Blockchain: Public Sector Use Cases

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Overview

Today there are tens of thousands of pilots testing blockchain technology in many aspects of society. Our prior article Enterprise Blockchain: Key Use Cases, explored many of the top near-term use cases in the corporate world. The public sector, specifically government, has also shown significant interest in blockchain technology.

Currently governments on all continents except Antarctica are engaged in blockchain pilot projects. The public sector is responsible for many areas of trust and services so there are a large number of use cases across countries including: the European Union (EU — anti-counterfeiting), Estonia (Digital Government), US (FDA, DHS, HHS, GSA — security, anti-counterfeiting), China (Payments), India (Payments, Land Registry), Switzerland (Identity), Denmark (Voting), Dubai (Digital Government), Georgia (Land Registry), Gibraltar (Stock Exchange), and many more.

Key use cases across the public sector include:

· Identity Management/Attestation

· Government Records (Personal records, Land registration, Corporate registration)

· Entitlements/Citizen Services Management (Healthcare, Consent)

· Government Activities (Voting, Taxation, Customs)

Across these use cases, blockchain enables greater efficiency, less fraud, and lower costs. The holy grail is fully paperless, digital government with minimal corruption.

Identity Management

Proving one’s identity is a daily activity, but one that most people don’t think about too deeply. For example, online, most sites require some type of login enabling each user to access their account. The username and password are credentials that are supposed to prove the identity and right of the user to the account assets, services and information. Access to a device that can provide online access, such as a phone, PC, or tablet, usually requires some type of passcode, password or biometric identity for access as well.

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In all these cases, the foundation of online interactions begins with the authentication of digital identity. The basis of most fraud is improper authentication of digital identity.

Real world examples of proof of identity moments can include:

· passing through customs at borders

· passing through security at an airport

· cashing a check

· opening a bank account

· purchasing a product on credit

· opening a brokerage account

· retrieving a car from a valet

· picking up mail from the post office

· entering a government or corporate facility

In the cases listed, identity in-person is usually validated via government documents (i.e. driver license, passport). Most financial institutions are government regulated and require strict adherence to Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. As a result, banks and financial services companies require government issued documents that attest to your identity.

Legal documents often require notarization of signatures attesting to the identity of the signer within a country. The notary often records the number of a government document (i.e. driver license, passport), photocopies the document, requests a signature, and takes a thumbprint to validate identity. Other instruments such as apostille, or Secretary of State authentication, are generally required to prove the authenticity of signatures for legal documents that cross borders.

The basic documents used to attest to your identity (driver license, passport) are in turn based on a person’s official birth certificate. In the US birth certificates are issued by State-based Vital Records departments. In other countries, birth certificates are generally issued by individual cities (Europe) or districts.

Challenges

The challenge with most government documents is that they can be easily falsified and there are few tests that can be done to differentiate real documents from fake ones. For example, many high school students in the US have fake drivers licenses that show an older age so they can drink alcohol. At the same time, some older children obtain fake birth certificates so that they can play with younger players in competitive sports leagues. We’ve also seen many spy movies where individuals can have many passports fraudulently attesting to their nationality, name, address, and age.

In many countries it is not uncommon that corrupt government officials will modify government documents, for a fee, for various reasons. This could be to help make a person older or younger — to enable entering a school, getting married, avoiding military service, etc. So even if it might be difficult to modify a document, it is possible to pay or bribe an official to modify a document so that the legal version has incorrect information.

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A serious global challenge is that according to the UN, approximately 1.1 billion people do not have any official identity documents at all. Over 75% of these people without identity documents are in sub-Saharan Africa and Asia, and 40% of the total are children under 18. This is a significant problem because people without identity papers are typically not eligible for government assistance, education, employment, bank accounts, housing, and many other important services. People without these fundamental services, especially children, are more susceptible to trafficking, forced labor, and early marriage or sexual abuse.

In some countries segments of the population do not have legal identity documents because they may have been destroyed by war, natural disasters, ethnic tensions, or other causes. In these cases, the people have no identity and may not be able to prove anything about themselves — age, country of origin, nationality, etc. Today there are over 68 million refugees from war-torn countries, many of which are without identity papers and living in refugee camps.

