Implementing Blockchain in the Public Sector
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Governments’ interest in blockchain stems from the technology’s ability to improve security, transparency, efficiency, and speed in government services and processes. Generally, government agencies use inefficient, centralized systems that do not provide transparency. Even though many governments value agency interoperability, system infrastructure is often siloed and isolated from the others, making it time-consuming and expensive to share information and transact assets between the different parts of the government network. The current inefficiencies in government systems make government services and operations prone to error, cyber attacks, information manipulation, and corruption. Governments across the world are realizing that blockchain technology can be a practical solution to many of these problems.

Where Could Blockchain be Adopted in Government?

Governments and intergovernmental organizations have begun to establish blockchain research and policy groups to explore all the possibilities for its application. The European Union, for example, created the Blockchain Observatory and Forum, which aims to “highlight key developments of the blockchain technology, promote European actors and reinforce European engagement with multiple stakeholders involved in blockchain activities.” While some countries, such as the EU nations, are working together to create an enabling environment for blockchain development, others are already working on projects that aim to solve current issues in areas such as data management, taxing, identity management, land registry, voting and anti-corruption through the implementation of blockchain technology.

Data Management

Governments collect and store vast amounts of data every day. Whether it is personal information or transactional data related to tax collection, fund disbursement, procurements, government sales, fines, approvals, etc., blockchain can not only offer security and data integrity but also facilitate the exchange of information and assets between the different government agencies.

A blockchain powered data storage system enhances data security and integrity by eliminating the risk of a “single point of failure” through the decentralization and distribution of the ledger holding the information. Moreover, every time a transaction occurs, the cryptographic protocol confirming the validity of the transaction timestamps the pending transaction. When the data is verified and added to the blockchain, it can no longer be edited or removed - making the ledger an immutable record that serves as an auditable paper trail.

China’s National Audit Office is preparing to use blockchain for its data infrastructure, specifically in their healthcare system. China is working with blockchain startup, THEKEY, which specializes in government data commercialization under a company called E-BaoNet. The purpose of the collaboration is to put social insurance on the blockchain by utilizing government data to secure a robust ID verification system. The task, however, has proven difficult for a couple of reasons. First, the project involves sensitive health information governed by strict privacy rules. Second, there is no central database holding all the information - China’s Ministry of Human Resources and Social Security (MOHRSS) has 200 databases across the country alone - making it very difficult to consolidate the data into one blockchain powered database. Nevertheless, China is open to the benefits that can result from implementing blockchain and is working diligently to apply it not only in data management but also in other functions of the public sector.

The city of Dubai is also actively working on implementing blockchain, setting a goal of going paperless by 2022. For example, the city, and its Trade and Customs agencies, partnered with DUTECH, its IT provider, and IBM “to explore the use of blockchain for trade finance and logistics solution for the import and re-export process of goods in and out of Dubai.” The application of blockchain in trade finance and logistics allows key stakeholders to receive near real-time information about the state of goods and the status of the shipment. Transmitting data through the blockchain will enable stakeholders involved in the process to receive timely updates as the products are exported from one country to another, eliminating an error-prone paper-trail.

A blockchain solution can also improve the current trade finance system, which is slow, expensive, and leaves a paper-trail ridden with mistakes and problems. The city of Dubai, is therefore, once again partnering with IBM, as well as du, a UAE-based telecommunications service provider that conveys internet of things (IoT) data, the letter of credit issuing bank, Emirates NBD Bank, and the letter of credit responding bank, Banco Santander, to eliminate the paper trail, reduce the incidence of error, and cut cost.

Taxes

When it comes to taxes, the government has a fiduciary and legal responsibility to the taxpayer. Thus, it is vital for governments to ensure that the transfer of tax funds is accurate at every level of government, whether it is funding the Department of Defense of the United States, or allocating funds to fix a town road.

Today, there is very little visibility into the allocation of government funds, resulting in improper or poorly tracked distributions. On September 10, 2001, for example, former U.S. Defense Secretary Donald Rumsfeld disclosed that his department was unable to account for about $2.3 trillion worth of transactions. While technological advancements have made accounting more efficient, the system is not as transparent as it should be, and taxpayers’ money is still misappropriated every day.

