Blockchain in the public sector

The public sector faces great challenges, among others because it must provide public services, in quantity and quality, efficiently and transparently, and often with fewer available resources.

For this reason, modern technology such as Blockchain (hereafter BC) is used in many countries, in order to improve the quality of their public services and processes, making them more efficient, transparent, dependable and traceable in order to improve.

Through the present article, I comment on some benefits of applying BC in the public sector, as well as in which cases its application should be analyzed, and next I present some concrete cases of use in order to formulate some final thoughts.

  1. BENEFITS OF BLOCKCHAIN FOR THE PUBLIC SECTOR

BC is a digital mechanism for creating a distributed digital ledger, in which two or more participants in a peer-to-peer network can exchange information and assets directly, without intermediaries.
BC authenticates the participants, validates that they have the assets they want to trade, and records the trades in this digital ledger, of which all participants have an updated copy and whose entries or records, which are not modifiable, are chronologically organized and packaged in blocks, encrypted, and linked to each other.

Its essential elements are distribution, asymmetric encryption and pseudonymity, immutability, tokenization (secure transfers of value), and decentralization[1].

Among the advantages is its security, the decentralization of the network with smart contracts that can streamline and optimize processes, the possibility of traceability and following the path of each product from manufacturing to its destination market, cost reduction and the transparency of transactions, speed, and efficiency that can help achieve interoperability between participants, allowing them to access the same data simultaneously.

Specifically in the public sector, the following benefits of using BC have been highlighted, among others[2]:

  • It can support the digitalization of public agencies by being scalable, allowing a highly efficient and decentralized infrastructure that ensures privacy, regulatory compliance and optimized data exchange.
  • It can help governments build an ecosystem in which technology strengthens trust, enabling institutional interoperability. Data can be shared between multiple entities securely and transparently, ensuring real-time backup and auditability of sensitive data.
  • Reducing the red tape and corruption are also benefits. Institutions can use BC to link real-world identities to verified and encrypted digital documents and IDs (e.g., certificates, diplomas, permits). This will streamline KYC verifications and regulatory compliance by eliminating repeated verification processes, errors, or fraud attempts.
  • This can boost citizen trust and engagement by changing the way citizens and institutions trust and interact with each other by placing trust and assigning rules in objective coding.

Blockchain publication in Public Administration: a lot of noise and few blocks?[3] The question arises of when it is efficient to use BC to solve a problem in the public sector.

It is said that a test should be conducted in which the following questions, among others, are answered affirmatively:

  • Do you need everyone involved to keep some kind of information record?
  • Do you need everyone involved to access this registry?
  • Do any of those involved have incentives to try to falsify the information registry for their own interests?
  • Do you need to validate the registration of new information in real time or near real time?
  • Is it necessary to have a central entity that validates/verifies all the information to confirm that it is legitimate and dependable?
  • Do you need to have a reliable historical record of the information to audit it or track it?

In such a case, a non-permitted public BC or a permitted one could be used in some cases, if it is required that only certain users have access to the BC and can perform the operations. Otherwise, it could be that BC is not the appropriate technology for the problem to be solved, since the solution is the one that must fit the problem and not the other way around.

It is said that to incorporate BC into the public sector there are organizational and governance challenges, as well technological, regulatory, talent, and use and generation eco-system issues. It is advised first to understand the problem, analyze the context of the issue, map the actors, design the architecture of the solution through a rapid prototype that can be scaled, define the governance and evaluate the prototype.

  1. EXPERIENCES OF USING BC:

There are already several use cases. Next, we present synthetically some of them, dividing them by theme:

  • Digital Identity: Identity is the cornerstone of the interaction of public services and BC and can do much to solve the current problems. To cite just one example in Argentina DIDI is the first self-sovereign digital identity project through BC. The objective is to improve access to goods and services of quality for populations in vulnerable neighborhoods. They create innovative solutions to reduce the information asymmetry and generate financial inclusion[4].
  • Public Procurement – tenders: The lack of fairness and transparency in these processes in many cases opens the door for acts of corruption, which is why BC can be useful in this regard. Several use cases stand out, such as the EJIE, the Basque Government Computer Society, which in 2017 awarded the tender for the use of BC in the registry of contractors[5]. Also, the cases of Chile procurement, where, in this public procurement platform, it started a pilot project for the use of the BC tool in public procurement[6]. The same has happened in Colombia and Peru.[7]
  • Tokenized Community Incentives: in Vienna, in February 2020, a project called Kultur Token was started[8], with a quite simple but enormously powerful value proposition: free access to cultural activities in exchange for environmentally responsible behaviors. In Argentina, in the Municipality of Marcos Paz, since 2019, certain desirable community behaviors conducted by citizens (such as attending cultural workshops, using municipal transport, timely payment of municipal fees, recycling household waste, among others) are rewarded and they are incentivized with cryptographic tokens (called Marcos Paz Assets) that are credited to their cryptographic wallets. These cryptographic tokens generate benefits recognized by the businesses that adhere to the program and once received by them, these cryptographic tokens can be used by the same businesses to pay municipal fees[9].
  • Participatory budgets – Voting: To cite an example, the municipality of Alcobendas in Spain, uses a public BC not allowed (Ethereum) to register the vote (secret but traceable with a time stamp) of citizens regarding the use and application of component funds of the participatory budget[10]. In the municipality of San Lorenzo in Argentina, there is also a use case since 2019.[11]
  • Public Health: Among other uses, BC can be used for vaccination registration. For example, Vital Pass is the first digital passport for vaccination against Covid-19 that, through BC, guarantees security, monitoring and transparency during the vaccination process in Latin America. A user is created for the citizen with their email and in the application instance, the vaccinator will complete a form with the beneficiary’s information. The certificates are issued by the health units in charge of the application and registered on BC technology. It is a document similar to a passport which is linked to a verification registered in the BC of your vaccine, information that is accessed through a QR code[12].
  • Education: Many Universities and educational establishments in the world are already issuing their degrees and diplomas certified with BC, with the advantage that the entire academic history of the student is recorded on the network. To cite some cases from Spain: Carlos III University of Madrid, ISDI Digital Business School, University of Alicante, Comillas Pontifical University.
  • Property Registries: The application of the BC in the Property Registry opens a door to modernization, streamlining and simplification of registration procedures. Many countries have already launched pilot projects with the aim of developing a BC network applicable to Real Estate Registries, in order to examine how this technology could be applied, what advantages it would have and what disadvantages it could pose. One of the most advanced cases is that of Georgia.
  • Tax Agencies: within the Tax Administrations, BC has multiple applications, such as: the exchange of taxpayer data in real time, the secure and immutable storage of taxpayer data, the collection of taxes and reimbursements in real time, reduction of compliance costs for taxpayers and system administration, traceability of operations to combat cases of tax fraud and it has even been said that with BC and smart contracts the application of complex tax law and the collection of taxes such as VAT could be automated[13].
  1. FINAL REFLECTIONS.

