What are world governments doing with blockchain technology?

Blockchain and governments? It sounds almost like a contradiction but that is the new trend. The climate of suspicion or the narrative of hostility between the blockchain community and governments is not without merit. In the early days, governments never trusted cryptocurrencies and by extension, the blockchain technology underpinning the cryptos. Part of this has to do with the fact that the earliest blockchain-based innovations were more about tokenomics and bypassing the formal banking systems. The second generation of blockchain technologies has shown a propensity for social good: blockchain with a conscience. The earlier government hostility it seems was aimed at the cryptocurrency and digital token “Wild West” environment that characterized its initial rollout.

The idea of decentralized and anonymous currency and system that is outside the control of any jurisdiction unsettled many governments. It didn’t help that earlier on, cryptos were embraced by anarcho-capitalists and various other “fringe” elements who distrusted government interference in capitalism. Or that the earliest use of cryptos such as Bitcoin was in bypassing the prying eyes of the state in nefarious activities on platforms such as Silk Road. Governments hate curveballs and cryptos were the ultimate curveballs with the potential to displace the government control of money. What is a government without its money?

With time, however, there has been mutual acceptance on both sides. Governments have had to grudgingly admit that cryptocurrencies and blockchain technologies are here to stay and the blockchain community has had to accept that innovation cannot occur in a vacuum. Even though governments still don’t like the cryptocurrency aspect of blockchain technology, they have moved on to embrace blockchain. Every day, there is news of a government somewhere trying to use blockchain in some novel ways.

Currently, many governments are walking a fine line between tolerating the “teen-like” enthusiasm that the public has with cryptos and fostering the more promising use-cases of distributed ledger technologies that are not necessarily crypto-related. Governments around the world have trained their eyes on the following risks and opportunities presented by blockchain technology and digital currencies and tokens:-

  • The opportunity of using a shared and immutable ledger to reduce fraud and complexity in public and private transactions.
  • The native immutability of blockchain that allows for a massive audit trail. Modern governments are all about transparency and audit-ability.
  • Incorporating Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations in cryptocurrency transactions in order to prevent these systems from being abused in various ways.
  • Consumer protections in a blockchain and cryptocurrency ecosystem especially in ICOs and exchanges.

Most of the innovations are still in developed countries even though many developing countries such as India are catching up and embracing blockchain in solving various government problems. Developing nations can be a hotbed of blockchain innovation because they lack well-established legacy systems that can often be a source of great inertia and slow down the progress of innovation or transition to new systems. Where there are no established processes, people are more open to experimentation. They can, therefore, leapfrog the massive investments that developed nations have to make to transition to new systems. This makes blockchain an attractive prospect for many developing nations looking for technologies that can simplify and streamline their archaic legacy systems.

In what ways are governments interacting with the blockchain opportunity. We will show case-studies of how governments around the world have latched onto the blockchain revolution:-

The Dubai Blockchain Strategy

The Dubai government has embarked on an ambitious project to become the world’s first blockchain-powered government. The emirate is banking on the developments in blockchain to help it deliver a more impactful, efficient and seamless city experience for both residents and visitors in all sectors of the city. By embracing blockchain, the Emirate estimates that it will be able to accrue up to $1.5 billion and 25.1 million man hours in annual savings in document processing costs.

The Dubai Blockchain Strategy is a roadmap on how Dubai is going to integrate blockchain into its governance processes and in private applications. Through blockchain integration, Dubai is hoping to unlock efficiency, international leadership, and industry creation. The emirate plans to use blockchain to increase government efficiency by creating a paperless digital layer that will host all of the city’s public and private transactions such as visa applications, work permits processing, license renewals, and bill payments while also helping foster a Smart Dubai initiative. Dubai processes more than 100 million of these documents annually so a blockchain implementation of the same will represent a massive rollback in paperwork.

The Dubai Blockchain Strategy is also based on leveraging blockchain to create industries around the technology. The aim is to create an enabling system that will enable citizens and partners to build thousands of businesses around its blockchain system, a sort of an ecosystem for blockchain based business innovation.

The last pillar of the strategy is international leadership. Dubai plans to open its blockchain platforms to global partners so as to tap into the advantages of blockchain for international travelers.

Blockchain in Estonia

Estonia has been dubbed the blockchain nation. The country claims it started experimenting with blockchain-like systems long before the invention of Bitcoin and its underlying blockchain. Currently, Estonia’s blockchain strategy is quite ambitious and includes plans to build the country’s national cryptocurrency called estcoin through an Initial Coin Offering (ICO), an e-Residency program based around blockchain, e-health, e-identity, and i-voting among others.
Estonia’s e-Residency blockchain startup is perhaps it's most ambitious. The program allows virtually anybody with access to the internet to become an Estonian digital citizen. This process radically cuts the red tape and minimizes the requirements for setting up a business in the country. Currently, there are more than 4200 companies that have registered on Estonia’s e-Residency and are therefore able to leverage the country’s blockchain-powered online government infrastructure and enjoy borderless transactions.

