Blockchain and government may seem like an incompatible combination at first glance. However, together they can address key issues such as lack of digitalization and transparency, privacy concerns, inefficiencies, and many more. But how?
Blockchain has come a long way, evolving from a new experimental technology into a vital tool for improving business performance, increasing workflow efficiency, and boosting revenue.
In 2020, Deloitte conducted the Global Blockchain Survey, which explored overall attitudes and investments in blockchain. The company surveyed 1,488 senior executives and practitioners in 14 countries. The survey found that 39% of global respondents had already implemented blockchain in production, and 55% of organizations saw blockchain as a top strategic priority. Moreover, 83% of respondents shared that their companies would lose their competitive advantage if they didn’t introduce blockchain-powered solutions.
Governments and public sector organizations are also among those who either already use blockchain or have big plans for this tech. They mainly leverage it to replace inefficient centralized systems that can be unsafe and quite expensive. Blockchain, on the other hand, allows for the creation of more secure, flexible, and cost-effective platforms.
Let’s find out more about why governments adopt blockchain, understand what benefits this technology brings, and explore real-life blockchain government use cases.
Why implement blockchain?
Blockchain by default provides several benefits such as decentralization, transparency, immutability, increased security, and trust. Thanks to these characteristics, blockchain can help organizations tackle a number of existing problems in government processes: lack of digitalization, widespread corruption, privacy issues, and the usage of old ineffective systems.
While the world has quickly gone digital, governments don’t seem to be quite keeping up with the pace of global digitalization. The World Bank’s ECA Economic Update Spring 2021 shares statistics on the level of government digitalization in Europe and Central Asia, which show that most countries still need to work harder to improve the situation.
For example, only 19 out of 50 countries have achieved the highest GovTech Maturity Index, showing that they are leaders in the use of advanced digital solutions and demonstrate excellence in all four GovTech areas: government core operations, public service delivery, citizen engagement, and GovTech enablers. These great results are found in Northern, Western, and Southern Europe, the Baltic, and two countries in Central Europe.
Half of the surveyed countries (26 out of 50) show a significant focus on GovTech – Russia, Turkey, South Caucasus, and most countries in Central and Eastern Europe. Countries such as Belarus, Bosnia and Herzegovina, Kosovo, Tajikistan, and Turkmenistan continue to lag behind the “digital leaders”.
While performing this digital transformation, technologies like AI, AR, and IoT are often used. Blockchain in government processes also has every chance of becoming a key technology for digital transformation, as it provides the highest security and trust for both citizens and organizations.
Corruption is the Achilles’ heel of most countries in the world, regardless of how strong or weak the country is both economically and politically.
Corruption is literally blooming in the field of public procurement. The World Economic Forum claims that around $9.5 trillion worldwide goes for public procurement, which averages about 15% of national GDP. It is assumed that this amount goes to public goods and services, but part of it actually goes into the wallets of corrupt government officials, company executives, and many others involved in the procurement process.
People are having difficulties fighting corruption on their own, so technologies have come to the rescue. Blockchain in particular has the potential to become an effective anti-corruption tool.
The World Economic Forum published a study on the blockchain-based public procurement system in which experts analyzed the feasibility of blockchain technology implementation in this area. They concluded that blockchain, with its cryptography and distributed consensus mechanisms, has properties that make it a promising technology capable of reducing corruption.
Some of these properties are continuous accounting, the immutability of recorded information, transaction data transparency, and auditability. Blockchain also implies the automated function of smart contracts and significantly reduces centralized authority and ownership of information within processes.
Risk of data leaks
Alas, even in 2021 there are still no technologies and applications that are 100% impossible to hack. According to statistics, 40% of IT leaders find jobs in cybersecurity the hardest to fill.
Meanwhile, data breaches cost companies a fortune: according to the Cost of a Data Breach Report, sponsored and published by IBM Security, leaks of fewer than 100,000 records cost enterprises an average of $3.86 million, and breaches of 1–10 million records may cost around $50 million.
Even though blockchain doesn’t completely eliminate the risk of data leakage, it can significantly reduce it. With its immutability and transparency, blockchain enables regulatory compliance, contract, and identity management, thereby reducing the time, cost, and risk of managing confidential information.
What’s more, blockchains allow each user to manage their own data, customize settings, and specify how it is shared.
Blockchain-powered solutions can also replace outdated systems that are slow and inefficient.
Blockchain benefits and use cases in government
A government on blockchain is capable of solving multiple legacy problems and enjoys a number of benefits such as increased efficiency, lower cost, immutable record storage, and transparent transactions leading to enhanced trust from citizens. Blockchain also enables digital identity management and helps to conduct fair electronic voting.
