• James McKay

Beyond the hype: Charting blockchain applications in the real world – Part 1

Updated: Dec 3, 2019

In this first part of a two-part series, we explore the evolution and challenges of government blockchain applications. Moreover, we look at select governments that have been quietly innovating in the space and moving beyond proof of concept (PoC) to deploy functional blockchain platforms that streamline a multitude of administrative operations.


Over the past twelve months, giant steps have been made in our understanding and ability to implement blockchain-based applications. However, while most of the spotlight has shone on the role of private enterprise in driving blockchain innovations, the narrative around government initiatives has centred on their resistance to blockchain in general and deep distrust of cryptocurrencies in particular. Yet, increasing deployments in federal and state departments across a broad array of applications suggests public sector blockchain adoption is now developing at a pace akin to enterprise solutions. Furthermore, outside the realm of cryptocurrencies, government blockchain applications may be much closer to impacting our daily lives than any business use-case.


Why governments were slow out of the blocks


From eliminating intermediaries, to increasing transactional efficiency and securing data integrity, the business world has long recognised the advantages to be gained through blockchain technology. Despite a high failure rate for blockchain ventures, the growing number of successful real-world applications has resulted in business leaders becoming increasingly cognizant that a ‘wait and see approach’ risks leaving this competitive advantage on the table.


Governments, however, are typically slower to embrace technological development for two main reasons. First, the public sector has traditionally been more resistant to new technologies due to the cost and innovation risk associated with developing unproven systems. Second, deeply entrenched bureaucracies and a focus on election cycles often limit a government's ability to assume a greater role as an innovator in most countries. While this is not necessarily a negative given a government's essential role both in providing a platform for entrepreneurship and allowing private enterprises to develop best practices, it does act to put the brakes on the rate of technological adoption.


Perhaps more importantly, blockchain’s original cryptocurrency application has given rise to a host of ideological questions relating to governance, private vs. public ownership, the monetary supply, and the broader undermining of a government's overarching central authority. These questions, as well as concerns over bad actors exploiting the technology to engage in illicit activities, have fuelled much of governments' early distrust of the technology and biased the focus towards regulation over adoption.


Governments, large and small, are stepping up adoption


Despite the initial skepticism, certain governments recognised the value of being early adopters of blockchain technology. For example, the Swedish government land registry, Lantmäteriet, has been developing a blockchain mechanism to allow end-to-end, digital tracking of property transactions between buyers, sellers, banks, and authorities since 2016. The system significantly lowers the risk of fraud and reduces costs by eliminating paper contracts resulting in the disintermediation of entities that collect transaction commissions.


As of 2019, investment in government blockchain initiatives has followed the trajectory of the industry as a whole. The US has dominated venture capital investments, with US-based blockchain companies raising more than the UK, China, and Singapore combined and taking the lion's share of the $23.7 billion raised since 2013. Additionally, the IDC estimates that investment in US federal government blockchain initiatives is on track to exceed $123.5 million by 2022, representing around a ten-fold increase over the $10.7 million invested back in 2017. Similarly, blockchain spending among state and local governments is also anticipated to grow from $4.4 million in 2017 to $48.2 million in 2022 — a rise of almost 1,000%.


Figure 1: Total worldwide spending on blockchain solutions from 2017 to 2023


The numbers suggest governments are increasingly recognising the potential to use blockchain as one part of a raft of solutions to bring about much needed digital transformation to dislodge the inertia of bureaucratic legacy systems across multiple arms of the state. Here, we take a look at select examples of blockchain applications rolled out by governments who are quietly innovating under the radar.


Lesser-known exponents of blockchain applications

Switzerland


“Our aspiration is to become one of the main blockchain hubs worldwide.”


– Pierre Maudet, Economic Councillor of State for Geneva



Unbeknownst to most outside the industry, Switzerland has positioned itself as a global leader in the cryptocurrency space. For example, the small tax haven of Zug is a hotbed of activity and known as ‘CryptoValley’ owing to its disproportionate volume of crypto start-ups. Just in May 2019, Zug announced an incubation programme which invests $125,000 in seed funding into 12 participating early-stage blockchain companies in return for 10% equity.


At the same time, Switzerland has made large strides in R&D for blockchain infrastructure at the state level. The canton of Geneva has invested heavily in blockchain systems for the optimisation of state administrative procedures and has a three-pronged approach to achieve greater operational efficiency in the areas of business registration, digital identity, and official document identification.


Figure 2 below outlines the five basic steps of the distributed ledger (DLT) system for business registration and registry archives developed by Geneva's Commercial Registry in conjunction with Genève Lab, which is Geneva's R&D arm for the Digital Transformation of Public Services and Economic Development department. Built on a public ethereum blockchain, the platform allows for the frictionless flow of transaction data to cut out many labour- and time-intensive processes that involve public notaries, tax registration, and bank loans.


Figure 2: Geneva's commercial register solution on the public ethereum blockchain

www.ge.ch

The second objective is to combine the state's e-signature service with blockchain to bring about broader digital transformation and economic development. This will make it possible to identify the parties involved in smart legal contracts and to digitally sign them with a place of jurisdiction at the cantonal level. Geneva is already using the system for large companies in the commodity trade finance space, an industry that accounts for approximately 20% of the state's revenues.



