Although blockchain was initially designed to serve as an architecture for Bitcoin, it is now used in many different fields. One such area is the area of ​​governance where distributed systems have the potential to significantly change the public sector.

Why should governments consider using blockchain?

While governments have many advantages in governance, there are some key reasons why government entities might consider leveraging blockchain technology. These reasons include increasing decentralization, data integrity and transparency, in addition to improving efficiency and reducing operating costs.

Decentralization and data integrity

There are many different ways to build a blockchain but as with distributed systems, they all work to offer some degree of decentralization. This is because the blockchain network is maintained by many  computer nodes that work simultaneously to verify and authenticate all the data. Simply put, participants need to reach consensus (consensus) and agree on the state of the database and maintain a unique version of the truth.

As such, blockchain systems can reach a high level of immutability (i.e. immutability) and their framework may be customized to ensure that information can only be accessed and modified by authorized parties in some cases. In practice, the various governing agencies can act as a verification body, each contributing to the data distribution and verification process. This will greatly reduce the possibility of data manipulation and fraud.

In other scenarios NGOs, universities and citizens could also be included as verification nodes which may result in a higher degree of decentralization. Furthermore, these verification mechanisms can prevent other common types of errors such as data entry errors (i.e. any set of data that lacks basic information is rejected by a distributed network of nodes).

Other than that, blockchain may one day also play an important role in the electoral process. Fair and open elections (which anyone can see) are one of the cornerstones of democracy. The high level of stability also makes it an excellent solution to ensure that sounds are not tampered with. In addition to providing additional protection for votes cast at polling places, blockchain also has the potential to make secure online voting a reality. West Virginia experimented with a real-life example of such a system during the 2018 US midterm elections.

Transparency

Blockchain databases can be used to store and protect government records in a way that makes it difficult for anyone to manipulate or hide information. In the current model, most government data is stored in central databases and controlled directly by the authorities. Some of these databases are in the hands of just a few people, making manipulation very easy. In these cases, blockchain may be suitable because it can distribute the process of verifying and storing data among multiple parties, effectively decentralizing power.

Therefore, blockchain can be used as a transparent database that reduces (or eliminates) the need for trust between government agencies and civilians. For example, some European authorities are exploring the possibility of using blockchain-based records to reduce the occurrence of ownership disputes. This model could be based on a distributed system that can be accessed and verified by both government agencies and citizens and each party is able to securely keep a copy of official documents and entitlements.

Decentralized blockchain systems can also provide permanent access to law enforcement officials and oversight organizations that may need to detect corruption or abuses of power. By reducing or eliminating the need for intermediaries in the exchange of data and financial transactions, blockchain systems can also make it difficult for government officials to disrupt wrongdoing by routing funds through a chain of opaque private entities.

Improve efficiency

Another reason for using blockchain in governance is to reduce operational costs by increasing the efficiency of the work of national institutions. Because governments depend on taxpayer money, it is important that they use their budgets wisely. Blockchain systems and smart contracts can be used to automate tasks and workflows, significantly reducing the time and money spent on bureaucratic processes.

Although administrative spending cuts are a fairly high-profile process, they can also help boost citizen confidence and satisfaction. Increased efficiency and reduced costs are likely to lead to higher approval rates for governing bodies. By reducing operational costs, governments can invest more in other areas such as education, security and public health.

Tax collection is another key area of ​​governance in which blockchain technology can be applied. Blockchain-based ledgers can easily transfer money between parties after following pre-defined conditions. This could result in significant reductions in administrative costs associated with collecting and distributing tax funds and enforcing tax laws. For example, tax collection agencies can also provide enhanced security to protect individual taxpayers from fraud or identity theft by storing records and processing returns on private blockchain networks.

Disadvantages and limitations

While it is clear that blockchain can be used to improve data integrity, efficiency and transparency, there are some limitations associated with its use in the public sector.

Interestingly, the immutability (inability to change) property that underlies many of blockchain's advantages may also be a disadvantage in some circumstances. Data immutability makes it necessary to enter records correctly before certifying their validity, which means that steps must be taken to ensure the accuracy of primary data collection.

Although some blockchain applications may be designed in a more flexible way that allows data to be changed, this requires approval (consensus) from the majority of nodes that may verify its validity, which may raise questions about the decentralization of the system and ultimately lead to disagreements. But this drawback can be quickly addressed in private blockchain networks that do not require high levels of decentralization.

Privacy is also a concern as records added to the blockchain will remain public and always available to anyone who can access them. This may conflict with procedures intended to seal documents such as expungement of criminal records and such immutable records may also conflict with existing law or judicial precedent. A potential solution to this problem is to use burn-in functions and cryptographic techniques such as zk-SNARKS or other types of zero-knowledge proofs.

Finally, it is worth noting that governments themselves may present obstacles to blockchain adoption. In some cases authorities simply do not understand the value of this technology, leading them to ignore many of the potential benefits. In more extreme cases, governments with widespread and endemic corruption may resist adopting blockchain technology to protect the interests of their officials.

Concluding thoughts

Despite the potential drawbacks we mentioned previously, there are many possible uses for blockchain systems in governance. From enhancing transparency to simplifying the tax collection process, distributed networks can help governments operate more efficiently and build greater levels of trust with their citizens. While some applications are still hypothetical, many countries are already experimenting with them.

It should be noted that digital systems have been used in governance since the early 2000s, that is, years before the creation of blockchain. Estonia is a notable example as it launched its digital identity program in 2002 and was the first country to hold online elections in 2005. In 2014 the Estonian government launched the  e-residency program which refers to the use of blockchain technology in digital data management and security.