will blockchain transform the public sector? · · 2018-05-19deloitte consulting llp’s...

Will blockchain transform the public sector? Blockchain basics for government

A report from the Deloitte Center for Government Insights

Deloitte Consulting LLP’s Technology Consulting practice is dedicated to helping our clients build tomorrow by solving today’s complex business problems involving strategy, procurement, design, delivery, and assurance of technology solutions. Our service areas include analytics and informa-tion management, delivery, cyber risk services, and technical strategy and architecture, as well as the spectrum of digital strategy, design, and development services offered by Deloitte Digital. Learn more about our Technology Consulting practice on www.deloitte.com.

COVER IMAGE BY: STUART BRIERS

ABOUT THE DELOITTE CENTER FOR GOVERNMENT INSIGHTS

The Deloitte Center for Government Insights shares inspiring stories of government innovation, looking at what’s behind the adoption of new technologies and management practices. We produce cutting-edge research that guides public officials without burying them in jargon and minutiae, crystalizing es-sential insights in an easy-to-absorb format. Through research, forums, and immersive workshops, our goal is to provide public officials, policy professionals, and members of the media with fresh insights that advance an understanding of what is possible in government transformation.

JASON KILLMEYER

Jason Killmeyer is a manager in Deloitte Consulting LLP’s Federal Strategy and Operations practice, working with government agencies to develop and implement supply chain risk management strategies in a modern environment.

MARK WHITE

Mark White is chief technologist for US Consulting Innovation and brings that role into the US federal market with a focus on advancing adoption for advanced and cognitive analytics and for blockchain distributed ledger solutions.

BRUCE CHEW

Bruce Chew is a managing director with Deloitte Consulting LLP in the US Strategy service line Monitor Deloitte. For more than 20 years, his work has focused on strategy development and implementation and the building of organizational capabilities.

ABOUT THE AUTHORS

The authors would like to thank Ryan Luckay, Wendy Henry, Keith Podgorski, and Greg Cooil for their contributions to this article.

ACKNOWLEDGEMENTS

Will blockchain transform the public sector?

CONTENTS

Introduction: Value creation for all kinds of transactions | 2

What is blockchain? A digital ledger with a difference | 5

Why are people so excited about blockchain? | 8

How would blockchain work in government? | 10

Where could blockchain be adopted in government? | 13

Conclusion: Moving forward | 16

CONTACTS

Mark E. WhiteChief technologist, Innovation OfficePrincipal Deloitte Consulting LLP +1 571 814 7910 [email protected]

Wendy HenryFederal blockchain leadDeloitte Consulting LLP+1 202 213 [email protected]

Blockchain basics for government

1

IntroductionValue creation for all kinds of transactions

BLOCKCHAIN technology is unlikely to capture the public imagination in the same way as the colorful initial wave of online innovation did;

its impact will be largely behind the scenes. Yet the potential is enormous: Some see blockchain “bring-ing us the Internet of value: a new, distributed plat-form that can help us reshape the world of business and transform the old order of human affairs for the better.”2

Blockchain’s benefits—of security, efficiency, and speed—are readily applicable to public sector orga-nizations, and the technology’s potential helps ex-plain why so many government leaders are actively exploring its uses in government. Indeed, block-chain experiments in the public sector are accelerat-ing globally. (See figure 1.)

From almost none three years ago, agencies in more than a dozen countries—including Canada, the

United Kingdom, Brazil, China, and India—are run-ning pilots, tests, and trials examining both the ar-chitecture’s broad utility as a basis for government service provision and procurement and developing individual blockchain-based applications for inter-nal use. These applications, often unique to the par-ticular circumstances of a country, state, or munici-pality, are in development around the world across an expanding range of use cases and asset classes.

