Improved Governance Through Blockchain
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Improved Governance Through Blockchain

By Brian Dixon, COO, Capital Innovators

Brian Dixon, COO, Capital Innovators

Blockchain, which at its core is a decentralized and distributed transparent, secure and trustless digital ledger, has been one of the biggest buzzwords in the last few years and the government is still working to wrap their heads around this technology. The SEC is continuously evaluating the crypto asset market and defining consumer protection regulation, while government organizations from the federal level to the municipality level are trying to understand how blockchain can transform existing processes to drive efficiency, transparency, and trust. It appears as if we are approaching a downtrend in the hype cycle of blockchain technology and now organizations are focused on how to actually build on it and apply it to solve problems. This is a major step forward and will create avenues for governmental organizations to shift the paradigm for how archaic and legacy systems operate into the next generation.

There are a variety of ways in which blockchain technology will transform government including voting, taxes, and security.

Voting

Voter fraud is a big problem that blockchain can solve. What is voter fraud? It can be a variety of things such as voting multiple times in a federal election, impersonating a voter, lying on a voter registration card with false information, or registering to vote when a person is ineligible to vote because of a lack of U.S. citizenship or felony. These problems have been created by our current voting system and lack of effective oversight through limited and non-secure technology.

Through the use of blockchain, voters can be assigned a digital identity that is stored in a block on a chain. This digital identity will carry information specific to the user such as credentials, birth certificate, criminal history, address and more. The user will be able to keep this information confidential and grant permission-based smart contracts through computer code that will execute providing permission to access information necessary for voting. This smart contract transaction will be recorded on the ledger authenticating the necessary credentials for voting and then the vote can take place. The vote selection itself will also be recorded on the ledger with a public encrypted key, which is a self-identifying string of characters that identify the individual making the vote. Once the vote transaction takes place, it is permanent, secure and transparent while still keeping the name and personally identifiable information of the individual confidential to the public domain. Since this information is tracked, stored and tamper proof, this prevents the voter from voting more than once. Also, since each individual will have their own digital identity, they will be unable to impersonate another voter thereby further solving other issues of voter fraud.

As you can see, blockchain technology can make a big impact on enhancing accuracy and authenticity in terms of voting.

Taxes

Taxes are an extremely burdensome process for both the government and individuals. Even for individuals that leverage experienced accountants and tax professionals, it can be difficult to understand exactly what needs to be documented and reported to ensure that the individual is not missing important tax requirements and the government is receiving the necessary taxes due. Another issue with taxes is the abundance of self-reporting that is necessary on the side of the individual. How can blockchain assist with these pain points?

As cryptocurrencies and crypto-assets become more commonplace, blockchain will be the underlying technology that creates the guardrails for transactions to take place. Since blockchains store time-stamped immutable transactions, it provides a forensic audit trail of information for things like stock investments, real estate purchases, career income, business transactions and much more. Since this information is time-stamped with the transaction details stored on the digital ledger, it creates a mechanism to provide enhanced visibility into taxes owed by individuals and for the IRS to confirm taxes due. Eventually, there won’t even be “tax season” as we know it today, because smart contracts will self-enact tax withdrawals for transactions for individuals and store in digital escrow accounts and then make disbursement at pre-defined times to the government after calculating quarterly or yearly gains and loss data. This will allow “tax season” to become fully automated.

Blockchain is a perfect match for governments to enhance their tax protocols and provider better efficiency for both government and the citizens they serve.

Security

Security is a big area of concern for the government. Think about the amount of investment that is made into cybersecurity products and protocols to ensure that governmental bodies and agencies keep their data protected. As hackers become increasingly more sophisticated in their attacks, cybersecurity needs to be enhanced to the next level. As of now, most cybersecurity products and processes are based around centralized systems with multiple levels of offline and online redundancy to avoid threats from gaining access to sensitive information. The time is coming where these models of security are becoming more and more vulnerable with enhancements in artificial intelligence, malware, spyware and more.

What is the solution? Blockchain can provide tremendous security benefits in helping keep important data in the right hands. Due to the architecture of blockchains, they are inherently designed for levels of security that are more advanced than anything on the market. A blockchain is a system of computer nodes that create a network that is both decentralized and distributed. This means that information is not sitting in a centralized server or set of servers where a hacker could gain access to mass amounts of data with a series of hacks. Data on blockchains are stored across all of the nodes in its network making it close to impossible to hack, change or extract information. Theoretically, a hacker would have to hack over 51% of systems that are spread out and likely very geographically diverse simultaneously from different nodes carrying copies of the ledger. Depending on the strategy of the hack and desired outcome, not only would a bad actor need to hack the system, they would have to attempt to reverse engineer a hashed block of sealed and encrypted information and they would have to do it on over 51% of the system’s nodes simultaneously.

Blockchain-based protocols as an underlying technical infrastructure will be the future of government protocols to ensure the highest levels of security.

Conclusion

Blockchain technology is a clear value add to help enhance government technology currently and into the future. One of the best ways that the government can understand and get access to this emerging technology is to work closely with the private sector and startup companies that are developing solutions at an accelerated pace. By integrating with forward-thinking entrepreneurs solving important problems with blockchain technology, governments can streamline its understanding and adoptance of this important technology.

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