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Blockchain for Governance: Four Use Cases for Encouraging Timely Development and Adoption

The blockchain movement originated as part of a libertarian solution counter to centralized authority. And now, ironically, it is governments that are increasingly interested in the potential of blockchain and distributed ledger technologies (DLTs). … Indeed, Blockchain technologies are poised to significantly benefit public services by improving governments’ efficiency and transparency. This article argues why and how governments should more boldly pursue the use of blockchain technology as a tool for improved governance outcomes.

Emmanuel Vassor is a research assistant in American Foreign Policy at SAIS Johns Hopkins and a consultant at the World Bank. He received a MSc in Business Strategy from Edhec Business School in 2012 and an MA in International Relations and International Economics from SAIS Johns Hopkins in 2018. From 2012 to 2016, he worked with Latin American government agencies on biometric and digital identity programs for a global technology company. He can read Russian, chat in Italian and fluently speak French, Spanish, English, and Portuguese.

This article is the second in a two-part series. The first part serves as a policy primer; the second analyzes governmental applications of blockchain through case studies of early adoption.

The views and opinions expressed in this article are the author’s own and do not necessarily reflect the official policy or position of the World Bank.


Introduction

In its early days, blockchain became associated primarily with Bitcoin and the scandals that besmirched its image. A stark example was Bitcoin’s use as an anonymous medium of exchange on the online “Silk Road” black market, widely known for illegal drugs and services. However, such associations drastically misrepresent the nature and potential of blockchain technologies.

The blockchain movement originated as part of a libertarian solution counter to centralized authority. And now, ironically, it is governments that are increasingly interested in the potential of blockchain and distributed ledger technologies (DLTs).[1][2] Eric Sweden, a National Association of State Chief Information Officers (NASCIO) official, states that blockchain is “on a very steep acceleration.”[3][4] NASCIO considers blockchain to be “the next big transformational technology” in government,[5] and government agencies in a dozen countries are now examining how DLTs can have a positive impact on operations.[6] Indeed, Blockchain technologies are poised to significantly benefit public services by improving governments’ efficiency and transparency. This article argues why and how governments should more boldly pursue the use of blockchain technology as a tool for improved governance outcomes.

Why it is Time for Governments to Embrace Blockchain

Governments today remain the principal authorities in charge of maintaining trusted records. Registers containing citizens and businesses’ information are stored in government agencies’ centralized databases. The management and use of trusted data is a challenge even for the most advanced economies.[7] Today, individual agencies gather an extraordinary amount of information on their users and on government activities: identity information, property titles, judiciary information, business assets, procurement processes, customs documents, etc. In general, each agency is then responsible for maintaining and storing its own respective data, whether paper-based or digital. The result is a fragmented, sub-optimal data management system comprising numerous, non-integrated information silos.

This silo model shows clear weaknesses, especially as democratic governments in both developed and developing countries must rethink their operation model in the globalized digital era to restore public legitimacy.[8] Meanwhile, their publics still expect good governance and efficiency in delivering public services. First, citizens expect greater transparency to address excessive red tape and public corruption. While according to the OECD large infrastructure projects represent about $10 trillion dollars annually, the public sector is still contracting.[9] At the same time, “corruption adds up to 10 percent of the total cost of doing business globally and up to 25 percent of the costs of procurement contracts in developing countries.”[10] The World Bank estimates that 2% of world GDP is spent on bribes worldwide every year.[11] To restore trust in government, corruption must be curtailed and governments must increase transparency by making more information about their operations public.

Second, citizens have growing service expectations; public administrations need to modernize to meet them. However, governments must also balance increasing service quality with budgetary and other constraints. The seemingly inevitable path forward is for governments to provide more online services. For instance, Estonia is profoundly rethinking how government services are delivered; it has developed an ambitious and all-encompassing digital government strategy that has become a global model.[12] However, a digital strategy increases the burden of protecting data against both external cyberattacks and internal misuses, at both great cost and considerable risk. In sum, governments must increase digitalization of public services to increase cost efficiency while ensuring citizens’ privacy and strengthening cybersecurity. The challenges are daunting, but achievements here would significantly help build legitimacy and regain public trust. While there is no magic formula, blockchain is particularly well-suited to helping governments blaze the best possible pats forward.

