Blockchain in the Public Sector

  • By Jan Breker in Research
  • 02 Nov 2020
  • 7 min read

Introduction

The functions of governments and public services are both vital and diverse. Governments provide leadership, public services, and national security, they define key parameters for our everyday life, maintain order, and provide economic security and assistance. Well functioning public services are crucial for the functioning of society and hence this in turn has a large impact on the economy.

However, the public perception of how the majority of governments function is all too often defined as cumbersome, opaque and inefficient. Furthermore, they tend to be both reactive and somewhat reluctant to embrace the ever increasing technological advances occurring in today's fast paced world. In response to these criticisms, governments in numerous countries are slowly transitioning to what has been termed as “digital governments”. This refers to the creation of new public services that leverage digital technologies, and is therefore more appropriate in the context of today’s numerous complex challenges. Blockchain technology has the potential to become one of the key technologies within digital governments. It can therefore have a significant impact in both enhancing and ensuring public services become more efficient, transparent and secure.   

 

Challenges in the Public Sector

Nowadays, governments have been entrusted with the difficult task of storing and managing the personal data of its citizens in a secure and easily accessible manner. Managing, administering and securing this large amount of data requires a large workforce and is costly. Governmental administrative systems are often still based on old-fashioned centralized and hierarchical systems that are not compatible with the rapid digital transformation occurring today. Data is often stored in many different systems, siloed and not interoperable. This results in slow, inefficient and opaque processes, which often results in unnecessary errors, coupled with overall dissatisfaction.

Over the past decades, citizens around the world have become increasingly frustrated due to slow and non-transparent administrative decision-making, the high costs of bureaucracy, and increased distrust and skepticism between the general public and the government decision-makers. According to the OECD, trust in governments and public services has been decreasing over the past years, with only around 45 percent of citizens having faith in their governments in 2019 [5]. In the U.S.A., this number is even lower [55].

A centralized administrative system managed by a large labor force does not provide a high level of data protection, and is vulnerable to hacking attacks and theft. Cyber attacks on governments and public service organizations have been a fundamental concern over the last couple of years. Recently, cyber attack prevention has become even more relevant due to the large economic and political risks of these attacks. In 2016, it still remains a distinct possibility that cyber attacks might have had an influence on the US presidential election [4]. In 2017, personal information, including the social security numbers, of 143 million people were exposed by a breach of the Equifax database [5]. In addition, the number of leaked government documents during the first quarter of 2020 increased by over 278 percent compared to 2019 [0].

Apart from the  lack of transparency and cybersecurity issues, corruption is another unwanted dilemma that needs to be considered here. Although corruption within governments has generally decreased over the years, it is a problem that still prevails in many countries. Corruption leads to poor quality of services and infrastructure, harms the economy, and erodes the trust in the public sector. It negatively affects business operations, employment, and investment, and has a strong negative impact on economic growth [1]. Particularly in poorer countries, public sector corruption represents the single largest problem and inhibits social, economic, and environmental development. For instance, in Colombia, over $6 billion was compromised by procurement corruption between 2016 and 2018 [4].

 

Benefits for the Governments

Blockchain technology can have a significant impact in solving these challenges and has the ability to benefit the public sector in many ways. The key characteristics of blockchain technology, decentralization and immutability, play a primary role in this context. Decentralization means that data stored on the blockchain is visible to everyone, and immutability refers to the fact that this data cannot be tampered with or changed by an individual. These important features lay the foundation for efficiency, security, and transparency in ways that have never previously been attainable in the public sector, from the provision of citizens records to the redistribution of public funds and the fight against corruption.
 

Blockchain enables a more agile, labor and cost-effective system

Blockchain technology can help governments to move from a centralized method of storing data to a decentralized way, hence creating an agile, labor and cost-effective administrative system. Actors within the public system could store their data on their own blockchain that can communicate with the blockchains of others. By eliminating siloed systems, redundancy of storage could be decreased, and this would result in an overall reduction in storage capacity.

The costly and time intensive processes of managing administrative systems can be streamlined and made leaner. Smart contracts and custom transactions offer the possibility to automate processes, such as the collection of taxes and reduce the overall effort of monitoring data.