In the United Arab Emirates, for example, the gov-ernment is exploring a wide range of use cases, in-cluding for business registration,3 logistics,4 and central bank operations.5 In Estonia, a country of-ten cited as a leader in tech literacy and e-services, the government is piloting blockchain-based solu-tions for voting,6 identity management,7 and health care.8 In the United States, the state of Delaware, where many companies choose to incorporate, is piloting a blockchain-based corporate registry sys-

Back in 1995, Bill Gates attended a conference at which tech visionaries touted the potential of an emerging technology of which many people around the world hadn’t yet even heard: the World Wide Web. At the time, people couldn’t do much online—there was virtually no shopping, no entertainment, no news, very little traffic—but Gates returned to Microsoft headquarters and dramat-ically shifted the company’s strategic plan to focus on the possibilities.1 He recognized the Internet’s potential power as a platform for disrupting busi-ness—and society—as usual. Not even Gates could foresee all the ways it would be used, but he understood information technology well enough to rec-ognize the emerging value proposition and resulting innovation that the first generation of the Internet could enable.


2

tem in addition to exploring share issuance,9 a use affirmed by the July 2017 passage of state legislation approving the trade and maintenance of corporate stock on a blockchain.10 Elsewhere in the United States, several federal agencies—including the General Services Administration, the Department of Homeland Security, and the Health and Human Services Department—have announced blockchain programs. New York, Illinois, and Texas are among the states that are piloting and/or testing blockchain applications. In each of the above cases, blockchain has the potential to create value regardless of the type of asset or transaction involved.11

This proliferation of experimentation and discovery suggests that government leaders need no convinc-ing about the need to learn about and from block-chain. This important period will likely inform the

Figure 1. Blockchain in the public sector, as of March 2017

Deloitte University Press | dupress.deloitte.com

Source: Deloitte analysis in conjunction with the Fletcher School at Tufts University.

1. Digital currency/payments2. Land registration3. Voting (elections)4. Identity management5. Supply chain traceability6. Health care

UK

UAETexas

Illinois

Delaware

USPS

HHS, FDA

New York

1

1

1

13

3310

*

*

*

*

*

3

383

3

1

2

2

7

7

75

7

2

2

2

2

1

4

6

65

4

11Canada

Nasdaq

Brazil

South Africa

Kenya, Nigeria,Uganda, Tanzania

Ghana

Tunisia,Senegal

Switzerland

Isle of Man

DenmarkSweden

Finland Estonia

Russia

Ukraine

Georgia

India

China

Singapore

Australia

South Korea

Top 10 most active public sector use cases* Color coding key

In progress

Planned

Announced

7. Voting (proxy)8. Corporate registration9. Taxation10. Entitlements management* Measured by observing the number of public sector blockchain experiments planned, in progress, or stalled globally

Blockchain experiments in the public sector are accelerating globally, with a concentration in the US and Europe.

This proliferation of experimentation and

discovery suggests that government leaders need no convincing

about the need to learn about and from blockchain.


3

investment and longer-term strategic thinking that this new architecture demands. And the accelera-tion of projects noted in figure 1 suggests that agen-cy heads will be working with blockchain-based solutions sooner rather than later—after all, com-mercial enterprises and venture capital firms have invested more than $1.4 billion12 in blockchain since just 2014, rivaling Internet investments in the early

’90s. At the same time, government leaders should bridge the understanding gap within their own agencies, helping them to understand what block-chain is, why it matters, and why it will likely be rel-evant to them. Whether blockchain is revolutionary or evolutionary, it could be transformative.

But before those transformative effects can be achieved in government, policymakers should learn the basics of this new architecture, since, frankly, even some straightforward explanations can be a little daunting. This primer is designed specifically to offer a government executive—whether a chief technology officer, chief information officer, or non-technical leader—with key knowledge about block-chain, and a simple framework for understanding how blockchain may, or may not, bring value to an organization. To achieve that goal, we lay out the what, where, how, and—perhaps most important-ly—the why of the architecture. As for the when: It’s happening now.


4

What is blockchain? A digital ledger with a difference

WHILE many government leaders are ac-tively involved with blockchain proto-types, live pilots, and active use case de-

velopment, more are not yet exploring blockchain and likely have a limited—or nonexistent—un-derstanding of what it comprises and what sorts of problems it aims to solve. They may have read a few articles about bitcoin and crypto-currency, about the long-term promise of blockchain, or a description of a potential individual use case. They may generally understand some of the features and benefits. But many doubtless remain fuzzy on key questions: What is blockchain really all about? Is it software or is it hardware? Is it an enterprise ar-

chitecture, a process architecture, middleware, or something else?

