The blockchain revolution in government
Douglas Heintzman, chief catalyst at the Blockchain Research Institute looks at how blockchain can be used in government
It is hard to overstate the impact that blockchain will have on government in the next 20 years. Having confidence and shared visibility in a common state of information (data and the record of transactions that interact with that data) is fundamental to many, if not most, government functions. Governments are adopting blockchain because of its many attributes including the ability to secure data and make it extremely resilient, reduce accountability and audit costs, automate labour intensive processes, reduce the potential for corruption, and improve the public’s trust in government institutions.
We already see examples of governments employing blockchain in a great variety of situations. The United States uses blockchain to manage interdepartmental resource transfers and mitigate audit expenses. It also uses it to manage Department of Defense supply chain issues. Georgia uses blockchain to instill public and business confidence in land registries. China plans to use blockchain to streamline the judicial process by digitizing the notary requirements and automating document flow. The UK is using blockchain for some welfare payments. Denmark is using it to improve the efficiency of foreign aid programs. The United Nations uses blockchain to improve the management of food vouchers in refugee camps in Bangladesh and Jordan.
Beyond operational efficiency processes, there are a few key areas where blockchain has the potential to be significantly impactful. They include healthcare, digital identity, finance, and trade.
Healthcare
Incomplete healthcare records result in improper diagnosis and medical errors which in turn leads to poor coordination of patient care. A blockchain-based electronic healthcare record system can both improve patient outcomes and reduce error-induced and redundant testing costs. Such a system can situationally expose the right information to the right people for the right reasons while preserving patient privacy and even give patients sovereignty over their health records.
Digital identity
A digital identity is a core building block of not only healthcare, but of countless other systems. Being able to establish your identity efficiently and confidently, reduces interaction friction with many government-related processes ranging from voting in an election, to airport security and customs, to the collection of social benefits. Furthermore, as government ID is the gold standard for countless business-to-consumer interactions, a digital identity can have a significant multiplier effect in the economy. For example, South Korea believes its digital identity efforts will be responsible for a 3 per cent growth in GDP.
Finance
There are many blockchain operation use cases in government finance. Procurement onboarding should be substantially streamlined as should the supplier payments processes. Regulatory oversight and auditing will also change substantially because of blockchain. There are also opportunities in international finance such as enabling real-time payment settlement between central banks.
Another potentially important use case in finance is wallet-based central bank digital currencies (CBDC). CBDCs in various forms are being piloted all over the world. They offer many advantages over traditional services including reducing friction and the ability to tweak the economy with greater precision. After all, blockchain-based CBDCs can be programmable. This suggests many opportunities as well as many questions. How specifically will programmability impact the execution of macro and micro economic policy? Will the new system be more inclusive allowing larger portions of the population to be able to effectively engage in the banking and financial system? Will a circulating currency that is central bank liability be a stabilizing force in the economy or increase the risk of contagion spread. Will the world’s reserve currency system be impacted to any significant extent? The answer to these questions will, to some extent, be tied to a CBDC’s underlying architecture which will in many cases likely be based on blockchain, especially if policy makers want it to interact with other types of crypto currency.
Trade
From a governmental perspective, the application of blockchain to trade primarily centres around regulatory compliance and duties collection. However, the government is only a participant in a large supply chain ecosystem. Blockchain brings transparency and visibility to supply chain. It allows for multi-party contracting, real-time tracking and tracing, and the incorporation of externalities such as carbon content into pricing and decision making. It allows for the virtualization of supply chains through digital twining. This suggests some interesting possibilities when it comes to regulation, as the objective and effect of regulations and duties could be applied virtually, reducing friction in the real world. This possibility is very compelling considering the complexity in regulating trade with the European Union.
Because blockchain’s differentiating strength is in coordinating activities between multiple parties, the key challenge in creating value in the trade domain, like most other domains, is accelerating adoption. There are three pieces to the adoption challenge. The first is incentives and stakeholder alignment. The value proposition needs to be clear and compelling. The second is interoperability. This second era of the digital age will be a work in progress and take a long time. New blockchain based systems will have to interact with many legacy systems and leverage a lot of the progress that was made over the last decade around APIs and standards adoption. The third is composability. Anyone who has played with Lego understands the power of composability. The ability to compose Lego blocks into any number of configurations and add to, and iterate, and decompose, and reconstitute, is very powerful. Blockchain based systems are highly composable. This composability leads to high rates of innovation and creativity and enables the effective targeting of small economic niches. Governments should start to rethink how they interact with supply chains and how they structure their systems so that others can compose with them efficiently. They should recognize that if government services are designed to be composable, innovators will find many ways of combining and enhancing those services and in doing so making them more relevant and more valuable to more people in more situations.
Finally, Blockchain impacts issues of interest to governments beyond the delivery of government services. Blockchain can bring collective confidence in the veracity of information. It can give confidence in the identity of an author of opinion and their reputation and credentials. It can help determine if content has been altered or manipulated.
Blockchain will also cause a restructuring of the business landscape as smaller economic actors will be able to compose their systems and combine their resources to deliver more innovative composite products and services to the market. We are already seeing governments playing a role in supporting economic activity around Web3 and blockchain.
France is implementing tax reform to incentivize blockchain and Web3 investments. Japan has established a dedicated Web3 policy office under their Ministry of Economy, Trade, and Industry. China’s blockchain-based Service Network (BSN) is publicly funded digital infrastructure at scale designed to accelerate blockchain innovation in the enterprise.
The Web3 and blockchain era has enormous potential. As with any new foundational technology there will be false starts and frustrations. There will also be spectacular successes and innovations that had never occurred to us. This era has the potential to include a greater portion of the population and create significant broadly based value. It has the potential to solve difficult problems, improve our ability to deal with existential threats, and to forge a new social contract. It will require strong visionary political and bureaucratic leadership to catalyze this opportunity. This will be one of the great challenges for government over the next decade.
