The New Policy Instruments and Approaches Collection

 A place to start your exploration 
Blockchain
A technology to improve services, secure transactions and enhance security and trust
Digital code chain
Brian Double

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Blockchain[1]

“In a nutshell, blockchain is a technology ‘borrowed’ from the cryptocurrency Bitcoin and provides us with a decentralized, verifiable and immutable ledger of ‘transactions’. Those transactions could be electronic currencies but could also be health records, immunizations, international aid relief vouchers, land transfers, package shipments, and many other things.[2]”

- Kevin Armstrong, Deloitte -


Blockchain allows for trusted transactions between two or more total strangers, authenticated by mass collaboration, and powered by collective cryptography, clever code, and self-interest[3]. Governments around the world are looking at blockchain technology to improve services, secure transactions, and enhance security and trust[4]. It is this final enhancement that makes blockchain a new policy instrument/approach - it fundamentally changes the paradigm of trust:

It can enable parties who do not fully trust each other to form and maintain consensus about the existence, status and evolution of a set of shared facts without an intermediary[5]. 

It can shift the power of trust from singular institutions with varying levels of transparency (e.g. banks, corporations, and governments) to a more transparent and broadly distributed network unbounded by geography.

It can turn trust into binary facts that are either true or false.

Advantages

The first generation of blockchain was focused on cryptocurrencies such as Bitcoin. The second generation is presently happening and it leverages the concept of smart contracts to programmatically control the exchange of value across parties. Future generations are expected to see greater prevalence of smart contracts and entirely new markets that will have blockchain (or other distributed ledger technology) at their core.

Some potential advantages of blockchain over traditional methods:

  1. Speed – removes time delays in the decision making process
  2. Transparency – providing the right information to the right people within the network
  3. Better Privacy – protecting service consumers and businesses via more granular controls
  4. Lowers enterprise risk – better visibility, less risk exposure, less fraud, less tampering
  5. Access – more equitable access to information
  6. Productivity – more work output
  7. Efficiency – faster processing or reporting of transactions
  8. Quality – less errors or more satisfaction
  9. Outcomes – business growth and innovation

Limitations

From a Government of Canada perspective, Blockchain is probably not an ideal technology for the following situations:

  • Systems requiring high performance (millisecond) transactions
  • Small or single organizations (no business network)
  • Few contributors to the ledger
  • A database replacement
  • A messaging solution
  • A transaction processing replacement
  • Policy Opportunity

The book “The Business Blockchain” outlines a simple method to identify the various areas that blockchain will influence using the acronym ATOMIC:

  • Assets – digital assets can be created, managed, and transferred using blockchain
  • Trust – rules can be inserted into transactions to represent trust and validation by the network instead of a central authority
  • Ownership – timestamping of documents that are cryptographically secure represents irrefutable proof of ownership
  • Money – provide a means to make payment in exchange for the value for good and services
  • Identity – move beyond document based evidence for identity
  • Contracts – insert business logic to manage the conditional flow of enforcing agreements

Considerations

Recourse

The decentralized nature of blockchain raises cross-jurisdiction and multinational questions. For example, if Canada participates in a public ledger and the cause of an issue within the public ledger is external to Canada then what recourse can Canada pursue?

Smart Contracts

There needs to be a clearer understanding of the legal enforceability, liability and accountability of Smart Contracts. 

51% Attack Problem

Blockchain transactions are authenticated by consensus. This makes it theoretically vulnerable to an attack - if 51% of the computing power were to collude there is the risk that this majority could control which transactions are accepted into the blockchain.

Know Your Customer

The Government of Canada must ensure that blockchain implementations are capable of meeting any regulation requirements that do not permit anonymous transactions.

Government of Canada

In Canada, public sector use of blockchain technology has been limited to proof of concepts e.g.

  • Bank of Canada is exploring its application for payment systems
  • Natural Resources Canada in relation to the Extractive Sector Transparency Measures Act
  • Immigration, Refugees and Citizenship Canada for tracking immigration applications
  • The federal government also recently undertook a joint initiative with the province of Ontario and the city of Toronto to explore streamlining business permits and licenses[6]
  • National Research Council is exploring use of blockchain for the transparent administration of government contracts

Best in Class

There are numerous examples of expressed interest in blockchain and its support for continued research and development outside of Canada:

  • The government of Brazil announced its intention to move petitions and popular voting onto Ethereum;
  • Chile uses Ethereum to track the data and finances from the energy grid, hoping to combat corruption and exploitation through transparent, immutable data available for every citizen to see;
  • Dubai is on the move to become an entirely integrated, blockchain-powered city by 2020;
  • Estonia became the poster-child of the distributed ecosystem and matured into a “digital republic” by moving many of its national systems onto the Ethereum blockchain.
  • Other countries, such as India[7] and Australia[8], are exploring blockchain to secure citizen’s digital data.
  • The city of Zug, Switzerland — a long-time crypto bastion — began offering digital IDs registered on Ethereum in 2017;
  • The United Arab Emirates government is exploring a wide range of use cases, including business registration,[9] trade,[10] and central bank operations.[11]
  • The United States Internal Revenue Service (IRS) is creating a virtual currency strategy to address the risk that undetected noncompliance of virtual currency taxable transactions will result in an increase to their tax gap.[12]
  • The United States Government is exploring blockchain solutions for IT procurement.[13]
  • A number of countries are discussing the creation of national digital currencies. [14]
  • The Bank of England’s top economist, Andrew Haldane, has proposed a national digital currency for the United Kingdom.
  • The Deputy Chief of the Bank of Russia, Olga Skorobogatova, said that it was “time to develop national cryptocurrencies”.
  • The People’s Republic of China has been experimenting with Ethereum to develop a digital yuan.

Sources

This article draws from a draft GC Blockchain Whitepaper from the GC Blockchain Whitepaper Working Group, which provides a deeper and broader analysis of Distributed Ledger Technology, including Blockchain, as well as a brief by Policy Horizons on Blockchain as it relates to cryptocurrency.

[2] https://www.publicsectordigest.com/article/mythical-business-one-stop-holy-grail-government-business-service-delivery

[3] https://medium.com/@BlockchainRI/the-blockchain-research-institute-manifesto-2491cc48d7db

[4] https://hackernoon.com/blockchain-for-government-41e3b097356d

[5] Adrian Peterson uses the example of trading Pokemon cards to illustrate this point in


    [6] Distributed Ledger Technology and Blockchain

    https://openknowledge.worldbank.org/bitstream/handle/10986/29053/WP-PUBLIC-Distributed-Ledger-Technology-and-Blockchain-Fintech-Notes.pdf?sequence=1&isAllowed=y

    [7] https://www.coindesk.com/indian-state-partners-build-public-sector-blockchain-applications/

    [8] https://www.coindesk.com/australian-delivery-service-exploring-blockchain-identity-services/

    [9] https://www.wsj.com/articles/dubai-aims-to-be-a-city-built-on-blockchain-1493086080

    [10] http://www.reuters.com/article/us-dubai-fintech/dubai-government-companies-team-up-with-ibm-on-blockchain-project-idUSKBN15M0RR

    [11] https://www.coindesk.com/emirates-nbd-enlists-uae-central-bank-blockchain-check-trial/

    [12] https://www.coindesk.com/irs-overhaul-bitcoin-tax-strategy/

    [13] https://www.coindesk.com/gsa-official-blockchain-procurement-prototype-moving-forward/

    [14] World Economic Forum – Realizing the Potential of Blockchain, June 2017