When thinking about blockchain, think transac-tions. Organizations have traditionally recorded transactions in ledgers, kept under lock and key. Those ledgers are typically isolated to protect their accuracy and sanctity, and when conducting busi-ness, each organization maintains its own separate record, to independently verify information. Well, at its heart, blockchain is a ledger, but one with a difference: built-in trust. Blockchain is a distrib-uted consensus ledger, at once both shared and trusted. Creating distributed trust through a collec-tively agreed-upon consensus protocol is potentially

Deloitte University Press | dupress.deloitte.comSource: Deloitte analysis.

Figure 2. Moving toward the Internet of value

Web 1.0/ Web 2.0

Data is copied

Types of data Types of transactions

Blockchain

VS.

Ownership is transferred

User 1 User 2

• Texts• Images• Videos• Music • Currency

• Shares • Copyrights• Patents

Intangible assets

Tangible assets

Obligations

• Real estate• Goods

• Contracts• Pledges


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transformative, freeing the ledger from its isolation constraints, in much the way that the World Wide Web freed information and communications and transformed the way we do so much in business, government, and our personal lives.

Blockchain is a distributed consensus ledger that is shared, thus creating a digital ledger of trusted transactions maintained among and across partici-pants. In place of multiple independent and isolated ledgers, there is a single shared record distributed across every party to the transaction. Early in-stances of blockchain created trust between online strangers for digital currency transactions, but the parties to a blockchain can be any group of stake-holders or members of a network—often in the form of consortia—who are incented to resolve an existing gap in trust or similar inefficiency in authoritative recordkeeping, value exchange, or executor/trustee for ledger-based contract execution and settlement. Each transaction—those that have taken place and those that are pending—is batched and stored in a fixed structure called a block.

When a block is verified as “true and trustworthy” via the consensus protocol, it is posted practically si-multaneously to each consortium member’s copy of the distributed ledger. Each block has a unique hash key calculated based on the precise content of all the transactions in the block. If the smallest piece of

data in the block is tampered with, that hash key be-comes immediately invalid, making the tampering immediately evident. When the new block is posted to the ledger, it is linked to and from the preceding block using their respective hash keys. This forms a fully traceable and verifiably untampered record in a chain—hence blockchain. From any block, it is possible to access all previous or subsequent blocks linked together in the chain. So: A blockchain da-tabase retains the complete and indelible history of all transactions, assets, and instructions executed since the very first one. With this, blockchain allows participating parties—and only those parties—to share accessible, transparent, and trusted informa-tion.

Blockchain is a distributed ledger, but if many par-ties have access, how do you maintain integrity? How do you trust it? Traditionally, trust across a set of independent parties has been established by a governing or intermediary institution or other ar-rangement to mitigate counterparty risk: a bank, an escrow account, threat of a lawsuit, the days until a check clears. Blockchain fulfills the trust-providing function of existing intermediary institutions by es-tablishing consensus across all participants based on a collectively agreed-upon protocol that is then broadcast across the entire network of participants simultaneously and with minimal effort.

How does this occur? All of the parties on the blockchain have agreed to abide by some protocol by which new transaction blocks are vetted and validated. If a block conforms to that protocol, it’s ajudged true and is posted. The characteristics and specifics of the protocol vary based on numerous factors. For example, is access to the chain “per-missionless”—that is, open to anyone so that trust in identity and intent is essentially nonexistent? Or is it a permissioned chain in which there is some

WHAT’S IN A BLOCK?The header includes metadata, such as a unique block reference number, the time the block was created, and a link back to the previous block.

The content typically includes a validated list of transactions made, their amounts, and the addresses of the parties to those transactions along with digital assets and instruction statements.


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pre-vetting of membership, meaning that less work must be done to trust a proposed transaction block? The more work required to assure trust, the more robust and demanding the consensus protocol must be to create consensus across participants without the need for a central authority or third-party intermediary.

