Why are governments lagging behind on blockchain?
Recent news broke out that criminals are now distributing fake Covid 19 vaccines, highlighting the importance of authentication and provenance testing. Can blockchain technology help tackle this issue?
Zuellig Pharma, an Asian healthcare service provider, has developed a blockchain-based vaccine management system called eZVax that helps governments and healthcare providers manage vaccine distribution and administration. Governments can also use eZVax to monitor vaccination progress, track vaccine movements across sites and use real-time data to make decisions about opening new vaccination sites.
More and more public services are becoming digital. The Covid pandemic has also played a part in speeding the digitalisation up. Will public sector adoption of blockchain also grow?
We increasingly see private sector adoption of blockchain for a variety of use cases. Visa is using blockchain to facilitate business-to-business transactions. De Beers, the international diamond corporation, is using the ledger to optimise their supply chain management. Blockchain is helping healthcare organisations improve the way medical data is shared and used. It is also helping to improve data storage and as well as gain advertising insights.
When it comes to blockchain implementation across governments, we typically see that they use blockchain to tackle specific, narrowly defined objectives on a smaller scale. Uganda’s Drug Authority, for instance, is using the ledger to handle the country’s counterfeit drug issues. The state of Illinois is experimenting with blockchain technology to strengthen the security of voter registration cards, social security numbers, birth and death certificates.
We don’t usually see governments using blockchain to streamline their entire organisation. A rare example would be Estonia. Estonia was the first country in the world to deploy blockchain in production systems in 2012. As of 2019, 99% of public services are available to citizens as e-services. Blockchain technology is used in government services such as tax-return, e-voting and digital cabinet meetings. The adoption has aided Estonia’s digitalisation rate and simplified citizens’ lives by decreasing interactions between them and the government.
If adopted by governments, blockchain holds the potential to improve citizens’ financial inclusion, promote economic growth and innovation, reduce costs, and increase transparency. A report by Sir Mark Walport, the UK Government Chief Scientific Advisor, concludes that, if appropriately applied, blockchain can also reduce market friction by addressing the issues of trust, privacy, identity and security. One outcome would be to make it easier for small and mid-sized businesses to interact with local and national authorities, protect infrastructure against cyber attacks and reduce tax fraud.
Why, then, has blockchain adoption been so slow across governments?
Typically, governments have a more “reactive” rather than “proactive” approach towards technological advancement. Blockchain adoption would require technology to be placed at the core of governance policy. Moreover, for blockchain implementation to be successful, governments would need to work with entrepreneurs and innovators to co-develop policy frameworks. This would require a change in organisational structure, which would take time and money. Once the new system has been developed, only then can blockchain implementation start.
Governments may also see blockchain as simply not suitable as it advocates anonymity and decentralised control. Although decentralisation and anonymity are aspects of the technology, blockchains are governed and coded by those entrusted with critical roles. The coding may be outsourced, but governments are the ones responsible for building a technical knowledge base to ensure decisions are made well.
Another significant barrier to blockchain adoption is the incompatibility between blockchain-based solutions and existing government organisational and legal frameworks. If the technology develops to further adapt to existing frameworks, it would still be up to governments to transform existing government structures to implement the technology successfully.
It is also a requirement for governments to invest heavily in both the implementation and subsequent education needed to develop administrative competence. To rationalise such a capital-intensive investment, governments would have to spend time conducting due diligence to ensure that blockchain is the most cost-effective solution in the long-term.
Looking back at Estonia’s adoption of blockchain, it is essential to consider the political, social and economic context. Estonia gained independence from the Soviet Union in 1991. The government set out on a mission to separate itself from neighbouring countries and showcase that engagement and increased cooperation with the government could lead to positive change. Estonia started laying their digital foundation in 1997, which has aided in deploying blockchain in production systems 15 years later. Estonia made these advancements as it had a blank slate after gaining independence from the Soviet Union and a desire and cooperation from citizens to make change possible.
Governments with legacy infrastructure, lack of available capital and less impetus for change will understandably face an uphill battle in replicating Estonia’s success in adopting blockchain technology.
In light of the recent news that Bitcoin, blockchain’s most talked-about application, uses up vast amounts of energy and is not environmentally sustainable, will regulators be more reluctant to adopt blockchain technologies? Blockchain’s energy consumption is now highly debated. Not all blockchain applications consume a lot of electricity. A recent study exploring blockchain technology’s energy consumption found that energy consumption differs between different design choices (POW or nonPOW choices). NonPOW consensus designed blockchain technology, which is the choice in an increasing number of applications, substantially mitigates climate concerns. Bitcoin is a POW consensus designed blockchain and therefore uses a lot of energy. Nonetheless, more research has to be carried out on blockchain’s sustainability. Regulators should be involved in this discussion and encourage further research on the matter.
The private sector is increasingly looking into using blockchain to solve sustainability issues. Nori, the Seattle based startup, operates a blockchain-based marketplace with its own cryptocurrency tokens to allow corporations, governments and individuals to reduce carbon emissions. Perhaps regulator adoption of blockchain could be a private-public collaboration effort and, if applied correctly, would have the potential to help reach international sustainable development goals.