Blockchain and government, can they work together?
In this article I want to reason about government and blockchain technology. In particular, can our governments evolve by integrating blockchain in their digital infrastructure? Can they become faster, stronger and “bulletproof” as a result of that? If yes, how exactly? If no, what will fail? Are we going to see a true blockchain government?
Lately states and nations worldwide have been very interested in this technology. They are trying to integrate it into their own systems because at a theoretical level the benefits of using blockchain versus traditional database systems are immense, especially in some specific public sector areas.
Many are comparing the present rise of blockchain technology with the rise of the internet that happened in the last couple of decades ago. Just like governments started using internet to improve their operations, they might soon start using blockchain.
In the following sections I will make a complete but general discussion and reason about three main subtopics, one for each section.
In the first section I will talk about How governments should look at this new technology and how its adoption can bring more efficiency and security to them.
In the second section I will talk about some real government use cases of blockchain. I’ll start by outlining the active areas of research, then illustrate how some blockchain powered systems would work in real life. The areas of land registration, taxation and voting will be covered with a bit more detail.
And finally in the third section there will talk about three governments in the world that are using blockchain already in different ways: Switzerland, Slovenia and Dubai.
Let’s bring our minds back to the beginning, and start understanding why and how blockchain can potentially fit in a government environment.
I believe that right now our digital bureaucratic life is somewhat complicated and messy. Even tho there are many organizations that allow us to fill online applications or web forms, we still find ourselves stuck in traffic driving to a certain office location to fill out paperwork and/or show our ID documents. Why does this happen? Why can’t we just do everything 100% online without wasting any time and energy? Why are we exposing our identity documents so many times?
As a software engineer, I was taught not only how to build digital products, but also how to maximize efficiency wherever possible. I learned also that whenever new technologies or frameworks are released to the global developer community there is a good chance to improve the software stack somewhere. This is why these long and complex bureaucratic processes often catch my eye, making me wonder what pieces of their softwares can be swapped for more efficient or automated (=infallible) ones. Now that you pictured in what context we are in, let’s dive into the blockchain topic starting from zero.
Right now we have three main entities on the internet: citizens, businesses and government agencies. Each of these three entities has its own central database system, which is not shared with anyone else.
When you are presenting ID documents, or filling out a paper form, it is because a specific company or government agency needs to store and then exchange that data with another company or agency. The problem is that the first company/agency follows a certain protocol, while the second company/agency follows a different protocol than the first one. This differences in protocols (languages) forces the two companies/agencies to use intermediaries that mediate this communication of data back and forth.
Doesn’t it make so much more sense to create a shared network between agencies/companies, transact data directly with each other immediately, and cut off expensive and slow intermediaries? We’ll see very soon if this is possible, and how.
I bet that in the last month you have heard of at least one friend or relative that had to wait painful weeks to obtain a certain city certificate, county permit, real estate document, or anything official.
I am in no way against governments, it is thanks to them that we can live in a functional and safe society. I think that without a government our neighborhood would instead look like a jungle where wild humans make their own justice with violence and tribes. So we need them, but we also need them to function and serve us perfectly. The only problem with our governments is that they use hundreds-year old practices and systems, which results in headaches for citizens when trying to obtain official permits or documents. There are old technologies because in order for a newer technology to be approved for government use there needs to be a strong legislation behind, which takes time to develop.
Governments need to experiment and dive sooner into the newest technologies. Then upgrade their systems and processes accordingly if these experiments give back significant improvements in terms of efficiency and lowering costs. One of these really interesting and disruptive technologies that can provide a new level of transparency, data safety, and faster processing times is called Blockchain, and it has been all over the news and financial publications for some time.
Let’s understand and define blockchain in a way that is useful to a government leader or legislator.
The blockchain is a global distributed ledger that you can use to record transactions inside. The purpose of transactions is to move value between any two individuals over a trustless network such as the internet.
The internet is a network that allows anyone to share information instantly across any distance. The blockchain sits on top of the internet, and acts as a shared distributed database that allows anyone to move value across the internet directly from an individual to another person/company. This happens without intermediaries and without waiting days for transactions to settle.