Other factors that drive the design of the consen-sus protocol for a ledger in which a single authority does not govern transaction finality include trans-action and participant authentication, integrity, pri-vacy, and non-repudiation, as well as ledger fault-

tolerance, consensus and posting performance re-quirements, and quorum structure for the network members.

The combination of visibility and prior consensus also helps to ensure that blocks cannot be altered after the fact—that transactions, once conducted, are immutable. In the past, parties would maintain separate records of events that would require recon-ciliation and that, ideally, would reconcile at the end of a predetermined examination period. Now, the transaction is the record.

Blockchain is a distributed consensus ledger, and as in the traditional leatherbound ledger from ac-counting class, the digital ledger records transac-tions—that is, transfers of value between two or more parties. The first items of value to be traded over a blockchain, the first assets, were digital cur-rencies such as bitcoin. And more and more organi-zations are learning that the benefits that blockchain offers to digital currencies are far more broadly ap-plicable, to a wide range of transaction types and asset classes.

Governments are exploring blockchain usage in land registration on every continent but Antarctica. The business events—the registration or transfer of a land deed or title—are the transactions that are recorded on the ledger, providing certainty for all stakeholders. The less complex but equally valued transaction of casting a vote is the focus of ongo-ing testing or completed pilots in New York, Texas, Denmark, Estonia, Ukraine, and South Korea, and planned in Australia for 2017.

And more and more organizations are learning that the

benefits that blockchain offers to digital

currencies are far more broadly applicable, to a wide range of transaction types and asset classes.


7

Why are people so excited about blockchain?

IN their pursuit of offering attractive environ-ments for investment, many of the governments experimenting with blockchain seem to recognize

the inherent advantage of being first movers in an emerging area. However, the gains will likely not just go to those who attract industry. What many public sector actors are realizing is at once profound and simple: Technology need not be revolutionary to be highly impactful. By reducing dependence on existing intermediary institutions and their accom-panying layers and costs, blockchain can potentially eliminate significant resource burdens. And by ac-celerating transactions and simultaneously lower-ing their costs, blockchain can help to eliminate

layers of redundancy, ease regulatory compliance burdens, introduce recordkeeping efficiency, and generally smooth government operations across a number of areas. Harnessing those advantages and applying them toward public institutions’ mission goals provides an opportunity for realizing both agency-specific and whole-of-government benefits that can foster more efficient and effective mission delivery in these challenging times.

Three key characteristics of blockchain may help to explain the depth of public sector interest in the topic and many of the pilots taking place around the world.

Figure 3. The three characteristics to remember

Decentralized and distributedLedger storage and integrity

• Ledger replicated across parties, each keeping a full record of transactions• Distributed system operation, no single point of failure• Transactions verified cryptographically and updated immediately across all parties• Provides unbroken and timely recordation of authoritative truth

Irreversible and immutableEach transaction record is indelible

• The ledger is append-only, invalid transaction errors are surfaced and rejected—immediate reconciliation• All transactions encrypted and include time, date, participants, and hash to previous block• Trust is enabled via consensus protocols, cryptography, and collective bookkeeping• Allows trusted value exchange

Near real timeTransactions verified and settled in minutes vs. days

• Parties interact directly—no third-party intermediary• Moves parties from information exchange to value exchange• A transaction may include code to run against the ledger• Enables smart contract automation and enforcement

Source: Deloitte analysis. Deloitte University Press | dupress.deloitte.com


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Decentralized The decentralized nature of blockchain prevents there from being a single point of failure, thus creat-ing an authoritative and unbroken record of events. Since all parties on a ledger share the responsibility and benefits of maintenance, deviations from the rules of the protocol can be easily and quickly recog-nized. Importantly, the ledger is readily accessible to blockchain members and has internal point-ers that allow transaction records or individual as-sets to be followed re-liably across time and ownership.

Immutable The transactions con-ducted across this resil-ient record are append-only; there can be no editing after the fact. The cryptographic protocols that confirm the validity of pending transactions are permanently timestamped. Those that are con-firmed create a record of transactions that is im-mutable. Confirmed transactions cannot be erased and become an immutable part of the record shared across the entire network—a record that serves as a constantly auditable paper trail. This combination, of trusted transactions maintained across an unbro-ken record, creates a powerful security dividend.

