Application of Blockchain in Public Administration

Introduction:

Taxpayers deserve a government that harnesses technology, to better serve the people.

Matt Blunt

In recent times, technology is being viewed as a means to an end to fulfill social justice goals, achieve a more transparent government, and build a stronger democracy. People are increasingly losing faith in government proceedings and voicing their concerns. Every citizen is essentially a taxpayer and a shareholder, and has the right to get information about the working of the state. World over, citizens are making demands for quicker, smoother, more efficient transactions, and for transparency in the governance system. This is where Blockchain comes into play.

Blockchain technology originated in 2008 when it was proposed as a computer science design to help in trading assets between people who did not know or trust each other. Soon, experts began to realize that the features of Blockchain serves various advantages and have the potential to be used as a tool in public administration. The World Economic Forum has even stated[1] that “Blockchain has emerged as the most promising disruptive technology in the fight against corruption… as it possesses features capable of anchoring integrity in bureaucracies.”

Today, it is being seen a technology that is capable of disrupting, if not completely transforming, both the industries and the public sector. The article seeks to analyze the ongoing exploration of Blockchain technology by governments, its advantages, challenges, and usefulness to achieve economic growth as well as technological innovation.

What is Blockchain?

True to its name, Blockchain technology is a chain of ‘blocks’. Each block contains a unique set of transactions such that the information remains accessible but cannot be tampered with. The simplest analogy is that of a google document. When the document is shared with a group, it is distributed rather than being copied or transferred. This produces a decentralized distribution chain where everyone can access the document at the same time. No one is locked out awaiting changes from another party, and all changes made are recorded in real-time, in a completely transparent manner. Thus, the principal features of Blockchain technology are:

• Digital assets are distributed instead of copied or transferred.
• The asset is decentralized, allowing full real-time access.
• A transparent ledger of changes preserves the integrity of the document, which creates trust in the asset

Key Features of Blockchain Technology use in the Public Sector

1. Tracking: All transactions across Blockchain are trackable and any participant with the access rights can trace back a transactional event, to any point in its history, belonging to any actor in the network.
2. Double Spending: A distributed ledger addresses the ‘double spending’ problem, i.e. copying of digital information using the internet. For eg: A person may send copies of the digital paper of ownership while keeping the original papers. Traditionally, this risk has been mitigated by having centralized authorities like banks. Blockchain would shift this responsibility to the network and its algorithm.
3. Security of Data: The physical decentralization of storage of data provides security, as it eliminates the risk of a single point of failure, where one node is critical for the operation of the network and vulnerable to cyber-attacks.
4. Integrity: The data cannot be altered or deleted and new entries can be recorded in an append-only manner by linking to the previous transactions.
5. Checks and Balance System: Centralized parties are no longer required to ensure the validity of transactions and the power shifts from the government agencies to the ecosystem.
6. No need for intermediaries – It allows disintermediation by eliminating the need for middle-men or brokers and saving the intermediary transaction costs.

Digital Governments using Blockchain

Digital government refers to the state-of-art concept of public administration science, and goes a step further from the e-government paradigm. The latter merely called for the digitalization of public administration, while the Digital government model refers to the creation of new public services and service delivery models that leverage digital technologies and governmental and citizen information assets. It focuses on providing user-centric, agile, and innovative public services. Blockchain is definitely one of the most innovative digital technologies to be considered under this new paradigm of public policy. Its main advantages in the field of government administration are:

1. Lowered economic costs, time, and complexity between inter-governmental and public-private data exchanges, which enhances the administrative function of governments.
2. Reduction of bureaucracy, discretionary power and corruption, by using distributed ledgers and programmable smart contracts
3. Increased automation, transparency, auditability, and accountability of information in governmental registries for the benefit of citizens.
4. Increased trust of citizens and companies in governmental processes and secure storage of government, citizen, and business data.
5. Recordkeeping is driven by the use of algorithms that are no longer under the sole control of the government.
6. Reduction of labor-intensive processes 
7. Capacity gains, such as an increased volume of registered transactions per unit of time
8. Efficiency gains, such as a reduced time of completing a transaction compared to the current system.

