Governments may be big backers of the blockchain
Governments may be big backers of
An anti-establishment technology faces an ironic turn of fortune
Nondescript building housing rows of humming computer servers
IN THE hills overlooking Tbilisi, Georgia’s capital sits nondescript building housing rows of humming computer servers. The data centre, operated by the BitFury Group, a technology company, was built to “mine” (cryptographically generate) bitcoin, the digital currency. But now it also uses the technology underlying Bitcoin, called the “blockchain”, to help secure Georgian government records. Experts are eyeing the experiment for proof of whether blockchain technology could alter the infrastructure of government everywhere. While the blockchain originally sought a foothold in financial services, and digital currencies attracted early attention from investors, now interest in using the technology in the public sector is growing. Brian Forde, a blockchain expert at the Massachusetts Institute of Technology, argues that governments will drive its adoption—an ironic twist for something that began as a libertarian counter model to centralized authority. Backers say it can be used for land registries, identity-management systems, health-care records and even elections.
The blockchain and similarly distributed ledgers are databases that are not maintained by a single entity, such as a bank or government agency, but collectively by a number of their users. All changes are encrypted in such a way that they cannot be altered or deleted without leaving a record of the data’s earlier state. In theory, all sorts of information, from birth records to business transactions, can be baked into a blockchain, creating permanent and secure records which cannot be tampered with, for instance by corrupt officials. Fans argue that, if properly implemented, distributed ledgers can bring improvements in transparency, efficiency, and trust. Naysayers respond that wider adoption may reveal security flaws. It is certainly early days for the blockchain: some compare it to the internet in the early 1990s, so growing pains are sure to follow. And blockchains can always be only part of the solution: no technology can turn crooked leaders straight and keep them, for instance, from feeding in spurious data.
Creating robust standards will also take time. And integrating databases across vast and complex bureaucracies will need huge investment. Yet governments do not seem fazed. According to a recent IBM survey of government leaders (conducted by the Economist Intelligence Unit, our sister company), nine in ten government organizations say they plan to invest in blockchain technology to help manage financial transactions, assets, contracts and regulatory compliance by next year. Valery Vavilov, BitFury’s head, says blockchains are not merely a business opportunity, but a way to change how governments serve their citizens. Born in Latvia, Mr. Vavilov watched as his parents “lost everything” after the Soviet Union collapsed. He then spent his early professional life writing software for the new Latvian government. He came to believe that blockchains could become the “foundation to build a trusted, transparent and auditable system”.
Elsewhere, Sweden is testing a blockchain-based land registry and Dubai wants distributed ledgers to power its entire government by 2020. The most active early adopters, however, have been former Soviet republics. Estonia, recognized as a pioneer in e-government, has long used blockchain-like technologies to secure health records and undergird its shared government database system, X-Road. Being a young country has its advantages. “It can be much easier to build a digital society if there are no legacy systems and you can start from scratch,” says Kaspar Korjus, head of Estonia’s e-residency program.
With BitFury’s help, Georgia’s National Agency of Public Registry has recently moved its land registry onto the blockchain. Some 160,000 registrations have already been processed. Thea Tsulukiani, the country’s Minister of Justice, believes that the blockchain will mean Georgian citizens can “sleep quietly” when it comes to property rights. The main barrier to an introduction, officials say, has not been technical, but educational. Even Ms. Tsulukiani did not know what the blockchain was when her deputies first proposed to use the technology. “We want to move slowly in terms of explaining to society, and quickly in terms of implementation,” she says.
BitFury has also signed a memorandum of understanding with the government of Ukraine, which wants to become “one of the world’s leading blockchain nations”. The country’s e-governance agency sees the technology as a way to address “historic distrust of government,” says Aleksey Vyskub, its deputy's head. The agency has plans for all kinds of blockchain-based registries, including of land and businesses. As with most reforms in Ukraine, efforts to launch these projects have faced resistance from the entrenched bureaucracy. Yet, explains Mr. Vyskub, the technology’s novelty and complexity have provided some cover: “Most officials don’t understand what we’re doing, so they don’t sense the threat.”