It takes weeks, months, and sometimes even years to get through the red tape – this statement is true for both governments and citizens. It is not only an annoying process but often forces people to break the law in order to get results faster.
Blockchain can address this by improving the efficiency of administrative processes and helping governments move to new service delivery models. Governmental institutions, for instance, can implement blockchain-powered solutions to issue and distribute academic records. It will make life considerably easier for employers and employees. Employers won’t need to find their own ways of verifying a candidate’s diploma and certificates, and it will be much more convenient for candidates to prove that their documents are valid and share them with the company.
By automating administrative processes using blockchain, governments and citizens will save time, money, and nerves.
Blockchain as a tool to cut costs
Regardless of the field of application, blockchain technology implies the elimination of intermediaries. Blockchain in government works the same way: it removes the need to turn to intermediary organizations and third parties, significantly reducing overall costs and providing opportunities to invest more in developing and improving social services.
Citizens would also feel better knowing that their tax money is spent on improving services instead of paying unnecessary costs for numerous intermediaries.
Immutable record storage
Governments collect information for many different purposes, from statistics, border control, and public health to climate monitoring, social security, and law enforcement. The immutability of records provided by blockchain can help government organizations collect and store information without the risk of it being tampered with.
When people are sure that no one has intentionally changed the statistics, they will trust the data provided by the government.
Going digital with blockchain
Although there are plenty of electronic programs and databases, government offices are still drowning in paper. OMB Memorandum M-19-21, Transition to Electronic Records, mentions that “the federal government spends hundreds of millions of taxpayer dollars and thousands of hours annually to create, use, and store federal records in analog (paper and other non-electronic) formats.”
The memo talks about the need to switch to electronic formats and sets specific deadlines: the government must migrate to a fully electronic environment by the end of 2022.
Among the variety of electronic document management systems (DMSs), why not consider adopting those based on blockchain?
By using a blockchain-powered DMS, governments will have a transparent document history and will be able to secure and decentralize their data storage, protect data with encryption, hashing, and blockchain itself, eliminate fraud with built-in proof of origin techniques, and exclude all intermediaries.
It’s worth noting that all documents and information added to the blockchain are time-stamped and immutable. This means that users can’t open the original document and make changes. Instead, they will need to upload the new version to the system and it will be recorded on the blockchain and added in chronological order.
In this way, blockchain makes it easy to track original documents and all changes applied to them and ensures that no one deletes (this is simply impossible on the blockchain) or changes the data in the documents on purpose.
Accountability, visibility, and trust
Not every country can boast of a high level of public trust in the government. According to a Pew Research Center report, in the US, only 24% of citizens admit that they trust the federal government to do what is right just about always or most of the time.
It may sound surprising at first, but blockchain technology can actually help governments build trust with citizens. Generally, to be trusted, government agencies need to be open and transparent, and this is exactly what blockchain offers.
When information about assets and transactions is recorded on the blockchain, it is transparent, that is, visible to everyone. At the same time, where necessary (for example with sensitive personal data collected for statistical purposes), data can be shared anonymously.
Citizens also want to know where their tax money goes. Blockchain can help ensure full accountability of financial transactions. If a government chooses to manage its finances using blockchain, citizens can check the movement of every penny and see how it was spent.
Openness, transparency, accountability, and a guarantee that the country’s money is being spent wisely will increase citizens’ trust in government. This will benefit the country as a whole.
Land title registries
License and registry processes involve piles of papers, plenty of middlemen, and, hence, costly and inefficient transactions. There is also a risk of fraud because it is difficult to verify documents and check the identity of the intermediary.
A blockchain-based land registration system will reduce the total number of intermediaries and help citizens save time and money. Moreover, they will be able to view verified information on real estate transactions and track all the changes.
By applying blockchain, governments can improve efficiency in the industry and make land registration processes as simple and free of corruption as possible.
Regardless of the voting method – digital or paper-based – there is always a chance that someone will falsify or interfere with elections. The audit of election results is usually centralized and not transparent, and there are threats of cyberattacks both from within the country and abroad. In addition to that, electronic voting machines and their maintenance, ballot printing, the organization, and the subsequent process of counting the results – all these things require a lot of money.
Blockchain can bring transparency into elections, improve security and vote verification, enable remote participation for citizens, and reduce the cost of running all stages of elections.
There is also good news for countries concerned about foreign involvement in elections. Blockchain can help prevent this, too. Since blockchain for the government implies immutability and increased security, no one can interfere with the voting results.
