New research by the European Commission’s ISA² programme reveals the findings of case studies on blockchain in public services
The new publication analyses seven blockchain-based services developed in Europe, with the active participation of public authorities from both national and local levels.
The list of analysed projects includes:
• Exonum land title registry
• Blockcerts academic credentials
• Chromaway property transactions
• uPort decentralised identity
• Infrachain governance framework
• Pension Infrastructure
• Stadjerspas smart vouchers
In this new report, there are insights drawn directly from case studies, which examine the current use of blockchain technology in providing public services.
What are those insights?
1. Ongoing projects experiment with a full spectrum of blockchain functionalities
The three main blockchain functionalities: Notarization, shared database and workflow automation all can be useful for different operational capacities of governments and beneficial for the citizens. Blockchain notarization enables verification of originality of a document and confirmation of the date of its creation and the owner. Decentralised notarization represents only incremental innovation and hence if added on top of existing centralised services it brings only incremental value.
However, in combination with other innovations such as peer-to-peer file system and data sharing, notarization has a clear cut-value for citizens (Blockcerts, uPort). More advanced blockchain functionalities are based on programmable smart contracts. Smart contracts are implemented for different purposes such as shared database, information exchange (Pension Infrastructure, Stadjerspas) or automation of multiparty transactions (Chromaway).
Advanced functionalities have high stand-alone value because they are themselves disruptive innovations. They will be relevant for all functions that digital governments have to perform efficiently: data management, facilitation of economic transactions, redistribution of public funds and creating regulation. Citizens using smart contract-based services also benefit from higher process efficiency, reduced uncertainty or reduced settlement times.
2. Services leveraging blockchain notarization are relatively more mature, while more disruptive services still face challenges
The type of implemented functionality impacts the maturity of projects. Projects which utilize smart contracts to facilitate shared database or automated workflows are less advanced in their lifecycle. This is expected as these implementations have to reconcile different needs in the ecosystem and integrate legacy systems of various actors.
In some cases, advanced functionalities already work well technically, but are not compliant with legal frameworks. Lack of regulation and governance standards hinders the development of more disruptive services beyond a proof-of-concept or early pilot phase. Projects that utilize solely proof of existence via verification of hash have quicker implementation times. They require less integration effort and may use existing software components.
3. Projects with a higher level of maturity tend to have less stakeholder complexity and more centralized governance
The Pension Infrastructure project, which is in proof-of-concept stage, is the most complex in the sample. It has several types of stakeholders involved with varying business objectives and different legacy databases. On the other hand, Stadjerspas voucher system, Exonum land title registry or Blockcerts academic credentials have fewer stakeholder types. In addition, projects with more centralized governance structure are more advanced. This is likely caused by more hierarchical decision-making processes in consortia that have a strong leader.
4. Blockchain-based services that are already in operation respond to the clear business needs
They also have active public actors and strong technological partners.
Two projects in our sample already deliver operational services. In both cases there is a strong technological partner, providing required integration with the legacy systems. Both projects also fit within the current technological limits. They utilize basic blockchain functionality, essentially time-stamped proof of existence.
Stadjerspas utilizes also a programmable layer that allows for setting requirements for the usage of specific smart vouchers. In addition, both projects have clearly defined business needs: registration and verification of land titles and allocation of vouchers according to specific criteria of beneficiaries.
5. Blockchain implementations are predominantly based on open source software.
Most of the projects rely on the open source components because they already proven to some extent and have strong supporting communities of developers and users built round them. Open source elements include blockchain protocols, for example Zcash or Bitcoin, and software layer on top of the protocol, like Exonum or Blockcerts frameworks. Open source is a predominant choice for the project teams because it speeds up development of a service. In some projects open source solutions are combined with proprietary development of user applications and APIs for legacy systems integration.
These elements are provided by a technology partner in the consortium. Some governments involved in blockchain projects push towards opening of proprietary elements created within the project. In this way the governments support expansion of created solutions to multiple platforms and creation of third party applications. This strategy aims to speed-up the adoption of the service by minimizing the risk of a lock-in.
