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The European Blockchain Services Infrastructure is coming, and the ECA has a role to play

In discussions about the future of accounting and audit, the term blockchain most often pops up as an innovative way to establish a secure trail of transactions. Initially related to cryptocurrencies and peer-to-peer payments, this technology can also serve as a platform for offering services related to the notarisation and tracking of digital assets. Mirko Iaconisi, ECA auditor and ECALab contributor, is one of the ECA’s blockchain experts. Here, he discusses the European Commission’s European Blockchain Services Infrastructure initiative, in which the ECA is also an active participant.

By Mirko Iaconisi, External Action, Security and Justice Directorate

Source: EBSI Website

For 2020, blockchain tops the list of the most in-demand hard skills globally, according to data from the LinkedIn social network. This technology, which emerged in 2009 from the world of cryptocurrency, has been evolving ever faster over the past few years and has generated a wave of hype due to its disruptive potential.

A blockchain is essentially a distributed ledger of transactions maintained collaboratively by a network of different actors. It is designed to be secure, resilient, immutable and verifiable by any stakeholder. Blockchain promises to eliminate intermediaries and provide trusted (fully digital) ledgers, which can be used to make payments, track digital assets or notarise digital documents, to name but a few applications.

This technology has been controversial due to its association with cryptocurrencies, lack of standards and energy consumption. Nevertheless, the European Union recognised the potential of blockchain to transform digital services in Europe and was among the first institutional actors to take a clear, favourable, position.

In October 2017, the European Council asked the European Commission to come up with an EU approach to blockchain that would enable the EU to take a lead role in exploring this emerging industry. In response, the Commission created the EU Blockchain Observatory and Forum in February 2018. Two months later, the EU Member States and the Commission established the European Blockchain Partnership (EBP) with the aim of aligning policies and regulatory approaches to blockchain and other distributed ledger technologies (DLT), and developing a trusted European Blockchain Services Infrastructure (EBSI). The partnership currently has 30 signatories: the 28 EU Member States, plus Norway and Liechtenstein.

The EBSI is the partnership’s flagship initiative and aims to build a trusted blockchain infrastructure, operated by Member States and EU Institutions, able to deliver EU-wide cross-border public services. The ambition is to comply with the highest standards in terms of privacy, cybersecurity, interoperability, and energy efficiency. The first operational version of this infrastructure will be up and running in February 2020, allowing EU Member States to start testing its initial capabilities. Since 2019, the ECA has been actively contributing to the EBSI initiative by working with Commission and Member States on a very concrete use case.

The ECA has been exploring blockchain since 2016, when an initial article was written on the subject . In 2017, two awareness-raising conferences were organised and the ECALab carried out its first technical experiments for educational purposes. In 2018, the ECA worked together with a Luxembourg start-up, Compellio, on a concrete proof of concept. The company had developed software that was able to record unique evidence (hash) of documents on public blockchains. Due to the immutability of the blockchain ledger, this evidence constituted a long-lasting reference for anyone who later needed to verify the authenticity and integrity of the originating documents. This type of application worked as a notarisation service for digital documents, able to generate a trusted and reliable audit trail of document evidence. Thanks to the contribution of a group of colleagues interested in the technology, we identified three promising use cases (see also Figure 1) for this type of notarisation service:

  • notarisation of audit documentation;
  • protection of ECA publications; and
  • notarisation of public procurement procedures.

The proof of concept lasted three months (March to June 2018) and led to the creation of the ECA Registry, a web-based notarisation service able to demonstrate practically the three above-mentioned use cases. One interesting feature offered by the application was built-in General Data Protection Regulation (GDPR) compliance, as the process allowed users to give trusted third parties (such as audit institutions) explicit consent to access their notarised documents and notarisation data whenever needed.

The ECA Registry was presented on 08/11/2018 at the interinstitutional conference Blockchain: opportunities and practical applications for EU expenditure control, and attracted the attention of several stakeholders. Around the same time, the ECA took part in the call for proposals of the nascent European Blockchain Services Infrastructure, submitting two of the use cases explored with the proof of concept.

The ‘notarisation of audit documentation’ was selected as one of the first four use cases to be developed within the framework of the EBSI, alongside European Self-Sovereign Identity, Diplomas and Trusted Data Sharing. This means that the features that demonstrated their value with the ECA Registry proof of concept will now be (re)developed as open source in the context of a brand new EU-wide infrastructure. A team of developers coordinated by the European Commission and funded by the Connecting Europe Facility (CEF) is currently building the EBSI.

Figure 1 — An overview of the first 4 use cases that will be available in the EBSI

Source: EBSI website

As well as being the initiator of the Notarisation use case, the ECA is also one of the most active contributors, providing input and leading discussions with the Commission and Member States. The functional requirements for the Notarisation module were completed in autumn 2019 and the development team has already delivered the first basic functionalities. In addition, the original ECA Registry is now connected to the brand new EBSI blockchain and is ready for further testing.

We are very close to the EBSI launch. In mid-February 2020, the core team will present the first version of the infrastructure to the Member States. While this initial version will offer only the basic capabilities of the four use cases, more advanced features will be released over the course of the year. This new infrastructure will offer a trusted blockchain solution for the EU and we hope that it will help familiarise Member States and EU institutions with the technology, promote innovation and pave the way for a new generation of cross-border public services.

Looking beyond the EBSI, the ECA will continue to explore and gain expertise on blockchain, together with other interested supreme audit institutions. In this context, the new Blockchain for Audit (B4A) stakeholder network will offer a forum for experts to continue sharing their experiences and to discuss the implications of this technology for public audit.

This article was first published on the 1/2020 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.

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The ECA Journal features articles on a variety of current audit topics, the ECA’s role and work. It is available in electronic form below, and paper copies can be ordered online at the EU Bookshop.

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