Near real-timeFinally, the transaction settlement time allowed for by stakeholders working together over a single, trusted ledger is minimal compared to traditional systems of value exchange. Blockchain offers the potential to settle and verify transactions in min-utes rather than days, making it a near real-time mechanism for the transfer of value. The enhanced

speed and elimination of third-party risk mitiga-tors can mean significant real-world savings. Any-one who has purchased a home, for example, can attest to the significant costs associated with third parties ensuring clear title, handling the associated paperwork, and so on. As an added bonus, it is possible to include code that can test for specific conditions to be met and act accord-ingly. This enables “if X, then Y” actions to be built into the transaction in

the form of smart contracts that foster automation and enforcement. The elimination of inefficiencies and market opacity lower the barriers to transaction and create a clarity that allows for automated trans-action execution upon satisfaction of agreed-upon conditions between parties to the ledger.

What many public sector actors are

realizing is at once profound and simple: Technology need not be revolutionary to be highly impactful.


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How would blockchain work in government?

IN this section, we move beyond the basics to look at how blockchain technology could transform government processes and experiences.

To illustrate, consider customs in international lo-gistics, which spans a number of government op-erations and the commercial world and involves multiple transactions. A prominent pain point for many parties involved is the absence of effective traceability, transparency, and predictability of shipments com-ing in through the nation’s ports. This lack of information can add to costs and sap operational per-formance. As traditional supply chains become more digitized, though, the shipping process generates and captures many new data points, offering possi-bilities for improving the process and sharing information. Using a blockchain for transparent, end-to-end manifesting could have transformative impact through-out the supply chain. For customs agencies around the world, it could mean eliminating delays in definitively identifying shippers moving through customs, and improving inspection target compliance via greater data accessibility.

With customs agents, shipping lines, shippers, con-signees, brokers, and booking agents all involved, there are any number of actors in international shipping that could defraud the others. Similarly, one or more of these actors could err in their report-ing to the others, causing miscounts, slipped dead-lines, and impacts throughout a supply chain. When delivering critical, sensitive goods—such as military

hardware components, machinery to print money, or airport control-tower electronics—the slightest delay, error, or fraud could have catastrophic rami-fications.

Utilizing a distributed, secure ledger, blockchain can improve security, data transparency, recordkeeping, inspection rates, and visibility of inbound interna-tional shipments. Between the numerous forms, li-

censes, and certificates often required for passage or entry, a secure ledger on a blockchain can capture all the necessary information and provide an audit trail to all participants in the blockchain, even with an increasing or variable number of participants working from different legacy systems, and even as business processes change or grow more complex. Figure 5 illustrates how this would work in practice, examining this common use case that governments around the world are exploring.

Utilizing a distributed, secure ledger, blockchain can improve

security, data transparency, recordkeeping, inspection

rates, and visibility of inbound international shipments.


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The international shipping and customs example illustrates how understanding blockchain and its potential impact is as much an exercise in think-ing through transformative business models as it is about technology solutions. Challenges remain in the areas of data standardization, IT systems inte-

gration, and more, and blockchain may not be part of the solution set in all situations. Where a trans-action is simple, trust is high, and few are parties involved, blockchain’s benefits may be too insignifi-cant to warrant its use.

Figure 4. When is blockchain useful?

Core characteristics

Shared data Need for a structured repository of information

Multiple parties More than one entity writes or reads the database. Access may be permissionless (“public”), permissioned (“consortium”), or private

Low trust Less than complete trust between the entities (readers, writers, nodes, witnesses, etc.) in the ecosystem

Auditability Transactions are immutable—once written, they cannot be modified or deleted. Participants have digital identity on every transaction

Value-add characteristics

Disinter-mediation No central gatekeeper to verify transactions; cost of intermediary may be reduced

Transaction interaction Smart contract code runs on the ledger for interaction, dependency, or “settlement” between transactions from different entities

Auditability Transactions are immutable—once written, they cannot be modified or deleted. Participants have digital identity on every transaction



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Figure 5. International shipping and customs


ActionAs the shipment is prepared, the shipper creates a new digital record (the shipment ID) through an application that verifies certain elements of the shipment, including the anticipated identities of the stakeholders that will be participating.