How Blockchain Can Help Governments: Four Use Cases

Wherever government transactions involve, or may involve, a digitization of assets and decentralized exchanges, DLTs may bring benefits. They can help governments deliver their services more efficiently and inexpensively, enhance public transparency, and all the while maintain substantial defenses against cyber threats. Potential applications of DLTs in governmental operations include voting, tax collection, and financial aid distribution. I highlight four of blockchain’s most notable use cases for addressing governments’ challenges below.

 For Critical Data Digital Protection and Use

First, governments can significantly enhance the protection of critical data using blockchain.[13] Centralized databases are constantly targeted by criminals who seek to gain access to, steal, manipulate, or alter critical data. For instance, and despite serious cybersecurity efforts, in 2015 a U.S. government’s database was hacked and the Social Security numbers of over 20 million citizens were stolen.[14] Even though DLTs are not invulnerable to cyberattacks, the decentralized and encrypted nature of the network makes it dramatically more difficult to hack. It also virtually guarantees that any breach in the system would be immediately identified.[15]

Estonia, probably the world’s most advanced country with regard to digital government,[16] has implemented a technological platform based on the blockchain to protect the integrity of assets, including national health, judicial, legislative, security, and commercial records.[17] In 2017, 97% of Estonian patients have their digital health records stored in a national blockchain-powered platform.[18] Estonia is also ranked number 1 in public services by the EU Commission’s DESI Index.[19]

For Transaction Integrity, Efficiency, and Auditability

Second, storing registries of property and financial assets in a blockchain can impede misappropriation and ease the processing of transactions. If property rights are respected and titles properly established and stored in the blockchain, then the complete history of the community’s titles is securely documented in a decentralized ledger. In case of a conflict, courts can easily access the ledger to determine the legitimate owner of the title. While technology cannot prevent attempts to coerce, such a system would prevent corrupt officials, powerful businesses, and mischievous individuals from appropriating property assets outright.[20] By digitizing transaction processes and eliminating intermediaries, it would also speed up transactions and make it easier to efficiently keep the asset registry up to date, since every transaction would lead to the near real-time update of the registry in the decentralized ledger.

In 2017, Georgia’s National Agency of Public Registry (NAPR) moved its land registry into the blockchain with the objective of allowing Georgian citizens to “sleep quietly” when it comes to property rights.[21][22] Use of the blockchain-based platform decreased the processing time of title registration and verification from one to three business days to a few seconds, reducing operational costs 90% for select services and accelerating audit capabilities to near real-time.[23] Since 2016, Sweden has also been experimenting with a similar land registry based on DLTs in order to enhance the overall transaction process by increasing the transparency, efficiency, and ease of processing land property asset transactions.[24][25] In 2017, it successfully concluded the second deployment phase of the platform which includes blockchain-based smart contracts to automate transactions and is expected to help save over €100 million per year.[26][27] Such early adoption has paved the way for further government adoption, providing proof of concept as well as possible templates for new initiatives.

For Users’ Trusted Data Exchange

Third, using DLTs can reshape the way national public agencies interface and exchange information by reforming the way governments manage citizens’ identities. As government agencies currently store data in silos (i.e. autonomous centralized databases), they tend not to interoperate in an optimal way.[28] This “results in duplication, overlap and contradiction in the information held.”[29] The lack of interoperability generates unnecessary red tape in obtaining relevant information from a user, and makes the process for sharing data between agencies unclear and costly.

Managing citizens’ identities with blockchain can result in tremendous efficiency gains, while bringing the additional benefit of restoring control of identity information to citizens. This is a user-centric model of identity management, also known as self-sovereign identity. In this model, governments securely create for each citizen a “digital identity” that contains a set of personal information that is then stored in the blockchain. Self-sovereign identity is based on two principles: consent and control.[30] Consent is the agreement (or permission) between individuals and institutions defining what personal information can be collected, and used by whom and how. Control ensures that individuals have complete ownership of their personal data. Governments maintain control over the identity life cycle management (creation, update and ending of the digital identity) while users maintain full control over the use of their identity information .

Consequently, it becomes easier and much more secure to access information from the digital identity stored in the blockchain, and users (citizens or businesses) simply need to consent for the exchange of information. Any information appended to the digital identity (following a consensual transaction between the user and a public agency) is thus immediately trusted and available for further exchanges with other agencies. This would result in efficiency gains since government agencies could have immediate access, with the citizen’s consent, to trusted information. This could result in a truly networked public service without infringing unduly on privacy rights.[31] Users would save time by consenting to share with an agency information that they had already shared with another agency, without the need to fill out additional forms.

