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How government agencies can embrace the potential of blockchain

How government agencies can embrace the potential of blockchain

Ever wanted to know how blockchain technology can reduce fraud? Or better yet, how governments around the globe are implementing the technology for better digital services? Well the GovInnovate Team has you covered.

We sat down with Rob Hanson, Senior Research Consultant for the Data61 Insight Team at CSIRO, to discuss the possibilities of blockchain technology when used in the public sector.

GovInnovate: To someone new to blockchain technology, can you explain what a blockchain is and how it’s currently being used outside of crypto currencies?

Rob: Blockchain is also referred to as Distributed Ledger Technologies (DLT). The best metaphor I can think to describe the function of DLT is a spreadsheet. We all know how messy spreadsheets are for managing data, especially in a distributed way – when multiple people have access to multiple copies. If we imagiRob Hanson, Senior Research Consultant, Data61 Insight Team, CSIROne I am updating a row in a worksheet on my spreadsheet and you are updating a row on yours and then once we had finished, both rows go into a worksheet in the cloud. After a certain amount of time the rows in this worksheet in the cloud is locked. This locked worksheet is known as a block.

These rows on our block generally do not contain the actual data of the transaction but rather a digital fingerprint. These fingerprints are unique for any given row and cannot be used to re-create the data from the transaction recorded in that row (consequently this is known as a one-way ‘hash’ function). The way these blocks are chained together is through a hash, which is taken of all the hashes of all the rows in the block. In other words a fingerprint of all the fingerprints. This super fingerprint is then copied into the next block. This chain of super fingerprints links all the blocks together and allows the integrity of the data to be mathematically proven.

The integrity of the data in the blockchain allows transactions to be trusted in environments where trust is otherwise hard or impossible to achieve. For example, you can trust that a virtual coin has been transferred from one party to another because the history of all transactions that that coin has been involved in is available to all parties who use the currency. This means you cannot simply print virtual money by copying the virtual coin – everyone knows where every coin has been and who currently has it.

Outside virtual currencies, the use cases appear almost endless. For governance, they could be used to record the minutes of meetings. For authorities, they could be used to manage licences and registrations. For the sharing economy, they can be used to facilitate peer-to-peer transactions. For smart contracts, they could be used to validate performance and payment. And the list goes on.

GovInnovate: It’s been stated that blockchain technology has “far-reaching potential”, what would be some of its benefits to government in terms of transactions/service delivery, and regulatory or policy considerations?

Rob: There are many use cases which could benefit government. It is important to consider that the Bitcoin is one example of a blockchain implementation. There are several ways blockchains can be used and there is a large amount of research and development going into how blockchains can be configured and used.

The philosophy behind the blockchain is for it to function as a ‘dis-intermediary’, or in other words – to remove the ‘middleman’. Not all blockchain implementations, however, actually create peer-to-peer transaction capabilities that remove the current intermediary.

For example, some of the more entry-level use cases being explored for government include the management of licences and registrations in a way that enables real-time, safe and secure public interaction and interrogation of the register, in conjunction with Government connectivity and interaction, but does not necessarily remove the number of actors involved in the transactions.

GovInnovate: What will be the main challenges with implementing blockchain in government?

Rob: Again, the current state of innovation, research and development put the use of blockchain at an early adopter stage. Blockchain should be viewed as one of a number of tools which could be used to solve a business problem, rather than *the* solution, for which a reason or excuse should be found in order to justify its implementation.

GovInnovate: In all cases, a blockchain can help to reduce fraud and error, how will this delivery benefit in terms of efficiencies and productivity?

Rob: In one sense the blockchain can reduce fraud and error, however there needs to be careful consideration of the data stored on distributed ledgers, and the way that this data is protected. If the distributed ledger is ever compromised or unencrypted, any sensitive data could be open to fraud and misuse. The business rules around the use of the distributed ledger could also be exploited – recently many millions of dollars was ‘legally’ but unethically removed from a distributed ledger that had a software flaw, which was lawfully exploited.

However, if we take my spreadsheet metaphor, the chain-of-custody of information allows for the transactions to be trusted which will greatly reduce the amount of overhead and double-handling when it comes to transactions which require more than two-parties. It will also make assurance, audit and anti-fraud work much different than it is today. This work will be more about the system than the individual transactions therein. Consequently it should be faster, cheaper and provide more value.

GovInnovate: How are governments overseas using blockchain technologies?

Rob: There are many use cases and proof-of-concepts under way. Here is a brief overview:

Estonia is already using blockchain in its tax and business registration systems, and has secured citizens’ electronic health records with the same approach. The driver for this has been cyber-security.

The National Agency of Public Registry for the Republic of Georgia is building a blockchain-based land registry, which it hopes to secure the data, allow real-time audits and streamline property registrations. Sweden is also trialling a blockchain driven land registry system, in order to allow all parties involved to monitor all the transactions involved.

Moscow’s residents should soon be able to use blockchain to vote on referendums under its “Active Citizen” scheme, and is also investigating other use cases in preparation for a wider implementation in service delivery.

The Singapore Government is exploring blockchain as an anti-fraud control, to protect its banks, in the handling of export and import of cargo. Digital ledgers will record trade invoices with duplicate entries being raised as alerts.

The British Government’s Department for Work and Pensions has launched a blockchain-pilot in order to reduce fraud and errors in welfare payments as well as to track how they are spent, in hopes that this will provide insight on financial inclusion and provide budgeting support. There is discussion that a blockchain system could be used to secure hospital records in the UK’s National Health Service, as well as potentially collect taxes, issue passports, record land registries and secure supply chains.

The United States of America sees potential for a digital ledger in security, warfare and healthcare. There is active research being conducted by:

  • The Department of Homeland Security
  • The Department of Defence is expanding
  • The US’s Health Department, and
  • The US Postal Service.

State governments in the U.S. are also pursuing opportunities. Delaware, in particular, is looking at how to reduce ‘transaction friction’ and is already using blockchain to help lower business transaction costs, automate and speed up processes and reduce fraud through “smart contracts”.

If you would love to learn more about how FinTech technology can be applied to government agencies, you should consider attending the FinTech conference at CeBIT Australia. You can get your tickets here.

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*This piece originally appeared as Forget spreadsheets: here’s how blockchain could transform government transactions at GovInnovate.