While Estonia already uses the Euro, it sees developing a national cryptocurrency as a channel through which in can tap into sources of global finance for the development of the country. But the country also has to work out a framework under which it will co-exist with the Euro.
E-Residency is a core part of the Estonia growth strategy with the sector expected to generate EUR 1.8 billion by 2025. Estonia wants to use blockchain and estcoin specifically to accelerate the dividends of e-Residency.

Blockchain and in Japan

The Japanese government has always maintained an open mind when it comes to blockchain and cryptocurrencies. It also helps that the Japanese industry, particularly the financial industry, has shown greater enthusiasm for the blockchain approach than other similar players in other countries. This has created an enabling environment for growth.

The Japanese government has been proactive in fostering an environment where these technologies can thrive. It has developed very clear and fair laws to govern the operations of cryptocurrency exchanges and Japanese law now clarifies Bitcoin as an asset and a payment method. The government-friendly approach has put the country on the driving seat in international blockchain technology development.

When it comes to blockchain, Japanese government policies have mainly been geared towards consumer protection rather than the regulation of technology. In recent years, its radar has mainly been focused on the cryptocurrency exchanges and the need for reliable IT systems to protect consumers. Japan has also taken active measures to foster innovation in the FinTech space with regard to blockchain.

Australian Government and Blockchain

Australia is a country where private investor innovation in the blockchain space is ahead of the curve with the regulators lagging behind and gasping for breath to catch up with the developments. Still, there are signs that the Australian government is now beginning to take blockchain more seriously.

The Australian federal government recently set aside $500,000 to explore ways in which the government could leverage the opportunities presented by blockchain technology in government services. The funds were allocated to Australia’s Digital Transformation Agency which is charged with overseeing the “digital transformation” of government processes. Currently, the Aussie government is interested in exploring and identifying areas of governance and service delivery where blockchain could be successfully deployed to generate the most value for the government. This will mainly be aimed at identifying the most practical use-cases for blockchain in service delivery.

As a vote of confidence in a blockchain future, last year the Australian government made a taxpayer-funded investment worth millions of dollars in the blockchain-powered digital emissions trading scheme Power Ledger.

Blockchain in Canada

Early in 2018, the National Research Council of Canada (NRC) launched the government’s live trial of the use of public blockchain technology in administering government contracts. NRC’s Industrial Research Assistance Program (IRAP) is also planning to use smart contracts in managing its program contribution agreements. This will represent the first real use-case of blockchain technology (Ethereum) in administering a government program in Canada.

The Canada blockchain experiment has brought together various Canadian players such as NRC-IRAP which works with various SMEs across the country, Build in Canada Innovation Program which is financing various other innovation and Bitaccess which is active in the SME in blockchain space.

NCP-IRAP has already been implemented in blockchain and now provides real-time information on its new and amended contribution agreements. Over time, the agency will harness the technology and use it in other processes, ensuring that its public programs are more open, fraud-proof and transparent.

Congressional Blockchain Caucus

In the U.S., lawmakers formed a Congressional Blockchain Caucus whose goal is to advocate for the formulation of sound policies towards cryptocurrencies and blockchain-based technologies. The formation of the caucus is a recognition of blockchain’s potential to transform the modern economy and the need for new laws that will keep up with the pace of innovation in this space.

The Caucus aims to engage, educate and also provide policymakers with research assistance in order to help them implement smart regulatory approaches on issues to do with blockchain-based technologies. The Congressional Blockchain Caucus has been holding various meetings and briefings on matters blockchain that is aimed at informing public policy.
In early 2018, the U.S. Congress released an extraordinary report that praised blockchain technologies and cryptocurrencies. This was significant as it served as an official endorsement of the future of these technologies in the U.S. While the report stresses the need for prudence, it has also emphasized the need to allow space for innovation and the potential for blockchain technologies to add efficiency and security to government processes.

Blockchain in China

In China, the government’s approach to cryptocurrencies and distributed ledger technologies is not necessarily that of outright hostility or friendliness but of control. The China State Council has taken various measures to give the state greater say on the development of technologies in the country.

In the past year or so, the Chinese government made various hostile moves against cryptos, particularly Bitcoin. It has banned the domestic initial coin offerings, restricted token sales, banned crypto trading and is currently cracking down on crypto mining. On the other hand, the country’s central bank is currently exploring the potential for establishing sovereign cryptocurrencies. In fact, it is regarded as the only central bank closest to issuing digital fiat currency. In a contradictory move, the Chinese government has also established a cryptocurrency rating system even as it rails against cryptos.

While it has been hostile to cryptocurrencies, the Chinese government has gone on to fully embrace the underlying blockchain technology. The Chinese government is working actively towards promoting distributed ledger technology with various consortia that have been established in the country and charged with developing and implementing distributed ledger technologies.

The blockchain and crypto space is growing at a breakneck speed and more often than not, regulators are constantly going to have to play catch up. However, as they work towards addressing some of the legal around distributed ledger technologies, it is also critical that they avoid the risk of over-regulation which could stifle innovation in the space.