Implementing blockchain can give the taxpayers the necessary visibility into the allocation of funds, incentivizing governments to protect the taxpayer’s money and keeping them accountable for their distribution. In China, for example, the Chinese Tax Bureau issues a document called a fapiao, which helps the government track tax payments of goods and services purchased in the country. However, there is a prominent underground market for the sale of counterfeit fapiao used to evade taxes.

To solve the fake faipao problem, the Shenzhen Municipal Office of the State Administration of Taxation partnered with technology firm Tencent and establish an “Intelligent Tax” Innovation Laboratory focused on tax management modernization and fighting tax fraud with blockchain technology.

Identity Management

We live in a world where one-fifth of the population does not have a legally recognized identity. That means that approximately 1.5 billion people can’t obtain access to basic financial services. Opening a bank account, getting a bank loan, purchasing a vehicle or a home is not attainable because they don’t have a passport or any form of ID and cannot build credit. A lack of standards for establishing a digital identity is aggravating the world’s current identity management crisis. Many governments have multiple identity “entry points” creating different data sets of citizen information, which very often have incomplete or erroneous information. Identity management issues prevent economic engagement and hinder access to services.

According to a Deloitte report, implementing blockchain can create a “secure, self-sovereign identity” that “could enable efficient transactions across a wide variety of asset classes, while giving “individual and explicit control over which identity elements are shared for which purposes.” Finding a blockchain solution for identity management could also facilitate the implementation of blockchain in other industries such as real estate, banking, healthcare and other asset transferring services that require identity verification.

Estonia became the first country to implement blockchain-like technology for identity management with the implementation of their E-identity program. The program uses distributed ledgers to create digital identities called ID-kaarts (ID-cards) which allow Estonian citizens to access and utilize almost all public services securely and efficiently. With ninety-eight percent of Estonians owning an ID-card, the benefits have proven to be extensive. The program has a very high citizen satisfaction rate and led to a substantial reduction of bureaucracy. Estonian citizens use the ID-card as a legal travel ID for traveling within the EU, as a national health insurance card, and as proof of identification when logging into bank accounts, for digital signatures, for i-Voting, to check medical records, submit tax claims, and use e-Prescriptions.

Land Registration

For most people in the world, buying a home will be the most significant expense of their lives. Thus, it is ideal for the title to be clear of issues, and for the transfer of the title from seller to buyer to occur without friction. While most of the time, transferring title occurs without any problems, albeit slowly, there are instances when a transfer of title goes wrong. Lost, unrecorded or erroneous titles can lead to ownership disputes.

A reliable land registry system serves as a basis for investment and economic growth because title security incentivizes investors to buy property and develop projects within a country. In Palestine, for example, the Israeli-Palestinian conflict and the lack of a secure land registry system allowed the ruling government to expropriate land and deprive the rightful owners of their property. And in Haiti, eight years after the 2010, 7.0 magnitude earthquake that devastated the island, people are still fighting over property due to lost titles or owning property without having a title at all. Although the property issues in Palestine and Haiti are extreme examples, they shed light on the importance of having an efficient and secure title registry system and illustrate the potential effectiveness of a blockchain based solution for land registry.

In the US, there is already a reliable title registry systems. However, it is expensive and inefficient. The current system also is vulnerable to errors from incorrect paperwork, forged signatures, and other defects in the documents. Such errors can cloud the title of a property, reducing its value and leave the owner with no remedy. Creating a secure, immutable and efficient title registry on a blockchain can help keep titles safe, minimize title fraud, and make title transfer more efficient.

The United Nations Development Program is working on a project to build a land registry using blockchain technology for the city of Panchkula, in the state of Haryana, India. The blockchain powered land registry will allow the government office to enter the sale deed into their system in the presence of the buyer and seller, process the sign-offs by both the buyer and seller, and push the transaction to the approval stage. After the transaction is approved, the transfer of ownership is completed electronically and automatically, creating a system that can offer greater transparency, accuracy, and efficiency.

The implementation of a blockchain based land registry could allow governments, property owners, and potential buyers to view and monitor the state of a property and sale deed in near real-time, as well as have instant access to a complete and permanent transactional history for each property and sale deed. A solution that can also increase citizens’ confidence in the government and make the overall customer experience less cumbersome. Most importantly it will enhance data security and ensure the authenticity of land records.