TransactionThe shipper initiates a transaction to record the generation of the shipment record onto the blockchain, which is broadcast to, and validated by, the other parties to the transaction.

ActionThe freight forwarder scans the shipment for the shipment ID affiliated with the shipment and verifies that the package has been loaded and left port.

TransactionThe freight forwarder initiates a transaction using the shipment ID to record the fulfillment of its role in the shipment. Here, as at every transaction, all parties validate the transaction.

ActionCustoms officials validate the shipment ID and check that the metadata represented in the transaction match the physical shipment. The officials certify that the package meets all applicable standards and release the shipment.

TransactionThe customs official uses a smartphone app to record the certification of the shipment onto the blockchain.

ActionAt predetermined points, the shipping line verifies that the vessel remains on course and schedule, or logs any deviations due to weather or unforeseen circumstances.

TransactionThe shipping line records these updates using the shipment ID to log the shipment’s progress.

ActionAs the shipment arrives into the customs station of the end-destination country, those officials verify via the shipment ID record that each preceding step happened, check the timestamp for each to look for any discrepancies, and certify the incoming shipment.

TransactionThe customs official uses the shipment ID to record the clearance of the shipment into the end-destination country.

ActionThe wholesaler receives physical custody at the port and uses the shipment ID to verify that both the outbound and inbound customs certifications took place.

TransactionThe wholesaler initiates a final transaction referencing that shipment ID recording their custody of the shipment.

At each transaction, a new block is generated and added to the blockchain. Each time this takes place all parties validate the transaction through an agreed-upon cryptographic protocol.

The blockchain generated by this

shipment

All parties now have access to an immutable record. In the event of any future disputes between stakeholders, the record contains timestamped evidence of each transac-tion that was validated by all parties in near real time.

As a new shipment is prepared, specific identity elements are validated for the shipment and captured digitally. All parties agree in advance to record and share specific metadata related to their role in the shipment’s life cycle that provides relevant transaction data but protects critical IP or proprietary processes from being revealed. No new enterprise architecture is created, only APIs to connect stakeholders via a distributed consensus ledger.

Source: Deloitte analysis.


Where could blockchain be adopted in government?

FEDERAL, state, and local governments are awash in data. The emergence of electronic databases, as opposed to file folders and filing

cabinets, dramatically improved the efficiency and cost of managing all that information. But it took the Internet to unlock the greater value by mak-ing the data more accessible and transparent. The creation and exchange of that ocean of informa-tion take place via a tsunami of transactions each year: collections, disbursements, transfers, pro-curements, sales, fees, fines, certifications, approv-als, and many more. Wherever those transactions involve, or could involve, a digitization of assets and decentralized exchange, there exists a potential blockchain opportunity.

Government’s responsibility—fiduciary, legal, and to the taxpayer—creates an incentive for ensuring accurate transfers of value between relevant stake-holders—within and between agencies, between the government and third parties, and between government and the citizenry. This is true at the federal, state, and local levels from congressionally allocated funds down to the road grader purchased by a small municipality. In an era of cost pressures, agencies that ensure data integrity while reducing internal cost and friction could emerge as exem-plars, improving their reputations to boot. With major investments in accountable property systems already under way as a result of congressional atten-tion, being audit-ready should be a continuous real-

Figure 6. Blockchain delivers business value in three primary areas—individually and in combination

Value transfer

• Low-cost and near real-time

• Without an intermediary• Beyond “money”

Examples• Domestic and international remittance• Internal payments settlement• Clearing and settlement of securities• Exchange of low liquidity assets

Smart contracts

• Software protocols• Based on ledger content• Execute when the

conditions are met

Examples• Digital cheques/IOUs• Automatic financial instruments• Parametric insurance contracts• Automated market making

Recordkeeping

• Create immutable record • Under agreed consensus

protocol • Without reliance on a

trusted third party

Examples• Digital certificate of ownership for physical assets• Transaction validation of digital assets• Financial accounts

Source: Deloitte analysis. Deloitte University Press | dupress.deloitte.com


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ity, not a series of individually arrived-at milestones or a source of uncertainty.