Ways to use Blockchain Technology in Public Administration

1. Digital Identities: Blockchain could be used to establish digital identities for citizens, businesses, and other government affiliates. Blockchain-based identities can aid in preventing identity theft, especially if they are associated with some type of multi-factor authentication or biometric system.
2. Personal Records: The technology can be used to manage multiple aspects of identity such as birth certificates, marriage licenses, passport, visa information, and death records. These personal records can be automatically made available to the designated agencies through smart contracts if certain predetermined conditions are met. For example, transferring details of recipients of unemployment benefits to the labor agency.
3. Financial Services and Banking: It can be used by governments to ease the overhead and burden associated with transferring funds among parties (e.g., facilitating inter-bank and international payments). In addition, some countries’ central banks are experimenting with their own digital currencies built upon Blockchain platforms. Canada has experimented with a digital currency called CAD-COIN as a way to better understand the technology first-hand.[2]
4. Land Title Registry: Land title registry is a natural fit for Blockchain technology. Land titles and other records related to ownership could be chronologically recorded on a Blockchain ledger, along with the details relevant to a sale of property. As Blockchain transactions are immutable, a full historical record of a property or other asset would be obtained. This could minimize the need for expensive and time-consuming third-parties in transactions and enable individuals to assert their ownership rights.
5. Corporate Ownership Registries: Secretly operated companies can easily be used to launder money or self-interestedly sway governmental investment. Many countries are thus, beginning to develop central registries for beneficial corporate ownership to keep a track of their activities.
6. Supply chain management, tracking and inventory: Governments could track an asset from its creation, through potentially multiple stages of transportation, and eventually through purchase. They can manage asset inventory, view changes in chain of custody, and track certain goods such as diamonds and gemstones to prevent illegal goods from entering the market.
7. Benefits, entitlements, and aids: These processes often involve a significant amount of overhead and checks for compliance. Government programs such as social security and pension payments, medical care benefits, and domestic and international aid could benefit tremendously from Blockchains. Smart contracts could be used to automate eligibility verification and disbursement of funds, such as distributing funds to those affected by a major natural disaster. In addition, it could help ensure that benefits reach their intended beneficiaries and are not diverted
8. Managing Contracts and Vendors – Things such as tracking and paying vendors, managing purchase commitments and monitoring schedule performance could all be done in a way the is accessible to all relevant players. It would also increase transparency and accountability and prevent manipulation in public procurement.
9. Energy Sector: Public energy utilities may benefit from Blockchain technologies for managing of smart energy grids. Blockchains allow for the recording of autonomous, machine-to-machine transactions regarding electricity use. It could also be used to manage and track contributions from different power plans into a smart grid to ensure that each power generator is credited appropriately for their contribution.
10. Trading: Blockchain technology is already being used to trade in ‘digital securities’ which is a collective name for electronically registered and transferable equity, debt, and assets that are issued/traded on the platform, for example – Kraken, Bit Shares, Equity bits, DX Markets etc.
11. Intellectual Property: More and more content is generated every day and people rush to get their works copyrighted, innovations patented, and marks registered. Blockchain would serve as an excellent tool to timestamp such works, keep a ‘vigilant’ eye out for anyone violating IP rights, create a permanent record of their work, and issue their clients a time-stamped certificate. In this sense, they could also serve as proof of ownership and proof of existence, and lessen disputes in the field.
12. E-voting: Recently, there have been growing concerns regarding election security, voter turnouts, voter registration integrity, and poll accessibility which have led states to consider blockchain-based voting platforms. This would establish trust, integrity, and ensure the participation of citizens in essential democratic processes. The WEF has observed, “Blockchain’s decentralized, transparent, immutable, and encrypted qualities could potentially help minimize election tampering and maximize poll accessibility.”[3]
13. Mitigating fraud – Through verifications of things such as land ownership, other assets, and identities, Blockchain technologies can assist governments in mitigating the risk of fraud, as well as identifying fraudulent transactions that do manage to get through. One major example of this would be for assessing and collecting tax payments.
14. Streamlining cross-sector processes: Blockchains and smart contracts can automate some transactions and make interagency processes more efficient and effective by removing the need for third-parties, especially where tasks are currently paper-based or use information systems that have limited interoperability. This allows one agency to focus on the tasks they know best with less of a need to understand the processes and information systems of other organizations.

Limitations

1. Immutability: Immutability is one of the core benefits as well as limitations of Blockchain, in terms of practical applicability. Information can only be added to it and there is no way to remove previous entries. In sectors where updating and/or deleting data is a regular occurrence, using this technology may not be the best option.
2. Privacy and Confidentiality: A necessary trade-off will have to be struck between the levels of decentralized decision-making and privacy settings. Because of its immutability, there may be conflicts with individual rights such as the right to privacy or the right to be forgotten.
3. Data Storage: Public and private sector entities often use databases as a means of storing large amounts of data, in the form of documents, images, videos, applications, etc. A Blockchain is more like a list of transactions, and at most contains small pockets of data used to execute and guide smart contracts. They are not designed for large data storage. A hybrid approach may be needed in this case, where both Blockchains and an offline data storage solution are pursued.
4. Data Quality: The quality of the data that is input at the origin will directly affect the quality of the data on a Blockchain and the quality of results derived from that data. In other words, “No amount of analytics can compensate for the lack of accurate, timely, and authoritative information at the input point. Bad data cannot be made good, merely through analytics.”[4]
5. Governance Model: Governments that opt for a public, permission-less blockchain would have to accept that it will have virtually no control over how that system is governed. While the power would be taken away from the hands of politicians, it would simultaneously result in ‘code power.’ Trust would be dependent on the quality of the code and those with the competence to alter the code would be in control.
6. Energy Consumption: The energy consumption associated with the Proof of Work consensus model and the mining processes on the Bitcoin platform are extremely high. Bitcoin’s estimated annual electricity consumption is 58 Tetra Watthours (TWh) which represents .26% of the world’s annual consumption and is clearly an unsustainable practice for environmental reasons.
7. Scalability: The platform may not be capable of processing transactions as quickly as is needed. Bitcoin is only capable of processing roughly seven transactions per second, which would never compete with more traditional financial companies such as Visa (1,667 transactions per second) or PayPal (193 transactions per second).
8. Pre-requisites: For the technology to be implemented in the public sphere, it is necessary to have technological infrastructure and tech-savvy citizens. Digital literacy, laws and regulations, and political decisions are also required, which may prove to be challenging and the question arises whether the benefits would outweigh the costs.  

