In April 2018, 22 European Member States signed a declaration to further develop blockchain technology and to foster broader usage. With this “Cooperation on a European Blockchain Partnership”, Europe wants to play a driving and leading role in a newly developing foundational technology. The goal of the European partnership is to position Europe as the worldwide leading community of states in the devel-opment, introduction, and application of distributed ledger technology. The application of blockchain in both the public and private sectors is to be pushed forward in the entire digital single market. At the signing of the declaration, Mariya Gabriel, Commissioner for the Digital Economy and Society, gave an optimistic appraisal: “In the future, all public services will use blockchain technology. Blockchain is a great opportunity for Europe and Member States to rethink their information systems, to promote user trust and the protection of personal data, to help create new business opportunities and to establish new areas of leadership, benefiting citizens, public services and companies.”
Political interest in blockchain in Europe
According to the European Commission figures, 80 million Euro has already been invested in projects using blockchain this year, and the EU Commission is planning to invest a further 300 million in the coming years to foster its development. Blockchain technology fascinates. It has even made it into the awareness of politics in Germany. The coalition agreement of the Christian/Social-Democratic federal government makes mention of blockchain no less than six times. The coalition agreement holds to the planned development of the E-Government Agency thus: “In the federal government, innovative technologies like distributed ledger (blockchain) will be tested, so that a legal framework can be created based on the experience.” And yet it still remains unclear how the federal government will now implement the announced and desired initiatives.
At any rate, work on the development of the E-Government Agency is not yet publicly discernible. The CDU/FDP-led state government of North Rhine-Westphalia has also determined in its coalition agreement that it wants to make, above all, government applications more secure through blockchain technology. The preparedness to actively engage with the technology is therefore also visible here.
Distributed ledger technology is developing a fascinating, almost revolutionary charm in particular for the public sector. A recent much-read OECD Working Paper on Public Governance entitled “Blockchain Un-chained – Blockchain Technology and its use in the public sector” describes the potential for the public sector. In the Working Paper Number 28, a selection of potential fields of application are sketched out. These range from decentralized identity management to personally managed data storage for the health, insurance, and financial sectors, on to decentralized power on the basis of neighborhood energy trading solutions, and through to new voting procedures. Despite this, a quick look at the – as yet – proclaimed pilot projects and announced proof-of-concepts shows that the broad usage of blockchain technology in the public sector is yet to take hold. This is, however, not surprising, given that in the view of many players in the “distributed ledger scene”, the development faces the challenge initially of making the technology manageable for users. The usability has not matured yet – there’s room for improvement on the road to “simple” use.
Blockchain – new application of existing trusted technologies
But this is no surprise initially in technology development. Because blockchain technology is an extremely clever, but complex combination of well-known, proven technologies. The decentralized distributed database systems in ledger technology employ the widely-used peer-to-peer technology to communicate within the network, use cryptographic processes in the form of public-private key systems for identification and authentication, secure data against falsification through hash-value concepts, and often make use of timestamps to organize the order of transactions. The technical and mathematical basis of blockchain technology is very well documented in a range of publications.
Blockchain for the public sector – understanding use cases
In order to clarify which cases are now of particular interest for the public sector, the question of what happens on the content level in blockchain technology needs to be looked into. Is there a general task in the state sector that could be solved differently and better with the help of distributed ledger technology?
In the popular examples of Bitcoin applications and crypto-currencies in general, it becomes apparent that the transfer of “money” without banks actually revolves around the transferal of rights. In the case of the Bitcoin application, the right to the crypto-currency “Bitcoin” is transferred from person A to person B. Put another way, it has to do with the transfer of ownership rights from one person to another. Or put even more generally, a digital string of characters is unambiguously assigned to a person, an organization, or an object, and this assignation can be changed, but it can never be assigned to two people, organizations or objects at the same time. The “double spending problem” is thus solved in blockchain technology. This offers new perspectives for the public sector.
