Conference overview
Euan Semple hosted a new Blockchain in Government conference in Washington D.C., November 7 & 8 - an initiative of his and Jane Dysart, longtime organizer of KM World and related conferences.
The Blockchain in Government event was targeted to begin wider conversations around the opportunities for the blockchain model to make a difference in the work and services of governments and social impact organizations.
Experts as well as experimenters from Europe and the U.S., came together to share their projects, explorations and early learnings. Speakers as well as attendees were able to have insightful and broad-ranging conversations that explored the challenges of early projects, and probed the ways the decentralized trust structure of blockchain could bring an ecosystem of new services to the public sector.
Over a series of blog post (and this is the first), I’ll summarize some key presentations and then provide a synthesis of the dialogue over the course of the conference.
Getting grounded - Blockchain characteristics & applications in the public sector
The first day’s speakers included Kevin Werbach Professor of Legal Studies and Business Ethics at the Wharton School, University of Pennsylvania, and his talk was helpful in grounding the attendees to the value proposition of blockchain.
Werbach is known for his work in gamification (and I took his Coursera MOOC in 2014), and as he noted gamification is about using structures to excite and motivate. Bitcoin started with a unique motivational challenge - how can you get people to verify other people’s transactions - essentially what Bitcoin mining is about. There’s got to get someone who pays that cost of trust (i.e., when you don’t have a ‘institutional’ intermediary in the middle).
What Satoshi Nakamoto did with the proof of work consensus was to create a game for which one is paid - if you win the block award as a miner. This motivational aspect of the blockchain idea interested Werbach - what could we learn from gamification, technology and internet policy over the years within the blockchain frame? (Werbach was a member of the Federal Communications Commission in 1994 when the internet had 30 million members).
He feels that many of the conversations about blockchain focuses on highly hyped areas (i.e. cryptocurrencies) and are missing the depth of its potential which he sees could have as much impact as the internet protocol.
To understand the innovative concept around blockchain, Werbach referenced three main trust architectures that have play a role heretofore in commerce and government.
- Peer-to-peer (i.e., families or close knit communities)
- Leviathan (trust in governments as backstops, i.e., a contract is a legal agreement, that if violated, parties have recourse in a court, and judiciary is an arm of the government). While a government stands behind transactions, there’s lots of inefficiencies, redress only works after the fact, high overhead (need legal expertise), and you aren’t sure you will obtain the results you want
- Intermediary - parties trust the platform that intermediates a relationship. The challenge is that intermediaries can become a monopoly, extracting value out of the individuals in the parties as well
The blockchain trust structure
The blockchain model allows an individual, as a user/participant, to trust the output of the system without trusting any one actor in the system. You can trust that a cryptocurrency is worth something even though you might not know or trust anyone in the network Everyone is incentivized to come together with consensus (the provable consistency across a network without central control). This, in a sense, is a well-designed game - everyone is incentivized to behave through consensus. The system as a whole produces something of value.
Blockchains are systems that produces trustworthy outcomes and are not limited to crypto-economic trusts systems (systems that uses tokens as the mechanisms to incentivize that verification).
Permission systems don’t use a cryptocurrency but still have the same character - you can trust the system and outcomes - it could be constructed as a consortium or a smaller group of actors that come together in the ledger, none of whom, individually have the power where you would have to be sure they are trustworthy as an individual actor.
Blockchain Value Propositions
Werbach called out the primary value propositions of blockchain, especially for government.
- Trust minimization - No dependence on state, single point of failure, monopoly tax (if you have to trust someone you can end up being dependent on them, and they can take advantage of you) You don’t have to have any political or ideological positions to understand that there can be downsides to trust - If you have to put trust into a centralized entity, that can be problematic) (Can be a central point of failure or risk) If it was possible to rely on the outcome of a system without having to rely on any one actor, that would be very powerful).
- Trust expansion - Avoid reconciliation, automated execution, integral audit-ability. Often there’s not enough trust i.e., there are vast number of situations where different parties have to work together such as supply chain - a massive multi-trillion $ set of activities - all the goods and services that we interact with are moving between companies, and don’t necessarily trust one another). Every supplier has their own databases, no one can trust that they’re all seeing the same information that’s why we have settlement and reconciliation. Each party will say - "Here’s the API to my database, you can plug into my database, you’ll give me an API to get into your database." But now we have two databases - Lots of cost, duplication and possibility for error. Because there are gaps in trust, everyone can’t be sure they are seeing the same information. So there has to be a whole set of processes around settlement and reconciliation.
Blockchain overcomes trust barriers
- Because there is a common framework, if we can all see a common ledger, then that’s a foundation.
- Like the Internet - a common basis for applications - blockchain becomes a platform.