Across those many transactions and business events, numerous use cases for blockchain present them-selves; for many others, there will be other enabling technologies adopted instead. Where the value pro-vided by a blockchain approach exceeds the costs of adoption, in terms of enhanced efficiencies, greater security, and/or reduced latency, an agency should further explore adoption. The great challenge in both government and industry is rapidly identify-ing those use cases in which the value add is both explicit and provable, in situations where the level of trust is typically higher than between parties exchanging open-source cryptocurrencies. For the purposes of considering where blockchain could likely be adopted within and across government, three business values of blockchain—recordkeeping, value transfer, and smart contracts—provide broad cases for possible adoption. When there is the need to do one or more of these three things, blockchain may emerge as part of the solution.

The map in figure 1 displayed many of the an-nounced areas in which public sector leaders are considering using blockchain—including, in partic-ular, digital currencies and the payments industry. The government must wrestle with these applica-tions simply to continue to keep pace and interact with the commercial sector, as evidenced in the SEC guidance on securities published June 2017.13

Since the general press on blockchain covers these applications comprehensively, we’ll focus more on

three areas in which government’s current active interest in blockchain potentially leverages the use case characteristics and business values shown in figures 4 and 6: identity management, land registra-tion, and voting.

IDENTITY MANAGEMENT14

Digital identity is both a use case for blockchain and the enabler that allows each of the other assets dis-cussed for blockchain integration to exist. Whether cryptocurrencies or cars, each asset needs to be ren-dered digitally to be transacted on a blockchain, and the owner or transactor also needs a digital identity to engage in those transactions. The magnitude of this challenge is recognized by public sector actors around the world—a world in which one-fifth of the world’s population lives without a legal or officially recognized identity.15

Existing pain points:

• Lack of standards for establishing digital identity

• Differing attestation processes and identity “en-try points” prevent economic engagement and can hinder public sector service provision

Blockchain value proposition:

• A secure, self-sovereign identity could enable efficient transactions across a wide variety of asset classes

• Individual and explicit control over which iden-tity elements are shared for which purposes

For the purposes of considering where blockchain could likely be adopted within and across

government, three business values of blockchain—recordkeeping, value

transfer, and smart contracts—provide broad cases for possible adoption.


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LAND REGISTRATION16

Deeds and titling not only provide critical protection for homebuyers in developed nations—they serve as a basis for investment and economic growth across many developing nations. By securing a unique and non-corruptible record on a blockchain and vali-dating changes to the status of that record across owners, a reliable property record can be created, whether for a piece of land that heretofore had no owner or as a link between stovepiped systems.


• License and registry processes are paper-based and fragmented, making transactions costly, in-efficient, and vulnerable to tampering

• In the United States, landowners spent $800 million in 2014 and ’15 on title insurance to cov-er risks associated with real estate titles17


• A decentralized, standardized system for land registration records could reduce the number of intermediaries required, increase trust in iden-tity of transacting parties, increase process effi-ciencies, and decrease time and cost to process

• Recording property rights via blockchain would enable $2–4 billion in annual cost savings in the United States alone for title insurers through a tamper-proof ledger18

VOTING19

This critical and legitimacy-granting public func-tion has been the source of much activity among those working with blockchain. Citizens can cast votes the same way they initiate other secure trans-actions and validate that their votes were cast—or even verify the election results. Potential solutions are currently working to blend secure digital identi-ty management, anonymous vote-casting, individu-alized ballot processes (for example, a vote “token”), and ballot casting confirmation verifiable by (and only by) the voter.


• High costs related to ballot printing, electronic voting machines, maintenance, etc.

• Increasing threats of cyberattacks compromis-ing election results

• Lack of transparency due to a centralized pro-cess of election results audit

• Voting delays or inefficiencies related to remote/absentee voting


• Potential cost savings through blockchain-enabled voting

• Potential for enhanced security and audibility of votes

• Potential for greater participation in elections, including remotely

• Greater transparency meeting citizens’ needs


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Conclusion: Moving forward

ANALYSTS project that blockchain will save $15–20 billion annually in the financial ser-vices industry by 2022,20 and others have ad-

vanced similar predictions for other industries, in-cluding the insurance industry and health care. And based on the prototypes, trials, and other experi-mentation happening around the world, govern-

ment agencies are likely to look for opportunities for the technology in the public sector. What is not yet clear, and what forward-thinking public sector leaders around the world are driving toward, is who will take the lead in applying this new, value-laden approach as part of efforts to cut government costs, improve security in an era of cyber uncertainty, and enhance mission delivery.