Present International Scenario

• The Centre for Disease Control is working to put disease outbreak data onto a blockchain which they believe will increase the effectiveness of disaster relief and response.[5]
• Dubai has created an ambitious Dubai Blockchain Strategy which seeks to make Dubai the first blockchain-powered government in the world by 2020.[6]
• The Mexican government has passed a Fintech Legislation, which aims to regulate the use of cryptocurrencies. The state is also planning to conduct public procurement procedures on a blockchain network, to track and validate contracts and reduce corruption.
• The Republic of Georgia launched the first-ever blockchain land-registry system. There are now more than 1.5 million land titles registered, with an average of 3 minute registration time. Countries such as Sweden, UK, Estonia, Ghana, Uganda, and Zambia are also making use of the technology in land registries.[7]

National Scenario

• All telecommunication companies in India have been instructed by the Telecom Regulatory Authority of India to adopt blockchain technology to eliminate phone spamming.[8]
• Kerala has emerged as the blockchain hub of India and entered the GITEX Technology Week, held in Dubai World Trade Centre with 18 start-ups dealing in blockchain, robotics, AI, etc.[9]
• The Tea Board of India has announced its intention of adopting this technology in order to improve transparency and traceability of products in tea trade operations, since the quality of tea has been on the decline due to food adulteration.[10]
• Reliance Industries has announced that it is developing a blockchain-based supply chain logistics platform along with its own cryptocurrency named Jiocoin.
• Niti Aayog, the policy think tank of India has recently published a strategy document identifying a number of key areas where blockchain technology can significantly benefit the country.[11] They believe that “India possesses a unique strategy where the government can take the lead in creating public digital infrastructure and private sectors can leverage it for further innovations.” Some examples of governmental digital infrastructure currently in operation in India are Aadhaar, UPI, e-sign, Digi locker, and digitally-enabled tax governance and health coverage networks.

Conclusion

Contrary to how it is often portrayed, so far Blockchain has neither been transformative nor disruptive for the public sector. We have not observed the creation of new business models, the emergence of a new generation of services, or direct disintermediation of any the public institutions. However, the governments that are already making use of it have reported other significant benefits, especially when it comes to enhanced security and efficiency gains such as reduced processing time and lower costs.

Currently, the main barrier to unlocking the transformative potential of blockchain is the incompatibility between blockchain-based solutions and the existing legal and organizational frameworks.  Without a proper framework and technological backbone, its implementation cannot be realized to the fullest extent, which is why it is emphasized that countries need to “get the basics right first” before straightaway implementing these reforms. While the technology is in its infancy in terms of public sector exploration and applications, Blockchains have immense powers that are waiting to be unleashed. It is imperative for the governments of all states to research and build their knowledge in this area and consider all the possible and practicable applications to bring about a new era of trust and democracy. 

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References:

[1] World Economic Forum, Supplemental research report – Exploring Blockchain technology for government transparency, WEFORUM (June 2020). http://www3.weforum.org/docs/WEF_Blockchain_Government_Transparency_Report_Supplementary%20Research.pdf.

[2]  Laura Shin, Canada Has Been Experimenting With A Digital Fiat Currency Called CAD-COIN Forbes (2016), https://www.forbes.com/sites/laurashin/2016/06/16/canada-has-been-experimenting-with-a-digital-fiat-currency-called-cad-coin/ (last visited Sep 12, 2020).

[3] Carlos Santiso, Here’s how technology is changing the corruption game World Economic Forum (2019), https://www.weforum.org/agenda/2019/02/here-s-how-technology-is-changing-the-corruption-game (last visited Aug 29, 2020).

[4] UK House of Lords, 2017

[5] 35 Amazing Real World Examples Of How Blockchain Is Changing Our World, Bernard Marr, https://www.bernardmarr.com/default.asp?contentID=1302.

[6] Smart Dubai, ConsenSys, https://consensys.net/blockchain-use-cases/government-and-the-public-sector/smart-dubai/.

[7] Lesa Mone, Which Governments Are Using Blockchain Right Now? ConsenSys (2019), https://consensys.net/blog/enterprise-blockchain/which-governments-are-using-blockchain-right-now/ (last visited Sep 12, 2020).

[8] Yeshey Rabzyor Yolmo, Top 7 Blockchain Developments In India: 2019 Analytics India Magazine (2019), https://analyticsindiamag.com/top-7-blockchain-developments-in-india-2019/ (last visited Sep 12, 2020).

[9] Ibid

[10] Ibid

[11] Kevin Helms, Government Think Tank Niti Aayog Identifies Key Blockchain Use Cases for India | Regulation Bitcoin News Bitcoin News (2020), https://news.bitcoin.com/government-blockchain-india/ (last visited Sep 12, 2020).