With a blockchain-based system it is easier to access data in the public sector, and as a result processes become more streamlined and faster. Information can be accessed immediately and does not have to be confirmed and validated by many actors. The blockchain acts as a single source of truth. This in turn also reduces costs for managing accountability and ensures data integrity.
 

Blockchain increases the trust in the government

Although reasons for governmental mistrust are diverse, blockchain technology can help to restore and increase trust in public services. Blockchain technology is an assured and secure system by nature, and provides an environment in which data is stored transparently and can not be changed or manipulated. It allows citizens to view the data on which governmental decisions are based, and helps to understand the rationale behind them. When citizens and governments share access to records, the potential for distrust decreases. An interesting example of this is the land title registry in Georgia, (see below).
 

Blockchain makes the public sector more secure

A blockchain-based data management system reduces single-point-of-failure risks and can make attempting a breach prohibitively challenging, as the data can be decentralized and stored in many different places. A good example here is regarding the data of citizens and companies, which can be uploaded to a governmental blockchain and distributed and shared on different nodes. In order to acquire access to the complete data set, one would have to hack all the nodes at once, as hacking only one node would not provide sufficient data sets.

 

Blockchain prevents corruption and abuse of power

As corruption is often a result of a lack of transparency and inadequate record-keeping, blockchain’s decentral and immutable nature will ensure governmental spending is far more transparent, and thus provides a whole new level of accountability. All governmental spending can be reliably traced, hence unofficial and unapproved transfers can be identified immediately.

While blockchain technology as such will certainly not provide the entire solution to eradicate corruption, it can definitely support the prevention of corruption that occurs online. This is further substantiated in the following report by the World Economic Forum on corruption prevention with blockchain in Colombia (4).

 

Blockchain Technology Applied

Governments have already recognized the impact that blockchain technology can have on the public sector and are actively exploring its potential in various diverse use cases. Some of the most well-known use cases pertaining to the public sector are those covering civil identity, state registries, electronic voting, and combating tax evasion and corruption.

 

Zug Digital ID -  Civil Identity [9]

The city of Zug in Switzerland has launched a decentralised identity project called uPort in collaboration with Lucerne University, TI&M, and Luxoft. The goal of this initiative was to create a blockchain-based identity, which allows its citizens to register for e-government services, and share personal data with third parties.

The uPort identity is a smart contract address that can interact with other smart contracts and allows identification without traditional login data or private-public key infrastructure. Users can decide on the type and amount of information they wish to provide, which is stored encrypted in their mobile wallet. After the project went live on the Ethereum network in November 2017, a total of 350 citizens of Zug created a digital ID. Around 70 citizens participated in voting about an upcoming festival. The uPort identity can also be used for a bike sharing service with free access for up to 20 hours. More additional services are planned for the future.


Benefits of the Initiative:

  • Lower operational costs
  • Reduces risk of cyber attacks and lowers infrastructure costs
  • An increase in the efficiency of services further attracts more citizens
     

Republic of Georgia -  Land Title Registry [33, 34]

The republic of Georgia uses blockchain technology to provide its citizens with digital certificates for land titles. The project was developed by the National Agency of the Public Registry (NAPR), in collaboration with the Bitfury Group which is responsible for the technical related aspects.

The aim of the Georgian government was to fight corruption, resolve disputes of property claims, and to increase public trust in institutions and government agencies. The project started in 2016 and has significantly improved governmental efficiency since its inception in these areas. Previously it took up to 3 days to process registrations, whereas now the new land title registry is able to reduce the process to a few minutes. By 2018, 1.5 million land titles in the Republic of Georgia were published on the Blockchain.


Benefits of the Initiative:

  • Reduction of registration and verification time
  • Increased transparency during the registration process
  • Increased reliability of land title registry
  • Lower operational costs
  • Less Corruption 
     

Governmental Blockchain Applications

Governments can benefit significantly from exploring the potential of blockchain technology. Lisk provides the tools to experiment with this technology and to develop proof of concept blockchain applications to solve challenges within the public sector. It is well known that blockchain can build trust, reduce costs, and protect data. Governments are already experimenting with piloting and testing blockchain applications for a plethora of use cases associated with the public sector. To give some examples, these consist of secure data sharing, transparent budgeting, supply chain management, secure payments or identity management. The Lisk Builders program can assist governments in developing such blockchain applications for the public sector.

Jan Breker

Business Development Manager

International Business graduate and technology enthusiast