Blockhainizing the government - what could go wrong?

The scandals, intrigues, and investigations around the Blockchain and cryptocurrencies in recent months seem to have subsided somewhat. But public trust in the underlying technologies is fundamentally undermined. This article will be about the Blockchain, how it is incorporated into the government, and what could possibly go wrong with it.

What is Blockchain?

Recall that the blockchain technology is based on a continuous chain of information blocks, where each next block contains data about the previous one. This chain itself, or the registry, is free for copying and studying by all parties involved in its formation.

Although there were quite a lot of attempts to bring the blockchain within the government agencies, there is very little progress being made compared to various other technological developments that were adapted just weeks after their debut on the market.

But, there is still hope. The reason why all of the previous technological advancements were “uploaded” on the government databases was due to their popularity and ease of use. The blockchain is slowly inching towards its global adoption in the private sector, making the government consider the idea more and more. In fact, according to this Bitcoin Evolution app review, the number of traders and overall blockchain enthusiasts have more than doubled even after the 2018 market crash that was supposed to convince everybody to drop the technology.

Here’s a small rundown of several major countries and their approach to blockchain adoption.

The United States

The President of the United States Donald Trump, like many members of his team, are long-standing and consistent supporters of the implementation of the Blockchain, but tend to have some issues with it as well. Despite repeated criticisms of cryptocurrencies, as far back as 2017, Trump directly spoke about the fact that the distributed registry technology itself can increase the efficiency of government bodies.

In the same year, the U.S. federal budget funded research in this area, with spending constantly increasing. According to IDC, the annual budget allocation for the development and implementation of the Blockchain in 2019 reached $123 million.

American officials are interested in the possibility of using smart contracts, the implementation of Blockchain in accounting records, as well as the adaptation of a distributed registry for identification tasks. For example, the U.S. Border and Customs Service conducted successful testing of the Blockchain back in 2018, after which its practical application in the interests of this department began.

The European Union

Despite the “patchwork” legislation applicable to blockchain products and cryptocurrencies in individual E.U. countries, 22 E.U. members nevertheless found the opportunity to sign a joint declaration on the creation of a European partnership in the field of blockchain technology in 2018. One of the consequences of this event was the establishment of the E.U. Blockchain Observatory. This organization included specialized experts and analysts studying the potential of the Blockchain and scenarios for its use.

Despite the year and a half of the work of the observatory, rarely heard about major blockchain implementations in E.U. government. But with proper regularity, more and more prohibitive initiatives appear. In January 2020, the Fifth European Union Anti-Money Laundering Directive (5AMLD) was adopted. According to market participants, its entry into force will lead to the mass exodus of blockchain startups to other jurisdictions.

China

Researches in the field of blockchain application by the government of the PRC began in 2016. The corresponding paragraph is included in the national informatization plan for 2016-2020. Consistently exerting tight pressure on cryptocurrencies, China did not deny itself new technological opportunities. For five years, the country has created the necessary investment structures, a network of universities and business incubators. Laws were quickly adopted to allow research into applied distributed registries.

In the December issue of Forbes magazine, the upcoming launch of the Central Bank of China's Digital Currency (CBDC) was named the main event of 2020, which will determine the future of the blockchain ecosystem. Then, in December, the Bank of China issued blockchain bonds totaling $2.8 billion.

Russia

In Russia, the leading centers for the development of blockchain technologies are the Rostec Corporation and the Novosibirsk Institute of Software Systems (NIPS), which is part of it. The roadmap prepared by the corporation implies the gradual transfer to the Blockchain of all state information systems, as well as its use for marking goods and in the housing sector.

According to Kommersant, until 2024, it was planned to spend 55-85 billion rubles on the development of technology. Calculations showed that the direct economic effect of the implementation of distributed registries would be 782 billion rubles, and the indirect - 853 billion. However, in January 2020, the amount of investment was revised downward. In connection with a certain decrease in the hype around the Blockchain, Rostec proposed that the government limit it to 28 billion investments. The economic effect is now also estimated by analysts of the corporation more modestly - 500 and 600 billion rubles, respectively.

What could go wrong, and should we be afraid of Blockchain?

While we have provided examples about incorporating Blockchain in the government and its structures, there are problems we should be aware of. First of all, it concerns regulations. This is a problem with any cryptocurrency and Blockchain in general. When there is not a regulatory board, it is very difficult to detect scams and fraud, and talking about the governmental level, it could become a massive problem for every citizen. Secondly, due to their complexity anonymity and encrypted nature blockchain could be a slow system, compared to traditional methods. There are even more risks of cyber-attacks which can severely disrupt the normal operation of government.

Sure thing blockchain can become an innovation for transforming the government. However, we think that governments are still not ready for this kind of thing, not to mention people majority of whom never heard about Blockchain. Perhaps in 10 years, everyone would be willing to accept this change, but right now it could lead to more problems than benefits for community and country in general.