What Every Government Leader Should Know About Blockchain

Aftab Hossain is a senior manager with Grant Thornton LLP, where he leads the firm’s Organizational Strategy & Effectiveness practice. He also is a member of the firm’s Blockchain Working Group.

You surely have heard the term blockchain recently, probably within the context of digital cryptocurrencies like bitcoin and ethereum. As a concept and technology beyond currency, blockchain has the potential to revolutionize both public and private sector business models.

As a management consultant, I have spent my career helping public sector organizations transform their structures and operations in the face of disruptive external forces. When I look at blockchain, I see one of the most potentially disruptive forces since the widespread adoption of the internet.

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A blockchain is a distributed, digital ledger that publicly and permanently records transactions made against it. That definition almost sounds unremarkable, but blockchain is not just a technology revolution: It is a trust revolution. Any intermediary which provides a service based upon being a trusted third party is at risk of being disrupted by blockchain technology.

Governments are some of the biggest purveyors of trust in the world. They create systems of laws, with associated institutions for enforcement and adjudication. This is especially important for contract law, which creates the conditions for us to trust one another as private citizens by imposing fines or imprisonment if we do not honor our agreements.

But what happens if some of that trust can now be created by a shared digital database stored on a decentralized blockchain which no individual, organization or government controls? This is the nature of the trust revolution blockchain is ushering in.

Here are seven trends for the state of blockchain that anyone who works in or with the government should understand:

1. Interest in cryptocurrency, crypto assets—and the blockchain technology behind them—is exploding.

The World Economic Forum predicts that by 2025, 10 percent of global gross domestic product may be stored on blockchain platforms. If that prediction holds true, it would equate to nearly $10 trillion. Cryptocurrency will allow for new forms of economic activity and could one day rival the use of traditional fiat currencies in some countries, especially those with highly inflationary currencies.

2. The private sector sees blockchain as a way to reinvent existing business models and create entirely new ones.

Industry is jumping headlong into the blockchain space. Nearly every major financial institution has an in-house blockchain lab, focused on experimenting with the technology to improve their speed and quality of service while reducing costs. And the interest in blockchain is now spreading. Blockchain projects gaining major corporate support include the Enterprise Ethereum Alliance and Hyperledger, which are looking at broad sweeping applications ranging from banking to insurance to health care to supply chain.

3. Beyond cryptocurrency applications, the U.S. government is taking important first steps toward encouraging blockchain solutions.

The General Services Administration recently held a Federal Blockchain Forum, inviting managers from across the federal government to come to the table with potential use cases for how blockchain technology could support their respective agencies’ missions. Some government services that may be logical candidates for migration to a blockchain include government payments, identity management, and asset/supply chain management.

4. A patchwork U.S. regulatory environment may hinder the adoption of blockchain technology in the near future.

The federal government has cautiously waded into the blockchain and cryptocurrency space through a series of disparate regulation from the IRS, Securities and Exchange Commission, and others. However, the biggest barrier to broad-scale adoption of cryptocurrency/crypto assets across the U.S. is the patchwork of federal and state laws governing money transmitter licensing. Until there is more consistency in these laws across the U.S., we can expect a slow path to mainstream adoption.

5. Many countries around the world are making bold moves to actively encourage the growth of their nascent blockchain industries.

Countries like Switzerland, Japan, Singapore, UAE, Russia, and China may be at the forefront of the blockchain revolution in a few years’ time. Many of these countries are moving quickly with blockchain technology to gain a competitive advantage in the global economy.

6. The cultural changes blockchain brings will be harder to deal with than the technology changes.

Blockchain can connect participants in business models where their only intermediary is a shared blockchain network. This may mean radically overhauling current processes or even scrapping entire business models. These types of changes are difficult for any organization, but especially for governments. Coupled with other technologies, such as artificial intelligence and the internet of things, blockchain could lead to unprecedented workforce disruption and job loss. While new jobs would likely emerge after such an upheaval, we should expect significant organized resistance to such changes from industry and labor groups as blockchain begins to take hold.

7. Blockchain will not solve the government’s data management challenges.

Under the Digital Accountability and Transparency Act, federal government agencies must make data on federal expenditures easily accessible and transparent. But we should not expect blockchain to make this much easier in the near term. Due to the distributed consensus model blockchains employ, it is typically slow and very costly to store large amounts of data on a blockchain. As such, blockchains are not a replacement for most traditional or cloud-based data storage solutions.

For the next few years, I expect that the U.S. federal government blockchain landscape will focus on identifying potential use cases and experimenting with proofs of concept. In most cases, we are still a long way from being ready to deploy a blockchain solution into a production environment for the public sector. But over time, that will change, and when it does, it may very well herald a new era of citizen-focused digital government.