Blockchain’s Promise for Improved Governance

For people who don’t work in technology, blockchain, distributed ledgers and cryptocurrencies can seem inaccessible. Paradoxically this technology has many applications for the public sector that can improve the quality of government services, safeguard property rights, prevent fraud, cut red tape and waste while improving transparency. With the State Department and GSA hosting their first blockchain forum later this month, this discussion is particularly timely.

What is Blockchain Technology?

Blockchain is a decentralized ledger that records information about transactions. It is currently most known as the basis for cryptocurrencies like Bitcoin and Ethereum, but the underlying technology can be used to keep track of any type of transaction like the transfer of land titles or even an electronic voting system. The ledger is duplicated thousands of times across a network of computers and is continuously updated with each new transaction. Each change is encrypted so that it cannot be altered without leaving a record. The individuals who continuously validate and store the transaction record are paid a fee. Additionally, Ethereum’s blockchain includes additional features like smart contracts; a transaction protocol that facilitates the negotiation of contracts that can be both self-executing and self-enforcing, increasing the certainty of a transaction, reducing the cost of enforcement and the potential for mistakes or fraud.

This structure has obvious advantages. Most importantly, since the database isn’t stored in one location, it is public, transparent, easily verifiable and very difficult to tamper with.

What are its Applications for the Public Sector?

MIT’s Brian Forde encourages us to imagine blockchain as a notarization service in addition to a cryptocurrency. Today, if you want to transfer a property title it usually needs to be done manually which is prone to mistakes in the best cases (for example, at the Department of Motor Vehicles), and in countries with weak institutions, fraud. Blockchain can be used by governments to record the ownership of certain assets (cars, real estate, etc.), transfer assets to another entity and empower citizens to do the same, to verify if particular transactions occurred and even to allow citizens to securely participate in services like voting, tax collection, land registration or transfering medical records with a specific blockchain identification.

Governments can also use blockchain to aid regulatory compliance by creating an auditable transaction record greatly reducing the amount of resources companies and governments expended on regulatory reporting. In the future, regulators like the SEC could access the private blockchain of a financial institution to verify that they were complying with regulations in real time. This eliminates the need for regulators to manually gather transaction information, speeding up the review process which currently involves onerous and time consuming manual processes, particularly at smaller firms.

Integrating blockchain into sprawling and ossified government bureaucracies seems like a herculean task, but according to a recent IBM survey 14% of government leaders surveyed expect to deploy blockchain this year in some capacity and 90% expect to use the technology by 2020.

There have already been some early and noteworthy successes. In reaction to an incident where Standard Chartered lost 200m when a Chinese company used fraudulent, duplicative invoices to get loans, Singapore’s Central Bank has implemented a private distributed ledger tied to their national currency that records every invoice and transaction and alerts local banks to duplicate invoices to prevent fraud. The Republic of Georgia recently migrated its land registry onto blockchain and Estonia uses it to maintain a medical records database. In the future, the governments of industrialized countries will likely use blockchain to transfer funds to the governments of poorer countries while being able to verify that the grants are being used for their intended purposes.

The United Nations’ World Food Programme recently used Ethereum blockchain to transfer vouchers for food to 10,000 Syrian refugees and plans to scale the project to 100,000 refugees in Jordan by the end of next year. Vouchers were sent to stores in five refugee camps where individuals could pick them up and use them to purchase food supplies after verifying their identities through eye scanning technology called IrisGuard. This system promises to improve the speed that food aid reaches its recipients, has fewer administrative costs compared to existing food aid programs and makes it easier for the WFP to ensure that aid is reaching its intended recipient.

Blockchain has perhaps the greatest disruptive potential in the developing world and particularly in countries with high levels of corruption and low levels of public trust in institutions like Sub-Saharan Africa and Eastern Europe.