For citizens and companies, daily life often revolves around proving that they are in possession of rights. So, in the case of buying a house, using an entry in the property ownership registry to prove that the seller actually owns the property. Selling a car requires that the seller is in possession of the vehicle. The birth of a child is officially attested to with the help of a birth certificate. An important task of the state is to record these various rights in registers, to save them, and to update them when the rights change. The assignation of rights must be unambiguous, and no “double rights problem” can be allowed to arise. This is the starting point for the concept of using blockchain to redesign public sector certification processes so that the transaction costs for companies and citizens can be considerably reduced.
In 2017, in conjunction with the IT Summit of the German Chancellery, regio iT demonstrated jointly with the University of Speyer and the University of Munich that, with the help of blockchain technology, digital certification and the validation of academic certificates for online application processes over XING and LinkedIn is possible. Digital proof of a driver’s license for car rentals is also possible with the help of blockchain technology. This proof can be generated using a combination of existing registers and validation infrastructure developed on the basis of distributed ledger technology. These brief examples demonstrate the value of building a government infrastructure in Europe, on the basis of which public administrations in the European Union could open their registers so that European companies and citizens can in future obtain and use required certificates and proof of rights lodged with the state substantially more easily.
Creating a private government blockchain infrastructure for the EU
The basis for such a European blockchain infrastructure could be an organization that is made up of public, local government, and federal data centers. The call here is for the development of a “private government blockchain infrastructure”. In a clear distinction to “public blockchains”, I urge the accelerated exploitation of the potential of distributed ledger technology for the public sector, in that the use of the “nodes” and thus the decision over the consensus process remains in the public hand. This would also counteract the concentration of power in public blockchains in only a few mining pools. It would also not be desirable for public sector transactions to occur on the basis of a public blockchain like Ethereum or Bitcoin, because the fluctuation in value of crypto- currencies alone would lead to costs not being calculable for public certification processes. It can also be assumed that local governments and public institutions will either react skeptically or reject the approach outright if they are not in a position to control the basic system from the perspective of data security and data protection.
Even if this approach is not favored by crypto-protagonists, the strategy of developing a European Government blockchain infrastructure would provide a great contribution to making Europe a true leader in this new technology. The dissolution of the state postulated by some blockchain enthusiasts would not be the objective here; instead, the public sector should be made more effective and more efficient through the use of the technology. Blockchain technology should therefore rather be used to simplify administrative processes.
The governance of such a European blockchain infrastructure could be developed on the basis of a European cooperative. The legal foundations for a European cooperative have existed for many years. For Europe, it would be revolutionary if a Europe-wide organization were to be created that would offer the use of blockchain technologies as a Service (BaaS) for the public sector. The topic here is technologies, because there is currently still a race occurring between different concepts and software solutions. The competition ranges from Ethereum to Hyperledger. Because on top of the task of using blockchain technology and rights to establish a considerably simplified certification and validation system, such an infrastructure – in which thousands of public data centers could be involved – could also contribute to the opening of this infrastructure for applications above and beyond the pure government systems.
Giving data control back to the data owner through public sector blockchains
Such an infrastructure could therefore be used, e.g. to exchange sensitive data in the health sector. Using blockchain technology, this infrastructure could also serve to enable patients to release their data to the attending physician, and allow information from the register to be accessed. The infrastructure for a government blockchain sketched here would mean that the data exchange (the Internet of values and rights) would, in a new and revolutionary way, be returned to the control of the person who generates the data.
Economist Dieter Rehfeld is Chair of the Board at regio iT, an IT service provider for local governments and municipal companies, which operates two data centers. Having studied Mathematics and Economics, Rehfeld has worked in various capacities in the public sector, including Head of the Controlling and Central Organization Department for the City of Dusseldorf, and Alderman for Personnel, Organization and Information Technology for the City of Aachen. He is a founding member and board member for the foundation for the new Aachen University of Applied Sciences course in Energy Management Informatics, a member of the Research Committee for the RWTH Aachen, and is a member of the European Center for Sustainable Mobility (ECSM) at RWTH Aachen. Dieter Rehfeld is also Chair of the Aachen German-Dutch Society.
regio IT is a member of Vitako, the German association for local government IT service providers.
Please note: The opinions expressed in Industry Insights published by dotmagazine are the author’s own and do not reflect the view of the publisher, eco – Association of the Internet Industry.