As we saw in the present, the potential of BC with the tokenization of the economy is enormous and will change many aspects of our lives in the public and private spheres.

The use of BC by the public sector presents multiple benefits and opportunities to make them more efficient and effective in their core mission.

I want to warn that not all processes can be performed more efficiently with this technology, or others.

It is essential to analyze in each particular case considering the context the possible application and its benefits and costs. We must see what problem needs be solved and whether the technology is adequate.

It would seem in principle that BC would be appropriate when all those involved are required to keep some type of information record, access it, validate it in real time and thus allow to keep an auditable, traceable and reliable historical record of all operations.

It is vital, on the one hand, to promote technology for its efficiency, but on the other hand to be attentive to its governance, that is, to avoid potential biases or discrimination with its use, always respecting the rights and guarantees of citizens in all areas starting for the protection of their personal data.

Technologies should not focus on replacing public powers, but should increase or complement human capacities, so that people can add value to their tasks, and at the same time, improve the quality and efficiency of the public functions for citizens.

It is particularly important to bet on education, so that society in general can understand the benefits and risks of new technologies.

Digitalization opens up new possibilities and opportunities for countries and their citizens to develop, and those countries that best take advantage of the digital “train” will undoubtedly have better opportunities to develop and provide a better quality of life for their citizens.

It is vital to place citizens at the center of technological development and innovation in the public sector, it is the way to guarantee public services for all segments of society and, in this way, increase accessibility and social inclusion.

[1] Conf. Gartner, Inc., The real business of blockchain, written by David Furlonger and Christophe Uzureau, and published in 2019 by Harvard Business Review Press, p.10. Extracted from the Smart Contracts Book by Sebastian Heredia Querro 2020.
[2] https://modex.tech/modex-facilitates-the-adoption-of-blockchain-technology-in-the-public-sector/
[3] Blockchain en la Administración Pública: ¿mucho ruido y pocos bloques? Florencia Serale Christoph Redl Arturo Muente-Kunigami – BID 2019
[4] https://didi.org.ar/
[5] https://www.ejie.euskadi.eus/y79-contgen/es/contenidos/anuncio_contratacion3/expx74j28258/es_doc/es_arch_expx74j28258.html
[6] https://www.chilecompra.cl/
[7] https://www.perucompras.gob.pe/ y https://cms.law/es/col/publication/tecnologia-blockchain-para-mitigar-el-riesgo-de-corrupcion-en-procesos-de-contratacion-publica
[8] https://www.themayor.eu/en/a/view/vienna-introduces-kultur-token-pilot-project-4369
[9] Internet of Value, tokenization, Smart Cities and new ways to encourage and reward desirable social behaviors. Sebastían Heredia Querro. https://comercioyjusticia.info/opinion/internet-del-valor-la-tokenizacion-smart-cities-y-las-nuevas-formas-de-incentivar-y-premiar-conductas-sociales-deseables/
[10] Idem note 8.
[11] https://www.santafe.gob.ar/ms/gobiernoabierto/2019/09/10/municipal-santafesino-implementa-blockchain-para-su-presupuesto-participativo/
[12] https://www.acis.org.co/portal/content/noticiasdelsector/vitalpass-el-primer-sistema-digital-blockchain-de-registro-de-vacunaci%C3%B3n-contra-el-covid-19
[13] To expand, see Alfredo Collosa Blockchain in the Tax Administrations. CIAT Blog 6/14/2021. Can blockchain improve the VAT collection? Part1-CIAT Blog 07/19/2021.Can blockchain improve the VAT collection? Part 2- CIAT Blog 07/21/2021.

Disclaimer. Readers are informed that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group the author might be associated with, nor to the Executive Secretariat of CIAT. The author is also responsible for the precision and accuracy of data and sources.

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