6. Blockchain is just one layer of developed service
It usually depends on a non-DLT layer which runs on top of a legacy type of centralised database.
Blockchain is always one of several layers in the system, and in all projects a centralized database is found that either stores user data or that feeds transaction data into the distributed system. Exonum and Stadjerspas projects are examples where a centralized database is used to store transaction data. Blockchain protocol is used only to anchor hashes yet all the transaction details are stored in the databases of NAPR or DutchChain. The Uport project is an example of implementation where a centralized database is used to feed into the distributed system. Municipality checks the validity of the citizen’s request and links own records with the Uport address, referred to as the blockchain identity.
7. Private data is always stored off-chain
The storage of private data is carefully designed in all pilot deployments. When permissionless or public blockchains are leveraged, private data is stored off-chain, either in centralised repositories, like in the Exonum project or locally by the users, like in the Blockerts or uPort projects.
When a private permissioned blockchain is used, private data in principle could be stored on-chain in an encrypted form. However sending large portions of data in the network is usually inefficient due to bandwidth restrictions. In the Chromaway project for example, a smart contract platform is used to connect centralised databases of participants and record statements about the new states of the workflow.
8. Transaction throughput does not appear to be a major bottleneck
A clear difference between permissioned and permissionless blockchains is observed with respect to the number of transactions that can be validated in a period of time. The throughput in permissionless blockchain protocols is significantly less than the permissioned blockchain protocols (up to 7 tps compared to 160-5.000 tps).
Projects that anchor transaction on public permissionless blockchains have designed ways to mitigate throughput constraints. For example, they batch transactions or hash the total state of the system. Projects that use permissioned blockchains usually do not report any problems with a throughput however the most transaction-intensive projects, such as Pension Infrastructure, expect some scalability problems related to transaction processing by smart contracts.
9. Blockchain technology does not pose a threat of disintermediation of existing public institutions
The vast majority of analysed blockchain-based solutions are either complementary or partially substitute to the existing public services. Complementary solutions build on top of existing processes, like in the Exonum project. Partially substitute solutions propose new ways of providing a service or organizing an administrative function.
In the latter case, blockchain technology takes over some tasks from public institutions, such as for example attestation of identity, or eligibility check-up. These changes reduce paper work and generate time savings for administration. In none of the cases does blockchain disintermediate public institution. Chromaway is the only project that assumes a disintermediation of the notary.
10. Blockchain-based designs generate specific cost items, yet overall deployment costs should not be higher than for centralised designs
Based on the evidence from Stadjerspass project, where blockchain-based solution was chosen in a public tender, the overall level of implementation costs is competitive. Blockchain-based services also have similar structure of non-recurring costs as centralised services. On the other hand designs which leverage permissionless blockchains involve new cost item: fees for validating transactions, denominated in volatile cryptocurrencies. Using computationally heavy and hence energy intensive consensus mechanisms to validate multiple transactions may generate substantial operating costs to the administration or citizens. It also generates an external environmental cost.
11. Blockchain-based services promise a range of benefits to the ecosystem
The main benefit drivers of blockchain technology in public sector are process efficiency and transparency of transaction data. Reduced registration and verification times, quicker and more reliable settlement of transactions and elimination of hard copies could potentially generate huge savings in operation and administration costs.
Blockchain technology promises also a number of qualitative gains, which increase trust in recordkeeping: higher security and resistance of a ledger and increased integrity and auditability of data. Elimination of a centralised validation function brings also strategic benefits to the non-governmental actors in the ecosystem.
For example users can gain full control over their personal data and become largely independent from central repositories. Last but not least, blockchain-based services combined with digital user interfaces can improve the experience of interacting with the public authorities. Elimination of hard copies and visits to the town hall to validate documents or receive certified copies are the examples changes that can be expected, and would be endorsed, by the citizens.
However, blockchain has not yet demonstrated itself to be neither transformative nor a disruptive form of innovation for government, as it is sometimes portrayed. Ongoing projects can be seen to bring incremental, rather than fundamental, changes to operational capacities; although some clear value for citizens may be generated by adopting these technologies.