Additionally, there are about 150 million homeless people globally (550,000 in the US), who may have lost their identity documents. Due to these circumstances, they are not eligible for government assistance, employment, or standard services, which creates hardship and societal imbalance.

Blockchain Opportunity

Blockchain technology provides three special capabilities that enable it to provide a better foundation for identity than current systems. First, all data is recorded on the ledger via a consensus mechanism which enlists multiple parties to verify that the data is correct before it is written. Second, all transactions in the ledger are immutable and digitally signed, which means the records are unchangeable and those who wrote the records are accountable for any issues. Third, the digital, immutable record can be linked to a biometric or set of biometrics (i.e. thumb print, facial scan, etc.) which means that it is unique, easily verifiable, and nearly indestructible.

Blockchain has the potential to solve the challenges section above — fake documents, corrupt officials, and destroyed records, as described below:

· Fake documents — identity would be verified via a biometric scan which would access official records found in a blockchain ledger which virtually eliminates the need for documents

· Corrupt officials — the data about one’s birth is immutable and cannot be modified once made so corrupt officials become powerless to make changes

· Destroyed records — as the data is digital and stored in decentralized storage it can be considered virtually indestructible

Regarding the challenges faced by those with no identity papers or destroyed records, there are various initiatives currently underway using the power of blockchain to provide solutions to governments. For example, the ID2020 initiative is an alliance of governments, NGOs, and the private sector to provide a blockchain-based framework for digital identity that will be personal, persistent, portable, and private. In essence, each individual will be able to own and control access to their personal identity information and be able to access it at all times from any location (decentralized cloud).

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The government of Finland and the UN World Food Programme (UNWFP) have both launched different blockchain programs aimed at providing digital identity to refugees. Government agencies usually struggle to provide equitable services and keep track of information for refugees due to identity challenges. With a blockchain-based ID accessible by a biometric scan, refugees can be given a unique digital ID so that services can be provided and tracked accurately. Additionally, it is possible with blockchain technology to ensure that vouchers in these programs are only used for specific purchases, such as food. The UNWFP program in Jordan for Syrian refugees has been so successful in reducing costs that it is now being replicated to other sites in the country.

In the US, to help people and cities deal with the challenges of homelessness, the cities of Austin, Texas and Bronx, New York are turning to blockchain identity solutions. These solutions provide a unified digital identity, which enables individuals to access services such as food pantries, shelters, and banking more easily. It also enables cities to reduce administrative costs, provide better services (such as distributing mobile phones with apps), keep track of service usage, and minimize fraud.

Other Government Records

Identity records are the most important type of records since they can be used to control all others, but there are many other types. These include:

· Personal records: marriage, divorce, death, passport, visa records

· Land registration, deeds, property title, vehicle title, vehicle registration

· Corporate registration

Each of the original records listed above can be manipulated and falsified by government officials or black-market forgers. It is also not difficult in most cases to create realistic looking replicas of official documents which contain false information. For example, according to many articles it is possible to purchase fake passports or green cards on the dark web (a part of the world wide web not accessible by standard browsers or indexed by search engines) for relatively small sums of money with quick turnaround.

A quick search of the dark web also indicates that there are many services that provide replica or replacement marriage, death, or divorce certificates as well as replacement home deeds and titles quickly and inexpensively. Each of these documents can be filled with information that is not legitimate or accurate. There are significant fines and it is illegal to use such documents, however, under the right circumstances people can reap financial gain. Records indicate that tens of thousands of people use fake documents annually in the developed world and the values are likely substantially higher in the developing world.

Challenges

People can reap different types of rewards from fake documents, including:

· Illegal immigration — fake marriage certificate, fake green card

· Illegal employment — fake green card, fake passport, fake driver license

· Driving a vehicle without testing — fake driver license

· Fraudulent inheritance — fake death, marriage, and/or birth certificates

· Fraudulent life insurance benefits — fake death, marriage, and/or birth certificates

· Selling property belonging to others — fake deeds, property/vehicle title, and or land registration

· Obtaining loans for fictitious people — fake identity and/or marriage information

· Terrorism — gaining entry to foreign countries to commit atrocities

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As there are many incentives for bad actors, there is a significant market for fake documents. Globally there are now more than 50 million lost or stolen travel documents, triple the number from just a decade ago. Many countries have tens or hundreds of thousands of duplicate or stolen documents that are up for sale.

