Blockchain A promising technology for the Belgian public administration. November 2017

Transcription

1 Blockchain A promising technology for the Belgian public administration November 2017

2 2 Roland Berger Focus Blockchain Management summary Blockchain: a technology to improve data security, bring further automation and reduce costs. To put it simply, blockchain is a decentralized database of transactions, maintained by anyone with a computer who chooses to participate. Transactions or entries are stored in a block, which is linked to previous blocks, thus constituting a database. Still in the early stages of development, blockchain, with its numerous applications in the financial sector, has already heralded new perspectives on what could be a world-changing technology. Yet, if the financial sector is a nice use case, could public administration be the best use case? Like every system, blockchain operates on the basis of certain key features, in this case decentralization and immutability. Decentralization allows the transaction history not to be managed by a central authority but to be distributed across many participants. Consequently, this makes blockchain-type technologies less susceptible to hacking as there is no single point of failure. Once entered, records are verified and stored in a way that cannot be changed, therefore qualifying blockchain technologies as immutable. The network of computers is responsible for the quality of the new record through a process of consensus. Blockchain is thus a system where the initial entry or proof is time-stamped and cannot be tampered with. are met. In the financial sector, this is the feature that has been exploited the most. Consider a simple asset transfer requiring multiple signatures to be authorized. The transfer can be embedded within a smart contract, which would automatically ensure that the assets are only transferred when all required authorizations have been granted. A major consequence of the application of blockchain technologies is the reduction of costs. Thanks to process automation and cutting out intermediaries, governments will be able to reduce the size of their workforce and avoid intermediaries, resulting in direct savings. Up until now, most applications for blockchain technologies have been concentrated in the financial sector and have produced two types of use cases that could be replicated by public administration. The combination of decentralized features and smart contracts leads to the emergence of decentralized business models free of middlemen. In the public sector, where reliance on middlemen is heavy and detrimental to costs, blockchain technologies offer huge potential. Blockchain allows various types of transactions to be conducted with a high degree of trust without a middleman. A second type of use case is process automation, both within and between companies. Many areas of the public services sector are already highly automated, but the industry's data-driven nature and its constant production of new data make it ripe for further process automation. Apart from these two features, one of the main benefits of blockchain-type technologies is their ability to support smart contracts. A smart contract allows a series of conditions to be programmed for which predefined actions are carried out automatically when the conditions

3 Blockchain Roland Berger Focus 3 Contents 1. Blockchain... 4 Huge potential in public administration. 2. Belgium... 8 What is the future for blockchain in public administration? 3. Start now with pilots to better assess benefits and impacts New opportunities that can be derived from blockchain. Cover photo: istockphoto / monsitj

4 4 Roland Berger Focus Blockchain Section 1: Blockchain Huge potential in public administration.

5 Blockchain Roland Berger Focus 5 Because of its heavy use of permanent data (social security numbers, income tax returns, medical histories, etc.), public administrations would appear to be ideal candidates for the use of blockchain technologies. This is reinforced by the transactional nature of many public administration activities, involving multiple stakeholders and therefore requiring trust across multiple players. More specifically, blockchain technology within public administration can be used for two main purposes: to simplify processes and interactions with citizens and to protect trusted records. The steps needed to implement the technology for either of these purposes can range from a simple tweak to government processes to a profound change in the way most governments currently work. Simplifying interactions with citizens could involve everything from easing the transfer of assets (money, property rights, land registry) and automating processes to re-engineering voting systems. Similarly, protecting trusted records could encompass things like enhanced government data protection (with decentralized data storage points, for instance) or assurance that any public data is immutable and time-stamped. SIMPLIFYING PROCESSES AND INTERACTIONS WITH CITIZENS This sub-section illustrates two real-life examples, which range from pure process simplification to facilitating interactions with citizens. In March 2017, Sweden's land registry authority, Lantmäteriet, launched a test of the first land registry system running on blockchain technology. Using an identity verification system, it employs smart contracts to facilitate the transfer of documents and deeds from one party to another (seller, buyer, banks and government agencies) during the process of selling a house. This enables the process to be accelerated and facilitates better tracking of transaction progress for all parties. Making democracy more participative is another way of facilitating interactions with citizens. In the South Korean province of Gyeonggi-do, local authorities used a blockchain platform to enable people to vote on community aid projects. Local residents could propose ideas through the platform, whereupon the government would award budgets to fund those projects. The use of such a system allows governments to cut the cost of maintaining a central agency, save time spent collecting the results of the vote and ensure the immutability of the results. PROTECTING TRUSTED RECORDS Protecting trusted records relies on two main benefits of blockchain. Firstly, it means that there is no single point of attack. Because it is decentralized, blockchain doesn't depend on a single computer/network of computers, rendering it less susceptible to hacking. Secondly, it means that documents are immutable. States can guarantee that documents on blockchain are time-stamped and therefore genuine. In Australia, for instance, governments are looking at using blockchain for storing police camera videos to ensure that video evidence is not tampered with and as a means of easily verifying where and when the video was taken. Similarly, they use blockchain to improve coordination across government departments as it increases trust in the documents issued. In Singapore, authorities are looking into stopping traders defrauding banks using fraudulent invoices. They plan to create, via blockchain, a unique cryptographic signature for every invoice. Through their Delaware Block Initiative, this US state's authorities have the ambition to store some corporate acts on blockchain. This includes acts such as company registrations, share issuance documents, capitalization tables, shareholder communication documents and fund-raising documents for start-ups. In combination with smart contracts, this technology would allow for