Again, choosing to leverage blockchain is not just a technology question—it is a decision that can trans-form business models and processes, and reshape the set of stakeholders and their roles. Like any emerging concept with significant potential benefits, blockchain is not a silver bullet: It is not applicable to every situation, and users and developers are still sorting out challenges both technological and managerial. On the technology side, there are ques-tions of platform scalability, validation methods, data standardization, and systems integration. On the managerial side, the questions include business model transformation, incentive structure, and transaction scale and maturity.

But the most fundamental question for government leaders may be this: Do you want to be positioned to capture the benefits of the new, potentially transfor-mative technology that is blockchain?

Again, choosing to leverage blockchain is not just a technology

question—it is a decision that can transform

business models and processes, and reshape the set of stakeholders

and their roles.


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1. Dylan Love, “This 1995 memo from Bill Gates predicts smartphones, Web videos, and Internet ads,” Business Insider, July 28, 2011, http://read.bi/oT1jQk.

2. Don and Alex Tapscott, Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World (N.Y.: Penguin Random House, 2016).

3. Nikhil Lohade, “Dubai aims to be a city built on blockchain,” Wall Street Journal, April 24, 2017, www.wsj.com/articles/dubai-aims-to-be-a-city-built-on-blockchain-1493086080.

4. Tom Arnold, “Dubai government, companies team up with IBM on blockchain project,” Reuters, February 7, 2017, http://reut.rs/2leyn9x.

5. Stan Higgins, “Emirates NBD enlists UAE central bank in blockchain check trial,” CoinDesk, March 29, 2017, http://bit.ly/2vNZppx.

6. Anna Irrera, “Nasdaq successfully completes blockchain test in Estonia,” Reuters, January 23, 2017, http://reut.rs/2jIHDyZ.

7. Vivienne Walt, “Is this tiny European nation a preview of our tech future?”, Fortune, April 27, 2017, http://for.tn/2q1kfQ6.

8. Ian Allison, “Guardtime secures over a million Estonian healthcare records on the blockchain,” International Busi-ness Times, March 3, 2016, http://ibt.uk/A6UXX.

9. Ian Allison, “Consensus 2016: State of Delaware open for blockchain business,” International Business Times, May 2, 2016, http://ibt.uk/A6XGd.

10. Jeff John Roberts, “Companies can put shareholders on a blockchain starting today,” Fortune, August 1, 2017, http://for.tn/2w1S0Uq.

11. Deloitte Spring 2017 analysis via collaboration with the Fletcher School at Tufts University.

12. CB Insights, “Deals to bitcoin & blockchain startups fall below 2014 levels,” February 3, 2017, www.cbinsights.com/research/bitcoin-blockchain-startup-funding/.

13. Jeff John Roberts, “The SEC’s big digital coin ruling: What it means,” Fortune, July 26, 2017, http://for.tn/2uXkp0i.


15. World Bank, “Identification for Development,” www.worldbank.org/en/programs/id4d, accessed August 17, 2017.


17. American Land Title Association, “2015 year-end title insurance industry market share executive summary,” April 15, 2015, www.alta.org/industry-research/15-04/2015_Year-end_Title_Insurance_Industry_Market_Share_Execu-tive_Summary.pdf.

18. James Schneider et al., Profiles in innovation: Blockchain, Goldman Sachs, May 24, 2016, https://msenterprise.global.ssl.fastly.net/wordpress/2017/07/Goldman-Sachs-Blockchain-putting-theory-to-practice.pdf.


20. Santander and Oliver Wyman, The fintech 2.0 paper: Rebooting financial services, 2015, http://santanderinnoven-tures.com/fintech2/.

ENDNOTES


17

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