- The internet “won” because it was a simple platform and was widely used
- Something similar is potential with a blockchain substrate - code that executes on the network - crypto-currency transactions just code that executes on the network - a Smart Contract executes on the blockchain platform
As Werbach noted, “we are not there yet - the promise far greater than the reality. There are huge questions about scale and interoperability for instance.”
Three primary blockchain phenomena
Cryptocurrencies - the tokens themselves are useful as money, for something like Bitcoin, and to power DeCentralized Apps (dApps) a raft of token offerings i.e., Filecoin are using tokens to power decentralized cloud file storage,
Distributed ledgers ( a lot more real for enterprise business and relevant to public sector)
Not using a token as a focal point, but focused on the shared ledger of information so that that everyone can see the same info without a central actor. Useful for areas such as
- Tracking - think supply chain
- Authentication - identity management for service delivery (governments)
Cryptoassets
Wall Street is moving aggressively (or as Werbach puts it “swallowing”) cryptocurrencies as a new asset class (not tied to anything physical in the world) to create markets with these assets (that are Infinitely sub-dividable and infinitely trade-able). Leading players like Fidelity, Goldman Sachs and others are pushing into tradeable cryptoassets. The industry is now going through a process of working out the regulatory processes many jurisdictions around the world are working.
Blockchain for government (why does this make sense for public sector applications?)
- Environment - In some locales there is low trust in government institutions - situations where there’s a gap in trust, i.e., places where corruption is endemic and important civil activities don’t happen because of it.
- Resource flexibility - governments and public sector operate with constrained resources, but blockchain is a basic technology, is open source and uses a shared infrastructure. As its decentralized, a government doesn’t need to invest in a vast amount of centralized infrastructure.
Common requirements of government applications
- Strong security essential - blockchain provides some new sorts of decentralized security - designed at the core to be secure
- Transparency for monitoring and accountability - the blockchain ledger allows transactions to be visible - public very transparent, private has a variety of different structures - it’s possible to embed automated accountability into the system. It’s possible to track transactions to make it auditable - not to have private info or control of those transactions in order to track what’s going on and these are important elements for government applications
Benefits
Government blockchains, then, can be seen as a kind of platform or foundation for a whole variety of applications. For instance government can create a trust infrastructure for a whole range of identity-based applications- birth certificates, social security. Many states and CIOs of cities are interested in bringing in blockchain as a way to foster economic development. People are looking to organizations that are looking to experiment in both public and private sectors.
Here are some sample applications that are useful in the public sector, and can springboard private sector opportunities
Example: Accurate Record-keeping
Recording-keeping - It’s actually a hard problem - and many times because it’s a centralized function. Chicago is beginning to use it for land title records - Anchored to the bitcoin blockchain. It’s a foundation that third parties could use - i.e., to build mortgage applications on this infrastructure
Jack Markell - former governor of Delaware announced a project for corporate shares that can be issued on the blockchain.
- Delaware is dealing with the problem that people don’t know their cap table or the state of each share at a particular moment in time. A central intermediary manages this now, but a blockchain system could potentially in real time keep track of all a company’s shares.
Example: Efficient service provision
- World Food Program (WFP) provides cash grants to refugees - i.e., In Jordan for Syrian refugees - money that they can use at a set of markets in the refugee camps
- People don’t have identities - how can you build a trusted system to distribute money to refugees in needs. Which keeps a record of the cash transfers that go to the refugees, and gets tracked back to the markets. There is also use of biometrics.
- Where they hope to go next - they hope to layer other services on top of it. Right now the WFP is the only actor in this blockchain network, but they hope to get other NGOs, other actors involved including private sector companies, i.e., job training.
Example: City of Berkeley, CA
Issues city bonds on blockchain
Example: Secure Voting
West Virginia, Siera Leonne
Thinking through blockchain - relevance solution to particular problems
- -Do you need or want a blockchain?
- -Can the assets or activities be digitized securely?
- -Are the assets or activities outside the control of one entity?
- -Do you want to share data without giving up control over that data?
- -Are you more concerned about attacks than crashes- availability?
- -Do you want an immutable history of transactions?
Many times, technology isn’t the issue for permissioned networks. For example, IBM and Maersk struggled to sign partners to a shipping blockchain - often it’s really a question of governance.
Werbach noted a recent survey done in June 2018 by Cowen & Co., that indicated robust enterprise and government adoption will take time - significant percentages those surveyed agreed on an average of six years. This should not be surprising to anyone who has worked on large scale, mission critical applications in business or government. Like the internet, it will take experimentation, astute evaluation of where blockchain will be most strategic and useful, and the lead time on developing talent, and management education related to decision-making on the right investment in blockchain applications. Werbach's new book on blockchain as the new trust architecture is going to be published on November 20, 2018.
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