How can blockchain help build frictionless government and better public services?

Andrea Potter

Andrea Potter,

Insights Director, EYQ

www.linkedin.com

Blockchain has the potential to cut through the “hodgepodge” of transacting and interfacing with government services. So says Brian Forde, Senior Lecturer for Bitcoin and Blockchain at MIT

Cogs

Generated by EYQ, an EY think tank that explores leading and emerging trends, focusing on “what’s after what’s next?”

Blockchain-based solutions have the potential to make government operations more efficient and improve the delivery of public services, while simultaneously increasing trust in the public sector. In mature economies, proponents of government blockchain solutions must provide strong evidence that such investments will save money and improve services that are already “good enough.” In emerging markets, the lack or immaturity of certain essential public services could allow governments to leapfrog ahead to help policymakers achieve their aims. For both markets, education and determining the right applications for the technology will be key to success. To better understand issues related to government adoption of blockchain technology, we recently spoke to Brian Forde, the Senior Lecturer for Bitcoin and Blockchain at MIT and former White House senior advisor for mobile and data innovation during the Obama administration: 

1. What are we seeing so far in terms of US government adoption of blockchain technology?

What you’re starting to see across the US are states being proactive in leveraging blockchain technology for efficiency purposes or to achieve a competitive advantage. Delaware announced its Delaware Blockchain Initiative in 2016. Illinois recently announced a similar initiative. Illinois is attempting to provide an environment that is very welcoming to bitcoin — and blockchain-based start-ups. Among other aims, the Delaware Blockchain Initiative aims to create an appropriate legal infrastructure for distributed ledger shares to increase efficiency and speed of incorporation services. This is important, given that half of all publicly traded companies in the US and 65% of the Fortune 500 are incorporated in Delaware. 

Brian Forde

2. Does blockchain technology show potential to benefit ordinary citizens?

What I get really excited about and what I think local citizens will truly appreciate is the potential for better delivery of government services. You can look at this technology as a cryptocurrency, but you can also look at it as a notarization service — a time stamp of sorts — that validates the exact time an action takes place. This action or event could be the birth or death of a person, the exchange of a property title, the bestowal of an academic degree or nearly anything else where a timestamp is critical to the proof of action. Often, mundane kinds of transactions are where people interface with governments, for example, getting proof of your identity or proof that a car or real estate title was exchanged. Today, you have to bring your documents in person and the relevant agency rubber stamps it. This is a hodgepodge, mistake-prone way to do business in a digital age; there are lots of unique opportunities for city and state governments to leverage blockchain technology.

3. What about at the federal level?

People interface less often at the federal level for citizen services. Of course, there are exceptions such as paying federal taxes, getting passports, filing patents, and receiving social security and veteran’s benefits. While there are opportunities to use blockchain technology to streamline these processes, the majority of citizen transactions happen at the local level and that’s why we are seeing initiatives take off there.

4. What’s needed to gain critical mass in the public sector for leveraging blockchain technology?

You first have to build a foundation. The right policies need to be in place. Education is key — getting the right people at the city, state and federal government levels engaged, excited and educated about the technology. Once the right people understand the promise of blockchain, existing problems that can be better solved through a blockchain-based solution than through the existing technology infrastructure must be identified. Then the challenge is attracting the right partners to help think through, build and deliver those solutions. It’s a multiyear process, but especially where the system already works acceptably well, which is the case in developed countries. 

Brian Forde and Barack Obama

5. Let’s turn to emerging economies then. Do you see blockchain as a so-called leapfrogging technology in places like Africa and parts of Asia and South America?

As someone who built a phone company in Nicaragua, I am intimately familiar with the leapfrogging that technology can provide to people in emerging markets. To me, it’s abundantly clear that cryptocurrencies will be a leapfrogging technology in those parts of the world. And we are seeing emerging market governments be very open-minded because blockchain-based solutions can help them achieve their policy goals. For example, certain governments with which I work still deliver the majority of social welfare benefits in cash. The government leaders are well aware that this is a highly inefficient process, but the current credit card or banking infrastructure doesn’t support the digital distribution of money in rural areas. 

6. What are some of the applications that you see as most promising in emerging markets?

The delivery of social welfare is quite compelling. I also think identity management through developing blockchain-enabled birth and death certification is compelling, as is property title management. As far as payments are concerned, one of the challenges with an entity like M-PESA, which has been incredibly successful, is that it is centralized. While the exact numbers are in dispute, observers have suggested that anywhere from 40% to 60% of Kenya’s GDP flows through M-PESA. I question whether it’s a good idea to have just one company controlling what services can be built upon its platform vs. a more decentralized solution like bitcoin. 

7. Will emerging markets lead the way in terms of blockchain technology adoption?

Yes, I think emerging markets will lead the way. I expect to see a lot of experimentation in those parts of the world. We can learn a lot from emerging markets. I’ll give you a few examples. Lyft was originally called Zimride because its US founders learned about carpooling and car sharing while on a trip to Zimbabwe. So the idea for one of America’s biggest start-ups was crafted in Africa. Ushahidi, a popular crowdmapping tool used in the US during domestic disasters, was created in Nairobi. The government of India built the world’s largest biometric identity system for 1.2 billion people in record time. As far as blockchain is concerned, I think we’ll learn what works and what doesn’t from innovative start-ups all over the world.

8. What are your thoughts on public vs. private blockchains?

Private blockchains provide incredible operational efficiencies. Implementing a private blockchain means that efficiency is your main goal, not decentralization. But if the goals are decentralization, interoperability and independent security, a public blockchain is going to be more important. So if governments want solutions that are secure, interoperable and transparent to create the kind of trust that allow for these conditions, they will have to figure out a way to leverage public blockchains.

9. What are you most excited about when it comes to governments and blockchain?

I’m most excited about the potential for what I call “responsive open data.” What I mean by that is that blockchain-based solutions will give me or any other person the ability — without having to wait in line at the motor vehicle department or any similar place — to automatically do a transaction with the government, yet still have complete trust that the government certified that transaction. Developers and entrepreneurs will be able to build interfaces that make it so much easier for users to be able to interact with the government. For citizens, this will be incredibly empowering. And the creation of this additional layer of transparency will only further increase people’s trust in government and the services it provides.

EYQ summary

  1. Digital technologies have significantly reduced transactional frictions among buyers and sellers in commercial markets. Governments still lag behind. Blockchain technology shows tremendous potential for governments to deliver citizen services more effectively, thus increasing trust and goodwill, as well as providing savings.
  2. To reach full potential, blockchain technology must be supported by collaboration between the public and private sector in developing smart standards and regulation, as well as creating welcoming environments for blockchain start-ups through tax incentives, grants and other mechanisms. Intelligent blockchain strategies at the national and local level will become a competitive advantage.
  3. The absence of legacy financial and other types of systems in rapid growth countries will allow blockchain innovation to take place there much faster. We expect to see blockchain start-ups succeed with innovative use cases in places like Kenya and bringing these innovations back to mature parts of the world.