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Can Blockchains Help Build Trust in Governments?

By increasing transparency and building more comprehensive records, state and local governments can formulate ways to reduce risk across processes and move innovation forward.

Blockchain technologies are about to hit it big. By the year 2018, nine in 10 governments will be investing in blockchain — the technology behind Bitcoin transaction ledgers that can provide the public with a permanent and transparent record of government transactions — with the aim of improving financial transaction management, contract management and regulatory compliance across their government organizations, according to a new report by IBM.

These investments come with high hopes, with 70 percent of government executives expecting that blockchain will “significantly disrupt” contract management — the intersection of the public and private sectors. And it can do this by accomplishing what few other technologies in the public sector can: providing a more lucid and trustworthy way to document and distribute government interactions.

“On blockchains, data can be shared widely, seamlessly and, when needed, anonymously. Time-stamped transactions can be verified in something close to real time instead of long after the fact, helping deter fraudulent behaviors. As transparency is amplified, trust becomes more likely,” the report notes.

A few trailblazers — just 14 percent of government organizations — are looking to implement blockchain solutions on a commercial scale by the end of this year. Among these are the state of Delaware, which is exploring the use of blockchain for its business and back-office operations, and the state of Illinois, which is pushing the technology toward use in several of its state agencies.

But what can these pioneers expect once they turn the technology on?

Recording All Activity Can Reduce Risk

“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,” IBM’s report notes. Those already investing in blockchain, however, expect to reduce risk in these areas as a result of the new technology.

Governments can curb risk and cost associated with contract management and regulation enforcement by establishing an “immutable and transparent audit trail” that assures timeliness.

“Today, regulators depend on visibility but achieve it mostly through spot inspections. Vendors that fail to meet the terms of a contract go undetected until it’s too late. With access to more complete and trusted data, government organizations can make better decisions about where to focus their attention,” the report notes.

Moreover, after several years of recording government activity via blockchain, it could become a way to capture and build the reputation of an organization. And with fraud being more quickly detected and recorded, it’s likely blockchain could deter much fraudulent activity before it even occurs.

Furthering Transparency to Improve Innovation

Not every government finds blockchain technology useful. In fact, in 2016 Vermont found that the cost of blockchain technology outweighed the potential benefits of using it for its public recordkeeping efforts.

While governments should be sure to look at their specific use cases for blockchain and weigh the cost benefit, many see it as a way to remove difficult barriers to innovation, allowing them to revolutionize how they manage finances, identities and contractors.

  • Managing finances: With budgets tightening across the country, governments can provide a more transparent and comprehensive look into their spending and audits by managing city or state finances on blockchains for all to see.
  • Managing contractors: When contracting with vendors, blockchains add a new approach to logging performance 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,” the report notes.
  • Managing identities: Governments can provide identity management services through blockchains. In Estonia, citizens are able to verify the integrity of records held on them in government databases, as well as control access to those records. “That sense of security has made possible new digital services, like filing taxes electronically. This allows citizens to more freely choose and manage their digital and public services,” the report notes.

Laying the Groundwork for Open Government

By providing a consistent, transparent and open view of government activities and decisions, as well as contractor interactions, blockchains have the potential to disrupt existing collaboration processes across agencies and with citizens.

IBM’s report identifies these services as:

  • Co-created services: Disparate, top-down service delivery processes could be replaced by a seamless process that empowers citizens and government to co-create the types of services citizens want and need.
  • Integrated services: Centralized systems and disparate data silos could be replaced by a single replicated database that provides a secure and immutable version of the truth, open to use by all ecosystems’ stakeholders.
  • Self-governed services: Centralized government control could be replaced by self-regulated service delivery ecosystems.

In this way, the government won’t just benefit from the technology internally, but can also use it to engender trust and move forward with new services that can completely reinvent government processes for citizens.

ismagilov/iStock/Thinkstock
Feb 21 2017

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