Are Blockchain-Based Governments the Future of the Public Sector?

Democracy is suffering. Society has raised expectations for real-time, customized and responsive services but during COVID-19, governments have demonstrated the opposite, unable to meet today’s required responsiveness, unable to continue running during lockdowns. There’s a crisis of institutional agility and trust that is putting people at social, health and economic risk instead of making it easier for everyone to live, work and do business. Institutional reform and the greater legitimacy of governments are needed.

Fortunately, this is now a US$400 billion industry called govtech, which is emerging at the intersection of the newest technologies and the most pressing public problems. Recent studies have shown that government spending in blockchains has increased 11x since 2017, and that Citizen Digital Identity is the second-most important global trend. Given the nature of governments and the current context (large size, complex silos, short terms, legacy systems, developed hierarchy, lack of credibility), blockchains represent high value.

The meaningful adoption of blockchain in the public sector is led, among others, by the Inter-American Development Bank’s LACChain, CAF, World Bank, European Commission, OECD, governments like Colombia, Argentina and Dubai, and the Ethereum Foundation. These are all seeking to improve the ability to provide citizen-centric digital services.

A common thread among these stakeholders is that blockchain can help where US$400 billion in government spending resides, including permitting, procurement, law and code enforcement, tax collection, fraud detection, budgeting, pension management, bond issuance, asset management, planning and reporting. In contrast with traditional databases, blockchain saves data through a consensus. Once consensus is achieved, data automatically becomes fraud-proof and irreversibly recorded in a block. This is what makes blockchains “trust machines” because once data is written on a block, it’s impossible to commit fraud, reinforcing government’s efficiency and trust.

Overall, blockchains can meet society’s evolved expectations by providing customized services through Citizen Digital Identity, real-time transactions through verifiable and tamper-proof documents, transparency through consensus record-keeping, and privacy protection through selective disclosure. Following are the three main categories of use cases transforming governments.

Notarization

Using blockchain to record public data saves time and money as it works as an inherent notary, ensuring that data is valid, fraud-proof and authentic. The first implementation in Latin America happened through OS City and the government of Bahia Blanca using blockchain for delivery of subsidies. The purpose was to demonstrate the potential of blockchain notarizing 150 subsidies and impacting the lives of 4,500 local artists. Other examples include tamper-proof energy pricings with the National Energy Commission in Chile, and public lottery winners with the Lottery of Rio Negro in Argentina. 

Verifiable Documents

Verifiable documents, also known as verifiable credentials, offer a significant reduction to verification and auditing costs. By simply scanning a QR, anyone following previously agreed open standards can enable the addition of portability and longevity to blockchain records and to easily verify for authenticity, revocation, expiration and tampering. Use cases across Mexico, Argentina, Chile and Costa Rica include over 10,000 blockchain verifiable documents, impacting the lives of more than 960,000 citizens through the use of commercial permits, wine derivatives, university diplomas, city inspectors’ badges, fair-trade artisan products, liquor licenses, construction permits, renewable energy purchasing, organic food, and art value.

Citizen Digital Identity

As blockchain wallets are useful to keep and trade cryptocurrencies efficiently and securely, we can use them to keep and share verifiable documents efficiently and securely too. This is called Citizen Digital Identity. A report by Marcos Allende, who leads the LACChain effort at the IDB, refers to the concept. Also, the European Blockchain Partnership and its EBSI efforts are proposing new decentralized identity models. Having access to all of our official documents securely through our blockchain wallet has a huge potential to enhance the effectiveness, accountability and inclusiveness of public procedures.

The presidency of Argentina is among the first in the world piloting this concept along with UNICEF Innovation and the Ethereum Foundation, giving citizens and residents the power to manage their own information, safeguarding their privacy and allowing them to choose which attributes of their identity they want to share. It works as a document holder and digital signature, and is perhaps the best opportunity to forever change information flows between citizens and government. It is an attempt to eradicate fraud and duplicated efforts within the public sector.

Through notarization, verifiable credentials and citizen digital identity, blockchain is making a dent in the reinvention of the public sector, providing a clear path toward institutional reform and government legitimacy. At OS City, we recognize that there’s still a long way for meaningful public sector adoption of blockchain, yet putting citizens at the center of focus for governments that transact verifiable blockchain documents is demonstrating great transformational potential.

Along with organizations leading the conversation, we agree that the future of this technology, and probably the future of the public sector, relies on funding for startups as the EU, China and Israel provide, creating blockchain digital skills, sharing success stories, bridging political risk aversion to the newest technologies, and fostering technology adoption and standards. As the EU references in its blockchain strategy, “the right standards, set at the right time in a technology’s development, can ensure interoperability, generate trust in and help ensure ease of use of the technology, and support its development and pathway to mass adoption.”

Given society’s evolved expectations, the nature of government and blockchain’s capabilities, this technology may not solve all the problems of the public sector, but it is promising a path toward stronger institutions (UN Sustainable Development Goal 11), institutional reform and increasing the legitimacy of governments and democracy