Blockchain for government: problems and limitations
Despite numerous benefits, there are still a few issues for governments wanting to use blockchain. Some of the major challenges include the following:
Blockchain and crypto supporters are aware of the technology’s scalability problem. When a decentralized network sees a sudden large influx of users, it becomes congested and slows down. As governments seek to interact and provide services to a wide audience, this issue is highly relevant to them.
Users of the two largest and most popular blockchains, Bitcoin and Ethereum, face this issue as well. Nevertheless, there is a way out: this challenge can be tackled with Layer 2 solutions or next-generation protocols such as Ethereum 2.0.
Meanwhile, Bitcoin and Ethereum are not the only blockchains in existence. Developers are trying to find solutions and make blockchains scalable, especially when building new platforms. For example, the Flow blockchain launched in 2020 leverages its multi-node architecture to provide vertical scalability. The architecture of the nodes is built in such a way that the work is distributed among them. Thus, the blockchain is capable of processing a large number of transactions at a low cost and in a short period of time.
- Application and adaptation processes
Government agencies are obviously already using plenty of different programs and applications, and it may take some time to implement a new platform and integrate it with existing programs. Again, this is not an impossible task. If you partner with a professional blockchain team, experienced developers will customize the new application to your needs and fit it perfectly into the agency’s existing infrastructure.
- Risk of losing a private key
Blockchain security is one of its most prominent features. Thanks to powerful encryption, blockchain-based networks are generally highly resistant to hacking and fraud. However, if someone obtains your private key, they can access your sensitive data and agency information.
The recommendation on how to avoid this situation is simple – be extremely careful and never share or lose your private key.
- Lack of knowledge about blockchain
For most governments, blockchain is still a new technology that will require a learning curve. Agencies can do the research themselves, or they can contact a trusted blockchain consulting company that will not only explain how blockchain works but also demonstrate use cases and real-world applications and offer a suitable solution.
What enterprise blockchains can be used in government?
Blockchain technology can serve various purposes from carrying out transactions and digitizing documents to tracking goods in the supply chain and holding elections. Here are four leading enterprise blockchains that governments can implement depending on their goals and needs.
Hyperledger is not actually a blockchain platform but a global project that offers frameworks, tools, and guidelines for building decentralized applications in different industries. The founding members and contributors to the project included tech giants such as IBM, Intel, SWIFT, Amazon, ConsenSys, J.P. Morgan, Hitachi, R3, and others.
Here are several reasons why Hyperledger frameworks are considered one of the best options for adoption in government:
- 1. Hyperledger allows the development of permissioned blockchain systems
This means that participants in the network can enter and perform actions only if they are granted permission and have passed the identification process. Thus, Hyperledger-based applications help protect privacy and sensitive government data
- 2. Hyperledger provides high scalability
This will ensure the application’s seamless performance and enable a government agency to reach a large audience
- 3. Hyperledger is designed to have a modular architecture and allows for plug-and-play components
The modular architecture is incredibly helpful for both developers and clients, in this case – governments. When developers are working on a blockchain project, Hyperledger’s modular architecture helps them easily implement the main functionality, as well as plug in additional services later at the client’s request
- 4. A multi-layer security protocol will protect the government blockchain application from hacking
The multi-layer security protocol implemented in the Hyperledger project is an additional security measure for sensitive government data stored on the blockchain.
You’ve probably heard of Ethereum as it is the most actively used blockchain, with ETH being the second-largest cryptocurrency after Bitcoin by market capitalization. However, in terms of government adoption, its enterprise version is of greater interest to us.
Enterprise Ethereum is a permissioned blockchain platform that is already widely used in many countries. This blockchain provides the lowest cost business model and can be deployed in a matter of weeks.
Enterprise Ethereum, like the public Ethereum network, also provides the ability to tokenize assets. Asset tokenization is another blockchain-related phenomenon that governments can implement. Assets that have been tokenized can be moved and tracked much faster, while achieving high security, saving time and financial resources, and opening up new ways of attracting investors and generating revenue.
Quorum is another permissioned blockchain platform that is perfectly suitable for governmental projects. In particular, this blockchain can boast high-speed transactions, high throughput, data confidentiality, and improved permissions management.
A Quorum-based network is only available to pre-approved authorized members, and this increases the level of security and transparency.
Quorum also allows private transactions where two nodes can use a private transaction chain that only they can see. However, governments can consider implementing a solution where all authorized network participants can track the history of transactions as it will help prevent corrupt practices.
