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Four Ways Blockchain Could Aid Governments

By David Zaharchuk, Global Industry Research Leader, IBM Institute for Business

January 30, 2017

Governments around the world are facing challenges that range from budgetary pressures arising from economic stagnation to aging populations. Many have severely constrained resources, including the ability to access and analyze data to create greater economies.

By making it easier to securely share data between institutions and individuals, blockchain technology could help relieve some of those pressures. Our new blockchain study, Building Trust in Governments, by the IBM Institute for Business Value (IBV) in conjunction with the Economist Intelligence Unit, found that a number of governmental organizations are embracing blockchain technology to promote more extensive collaboration.

The study surveyed 200 government leaders in 16 countries about their experiences and expectations with blockchains. Nine out of 10 governmental organizations plan to invest in blockchain for use in financial transaction management, asset management, contract management and regulatory compliance by 2018. And seven out of 10 government executives predict blockchain will significantly disrupt the area of contract management, which is often at the intersection of the public and private sector.

While virtually all governmental organizations surveyed intend to invest in blockchain by 2018, we discovered a small group of pioneers that are setting a fast pace and new direction with blockchains today.

These leaders, who make up 14 percent of our survey respondents, expect to have blockchains in production and use this year. Together they identified four areas where blockchain would provide the best benefits:

1. Citizen services: Despite modernization efforts, routine processes such as contract management, financial transaction management and regulatory compliance remain largely paper-based, costly and complex, with significant risks arising from errors and fraud.

From voting to tax collection to land registration, many citizen services are likely to be highly dependent on identity management and unlikely to scale significantly without it. Because participants in a transaction on blockchains have access to the same records, there is no need for third-party intermediaries to validate transactions or verify identities or ownership. Business licenses, property titles, vehicle registrations and other records could all be shifted to blockchains.

2. Regulatory compliance: Nine in ten leaders believe blockchains can reduce the time, cost and risks of enforcing regulatory compliance.

Governmental organizations in North America are particularly focused on these applications. They ranked regulatory compliance number one in terms of blockchain benefits. Blockchains establish an immutable and transparent audit trail that assures timeliness and curbs the costs of managing contracts and enforcing regulations.

3. Identity management: An estimated 1.5 billion persons worldwide have no legal identity or proof of birth, according a United Nations conference last year. Unable to open a bank account, own property or access government services, many are shut out of full participation in the economy and the creation of wealth, according to the website GovHack Hackerspace 2016.

Blockchains that securely compile, cross-reference and verify multiple data sources, events and transactions could establish and validate an individual’s identity when traditional proofs of identity are missing. In the United States, the U.S. Postal Service and the Department of Homeland Security are researching the potential for blockchains to establish secure identity management.

4. Contract management: By using blockchains for contract management, issues such as the failure of any party to meet a deadline or complete a task, for example, could be more immediately visible. Over time, a vendor’s history captured on blockchains could be used to validate its reputation and trustworthiness.

Transparency derived from contract management on blockchains could improve performance management. For example, in the area of waste management, citizens and companies could register problems — such as garbage that has not been picked up — on a blockchain platform, automatically notifying the garbage collector.

In addition to enabling a more timely and efficient response to problems, this process could establish a system that reliably tracks the performance of vendors. Smart contracts could automatically penalize subcontractors with a history of repeat offenses.

Governments will be able to use blockchains to explore new business models for providing services to citizens beyond the limits of current technology. These models can be used to improve the efficiencies of current services, while expanding the ability to provide new services.

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