A side note for any reader that is new to the crypto world: the blockchain is NOT bitcoin, bitcoin is an almost-anonymous currency application that uses blockchain as its foundation. Let me repeat it again: blockchain is not bitcoin, it’s the foundation of it. Also it is a generic term indicating a type of technology instead of a specific product, in fact there are many types of blockchains on the internet right now.
I can also say that blockchain is a design pattern. It can be used to create a digital backbone that will support the movement of value from person A to person B. By movement of value I mean changing ownership of some currency, but also ownership of a token. Why tokens? Because any real life asset can be tokenized (for example a token can represent a certain unit of electricity consumed in a house, or a square meter in a plot of land), and these tokens can be exchanged for services or goods between two individuals (or companies) over the internet without intermediaries.
Yes, it was not a typo, I said: without any intermediaries. It’s just like giving cash or plastic tokens to someone, but over the public internet or a private intranet.
By eliminating intermediaries we drastically reduce the costs of operations and transactions. These movements of value are approved and settled almost instantaneously instead of taking days or weeks to complete like in traditional systems.
Another killer feature of the blockchain is that it is an append-only type of database/ledger. This means that once you add some data to it you cannot go back and erase it, but only write a new set of data that corrects it, and append it. This creates a full incorruptible history of transactions and ownership.
Government agencies can especially benefit from the blockchain. This tech can connect them and help them collaborate more efficiently on a financial and commercial basis. They also have much more control of the data, and they do not risk anymore that an intermediary would eavesdrop their confidential data or get attacked by hackers and leaking everything as a result.
At this point of the article you know that the average traditional bureaucracy relies on outdated infrastructure and processes, resulting in some flaws or unnecessary delays. Right after, I mentioned that the blockchain technology, on a theoretical level, can fix some of these flaws. Then you finally learned the major features of blockchain that are interesting to government official. Now it’s time to start tying things together and see some practical and real-life case studies of how a government can use the blockchain to provide better services to its citizens.
Blockchain government generic use cases
Possible blockchain integration is currently being researched in the following areas:
Tracking Working Group
Economic Financial Management
Education and Training
Energy Working Group
Keep in mind that this is only a generic list, every one of the areas listed can have many subareas that each have particularly unique and complex challenges to tackle.
In this article I will touch upon three brief examples that I find particularly interesting: land registration, taxes and voting.
Blockchain offers the opportunity to create a unique and incorruptible set of records in the real estate titling sector. This record would contain every change of ownership of any piece of land. It will also be transparent and ready for audits at any time.
Another way real estate can use the blockchain: creating tokens that represent a piece of land. Tokens will be transacted among parties to set ownership of land. The record of land transactions is immutably recorded in the blockchain’s history.
Right now every land and property related record is mostly paper-based, which means that transferring data is slow, costly and it can result in tampering of any kind of records. Americans also spent hundreds of millions in insurance to mitigate risks with real estate titles mistakes.
The blockchain would provide a distributed and standardized database where all these land registration records can be saved in permanently. No intermediary would be required to fetch some real estate data or change ownership of a piece of land. The US government can save billions of dollars and provide a higher standard of security if they can implement such a system.
It is no wonder that one of the most researched areas of blockchain development is voting. Since the blockchain provides an incorruptible and transparent way to record transactions, it can be potentially used by citizens to exercise this critical public function without needing to blindly trust a mostly hidden centralized voting process.
Just like currently you have a voter ID card, you can potentially have a unique digital identity that allows you to send one single transaction in a voting-specific blockchain network. Casting your vote would basically mean that you create one transaction directed to one of the parties in the elections or ballot decision.
The winner party will have the most transactions received.
This would save costs to an unimaginable extent for a government because now nobody has to print any sheets, maintain complex voting machines, etc. Audibility of votes would also become publicly verifiable for the first time in history, with every citizen being able to see how many votes (transactions) were sent and to which party. Please note that your vote can still be anonymous, especially if you use cryptography to one-way obfuscate your personal voter ID.
Attackers would not be able to compromise the election results, because since the blockchain is a distributed database, they would need to hack simultaneously every node of the network, change the transaction history, and recalculate all the next blocks to fake a new consensus among them. This is impractical and almost impossible to achieve because it is already a hard and lengthy task to compromise one database in one single server, imagine many many different ones at the same time.
Current tax systems were designed primarily with the trade of physical goods in mind, now that we are moving everything to digital goods problems are arising and governments tax authorities struggle.
