expectations yet. Very few projects have gone beyond proof of concept or small pilots, and there are no major success stories about transformative services that have proved their social value. On the other hand, there are too many marketing announcements that are just smoke and mirrors, which are creating a growing skepticism about the use of blockchain in government. Just remember the famous tweet, “Do I need a Blockchain?” by Vinton Cerf (one of the founders of the Internet) or the article “There’s No Good Reason to Trust Blockchain Technology” by Bruce Schneier (an internationally renowned security technologist).

Reports about the blockchain in government

Truth is still an emerging technology according to many reports released during 2018 and 2019. Let’s have a look at some of them:

> OCDE: “Blockchain technology and its use in the public sector” (2018)

“Technology is in its infancy in terms of public sector exploration and applications, but blockchains have immense powers that are waiting to be unleashed. In the future, centralized authorities could become increasingly irrelevant in the context of blockchain technologies, or their role could shift to providing a platform and governance for decentralized services rather than being at the center of every transaction. At this emergent stage, it is not possible to make any decisive claims about the future of blockchain technology or any clear-cut recommendations about where it should be used and precisely how. The only clear recommendation that can be made is that governments should invest in building its knowledge of this technology and explore, and even experiment with its possible applications.”

> Gartner: “Hype cycle for digital government technology, 2019” and “Top 10 strategic technology trends for 2020”

“CIOs should approach blockchain with a healthy dose of skepticism. Gartner expects that it will be at least five to ten years until the technology matures and begins to deliver benefits, but it will lead to a radical transformation of some government functions and services.”

“The blockchain remains immature for enterprise deployments due to a range of technical issues, including poor scalability and interoperability.”

> European Commission: “Blockchain for digital government” (2019)

“This report looks at the ongoing exploration of blockchain technology by governments within the European Union. Based on state-of-art developments, blockchain has not yet demonstrated to be either transformative or even disruptive innovation for governments as it is sometimes portrayed.”

“We have not observed the creation of new business models, the emergence of a new generation of services nor direct disintermediation of any of the public institutions involved in the provision of governmental functions. Truly transformative services are missing from the current landscape.” 

> Digital Transformation Agency of the Government of Australia: advice for government agencies about the blockchain (2019)

 “Our team found that blockchain is still an emerging technology and when applied to various pilots or considered against alternative technologies, gaps become evident across both the technical and business facets of its implementation. We recommend agencies considering technical solutions focus on addressing the needs of users and explore solutions to meet that need.”

> The GovLab research center “Field report: On the Emergent Use of Distributed Ledger Technologies for Identity Management”

 “Even as technology continues to develop rapidly, big questions remain about its potential and actual applicability. Blockchain technologies may offer a more distributed, more egalitarian, and democratic alternative to the institutional solutions. At the moment, however, this remains mere potential, and it is entirely possible that blockchain may itself ultimately rely on the same types of institutions and trust-providing mechanisms. Thus, while the potential is clear, the jury is still out on what blockchain’s actual impact will be.”

> The Illinois Blockchain Initiative: “Blockchain in government tracker”

The Illinois Blockchain Initiative is a collaborative effort launched to explore the innovations of the blockchain and distributed ledger technology and their impact on government. It has created a database with the available open information about the main blockchain initiatives and a report on their current progress. A quick look at the database shows that almost all the projects are not in-production (live). The majority are in different development stages: strategy announced, research, funding, incubation, development, or proof-of-concept.

According to the Illinois Blockchain tracker, these are the blockchain projects that are live in December 2019.

Of course, this is not an exhaustive list of all the blockchain live projects, but it gives an overall idea of the current situation.

Some recommendations

The blockchain is not yet a fully mature technology, and public agencies should be pragmatic when assessing its applications. It has the potential to produce an enormous impact in its role as an intermediary and to catalyze a significant shift in public service delivery, so it is fundamental that governments build their knowledge in this area and anticipate its possible applications.

Before starting, agencies should objectively compare blockchain solutions to alternative technologies when solving business problems. The blockchain is a disruptive technology, but it has significant limitations, which should be carefully weighed against any unique benefits provided by a blockchain-specific solution.

Public agencies should focus on addressing the needs of users and explore solutions to meet that need. We must avoid trying to find a problem for a technology solution because then we will create a problem where we already had a good solution.

We have to be humble and admit that we need to increase the understanding of blockchain in government. The best way is learning by doing and fostering experimentation in sandbox labs, where any government with an innovative idea could prove the concept with a small effort and cost, using the “fail fast, fail cheap” approach. We should apply the lean start-up’s methodology, starting on users’ needs, developing a minimum viable project, doing iterative prototypes, and validating by users the value proposition.

In these labs, we will have the opportunity to evaluate some critical privacy and legality implications, especially regarding the intentional “right to be forgotten” and accidental private key destruction.

Public agencies should monitor international developments of blockchain in government, looking for opportunities to enhance service delivery that this technology may unlock in the future. And, at the same time, they should view with skepticism claimed “successful uses” of blockchain that too often are full of hot air.

Some of the areas where the blockchain is showing more potential are (leaving apart the cryptocurrencies use cases) in projects where there is a complex governance and intermediation is not efficient (usually cross-border or public-private transactions), where very difficult interoperability makes hard to apply the “once-only principle” (due to legal, organization, standards or technical issues) or where there is a lack of transparency and trust. Some good examples are about traceability (e.g., food or medicine traceability and tracking) or empowering citizens with the control of their identity and personal data (self-sovereign digital identity). In countries where public trust in government and third parties runs low (usually due to corruption), blockchain solutions would provide trusted information about individuals and activities, as they ensure immutability and non-repudiation.

All of these projects are very complex and costly; therefore, we should encourage collaboration and partnership with other governments and private companies.

We live in exciting times, and we have great opportunities to create better, transparent, open, efficient, and trustworthy governments. The blockchain may help the process as long as we are modest and smart enough to learn about its opportunities, focus its applications to provide new public value and avoid the smoke and mirrors.

One final comment: many blockchain initiatives (mainly around cryptocurrencies) are expanding in response to the recent global economic depression. They seek to establish a new governance model more egalitarian and democratic, out the control of the ones that caused the crisis: financial markets, banks, multinational corporations, and governments. It is a paradox that public agencies are so enthusiastic about promoting blockchain solutions that, at their philosophical core, try to eliminate the power of intermediaries like governments, and they aspire to build a sort of anarchist society with empowered citizens. In any case, let’s hope the distributed ledger revolution does not fall into the Leopard dictum, “everything must change so that everything can stay the same” because governments are facing a digital tsunami and the biggest risk is changing nothing.

Miquel Estapé

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