For Corruption Control and Monitoring of Public Procurement

Fourth, blockchain can be a powerful tool to combat government corruption. In particular, it increases the reliability of identity verification—of both individuals and businesses—and facilitates tracking of registered asset transactions. Guaranteeing identity helps enforce the application of the know-your-customer (KYC) principle and fight against money laundering. As we saw previously, if property registers are rightfully established in the first place, registering assets in the blockchain deters misappropriation of property title by corrupt officials and helps enforce the rule of law. Registering government transactions in the blockchain helps create a trusted history for any transaction (who, what, when, where) and significantly eases the auditing process. This would contribute to making public procurement more transparent, as any misbehavior would be immutably stored in the blockchain and more easily investigated.

Divergent Views

Governments have deeply conflicting views with regard to blockchain.  On the one hand, some governments are reluctant to even examine the technological potential. Some fear the disruptive potential of DLTs for data transparency. A country in which corruption is institutionalized and widespread is unlikely to adopt DLTs that would reveal the extent of the problem and inhibit bribery and property misappropriation.[32] Others are unfamiliar with the technology and continue to inaccurately view DLTs as chiefly a tool for organized crime. Thus, some governments are afraid because they see DLTs as a direct threat to their current political and economic system,[33] while some simply misapprehend it as being a tool for criminal operation.

On the other hand, some trail-blazing countries are keen to explore DLTs’ governmental applications. The nations leading the way include the UK, Estonia, and Canada. These countries have released comprehensive reports and established clear guidelines on how to explore the potential of these technologies.[34] Other countries, though less involved, demonstrate great interest in DLTs and are experimenting with the technology. Dubai wants DLTs to “power” the entire government by 2020 to foster government efficiency, industry creation, and international leadership: “Adopting Blockchain technology [in] Dubai stands to unlock 5.5 billion dirham in savings annually in document processing alone—equal to the one Burj Khalifa’s worth of value every year.”[35] Georgia and Sweden have moved land registry onto the blockchain to enhance confidence in the justice systems and explore further applications to expand public e-services.[36][37] There are also local initiatives that can help further scale up blockchain applications. For instance, the Swiss City of Zug has implemented the first operational case of self-sovereign government issued identity based on the Ethereum blockchain.[38] The challenge for most countries now is to start setting up teams of experts to examine the potential of blockchain applications, deliver development guidelines, and launch pilots.

In the United States, meanwhile, clear disparities are emerging between states with regard to the adoption of blockchain. In 2016, Delaware led the way, announcing its Delaware Blockchain Initiative, a “comprehensive program intended to spur adoption and development of blockchain and smart contract technologies in both private and public sectors in the state.”[39] Illinois followed suit in 2017. The Brookings Institution has classified U.S. states according to their level of engagement with blockchain technology into six categories (least to greatest): “unaware,” “reactionary,” “appreciative,” “organized,” “active engagement,” and “recognizing innovation potential.”[40] As of April 2018, only ten states were classified in the last two categories.[41] As the technology constantly evolves, it is likely — and desirable — that more states will increase their engagement with the technology.

Future and Next Steps

Blockchain is well recognized as a “foundational technology that has the potential to create new foundations for our economic and social system.”[42] Many compare its development as of 2017 to that of the Internet in the early 1990s. Just as the Internet thoroughly transformed how information is shared, blockchain technologies will completely revolutionize how assets are shared. And just as email in 1972 was the first application of the Internet among ARPAnet researchers, Bitcoin was the first application of the blockchain technology in 2009. The internet took over 30 years to completely reshape the economy and affect how governments operate — and the world today is unimaginable without it.

Blockchain technologies should be examined in a similar frame of reference. With time, it has the potential to revolutionize many facets of society, including the way we govern. Governments worldwide have ample reason and opportunity to leverage blockchain’s potential. Now, governments must build upon case studies to date and learn from the progress made by the early movers. They should enhance international collaboration as a means to progress. And, crucially, they must develop coherent and forward-looking regulatory frameworks, which are necessary to ensure that blockchain development will indeed benefit all.

Footnotes

[1] See part one of this series: Emmanuel Vassor, “A Brief Introduction to Blockchain and Distributed Ledger Technologies for Informed Policymaking,” SAIS Review of International Affairs, January 3, 2019, https://saisreview.sais.jhu.edu/2019/01/03/a-brief-introduction-to-blockchain/.

[2] “Governments may be big backers of the blockchain,” The Economist, June 1, 2017, https://www.economist.com/business/2017/06/01/governments-may-be-big-backers-of-the-blockchain.