One more great and distinguishing feature of this blockchain is the voting-based consensus mechanism. Quorum uses smart contracts and distributes voting rights through them. In addition to assigning voting rights, this blockchain monitors the voting process and completes a transaction if it gets the majority of votes.
Another significant advantage is Quorum’s high performance. This blockchain is capable of making over 100 transactions per second, which is higher than Bitcoin and Ethereum, for instance. So for government processes, the Quorum blockchain could be a great choice.
R3 Corda, Ripple, XinFin, MultiChain, and others are also among blockchains that can serve government needs. When choosing a platform, a government agency should deeply analyze all the pros and cons of a particular blockchain and correlate them with how the platform can help achieve the government’s specific goals.
Blockchain projects in government across the globe
You might be thinking, “This all sounds very cool, but is it really possible to implement government blockchain projects like this and get all these benefits?”
The answer is “YES”.
Currently, dozens of countries are either developing blockchain applications, or have implemented pilots, or have been successfully using blockchain on numerous projects for years. Let’s take a look at some of them.
The U.S. Department of Health and Human Services (HHS) is running the Accelerate program – the first federal government blockchain-based program to get an authority-to-operate. In an effort to reduce procurement costs for the department, HHS has embarked on this project and has already achieved tangible results.
“We negotiated a deal with a company and we’re going to save $30 million over five years. It’s about a 52.25% discount off of the rate that we’re currently paying. We’ll generate savings immediately in year one. That deal in and of itself more than pays for the investment that we’ve made in Accelerate,” CIO Jose Arrieta said at the Digital Health CXO Tech Forum in February 2020.
How did it work? The Accelerate neural network performed a cluster analysis of 10-year HHS contracts and identified price discrepancies in its portfolio. Later, the department used the results of this research to strike the deal.
The platform’s deep database is built on the Hyperledger Fabric blockchain framework and contains contract data from the department’s five procurement systems. The use of this platform enables automatic price reductions for the government as HHS staff can view how suppliers interact with the department, check time-stamped financial records, detect price discrepancies, and review all the information related to past contracts.
“We’re using [blockchain infrastructure] so that we can nudge and encourage decentralized behavior in the future. There’s a number of use cases that we see that could benefit the agency leveraging blockchain,” Mr. Arrieta added.
United Arab Emirates
The United Arab Emirates government is probably one of the biggest blockchain enthusiasts in the world. The UAE has even adopted the Emirates Blockchain Strategy 2021, which aims to move 50% of government transactions to the blockchain by the end of 2021. The Dubai Future Foundation has established the Global Blockchain Council to achieve these goals and encourage the adoption of innovations.
It comes as no surprise that the country is currently implementing numerous blockchain projects. For instance, in 2020, the Ministry of Health and Prevention (MoHAP), together with the Ministry of Presidential Affairs, Dubai Healthcare City, and other authorities, launched a blockchain-based medical platform. The platform will record and store data for healthcare and medical practitioners as well as pharmaceutical, government, and private institutions.
The blockchain-based trade finance platform launched by the Abu Dhabi Commercial Bank (ADCB) is another example of a blockchain project being implemented in the UAE. To realize this project, the bank started working with the Singapore-based dltledgers platform. In fact, ADCB became the first bank in the country to execute an end-to-end automated blockchain trade finance transaction.
What is the result? The private ADCB network is now able to provide end-to-end trade transparency throughout the entire transaction lifecycle with authenticated digitized documents at every stage.
It will take too long if we cover all blockchain projects in the UAE, so let’s take a look at just some of them:
- A blockchain-powered eCommerce platform launched by Dubai Customs
- The Dubai Immigration and Visas Department combines biometric authentication and blockchain to develop digital passports for seamless entry into Dubai airport
- The Dubai Multi Commodities Centre (DMCC) opens a Crypto Centre that will house companies developing crypto and blockchain technology
Blockchain has already entered numerous industries in the United Arab Emirates and doesn’t seem to be stopping there.
Estonia has applied blockchain in its e-government system to ensure the safety and security of digital data and take a big step towards a truly digital state. This ambitious project is simply called e-Estonia.
Currently, the Estonian government provides blockchain-based services in almost all areas: education, residency, healthcare, e-identity, mobile services, and others.
The country uses KSI Blockchain, designed by Estonia-based Guardtime. Thanks to KSI Blockchain implemented in Estonian government networks, historical records can’t be edited or rewritten by anyone. Moreover, the authenticity of all recorded data can be mathematically proven. Thus, it is impossible to manipulate data and avoid punishment, no matter where you try to interfere with the system from – within government or even abroad.
