Governments Meet Blockchain
What keeps regulators up at night and how to clear the pathway to adoption.
There are parallels between blockchains and governing bodies. Like governments, blockchains are in the day-to-day business of recording events, verifying facts, and enforcing norms. Blockchains are hard to change, hence binding their users in the distant future — much like statutes, charters, and constitutions.
So far, banks, payment-service providers, and insurance companies have shown the highest level of interest and investment in blockchain.
But I believe government agencies have just as much to gain from experimenting with this technology. That is because Blockchain offers them a fast, secure, efficient, transparent means to deploy government services and communicate with their populations.
Where are the Opportunities?
Areas in which governments could use blockchain include keeping medical records, voting, land titles, welfare payments, tax collection, and digital currencies. Blockchain can help agencies digitalise existing records, manage them and make them accessible within a secure infrastructure.
Citizens will truly appreciate the potential for better delivery of government services. You can look at this technology as a notarization service — a timestamp of sorts — that validates the exact time an action takes place. This action or event could be the birth or death of a person, the exchange of a property title, the award of an academic degree or nearly anything else where a timestamp is critical to the proof of an action.
Also, it can be applied to mundane tasks where people interface with governments, for example, getting proof of your identity, renewing a driving licence, issuing a passport, which are tasks prone to mistakes in the best cases and in countries with weak institutions, prone to fraud.
“What I’m most excited about the blockchain is the potential for “responsive open data”. Blockchain-based solutions will give people the ability — without having to wait in line at the motor vehicle department or any similar place — to automatically do a transaction with the government, yet still have complete trust that the government certified that transaction”.
-Andrea Potter, Insights Director at Ernst & Young
Through APIs, developers will be able to build interfaces that make it much easier for users to interact with governments. And the creation of this additional layer of transparency will only further increase people’s trust in government and the services it provides.
Good Practices Out There
Examples of governments using blockchain technologies include:
- Georgia has put its land registry on the blockchain
- Brazil announced its intention to move petitions onto blockchain
- Canada is testing out using public blockchain to provide transparency to the use of government grants
- Zug, Switzerland began offering digital IDs registered on blockchain
- Chile uses blockchain to track the data from the energy grid
- Dubai is to become an entirely integrated, blockchain-powered city by 2020, including its financial system
- Estonia matured into a “digital republic” by moving many of its government services onto the blockchain including the management of health data of its citizens
- Delaware (US) is creating incorporation services based on blockchain
Which Segments to Regulate?
As a government official, you are now thinking: should I regulate the blockchain? To answer that question, you need to ask yourself who the stakeholders involved with it are. The 3 main ones, according to Primavera de Filippi, a blockchain researcher at Harvard University, are: users, producers, and miners.
And here is what you can do:
- REGULATE USERS
Make it illegal to transact with specific smart contracts - REGULATE PRODUCERS / DEVELOPERS
Force them to implement specific backdoors or kill-switches, so if something goes wrong it is possible to shut down the blockchain - REGULATE MINERS
Pressure them to ignore certain transactions or alter balances or criminalise to modify the state of the blockchain (the so-called forks)
What’s Your Regulatory Goal?
The blockchain can be stored on multiple computers in either public or private networks, that may or may not require permission before joining.
With a private, or permissioned, blockchain you effectively maintain the role and power of a middleman by providing some basic functionality such as secure transactions, but without offering full decentralisation and transparency. This model is already observed in governments in developed countries, including the UK and Estonia, as well as in the private sector.
But it all depends on your goals.
Private blockchains provide incredible operational efficiencies. But if the goals are decentralisation, transparency, and enhancing trust in public services, then a public blockchain is going to be more important.
From Regulation 1.0 to Regulation 2.0
What I advocate, following the recommendations of Nick Grossman, is a shift in regulatory mindset. Under the current model, governments make it difficult to gain a licence or permission to operate but require in exchange very little data and loose accountability from companies.
We should instead move to a model where governments make it easy o operate in exchange for lots of data and strict accountability from companies.
Roadblocks Ahead
It’s still hard to say how the blockchain experiment will pan out. There are still a number of constraints to widespread adoption. Governments are particularly worried about cyber security, the dark web, anything that can lead to fraud and regulatory compliance.
The need for regulation seems clear in some cases, for example when there are cross border systems (eg the EU internal market), or when people take risks, like investing in cryptocurrencies. They will also be concerned that the pathway to adoption will be costly and complex.
Don’t forget some of the most powerful technologies in the world have gone from fringe to mainstream because governments adopted them first through public procurement (think of the telephone, the railways and water pumps).
At the beginning people met cars, cellphones, and internet with the same level of suspicion as blockchain. So before taking a blanket approach in regulation, officials need to keep this in mind.
Takeaways
We are at a time of experimentation and there is a lot of duplication in this space at the moment, just like the early days of the internet. But this will hopefully lead to consolidation and strong partnerships. Also, more and more incumbents are beginning to offer their own blockchain solutions.
“To reach full potential, blockchain technology must be supported by collaboration between the public and private sector in developing smart standards and regulation, as well as creating welcoming environments for blockchain startups through tax incentives, grants and other mechanisms like public procurement. Intelligent blockchain strategies at the national and local level will become a competitive advantage”.
-Andrea Potter, Insights Director at Ernst & Young
As a government official, here is what you can do. Start today!
- EDUCATE YOURSELF AND OTHERS
Get the right people at government levels engaged, excited and educated about the technology. Launch a task force to monitor developments. - DEVELOP A STRATEGY AND PROMOTE REGULATORY SANDBOXES
Include blockchain in your innovation agendas. Develop benchmarks. - INVEST
Design grants and tax incentives. Implement intelligent public procurement. - LAUNCH OR SUPPORT PILOTS
Scan and prioritize opportunities. Selects the right partners for implementation. - FIND EARLY ADOPTER CITIZENS
Test, review, rinse and repeat.
Thanks for reading 🙌
If you are also working at the intersection of policy, technology and blockchain, I’d like to hear from you. Get in touch at @MarcoTorreg or about.me/marcotorregrossa or in the comments below.
This post was originally published on Apolitical Blog here.
View my presentation at Apolitical Experts Talk (14/06/2018) 👇
