Bitcoin and governments… Wait, what??

Wasn’t bitcoin about evading the control of governments? Weren’t we at the dawn of a truly global currency that knew no politics? What happened to freedom from boundaries? Won’t governments moving in take out all the fun?

No. Bitcoin was and still is about evading the control of governments. But that doesn’t mean that governments can’t also benefit from bitcoin’s advantages. And the official entities aren’t interested in bitcoin as much as in its underlying technology, the blockchain. Governments, both national and local, as well as central banks, are sniffing around, speaking at conferences, writing papers and trying to figure out how this new financial development can extend their reach and reduce their costs. It makes sense.

by Thomas Brault for Unsplash

But how, exactly, can governments use the blockchain? Leaving aside the potential as a currency and the impact on monetary policy, the list of possible uses is long, and includes archive management, welfare distribution, budget allocation, voting mechanisms… A respectable roster of sovereign organizations are officially “investigating the technology”, which sounds very much like a me-too policy. But more and more concrete use-case studies are emerging, with powerful public backing.

The UK government has been particularly active in the sector. Late last year it pledged funding of £10 million to investigate blockchain technology, and has been coming up with interesting applications. From record keeping to tracking financial movements such as student loans and international aid, the Cabinet Office has been running trials on and investigating practical solutions to bureaucracy-heavy processes.

Just a few weeks ago, the UK government revealed that it is experimenting with distributing welfare payments on the blockchain, through a digital “benefit coin” which could replace welfare payments. This has raised significant privacy concerns, which in turn is generating healthy focus on the technology and debate on the advantages and drawbacks.

The US government is not quite as proactive in applying blockchain efficiencies, but is stepping up its funding for research projects. In June, it awarded $600,000 in grants to six projects investigating the application of blockchain technology to the issue of identity, privacy and security. And last week it issued a call for papers on blockchain research relating to the healthcare industry.

The US defense and research agency DARPA wants to look at ways to use the blockchain for secure messaging. The Department of Homeland Security is funding research into blockchain authentication of IoT devices. And the initiatives are not just federal: in May the State of Delaware launched an initiative that includes the blockchain trial to store and secure government archives.

Estonia is often held up as an example of blockchain governance. Over a decade ago it launched an e-residency program (not blockchain-based) which allows anyone to establish “fiscal” residence in the nation, to set up companies and administer their finances. Late last year it announced a collaboration with BitNation to offer a blockchain notary service to these e-residents, which would not just cover company documents but also marriage licenses, birth certificates, etc. Earlier this year it started the process of storing all of its health records on the blockchain.

Ukraine announced last month that it would start to use eAuction, a blockchain-based auction platform, to sell government assets, eliminating the possibility of official interference. In June Sweden revealed that it is testing the blockchain for land registration, and the Republic of Georgia has been trialling blockchain-based land titling since April. The city of Zug, in Switzerland, allows its residents to pay for public services with bitcoin. The Finnish city of Kouvola has just received €2.4m of public funding for a blockchain-based smart container shipping system.

In spite of the huge potential scope, it does look like the most advanced initial projects are the relatively “easy” ones of managing documents. Which is, of course, totally understandable, as well as efficient and necessary. The problem in most cases is not that the systems are not digital. The problem is more one of inter-communication between different systems, and the portability of data. A file on one system in this day and age still needs to be replicated on another, even if the end use is similar, and even if the end owner of that information is the same. The blockchain gives governments the opportunity to streamline processes, optimize storage, and extract and share more useful information while keeping it private and secure. The integrity of public registries is fundamental, not only as a matter of trust in authority, but because the information they contain — property and automobile ownership, passports, birth certificates, marriage certificates, business licenses, penal records, and a long etc. — is often the base of a democracy and an economy.

A few intrepid initiatives are looking at the sticky problem of voting, an issue which fundamentally affects most sovereign nations in this day and age. The current process is cumbersome, inefficient and often subject to tampering. But since this revolves around the even sticker problem of online identity, few initiatives have progressed much beyond the initial stage.

The will is there, though, and it is only a matter of time. Most governments have moved from rejecting the frivolous notion of a universal and immutable digital currency, to realizing that bitcoin is just a certain type of information, and that the blockchain can be used for other types of information as well. We have seen some practical applications, and will see many more emerge over the coming months. And we will all of us, soon, be enjoying greater blockchain-enhanced bureaucratic efficiency, without even noticing the technology that makes it work.

(A similar version to this article was published on fintechblue.com, where I write about fintech, blockchain and cryptocurrencies. I also tweet away at @NoelleInMadrid.)

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