Malta is also a country deeply involved in the adoption and use of blockchain technology. The government planned to turn the country into a “blockchain island” and they did so: according to the Times of Malta, since 2017, when the government first announced the creation of a “blockchain island”, about €60 billion in cryptocurrency and other virtual assets have passed through the country.
One of the projects implemented by the government, the Ministry for Education and Employment (MEDE), to be exact, was the adoption of the Blockcerts platform, which helps to manage academic records.
Using Blockcerts, educational institutions can create, issue, and verify diplomas, certificates, and other academic documents belonging to Maltese citizens. Those citizens, in their turn, will have control over the sharing of their academic credentials.
When an institution generates a digital certificate, they receive their own private and citizen’s public key. Then, the certificate is automatically stored in the citizen’s Blockcerts wallet. The citizen can later provide their future employer, another institution, or even a foreign university with a digital certificate as well as the Blockcerts URL.
This solution helps reduce the risk of academic fraud and opens up opportunities for simpler, more convenient, and secure storage and sharing of academic information.
In November 2017, the government of the Swiss city of Zug decided to test digital identity issuance using the Ethereum blockchain. By the way, Zug is also known as “Crypto Valley” for its cryptocurrency acceptance and many blockchain-related start-ups.
Swiss users interact with the system via the uPort app. The protocol uses two smart contracts – a controller contract and an identity contract – to confirm the validity of the identity and protect data in case the user loses their mobile phone.
In addition to registering via the app, each applicant initially needs to visit the city hall to confirm that they are indeed a resident of the city. After the successful approval, their identity is publicly attested to the Ethereum blockchain.
Once all the steps are completed, the Zug digital ID owner can use the uPort app on their mobile phone to provide identity information.
“Thanks to blockchain-based digital identities, people are getting back control over their own data”, commented city clerk Martin Würmli.
Currently, the digital ID can be used for many municipal services, including voting.
South Korea, famous for its technology and online services, couldn’t simply pass blockchain by. The South Korean government, for example, is actively developing the ICON platform. It is the country’s largest blockchain project, which aims to become a bridge between the online community and businesses in banking, healthcare, government, and many other industries.
There are three enterprise applications based on the ICON blockchain at the moment:
- Zzeung – for identity authentication and management
- BROOF – for digital certification and management
- VisitMe – for visitor check-in and management
In 2020, the Jeju Island government selected Zzeung for secure and reliable COVID-19 contact tracing. Since Jeju Island is one of the most popular tourist destinations in Korea, it was important to ensure the health and safety of tourists and local people while also protecting their personal data.
The South Korean commercial bank Shinhan Bank also chose Zzeung, but with a different goal: to launch the country’s first Know Your Customer (KYC) blockchain-based financial authentication service.
Blockchain and government: what does the future hold?
So far, only a few countries are striving to implement blockchain nationwide while others are still learning about this disruptive technology. There are several factors that are slowing down the blockchain adoption process, including scalability issues and regulations.
Developers have already found ways to overcome the first problem by using Layer 2 solutions or next-generation protocols. Governments can solve the second problem on their own: they need to join with technical experts, study blockchain, and develop regulations that will allow governments, citizens, and industries to take full advantage of this technology.
Although it is true that the technology is not yet so widespread in governments, the use cases and examples available today together with the gradual growth of blockchain projects indicate that the technology is slowly but surely entering this field.
Governments around the world will continue to implement blockchain to ease multiple pain points, improve service delivery, and increase public confidence in the work of government. At the same time, blockchain companies and developers will continue to work on improving the technology and protocols. For example, Ethereum 2.0 will be launched soon.
Technology and innovation-driven government + new generations of blockchain = a brighter future for citizens.
Transparency, facts, care, and convenience are the main things that citizens ask their government for, and at the same time, these are the characteristics and benefits of blockchain. Blockchain can help build citizens’ trust, prevent data breaches, reduce corruption, and cut government spending. The money saved – citizens’ taxes – can be better used, for example, to improve services and invest in medical care, education, etc.
At this point, it may be difficult for governments to fully understand blockchain and its power. However, the history and experience of mankind show that every new technology goes through this phase. Who knows, maybe blockchain will soon become as common in the world as the Internet itself.
If your government agency is considering implementing blockchain or would simply like to know more about the technology, its use cases, and real-world applications, don’t hesitate to contact our blockchain development team. With over 50 enterprise blockchain solutions built, PixelPlex and blockchain are talking to each other on a first-name basis. Our consultants and engineers will not only explain blockchain technology but also provide a feasibility study for using blockchain in your future projects and offer you the solution that best suits your agency’s needs.