BLOCKCHAINS UNCHAINED: The Implications of Blockchain Technologies for the Public Sector

Draft Working Paper (First Half)

Observatory of Public Sector Innovation

Reform of the Public Sector Division (RPS)

Directorate for Public Governance (GOV)

OECD

26 February 2018

Prepared by Théo Bourgery, Intern, opsi@oecd.org

This draft paper is shared online on the OPSI blog (http://oe.cd/opsi-blog) for public comments from 26 February 2018 through at the 20 March 2018. Interested individuals are are invited to REVIEW and COMMENT on the paper by 20 March 2018 through the collaborative document at http://oe.cd/blockchainunchained or by editing the document in tracked changes and emailing revisions to opsi@oecd.org.

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.



Foreword

At the OECD Observatory of Public Sector Innovation (OPSI) we aim to make sense of innovation trends across government administrations. We shine a light on the work of agencies and public servants to create more efficient, effective and tailored public service delivery. At the same time, we accompany teams and departments in exploring and implementing all forms of innovative processes: emerging and disruptive technologies, big data analytics and open data, innovation skills, citizen-driven policies and services, innovative procurement and human resource management, among others. All in all, we seek to understand the dynamics of innovation to create and fuel systemic change in the public sector.

OPSI has published an annual series of reports on global public sector innovation trends. The Embracing Innovation in Government: Global Trends reports[1] are the results of extensive research into the field of innovation and global Call for Innovations crowdsourcing exercises that have surfaced over 400 compelling innovation initiatives – stemming from a wide range of administrations, agencies and issues to resolve. Through analysing this large number of case studies, these reports identified key trends that will shape the public service of tomorrow. In both reports, we saw innovative uses of blockchain for the public good. In particular, our 2018 trends report identified the public-private ID2020 partnership, which demonstrates the potential for blockchain to help provide digital identities for the 1.1 billion people in the world who live without an officially recognised identity, including millions of refugees.[2] The 2017 trends report examined how blockchain could transform the voting process in democracies, as illustrated by a blockchain-based digital plebiscite[3] on whether the government of Colombia should approve a peace treaty in order to end a long-term conflict.[4]

This increasing interest and questions surround in the government application of blockchains is OPSI’s motivation for developing this new Blockchains Unchained guide. Further, we intend for this guide to be the first in a series of straight-forward, easily accessible guides that leverage our Call for Innovations and our Global Trends work to do deep-dives into specific topics of interest bubbling to the surface in the public sector, including emerging technologies.

Acknowledgements

We would like to deeply thank Justin Herman, Axelle Lemaire, Emmanuel Noah, Noah Raford, Tess Rinearson, Björn Segendorff, Tomicah Tillemann, Mats Snäll and Stanley Yong for taking the time to answer the questions of the Observatory. From Blockchains specialists to entrepreneurs and regulators, their interventions were key in insuring the quality of this report.

A special thank goes to Rodrigo Mejia Ricart, formerly of the OECD’s Digital Government Team, who supported the project from day one, and Matthieu Crepy, for his technical revision of Part I of this report.

Executive Summary

Blockchains have become a buzz word, yet ambiguity remains around what they truly are. Their impact on the public sector is, at best, misunderstood, and, most often,  ignored. Technical complexity skews public debate. As current security processes predominantly involve institutions such as governments or banks as trusted third-parties to certify transactions or official multi-party interactions, questions over the vulnerability of such single points of failure arise. Blockchains may offset some of government’s existing worries and issues. This guide aims to provide public servants with the necessary tools to understand what the Blockchain architecture is, the impacts it could have on government services, and challenges governments will face as a result.

Section I defines the Blockchain architecture as a distributed data store that acts as an open, shared and trusted public ledger that nobody can tamper with and that everyone can inspect (OECD, 2016, p.107). For the sake of clarity, this section looks at the technology from the angle of financial transactions. Blockchains’ underpinning assumption is that all transaction will be visible to all actors in the system – citizens – at all times. In other words, all actors will hold identical ‘ledgers’ of transactions. This enables a key feature of the Blockchain architecture: omniscient actors are in turn expected to confirm the validity of transactions that occur on the platform, and flag inappropriate dealings when necessary. This state of perfect information in turn responds to two security queries:
  • Is the correct information, or fund, being transmitted?
  • Are the identities of the two transacting parties involved valid?

Then comes security. One must imagine a Blockchain as, quite literally, a chain of blocks in which specific transactions are stored. Once transactions are agreed upon by actors, they are stored in blocks which cryptography and complex mathematical constructions secure. Due to its chain-like architecture, blocks are fundamentally dependent on one another, such that changing the information of one ultimately changes the link it has with all other blocks on the chain. The inherent chained structure ensures that the information contained in the ledger is not tampered with, so that transactions are inherently trusted.

Interestingly, this further suggests that banks and governments would no longer be required as trusted third-parties. This is the real value of Blockchains: the development and growth of automated and decentralized decision-making systems that do not require centralized bodies or datasets.

While Blockchain technologies have so far most often been applied to the financial sector, and specifically deal with monetary transactions, this powerful data storing technology could also be used for non-monetary matters. E-identification, proof of land ownership, digital signatures, even voting, are only a fraction of the disruptive impacts Blockchains could have on the public sector. Section II provides the reader with a number of different case studies of Blockchain uses in the public sector – from across the world, and across a variety of departments and agencies. It takes Blockchains out of the world of technical complexity into the real world.

Section III focuses on the challenges that this technology poses, and is expected to pose, to public administrations. These take many shapes and forms, be it over matters of data protection, governance and confidentiality of information. The format that some Blockchains take today have in-built limitations, be it the outrageously high levels of energy required to power the system, as well as the slow pace of transactions processes. Coding constraints also add to the complexity of governance mechanisms. These challenges must be understood quickly by public servants, public officials and regulators as Blockchains expand out of the private sphere into the public sector.

The Observatory aims to accompany public decision-makers in understanding the technology and the associated opportunities in order to help them make better-informed decisions when the time comes. It is not enough to delegate to developers because “only they know”. As technical as it first may appear, it is important that policy-makers grasp the topic and its implications. This is what this guide aims to do.

Introduction

Blockchain today

Blockchain technologies are for many as revolutionary an invention as the rise of the Internet (“Is Blockchain Technology the New Internet”, n.d.) or, more soberly, a new “trust machine” (Snäll, n.d.). While their developments have been extensive in the financial services industry[5], the use of Blockchains is also emerging in many sectors of the public sphere (see Figure 1). Estonia has implemented the first nationwide Blockchain system to safeguard data such as health records (Marshall, 2017). Sweden is experimenting with Blockchains for its land registry management (Snäll, n.d.) – while BenBen, a Ghanian start-up, has partnered with the Ghanian Land Commission to develop secure land transaction recordings and improve Government’s public service delivery (Stawinska, 2017). Communities of practices at different levels of government are emerging, such as with the General Services Administration’s Emerging Citizen Technology program for US federal government agencies (GSA, 2017), and the Global Blockchain Council powered by the Dubai Future Foundation (Dubai Future Foundation, 2017). Public financial institutions such as Central Banks are also looking at the opportunities of Blockchain technologies to develop and secure digital currencies, at a time when debates over cashless economies expand (Segendorf, 2017).