Government organizations can truly transform and enhance collaboration through blockchain technology. However, while IT will be a key factor, the composition of stakeholders, operations, strategy, talent, and compliance will be just as important.
The buzz around blockchain is understandable—after all, it is likely to be the next big “foundational technology,” like the internet and personal mobile phones before it. And being a “new” technology, any conversation about its applications raises more questions than answers. But with a growing number of success stories emerging from the financial sector (where much of the current publicity for the technology originates), it would seem that blockchain may be living up to its hype.
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Governments too are exploring dozens of applications for blockchain, as highlighted in our explainer, Will blockchain transform the public sector? However, before diving into the technology, government agencies and organizations should take into account multiple factors; here we highlight the most critical of these.
Technology may be the most obvious consideration, but it’s certainly not the only concern. It is equally important to understand the unique ecosystem that is a blockchain and the considerations in successfully crafting a winning blockchain solution. We identify six key factors to consider in assessing the readiness of a government application for blockchain:
The particular challenges and approaches that should be taken with regard to each of these factors will depend on the specific public sector use case under investigation. Of course, before addressing these six factors, it should first be determined whether blockchain makes sense for a given problem/application.
To better understand how to consider blockchain’s potential in a government context, it’s helpful to examine a concrete use case. Intergovernmental transactions (IGTs) offer a clear example. IGTs are business activities conducted between two government entities. To properly record them and present the balances in the Financial Report of the United States Government, IGTs must be eliminated during the preparation process, or else they can result in misstated balances.1 In other words, when preparing the consolidated financial statements, intragovernmental activity and balances between federal entities should be in agreement and must be subtracted out, or eliminated, from the financial statements. If the two federal entities engaged in an intragovernmental transaction do not both record the same intragovernmental transaction in the same year and for the same amount, the intragovernmental transactions will not be in agreement, resulting in errors in the consolidated financial statements.2
According to the US Government Accountability Office (GAO)’s Financial Audit of Fiscal Years 2017 and 2016, the federal government continues to be unable to adequately account for and reconcile intragovernmental activity and balances between federal entities. This inability can lead to issues such as the loss of billions of dollars in unreconciled activity; inaccurate reporting of assets, liabilities, costs, and other information; and errors and low trust in reporting.
IGTs appear clearly to be a problem, but is blockchain the right solution? To assess the quality of fit between a problem and a blockchain solution, we recommend viewing the problem through three lenses:
In a separate, more extended discussion, the six key factors for assessing the readiness for blockchain are explored in more detail and examined with regard to IGT.
Even blockchain’s most enthusiastic supporters should not suggest it is a panacea. The desirability, feasibility, and viability of each use case must be considered and then the six readiness factors can be addressed. While the considerations for implementing blockchain solutions are many, the benefits are slowly becoming clearer. Blockchain offers government organizations an opportunity for true collaboration and transformation. Early adopters can expect to see the benefits sooner than most, while establishing themselves as leaders in areas that are likely to grow in importance over time.
Download the full report to know more about what a government agency should be considering when starting a blockchain project.
Also, check out the explainer, Will blockchain transform the public sector?