6 6 Roland Berger Focus Blockchain efficiency gains (documents would be filled in automatically, saving time for lawyers and government officials) and ensure more trustworthy documents thanks to their immutability. The following figure outlines some of the main government actions in implementing blockchain-type technologies. A FIVE PREREQUISITES TO DEFINE A MEANINGFUL USE CASE OF BLOCKCHAIN Across the globe, public administrations are testing blockchain technologies, pushing the limits of what currently exists, unraveling new possibilities and looking at new ways of working and of interacting with citizens. However, governments must be careful not to get carried away by the perceived trendiness of the technology and not to invest taxpayers' money in applications that could be better served by different technologies. Five questions must therefore be answered in the positive before considering using blockchain for a given project: Do you need a database and do you need a shared database? Do you need read and write access for multiple users? Do users mistrust each other? Do you want to avoid an intermediary? As figure B shows, blockchain can, for instance, be applied to store vehicle insurance records and make them accessible to numerous competing insurers. The technology is not, however, suitable for sharing patients' medical records among multiple hospitals in the same chain. A: Blockchain technology can be used for two main purposes. Simplification of processes and protection of trusted records. Simplifying processes and interactions with citizens Sweden is currently placing all real estate transactions on a blockchain-type basis to hasten processes, limit paperwork and allow all parties involved to easily follow the progress of the agreement. Georgia's government launched a project to register land titles on a blockchain-type technology. Antwerp has established proofs of concept on e-government, lifecycle (birth registration) and digital identity to improve security, mobility, sustainability and administrative efficiency within the city, as well as to inform its citizens better. Province of Gyeonggi-do has implemented a voting system based on a blockchain technology for its residents to vote on community projects. Protecting trusted records In Delaware, efforts are focused on transferring state records to a more open ledger, allowing better transparency and efficiency. Singapore is looking at blockchain to prevent traders from defrauding banks using fraudulent invoices. Blockchain would allow a unique cryptographic signature to be created for every invoice. Australia is looking at using blockchain for storing police camera videos to ensure that evidence is not tampered with. Source: Roland Berger

7 Blockchain Roland Berger Focus 7 B: A blockchain system must check five key questions. Comparison between two cases. Proof of Insurance Create a repository of vehicle insurance records, shared by numerous competing insurers to prevent multiple-insurance fraud Data sharing in hospital chain Share patients' medical records among multiple hospitals in the same chain to ensure up-to-date information for all parties Do you need a database? Yes, to store all vehicle insurance records in one easily accessible database Yes, to store the identity and complete medical records of all patients Do you need a shared database? Yes, as customers can easily contact multiple insurers they must share the information available with their peers Yes, as some hospitals are in the same region the same patient could use multiple hospitals Do you need a shared database with read and write access for multiple users? Yes, all insurers must be able to access the data provided by others but must also be able to create and/or modify existing data Yes, all hospitals in the chain should be able to access patient information and create/modify it when the patient visits a given hospital Do users mistrust one another? Yes, insurers collaborate on this topic but remain competitors and do not trust one another in modifying their data No, all hospitals are in the same chain and work for the patients' wellbeing and therefore their economic and political incentives are aligned Do you want to avoid an intermediary? Yes, no intermediary currently exists and the cost of creating one is best avoided Blockchain No, potential intermediary provide value to the whole system by analyzing the data for public health purpose Shared database Source: Gideon Greenspan, Roland Berger

8 8 Roland Berger Focus Blockchain Section 2: Belgium What is the future for blockchain in public administration?