[3] Natalie Smolenski, “Blockchain in Government Briefing: Q3 2017,” Learning Machine, July 5, 2017, http://www.learningmachine.com/wp-content/uploads/2017/07/Blockchain-in-Government-2017-Q3.pdf.

[4] “Founded in 1969, the National Association of State Chief Information Officers (NASCIO) is a nonprofit, 501(c)3 association representing state chief information officers and information technology executives and managers from the states, territories, and the District of Columbia. NASCIO’s mission is to foster government excellence through quality business practices, information management, and technology policy. NASCIO’s vision [is of a] government in which the public is fully served through business innovation and the efficient and effective use of technology policy.” “About NASCIO | Mission,” NASCIO, accessed January 4, 2018, https://www.nascio.org/AboutNASCIO.

[5] Liz Farmer, “Blockchain: Is it a Transformative Tech for Government?,” FutureStructure, September 20, 2017, http://www.govtech.com/fs/data/Blockchain-Is-it-a-Transformative-Tech-for-Government.html.

[6] Jason Killmeyer, Mark White, and Bruce Chew, “Will blockchain transform the public sector?: Blockchain basics for government,” Deloitte University Press, September 11, 2017, https://www2.deloitte.com/content/dam/insights/us/articles/4185_blockchain-public-sector/DUP_will-blockchain-transform-public-sector.pdf.

[7] Steve Cheng, Matthias Daub, Axel Domeyer, and Martin Lundqvist, “Using blockchain to improve data management in the public sector,” McKinsey&Company, February 2017, https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/using-blockchain-to-improve-data-management-in-the-public-sector.

[8] Larry Diamond, “Facing up to the democratic recession,” https://www.journalofdemocracy.org/article/facing-democratic-recession.

[9] Carlos Santiso, “Will Blockchain Disrupt Government Corruption?,” Stanford Social Innovation Review, March 5, 2018, https://ssir.org/articles/entry/will_blockchain_disrupt_government_corruption. See also “Anti-Corruption,” OECD, http://www.oecd.org/g20/topics/anti-corruption/.

[10] Santiso, “Will Blockchain Disrupt Government Corruption?”

[11] Ibid. See also “Combating Corruption,” World Bank, last updated October 4, 2018, http://www.worldbank.org/en/topic/governance/brief/anti-corruption.

[12] See “e-Estonia”, https://e-estonia.com.

[13] Cheng et al., “Using blockchain to improve data management in the public sector.”

[14] Ibid.

[15] Vassor, “A Brief Introduction to Blockchain,” https://saisreview.sais.jhu.edu/2019/01/03/a-brief-introduction-to-blockchain/.

[16] Ivan Martinovic, Lucas Kello, and Ivo Sluganovic, “Blockchains for Governmental Services: Design Principles, Applications, and Case Studies,” University of Oxford Center for Technology and Global Affairs, December 2017, https://www.ctga.ox.ac.uk/sites/default/files/ctga/documents/media/wp7_martinovickellosluganovic.pdf.

[17] “e-Estonia Guide,” 2018, https://e-estonia.com/wp-content/uploads/eestonia-guide-2018.pdf.

[18] Ibid.

[19] Ibid.

[20] Phillip Meylan and Daniel F. Runde, “Blockchains and International Development: A Good Bet,” Center for Strategic and International Studies (CSIS), August 7, 2017, https://www.csis.org/analysis/blockchains-and-international-development-good-bet.

[21] Jennifer Brody, “Blockchain For Government,” The Fletcher Forum of World Affairs, April 6, 2017, http://www.fletcherforum.org/home/2017/4/6/blockchain-for-government.

[22] “Governments may be big backers of the blockchain,” The Economist, June 1, 2017, https://www.economist.com/business/2017/06/01/governments-may-be-big-backers-of-the-blockchain.

[23] See “Blockchain Land Registry: National Agency of Public Registry in the Republic of Georgia,” EXONUM, https://exonum.com/napr.

[24] Martinovic et al., “Blockchains for Governmental Services.”

[25] “Sweden,” UN Blockchain, https://un-blockchain.org/e-government-under-construction/europe/sweden/.

[26] For a brief explanation of Smart contracts, see Vassor, “A Brief Introduction to Blockchain,” https://saisreview.sais.jhu.edu/2019/01/03/a-brief-introduction-to-blockchain/.