Blockchain Opportunity

The major challenge in all of the cases listed above is that a paper-based document is used to transmit some kind of information and identity to the bearer. Because these documents are easy to forge or can be based on real, but stolen documents, they convey significant privileges to the bearer with only a small risk of exposure.

In a blockchain-based system, paper-based documents are replaced with digital documents on an immutable ledger. The immutable nature of the blockchain means that these digital documents are impossible to duplicate or forge because there is only a unique, single record. Additionally, the digital documents can be made accessible only by a biometric scan, for example a face scan, a full hand fingerprint scan, a retinal scan, or potentially a combination thereof.

Governments have begun to implement blockchain-based systems for key record types. For example, in Andhra Pradesh in India, in Fintech Valley Vizag, blockchain systems are being used for land registration records and for vehicle registration. Fintech Valley Vizag is in the process of building up a large portfolio of blockchain use cases to improve the efficiency of government and private sector operations.

Land registration was selected first because 66% of civil disputes revolve around property disputes which creates a significant drag on the economy. The primary issue was that due to paper documents, much of the populace could not prove its ownership of property and records could be easily modified for a price. Blockchain’s immutable records and audit trail have already secured over 100,000 land records, providing certainty to owners. This same system has now also been applied to vehicle registration, to provide certainty and security around vehicle registration records.

Entitlements/Citizen Services Management

Across the world, governments provide a range of services to their citizens. These services include:

· Education (schools and libraries)

· Healthcare (hospitals, doctors/nurses)

· Emergency services (fire, police, national guard)

· Military (army, air force, marines, navy)

· Energy (electricity, other)

· Utilities (water, garbage, sewage)

· Post Office (letters, packages)

· Law enforcement (courts, police)

· Infrastructure (roads, schools, hospitals, utilities)

· Business Incorporation

To facilitate faster and more efficient service, it would be beneficial for all governments to provide digital e-government services. In this way, people in each country could check their accounts and access information about each of the services listed above. Unfortunately, few if any of these services are available in digital format or accessible online in most countries.

Challenges

Most governments are not able to provide integrated online services to their constituents due to a number of key factors. First, as was noted above, most people do not have a unified digital identity and most governments have not yet provided their citizens and legal residents with a secure digital identity. Without a secure digital identity, the security and privacy of a person’s information cannot be guaranteed. Also, if services were to be accessible online, a hacker could potentially ‘spoof’ a person’s identity to gain illegal access to these services.

Second, a large portion of government information is still held in paper form and so is not digitally accessible. Many governments have initiatives in place to digitize records information, however, most are behind or have inefficient processes which may be error-prone. In the US it is estimated that each government agency has 4 petabytes (4 million gigabyte drives) of information, 90% of which is in unstructured form like paper, email, and recorded phone conversations.

Third, many government agencies act independently of each other, so data is siloed, and it is difficult to cross-reference information on the same person across departments. A unified digital identity would be very useful for organizing and accessing information across departments, but as mentioned above, it does not exist in most countries. Additionally, interoperability of systems is necessary across data in order to make it rapidly accessible.

Blockchain Opportunity

Blockchain technology provides a single solution to all three challenges noted above. First, it can provide a secure digital identity; next it digitizes all new data transaction data automatically and securely; and finally, it creates an interoperable platform across departments and agencies. This is not a theoretical exercise as blockchain-based e-government systems do already exist.

Estonia is home to the most famous blockchain-based digital government and e-residency program. This portal enables anyone to become an e-resident of the country in 30–60 minutes and at a cost of 100 Euros. Estonian e-residents can use the portal to create a digital identity, establish a business, setup banking relationships, and execute business documents. Famous e-residents of Estonia include Tim Draper, the famous Silicon Valley VC, Pope Francis, Angela Merkel, Chancellor of Germany, and Shinzo Abe, Prime Minister of Japan. Estonia is also planning to launch its own digital currency called Estcoin.

