All types of organizations stand to gain new benefits from blockchain technology, but governments are uniquely positioned to not only gain such benefits for themselves, but to help establish blockchain infrastructure that benefits all business and consumer sectors.
To assess the progress that government organizations are making in this area, the IBM Institute for Business Value released a report, “Building trust in government; Exploring the potential of blockchains.”
With the support of its economist intelligence unit, the institute surveyed 200 government leaders in 16 countries on their blockchain experiences and expectations.
Governments Study Blockchain
The survey found government organizations are exploring how blockchain technology can impact operations in a number of areas. Ninety percent of government organizations plan to invest in blockchain technology for regulatory compliance, financial transaction management, asset management and contract management by 2018. Seventy percent expect blockchain to significantly disrupt contract management, an area often at the intersection of the private and public sectors.
Fourteen percent of respondents, called Trailblazers, expect to have blockchains in production and at scale in 2017. They prioritize blockchains to reduce innovation roadblocks and inaccurate or incomplete information across their organizations. They seek to reduce time, cost and risk in identity management, regulatory compliance, contract management and citizens services.
The findings indicate blockchain adoption is moving faster than anticipated.
Blockchain technology provides a new approach to transparency and collaboration. When transactions are recorded or assets are registered on blockchains, transparency and privacy need not be at odds. Data can be shared anonymously when needed.
Time-stamped transactions can be verified in nearly real time, helping deter fraudulent behaviors. As transparency improves, so does trust.
Commercial blockchain applications are few at present. But 14 percent of government organizations expect to have blockchains in production and at scale in 2017.
Asia Pacific and Western Europe Trailblazers are setting the pace of adoption. North America lags behind all regions. This could reflect the complexity of coordinating blockchain applications across American jurisdictions.
About half of the Trailblazers are already investing in asset management, identity management and regulatory compliance.
Identity management determines who is transacting and who has to access to it.
Asset management records what is transacted and forms the basis for broadly-enhanced citizen services.
Regulatory compliance bridges both the public and private sectors to embed rules that automate legal requirements.
Early Collaboration Needed
Early collaboration between the government and the private sector on regulatory compliance will set the pace of blockchain adoption in all industries.
Government executives were asked to weigh the time, cost and risk benefits in nine areas. Trailblazers identified four areas they believe will yield the most benefits: identity management, citizen services, regulatory compliance and contract management. Seventy percent of all government respondents identified these same areas.
The nine areas included in the survey can be segmented into processes that improve efficiency in operations and reduce risk, and areas that support more personalized and seamless public services.
Routine processes like financial transaction management, contract management and regulatory compliance remain paper-based, expensive and complex. Trailblazers expect blockchains to benefit these areas, particularly in the reducing risk to contract management and regulatory compliance.
Key Area: Regulatory Compliance
Government organizations in North America ranking regulatory compliance as number one. Regulators mostly achieve visibility through spot inspections.
Vendors failing to meet the terms of a government contract go undetected until it’s too late. With more complete and trusted data, governments can better decide where to focus their attention.
Blockchains could become reputation systems. They can capture the history of an organization and establish how trustworthy it is. Because fraudulent activity can be detected quickly, blockchains can deter a lot of fraud altogether.
Other Blockchain Benefits
Combined with digital identity applications, blockchains can facilitate know your customer (KYC) and anti-money laundering (AML) regulations.
Blockchain-based supply chains can assure compliance with import and export rules, as well as safety and counterfeit measures.
Organizations are already using blockchains to track food from farm to fork.
Consumers, businesses and government can know how things are made – whether those assurances relate to child labor or the environment.
Blockchains that compile, verify and cross reference multiple data sources can validate an individual’s identity when traditional proofs of identity are missing.
Key Area: Citizen Services
Trailblazers cited citizen services as a key area for blockchain applications. Many such services, from voting to tax collection to land registration, are likely to depend on identity management and not likely to scale without it.
Because participants in a blockchain transaction have access to the same records, there is no need for third-party intermediaries to validate transactions or verify identities or ownership. Property titles, business licenses, vehicle registrations and other records can shift to blockchains, removing the need for notaries, lawyers and visits to government offices to certify transactions.
New Government Services
Government organizations are placing priority on blockchain-based voting. In 2014, Denmark’s Liberty Alliance tested it for internal voting.
Blockchains can eradicate frictions that limit growth and constrain innovation for organizations. Trailblazers think blockchains will have the most impact on innovation frictions. These are regulations governments must coordinate across departments and borders, including new dangers like cybersecurity and new business models that are hard to predict.
Imperfect information also tops Trailblazers’ list of frictions that could fall as blockchains expand.
New Business Models
Trailblazers’ top three areas where blockchains can enable new business models are: contract management, financial transaction management and identity management. However, there was significant geographic variation.
Western Europe ranked financial transaction management as the top new business models area, North America saw the most potential in borderless services, while Asia Pacific expected citizen services to deliver the most innovation.
Blockchain-enabled contract management could bring a new approach to performance management. The failure to meet a deadline or finish a task could be more immediately visible. A vendor’s history captured on blockchains could validate its reputation.
Financial transaction management didn’t make the Trailblazers’ top three areas, but it did rank among the top three for blockchain-enabled new business models.
Identity management was cited as a springboard for new services. Estonia’s government jumpstarted its revolution with identity-based blockchain services. Citizens from any country can seek a government-issued digital identity secured on blockchains.
About 10,000 Estonia “e-Residents” utilize digital identity-based services that their own countries don’t offer. Such transnational blockchain services can provide a basis for competition among countries seeking to boost their economy with greater inclusion.
Blockchains could unleash open government. Government could become a trusted partner and reinvent processes to enable more collaboration among agencies and with citizens.
Blockchains can offer a consistent and transparent view of activities, information and decisions, fueling the innovations in government services. These include:
• Co-created services: Disparate, top-down service delivery processes replaced by a process that empowers government and citizens to co-create the services citizens want.
• Integrated services: Centralized systems can be replaced by a single database providing a secure and immutable version of the truth.
• Self-governed services: Self-regulated service delivery systems could replace centralized government control and disparate siloes.
Government entities can benefit not only from the trust promised by blockchains; they can create it for the benefit of all.The report poses the following three questions for government organizations to ask themselves: How fast should we move? How can we scale across networks? How can we enable new service delivery models?
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