United Arab Emirates

"With immutable data, all health providers can access reliable information, automate workflows, improve customer experience, and boost operational performance."


Mubaraka Ibrahim, Director of IT, MoHAP



As one of the richest and most technologically advanced countries in the world, the UAE has researched blockchain's transactional efficiencies to create seamless public transactions. The UAE’s blockchain programme was initially launched back in 2016 by his Highness Sheikh Hamdan Bin Mohammad Bin Rashid Al Maktoum and followed up with the launch of the Emirates Blockchain Strategy 2021. The strategy aims to execute 50% of all government transactions through the blockchain platform by 2021 and cut administrative costs by allowing citizens to process transactions at their own convenience without the involvement of state bureaucracies.

Figure 3: UAE's 2021 blockchain strategy goals

Source: government.ae

The UAE has recently made two significant announcements for government blockchain initiatives. Firstly, in October 2019 the Department of Urban Planning and Municipalities announced a partnership with Tech Mahindra to build a distributed ledger blockchain technology solution to track land registry records. The UAE expects this to reduce processing times related to land registry transactions, as well as boost trust in the archival authority through enhanced customer experience, and transparency and traceability of records.


Secondly, in September 2019 the UAE’s Ministry of Health and Prevention (MoHAP) announced the launch a blockchain-based system to store and share patient data created by doctors, pharmacists, and technicians with local licensing health authorities. The MoHAP already claims to have sufficient e-health infrastructure to leverage blockchain and connect public and private evaluations with the health authorities to create single platform access to the portfolio of health professionals.



Estonia

“In no other country is e-government a vital service, but since the Estonian people no longer accept paperwork, we have no alternative.”

– Kersti Kaljulaid, President of Estonia


It isn’t widely known that the Estonian government has been testing blockchain technology since 2008, and was the first country to deploy blockchain production systems in 2012 with the Succession Registry kept by the Ministry of Justice. Often referred to as the"digital society", Estonia's long track record of tech investment has seen the wholesale digitisation of public infrastructure from the ground up, with 99% of the country's public services available as e-services, including medical e-prescriptions, tax filling, vehicle registration, and others.


The central component of this digital ecosystem is the 'X-Road', a centrally managed, distributed Data Exchange Layer (DXL) which allows for data to be linked between individual servers with end-to-end encrypted pathways, letting information live locally. First launched in 2001, the X-Road interoperability platform uses the digital signature and PKI system to ensure system integrity and protect citizens' data.


Figure 4: The integration of KSI Blockchain and governmental institutions over the X-Road

Source: Ivo Lõhmus, Guardtime

While X-Road technology itself has often been mischaracterised as blockchain technology, it does employ similar cryptographic hashing functions. Crucially, however, the government does indeed utilise blockchain for its electronic ID-card system used by the Estonian e-Health Record, as well as a plethora of other e-services on the X-Road, to ensure data integrity and cybersecurity through its immutability capabilities.


Specifically, the KSI blockchain (Keyless Signature Infrastructure) deployed means that data is never actually stored on the blockchain itself and thus never leaves the system. The KSI blockchain signatures establish proof of integrity, time, and signing entity which can be independently verified at scale, therefore also making it the platform of choice for NATO and the US Department of Defense. According to the e-Estonia Briefing Center, the totality of these digital systems allows the Estonian government to handle 500 million electronic queries annually, saving the equivalent of 1,400 years of working time.


The future of government blockchain systems is positive, but barriers remain


“The new technology still needs to overcome several teething problems in order to become more widely adopted and fully exploited. Security, confidentiality and governance are some of the problems we have identified and are trying to solve.”

– Pierre Maudet, Economic Councillor of State for Geneva


The above are but three examples of how blockchain technology is slowly being woven into the DNA of governments' pubic administration systems. Although its disintermediating power can act to render government bureaucracies more efficient – or dismantle them entirely – blockchain's principal utility is for the ensuring of trust in government data, ensuring the integrity of all transaction data, and facilitating the independent verification of that data (Figure 5).

Figure 5: Three important areas of utility for blockchain in government data management


At the same time, as the transition to smart cities accelerates, blockchain technology will occupy a central role in the mechanisms of decentralised governance, as reflected by the recently commissioned Blockchain4Cities, a UN working group to determine how blockchain can be applied to running smart cities.


Despite these successes, barriers remain to the wider adoption of blockchain technology by governments around the world. The relatively small number of case studies overall means that the available pool of empirical data remains inadequate to convince many government officials of its merits. Additionally, issues around security and scalability remain a significant challenge partly because of the multitude of different scenarios for blockchain deployment across such a diverse range of e-administration system which require equally diverse privacy requirements. Governments will therefore have to carefully evaluate use-case specifics in order to develop appropriate governance, organisational, and participatory models for the successful deployment of a blockchain solution that meets particular functional requirements.


#blockchain #digitaltransformation

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