[27] Giulio Prisco, “Swedish Mapping Authority Pioneering Blockchain-Based Real Estate Sales,” NASDAQ, March 15, 2018, https://www.nasdaq.com/article/swedish-mapping-authority-pioneering-blockchain-based-real-estate-sales-cm935347.

[28] Cheng et al., “Using blockchain to improve data management in the public sector.”

[29] Maisie Borrows, Eleonora Harwich, Luke Heselwood, “The future of public service identity: blockchain,” Accenture, November 2017, https://www.accenture.com/t00010101T000000Z__w__/gb-en/_acnmedia/PDF-67/Accenture-Blockchain-Report.pdf.

[30] “Trust me, Digital identity on blockchain,” IBM Institute for Business Value, 2017, https://www-935.ibm.com/services/us/gbs/thoughtleadership/trustme/.

[31] Cheng et al., “Using blockchain to improve data management in the public sector.”

[32] Samantha Radocchia, “How Government Can Benefit from Blockchain Technology,” Huffington Post, November 29, 2017, https://www.huffingtonpost.com/entry/how-government-can-benefit-from-blockchain-technology_us_5a1e332be4b09de1c3585135.

[33] Nick Chong, “Governmental Blockchain Adoption: Efficient and transparent Government Systems,” Bitcoinist, February 26, 2018, https://bitcoinist.com/governmental-blockchain-adoption-efficient-transparent-government-systems/.

[34] See Raul Zambraro, “Unpacking the disruptive potential of blockchain technology for human development,” International Development Research Center, August 2017, https://idl-bnc-idrc.dspacedirect.org/bitstream/handle/10625/56662/IDL-56662.pdf?sequence=2&isAllowed=y. See also Sir Mark Walpot et al., “Distributed Ledger Technology: beyond block chain,” UK Government Office for Science, January 19, 2016, https://www.gov.uk/government/news/distributed-ledger-technology-beyond-block-chain and “e-Estonia”, https://e-estonia.com.

[35] “Smart Dubai | Blockchain,” SmartDubai.ae, accessed January 4, 2018, https://smartdubai.ae/initiatives/blockchain. See also “Dubai – The First City on the Blockchain,” SmartDubai.ae, January 2017, https://scgn.smartdubai.ae/pdf/blockchain-case-study.pdf.

[36] For Georgia, see “The Bitfury Group and Government of Republic of Georgia Expand Historic Blockchain Land-Titling Project,” Bitfury, February 7, 2016, https://bitfury.com/content/downloads/the_bitfury_group_republic_of_georgia_expand_blockchain_pilot_2_7_16.pdf and Mitchell B. Weiss and Elena Corsi, “Bitfury: Blockchain for Government,” Harvard Business Review, October 16, 2017, https://hbr.org/product/bitfury-blockchain-for-government/818031-PDF-ENG.

[37] Regarind Sweden, see “Blockchain technology simplifies land registration in the South Caucasus,” GIZ, April 4, 2018, https://www.giz.de/en/mediacenter/65457.html and Juliet McMurren, Andrew Young, and Stefaan Verhulst, “Addressing Transaction
Costs Through Blockchain and Identity in Swedish Land Transfers,” GovLab, October 2018, https://blockchan.ge/blockchange-land-registry.pdf.

[38] Paul Kolhaas, “Zug ID: Exploring the First Publicly Verified Blockchain Identity,” Medium, December 6, 2017, https://medium.com/uport/zug-id-exploring-the-first-publicly-verified-blockchain-identity-38bd0ee3702.

[39] Kevin C. Desouza, Chen Ye, and Kiran Kabtta Somvanshi, “Blockchain and U.S. state governments: An initial assessment,” Brookings, April 17, 2018, https://www.brookings.edu/blog/techtank/2018/04/17/blockchain-and-u-s-state-governments-an-initial-assessment/.

[40] Ibid.

[41] Ibid.

[42] Marco Iansiti and Karim R. Lakhani, “The Truth About Blockchain,” Harvard Business Review, January-February, 2017, https://hbr.org/2017/01/the-truth-about-blockchain.

By Emmanuel Vassor

Emmanuel Vassor is a research assistant in American Foreign Policy at SAIS Johns Hopkins and a consultant at the World Bank. He received a MSc in Business Strategy from Edhec Business School in 2012 and an MA in International Relations and International Economics from SAIS Johns Hopkins in 2018. From 2012 to 2016, he worked with Latin American government agencies on biometric and digital identity programs for a global technology company. He can read Russian, chat in Italian and fluently speak French, Spanish, English, and Portuguese.