Voting

Voting and electoral processes worldwide are expensive and ridden with problems. Third party hacking and tampering with ballots, databases, and electoral processes, as well as corruption and rigged elections, are now and have been a problem in almost every nation in the world. Blockchain voting can provide a solution to the problems in the voting system. By casting votes on a blockchain, an immutable track of the votes cast is created. Thus, everyone can agree on the final result because voters can count the ballots themselves. Moreover, through the blockchain audit trail, voters can verify that no votes were changed or removed, and no illegal votes were added.

Democracy Earth is building a blockchain application called Sovereign to improve election system throughout the world. Its platform is built on the ethereum blockchain, and it functions by creating a finite number of tokens called “votes,” instead of producing units of cryptocurrency. The “votes” are assigned to registered users who can use them to cast votes as part of organizations registered on the platform, such as a political party, a municipality, a county, or a company. By recording votes on the blockchain, votes cannot be tampered with after they have been cast, making the election systems unalterable.

The Sovereign platform has already been tested in Colombia, using an app that allowed users to vote on an unofficial deal between Colombia and Colombia’s rebel group, FARC. Each voter was given one hundred votes, and they could allocate the votes across the seven main aspects of the agreement. During the test, the deal was rejected (as was the official referendum), but it gave insight into what the people liked about the referendum and what they disliked, information that could not have been obtained through traditional yes/no votes.

Follow My Vote is another startup working on improving electoral systems. Their platform consists of an application that the voter would download on their personal computer or smartphone. The voter would then submit the appropriate identification information and an “Identity Verifier,” approved by the organization hosting the election, would verify the voter’s identity. Once authenticated, the voter would request a ballot, and the Registrar would issue the appropriate ballot. The voter would then complete the vote and submit it to the blockchain-based ballot box, which would give them a receipt as proof. The organization hosting the election could implement early voting, or even allow voters to re-enter the Follow My Vote voting booth to change their vote if they changed their mind. The application will also allow voters to follow their vote to make sure that their vote was cast as they intended, to audit each ballot without compromising voter identity, and to confirm the result reported by the blockchain voting system is accurate. The company aims at restoring the voter’s faith in the democratic process, instilling trust in their government, and make them feel like their vote matters.

Follow my Vote planned a parallel election for the 2016 Presidential Elections to demonstrate the power and convenience of online voting. However, the event was canceled a few days before the election due to a lack of funds, and a miscalculation in the amount of time and effort the project would require.

Reducing Corruption

Blockchains are being used to combat corruption by creating a transparent and auditable system of government services and functions, making it very difficult for corrupt politicians or government personnel to change or manipulate the information for their benefit without anyone else noticing.

Government payment systems are notoriously vulnerable to corruption because cash is required and there is no efficient cash transfer system, making payments susceptible to fraud, falsification, and bribery. Furthermore, when governments distribute cash benefits, they often do so without appropriate controls or verification mechanisms, which makes it easy for recipients to falsify claims. A blockchain based payment system could limit the opportunities for corrupt or rent-seeking behavior. The UN World Food Program is aware of the problems and inefficiencies of the current government payment systems. To solve such issues, it recently conducted a blockchain based pilot project in Jordan known as “Building Blocks” that manages cash-based transfers to Syrian refugees. The project allowed 10,000 refugees to pay for their food by utilizing entitlements recorded on a blockchain, which increased transparency, eliminated leakages, and reduced transfer costs.

While it seems that blockchain can be a “magical” tool that makes all the problems that affect governments today disappear, the truth is that blockchain is not applicable in everything and should not be implemented everywhere. In governments, for example, transparency is ideal, but in many instances, it is not desirable. Government secrecy is essential to national security and to the proper functioning of politics and governance. Thus, a technology that makes every governmental service transparent and open to the public can be dangerous and detrimental to the nation.

Blockchain, like every other technology, will fix some issues and help mitigate others, but it will not solve every problem completely. Furthermore, the technology is still being developed, which means that its implementation could bring about unintended consequences that developers are not aware of yet. Nevertheless, blockchain is a tool that will provide solutions to many problems and governments are not hesitating to explore its implementation and study the effects its application will have on various government functions.