Dubai is another leader in blockchain-based e-government. Dubai plans to have all of its government documents on a blockchain by 2020 and 50% of its services operating on a blockchain platform by 2021. These systems will streamline all government activities and are forecast to save 10’s of millions of hours of work and billions of dollars annually. Dubai is also planning to issue a digital currency to enable cross-border payments and track all real-estate transactions on an immutable blockchain ledger.

Other countries would be wise to follow a similar path because of significant cost savings, efficiency gains, and the ability for countries to compete for businesses and citizens.

Government Activities (Voting, Taxation, Customs)

Governments also carry out a range of activities to select representatives and leaders (voting), collect revenue for operations and initiatives (taxation), and to secure their borders (customs). Currently most of these processes are not very efficient and few if any can be carried out online in most countries.

Challenges

As was noted with the e-government services section above, the main issue with carrying out any of these practices online has to do with identity and security. Since most countries do not have a unified digital identity there is no easy way to authenticate the digital identity of a traveler (customs) or legal citizen / permanent resident (voting and taxation) with high certainty.

Additionally, even if a unified digital identity were to exist, centralized data storage would provide a major target for hackers who could then breach, steal, and/or change citizen information, voting results, or tax records. Ransomware attacks, for example, on these data types would be devastating. Since all of these breaches would have a high degree of societal impact, data storage systems must be ultra-secure and not built with single points of failure inherent in centralized design.

Blockchain Opportunity

As was noted previously, blockchain-based systems can create a unified and secure digital identity. Data and transactions are then stored by default in a highly encrypted format to a decentralized network where each transaction is digitally signed. A robust consensus algorithm can ensure the validity of all transactions while the immutability of the ledger ensures the data cannot be modified from its original form.

Pilots of blockchain-based voting solutions now exist in Switzerland, Denmark, Russia, and the US. In Switzerland the city of Zug has used blockchain-based voting in combination with an Ethereum-based digital identity solution. The pilot was successful and the results are now being evaluated to ensure that the results are both immutable and auditable while protecting voter privacy. In West Virginia an e-voting pilot will be launched in November 2018 that will enable overseas military to vote in the mid-term elections. The pilot will be based on smartphones and will use streaming video, facial recognition and a military ID to confirm the identity of voters.

Online tax bills can now be paid by e-residents in Estonia via the blockchain-based solution outlined in the prior section. At the World Economic Forum in Davos in 2016, 800 attendees took part in a poll on blockchain-based taxes. 73% of respondents indicated they expected blockchain-based tax systems to be in place in most developed countries between 2023–2025.

US Customs and Border Protection (CBP) in collaboration with the Department of Homeland Security (DHS) are working on two separate blockchain customs projects. One project is focused on validating certificates of authenticity for products that cross into the US. The joint goals are to enable customs officials to intercept counterfeit products while the second is to allow consumers to quickly verify the authenticity of products prior to purchase. The second is designed to secure the sharing and storage of data from security cameras and sensors and via an immutable record to prevent the manipulation and hacking of data.

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Globally, IBM in partnership with Maersk, the Danish shipping giant, are collaborating with 90+ partners including world customs authorities, port and terminal operators, and others to streamline the global shipping process. Tradelens makes key information needed for customs officials available in real-time reducing overhead, shipping time, and administrative costs. Key government groups participating include customs authorities from Singapore, Australia, Saudi Arabia, Peru, The Netherlands, Belgium, and the US. Today after having completed over 150 million shipping activities, the blockchain-enabled project has reported average savings of 40% versus legacy systems.

Conclusion

As we have seen in the use cases above, blockchain technology has tremendous potential to secure and streamline all major aspects of government from identity, to personal records, to business registration, to government services to voting, customs, and taxes. As global governments are often highly inefficient and at times plagued with fraud, blockchain systems can rapidly provide a secure and efficient foundation that realizes the potential of e-government with a much lower potential for corruption.

Acknowledgements: Thanks to Radhika Iyengar-Emens, my colleague at DoubleNova Group, for her contributions.

Copyright DoubleNova Group/Paradigms Consulting Group 2018