Blockchains in Government

To the uninitiated, a blockchain might sound like something to do with the penal system, or perhaps part of an old sailing ship. In reality, blockchains may be well prove to be a vital ingredient of smart cities and indeed smart government in general.

What is a blockchain?

The blockchain concept did not have an auspicious introduction to public life. It was the mechanism behind Bitcoin, whose history and stability have, to put it mildly, been checkered. However, if you strip away the association with crypto-currencies, the underlying concept is essentially a distributed ledger. The ledger exists as a heavily encrypted medium linking multiple parties to a contract or, say, to the life-cycle of some asset. It is only updated by consensus, expressed as rules agreed between parties to the transaction; once made, information regarding each update can never be altered; and the record of the transaction then exists at multiple locations so that discrepancies are instantly identifiable. Rules can be added to specify what each participant may be allowed to see or do, depending on their role. The result is that each transaction is instant, secure, authenticated, verifiable and so, trusted. Blockchains are the ultimate “systems of record” that reduce transaction times, reduce overhead and intermediary costs and reduce fraud and tampering.

Blockchains are now attracting considerable attention as a mechanism for enabling rapid and very secure financial transactions. Much effort is also going into creating open standards, for example with the Linux Foundation’s Hyperledger project (full disclosure – my employer, IBM, is a very active member of this open-source project).

 What do blockchains mean for governments and cities?

 Blockchains offer the potential to streamline and automate a range of otherwise time consuming transactions. They offer a ready way to confirm ownership or liability. They also offer considerable potential for managing automated interactions in the “internet of things” (IOT) – in the context of cities, for example, interactions between infrastructure systems. The following examples illustrate the range of possibilities.

 Car ownership and registration. I recently bought a used car, for which the previous owner had lost the title document. The ensuing paper-chase and time wasted dealing with my local DMV prompted my usual frustrated thought that “there has to be a better way!” With a blockchain, there is a better way. Imagine my car – model, VIN number, registration number - as an entry in my state’s car ownership “ledger”. All the parties to its lifecycle – owners, DMV, financier, insurer, police – would have access to the entry to record or view transactions such as change of ownership, registration, loan-pay-off and so on. Transferring ownership would no longer be a paper-chase – the previous owner would record on-line that she had sold the car to me, and I would record that I had bought the car from her. Authenticity could be confirmed by including some details from our respective driving licenses, say. The paired records would be taken as proof of sale, and transfer of title would be instant. DMV would “see” the transaction from its own replicated copy, and automatically issue a new title and registration certificate – which need exist only electronically. Transfer of financial obligations would also be automatic. The whole lifecycle would be encrypted and secure. The previous owner would be able to see “her” portion of the car’s history, and me, mine.

Now go further – each owner could have their mechanics enter maintenance and emissions check data so that they could prove the service history; if they have an insurance transponder, they could even release summary data to buyers showing how the car had been driven. If certain parts and panels were encoded I could confirm that those codes remained original (meaning that the car had not been in an accident); and so on. Overall, the benefits to me in terms of speed and reduced hassle would be huge; to law and order, likewise; and in terms of reduced costs from processing paperwork, sorting out mismatches and so on, also huge!

 Land tenure and title. Inability to prove land tenure reliably is regularly cited as one of the biggest impediments to improving rural prosperity in developing countries, because it inhibits the ability of (usually poorer) property owners and farmers to finance upgrades to their properties or to their farms and businesses. And in developed countries land title and title insurance are the work either of entire government agencies such as the UK Land Registry; or, as in the US, of an entire private industry charging over $9bn in premiums even in a bad year such as 2009 (when there was a recession). As with the car example above, blockchains would allow an independent, incorruptible and unalterable record of land ownership, and changes thereto. This would have dramatic benefits for rural prosperity in developing countries (Honduras is already implementing such a registry, and other countries are known to be interested). Because title would be permanently validated from multiple sources, blockchains would also offer huge scope for faster, cheaper and more reliable service in places like the US, perhaps reducing the need for title insurance at all.

 Internet of things. A promising areas for blockchains is in enabling automated exchanges between entities in the IOT. Take the example of where a water agency agrees to suspend for a short period its pumping activity to fill a tank, say, in order to help shed demand on the energy grid and avoid a brown-out; or conversely where it can bring that pumping activity forward to find useful work for wind or solar power that might be available but otherwise be unneeded at that time. This is demand-response, and it is increasingly a source of savings or revenue for water agencies – but it needs to happen within thresholds of safety, pressure management and water quality in the water system, and any energy demand deferred or advanced needs to be auditable.   Blockchains provide a way to synchronize water and energy IT systems so as to validate automatically that it is safe to change the pumping activity, initiate the change, confirm which pumps were or were not running, and enable payments to be made as required – all in a seamless, largely autonomous, self-recording flow.

 These are just a few examples of how blockchains might play out in governments and cities. In truth, aside from the land registry example they are speculative because no-one has yet attempted them (to my knowledge). But the potential of blockchains is such that it is going to be truly fascinating to see how they play out in the public arena over the coming years.