What can blockchain do to the area of Taxes? It is definitely not the silver bullet, one-fits-all solution to make the perfect tax system, but it can definitely reduce the administrative complications and collect taxes more efficiently while reducing errors.
I think the main objective to solve is to narrow the tax gap. Commercial and any service-specific business can grant to tax authorities full auditing permissions into their blockchain with all transactions permanently recorded. This would mean that citizens face a higher risk of getting caught in the case of non-compliance, which will drive a correct behavioral change.
This type of blockchain auditing would also remove the risk of fraud and errors. For example, a full record of transactions in a blockchain can clearly show where VAT has been paid and where it has not, reducing VAT fraud to zero.
Remember that data on blockchains is also updated almost instantaneously, and it is fully traceable.
Blockchain-oriented governments in the world
To conclude the article I will mention three government institutions that are doing a great job in pursuing blockchain for their infrastructure. They are the governments of Dubai, Switzerland and Slovenia. There are obviously many more governments doing this, but these three captured my attention for some reason or another, let’s see why exactly.
The state/city of Dubai launched an initiative called “Smart City” that aimed to run all government transactions on the blockchain by 2020. This caught the attention of the World Economic Forum, which praised Dubai’s government as one of the most creative and forward-thinking.
The city/state of Dubai
The Dubai Land Department (DLD) is also on the first phase of recording all land deeds on a blockchain network. The next phase will consist in recording also real estate agreements, leases/rents, and even property-related bills such as electricity, water or tax. The goal for the DLD is to enable citizens and investors to pay and settle any bureaucratic task at any time and from anywhere in the world, completely eliminating the need to go to a government office.
Already in the summer of 2016 the municipality of Zug started accepting bitcoin as a means of payment. Most of you did not even have an idea of what bitcoin or blockchain was in 2016, and they already had ready legislation in place to accept it as a legal currency.
Here is a 6 minute interview with the mayor of Zug, explaining the motivations behind the fast adaptation that Zug had with blockchain and cryptocurrencies:
Last but definitely not least, the country of Slovenia. Their government created a wise and future-driven ecosystem that welcomes and grows blockchain startups/companies. This is why Slovenia is nowadays called the “Blockchain heaven”, and it is becoming one of the top destination for blockchain entrepreneurs.
Lake Bled in Slovenia.
In the summer of 2017 Slovenia’s president stated in a blockchain-focused conference:
“The government’s role regarding the blockchain world is to introduce the benefits and the dangers of the new technology to its citizens. Regulation must exist, but in a form that does not stifle Slovenian blockchain companies while simultaneously protects the consumers from risk.”
The key reasons why it is much better to run a blockchain business or ICO in Slovenia are the following:
High level of legal safety
Regulators that are very well-versed in blockchain technology
Easy access to the EU and global markets
High availability of blockchain-experienced developers
Established crypto community where companies like Iconomi, Cofound.it and Bitstamp
Highest blockchain projects market capitalisation per capita
Politicians and regulators that understand the opportunities and act quickly.
I can testify this personally because I met Slovenia’s State Secretary in the Office of the Prime Minister Tadej Slapnik in the 2017 Blockchain Adria conference a few months ago in Rovinj (Croatia). During his conference talk his words were clear and they confirmed that Slovenia is actively pursuing these goals.
That’s it for this broad discussion on blockchain and governments. I did not go too much into technical details on purpose, I did not want to create confusion in your mind. Blockchain is already a hard concept to grasp alone, so it is even harder to tie it to a traditional system such as the public sector.
What you learned here is only the tip of the iceberg. Each topic I talked about can be expanded into more complex ones.
The goal of this discussion was to spark something in your mind, and start thinking about blockchain not only as a vehicle for cryptocurrency-based speculation tool, but also as an advanced and modern infrastructure that can make the life of us citizens much simpler and enjoyable.
The agency I co-founded is always open to dialogue with government entities when it comes to blockchain integrations and consultancy. As a software engineer I can assure that any technical aspect is well explained and considered when looking for better solutions. You can find our contact info on our website at keenn.com . Mention this article in your contact email so I can follow up directly to you.
Comment below if you don’t understand something, or if you have any cool discussion idea or thought about this complex and giant topic.