COMMENTARY

Should governments use blockchain technology?

March 31, 2017 | by Bradley Cooper

photo istock

The blockchain isn't just for bitcoin anymore. At the recent DC Blockchain Summit, hosted by the Chamber of Digital Commerce at George Washington University, Mark Calabria, chief economist for U.S. Vice President Mike Pence, expressed enthusiasm for the technology. Which was encouraging, given the government's generally lukewarm interest in bitcoin and other digital currencies.

Could the blockchain offer real value for government processes and, if so, how? Here are a few potential use cases:

Postal services

The U.S. Postal Service released a document last year summarizing possible uses for the blockchain in its processes.

In particular, USPS said that it could use blockchain to streamline money transfers and to facilitate faster international money transfers.

USPS postulated that it might create a Postcoin virtual currency that customers could use to pay for money transfers. The Postal Service does offer international money transfers in some countries, but this type of platform could help expand its reach.

"The flexibility and convenience associated with the Postcoin could potentially allow the expansion of electronic money transfer services to anyone in the world," the report said. "Postcoin would not only allow these services to be conducted at a lower cost to both the Postal Service and its customers, but it might also help the Postal Service modernize and expand the reach of its financial services."

Identity management

A few years ago, a company called Ascribe GmbH teamed with Creative Commons to create a blockchain solution for content creators. This solution allows artists to register their work on the blockchain, so that it can always be identified as theirs, regardless of where it is shows up on the internet.

Government services such as the DMV, Postal Service or IRS might similarly use blockchain technology for identity management. In particular, the Postal Service theorized it could link a customer ID card with the blockchain to create a verified identity.

"Customers could use these verified identities to log in to secure websites, notarize documents or participate in smart contracts," the USPS report said.

Reaching the financially underserved

The government of Ecuador launched its own virtual currency in December 2014, which it uses for a variety of payment purposes. The government encourages Ecuadorians to exchange their cash — the debt-ridden country operates on the U.S. dollar— for the virtual currency, which is stored on their mobile phones (think M-Pesa).

The system gives the government greater control over its economy (commerce in other virtual currencies is banned), and helps to alleviate problems caused by the scarcity of hard currency. It also alleviates the need to carry large amounts of cash for the 40 percent of Ecuadorian adults without bank accounts. The currency can be used in mobile-to-mobile account transfers to pay for purchases in store, settle personal debts, pay for public transportation and more.

Crimefighting

Law enforcement organizations can use blockchain technology to track digital identities. Last year, Chainalysis Inc. signed an initiative with European Cybercrime Center, or EC3, a division of Europol. EC3 uses Chainalysis to detect suspicious blockchain activity by bitcoin users. 

A platform developed by Feedzai serves financial service companies, retailers and others who use but blockchain by integrating with technology to analyze criminal activity patterns.

"If our clients employ blockchain technology, we are able to add our machine learning algorithms and capabilities on top of it to then analyze user behavior," Paulo Marques, CTO of Feedzai, said in a previous story. "Having visibility on how transactions are being made, by whom, and at what time (even if anonymous), allows us to detect fraudulent behavior much more efficiently. It's a dynamic duo in terms of fraud detection and is certainly the wave of the future of digital security."

Limitations

There are countless other potential use cases for blockchain technology in government, as well — for instance in supply chain management and other record-keeping activities. The technology, however, does have some key limitations. The Postal Service report mentioned a few:

  • the technology can be confusing and difficult to use, and its decentralized nature can mean that there's no single customer service group to contact for assistance;
  • the blockchain can give rise to concerns about security when it comes to transactions — for instance, being unable to determine the identity of the other party in a transaction or a hacking incident;
  • limited access to physical blockchain services such as bitcoin ATMs; and
  • considerable uncertainty regarding regulation of virtual currencies and the blockchain.

As in so many other enterprises, the blockchain might present a tremendous opportunity to increase efficiency, speed and security at every level of government. But, as with any new technology, it might also present as yet unidentified pitfalls, shortcomings and unintended consequences. 

There is much to learn, test and evaluate before we see its widespread implementation in government — and for that matter, many other sectors besides.


Topics: ATMs, Banking, Bitcoin, Blockchain, Financially Underserved, Payment Networks / Payment Processors, Regulation, Taxes, Trends / Statistics



Bradley Cooper

Bradley Cooper is a Technology Editor for DigitalSignageToday.com. His background is in information technology, advertising, and writing.

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