Will blockchain transform the public sector?
Blockchain basics for governments
In this article you will read a summary on how Blockchain’s influence in the public sector will be mostly behind the scenes. But the technology has the potential to bring security, efficiency, and speed to a wide range of services and processes. How should government agencies look to incorporate blockchain into the way they function today?
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- What is Blockchain
- Why are people excited?
- Blockchain adopted in government
- Moving forward
Value creation for all kinds of transactions
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 dramatically shifted the company’s strategic plan to focus on the possibilities. He recognized the Internet’s potential power as a platform for disrupting business—and society—as usual. Not even Gates could foresee all the ways it would be used, but he understood information technology well enough to recognize the emerging value proposition and resulting innovation that the first generation of the Internet could enable.
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 “bringing us the Internet of value: a new, distributed platform that can help us reshape the world of business and transform the old order of human affairs for the better.”
Blockchain’s benefits—of security, efficiency, and speed—are readily applicable to public sector organizations, and the technology’s potential helps explain why so many government leaders are actively exploring its uses in government. Indeed, blockchain experiments in the public sector are accelerating globally
What is blockchain? A digital ledger with a difference
While many government leaders are actively involved with blockchain prototypes, live pilots, and active use case development, more are not yet exploring blockchain and likely have a limited—or nonexistent—understanding 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 architecture, a process architecture, middleware, or something else.
When thinking about blockchain, think transactions. 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 business, 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 distributed consensus ledger, at once both shared and trusted. Creating distributed trust through a collectively agreed-upon consensus protocol is potentially 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.
Why are people so excited about blockchain?
In their pursuit of offering attractive environments 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. 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.
- Decentralized. The decentralized nature of blockchain prevents there from being a single point of failure, thus creating an authoritative and unbroken record of events.
- Immutable. The transactions conducted across this resilient record are append-only; there can be no editing after the fact.
- Near real-time. Finally, the transaction settlement time allowed for by stakeholders working together over a single, trusted ledger is minimal compared to traditional systems of value exchange.
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 making the data more accessible and transparent. The creation and exchange of that ocean of information take place via a tsunami of transactions each year: collections, disbursements, transfers, procurements, sales, fees, fines, certifications, approvals, and many more. Wherever those transactions involve, or could involve, a digitization of assets and decentralized exchange, there exists a potential blockchain opportunity.
Analysts project that blockchain will save $15–20 billion annually in the financial services industry by 2022, and others have advanced similar predictions for other industries, including the insurance industry and health care. And based on the prototypes, trials, and other experimentation happening around the world, government 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 transform 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 questions 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 transformative technology that is blockchain?