9 Blockchain Roland Berger Focus 9 Belgium's state, with its numerous powers spread across its federal government, its three regional governments and its "communautés", is fertile ground for administrative simplification. Within each area of government authority, multiple use cases can be imagined. To illustrate specifically what blockchain could bring to these governments, we have decided to look at four applications that could drastically change the way governments work and interact with their citizens: finance/tax, transportation, employment and what is known as cadastral administration, in other words land registry. Within the Ministry of Finance and Tax, one could imagine tackling the issue of tax evasion between European countries. For instance, a multi-country blockchain would facilitate the sharing of tax information between countries (income tax returns, property taxes, shareholder taxes, etc.). Any information put into one of the countries' systems could be accessible to all other members of the blockchain. In this case, the benefit of a blockchain over a centralized database, which would also enable the sharing of information, is the absence of intermediaries and thus of running costs for all countries involved in the blockchain. C Turning now to the ambit of the Ministries of Transportation, multi-modality across Belgium has been an objective for many years, especially in Brussels where traffic jams weigh heavily on the entire economy. However, achieving this aim is difficult as Belgium has four public transportation services (SNCB, STIB, Tec, De Lijn), not counting the numerous, more recent, public and private alternatives that have sprung up (Cambio, Villo, Drivenow, Zenbus, etc.). Ideally, people would be able to pay for a certain mobility budget allowing them to access any transportation service whenever they needed it. That would clearly require a shared database between all transportation services, which would incur implementation and maintenance costs. With a blockchain, the costs could be reduced, with implementation facilitated among the different contributors. D C: A multi-country blockchain would facilitate the sharing of tax information between countries. Without blockchain, countries need an intermediary, increasing therefore costs and complexity. Without blockchain With blockchain Decentralized; Immutable Bilateral exchange of information exists between some countries through centralized databases. However, a shared database is expensive to implement and operate. Any information input in one of the four countries' systems is accessible to all without any intermediaries. Source: Roland Berger

10 10 Roland Berger Focus Blockchain Within the Ministries of Employment, government authorities currently ask unemployed citizens to provide proof that they are actively seeking a job (job applications sent, rejection s received, etc.) However, falsification of such proof is very common. One could imagine a blockchain system operating between governments, companies and citizens, where employment agencies could immediately see how many applications had been made and where, and view their status for every unemployed person. Smart contracts could link the payment of unemployment benefits to the existence of job applications without human intervention, allowing civil servants to focus more on supporting the reintegration of unemployed people. E Like most other developed countries, Belgium has, for several decades, been monitoring its portfolio of real estate through its cadastral administration (land registry). The administration currently has three main functions: inventorying all real estate properties (new and old), up- dating the description of these properties and their legality and being the point of contact for citizens (calculating their cadastral taxes and answering any inquiries). As we have seen piloted in several countries so far (Sweden, Georgia and Ghana), one could imagine a blockchain where the registration of real estate properties was done automatically by citizens. Members would be able to access real estate plans, follow up on the progress of a sale and be directly in contact with the administration, significantly reducing the importance of the cadastral administration. F These four applications vividly illustrate two ways in which a public institution could benefit from blockchain. Public institutions can either add new services to an existing offer (e.g. transportation and tax) or eliminate an existing low value-adding activity to refocus on higher value-adding activities (such as employment and cadastral administration). D: Multi-modality has been an objective for many years. To facilitate multi-modality in Belgium, a blockchain approach could be recommended. Without blockchain With blockchain Decentralized SNCB - NMBS Mobility Zen Car SNCB - NMBS Mobility Zen Car TEC Drive Now TEC Drive Now STIB-MIVB Brussels Cambio Car Sharing STIB-MIVB Brussels Cambio Car Sharing Villo! De Lijn Villo! De Lijn Centralized database managed by an intermediary. One multimodal solution. Source: Roland Berger

11 Blockchain Roland Berger Focus 11 E: Smart contracts could facilitate the control of the unemployed citizens. And the regional agencies could focus on high added value activities. Without blockchain VDAB Forem Actiris Accompanies & controls unemployed citizens (checking number of proofs, making sure unemployed citizens understand fully their task,...) Checks proofs with employers (validity of proofs, time-frame,...) Other activities (training of unemployed citizens, developing partnerships with companies, administration,...) With blockchain Smart contracts VDAB Forem Actiris Refocus on high value-adding activities (developing high-value partnerships, better preparing unemployed citizens to job interviews,...) Other activities Source: Roland Berger F: Blockchain could significantly reduce the importance of the cadastral administration. Registration could be done automatically by different stakeholders (notaries, government bodies, contractors,...). Without blockchain Centralized datbase Cadastral administration With blockchain Immutable Third parties (notaries, government bodies, contractors,...) Buyers Sellers Buyers Sellers Third parties (notaries, government bodies, contractors,...) Source: Roland Berger

12 12 Roland Berger Focus Blockchain Section 3: Start now with pilots to better assess benefits and impacts New opportunities that can be derived from blockchain.

13 Blockchain Roland Berger Focus 13 Blockchain holds both opportunities and challenges and therefore has to be addressed in the right way. Below are a number of steps recommended for every administration planning to implement blockchain. Firstly, administrations have to prepare themselves for blockchain initiatives. That means allocating resources to blockchain, including putting blockchain on their agenda and educating the stakeholders. Secondly, assess frequently the potential impact of blockchain on the organization as blockchain is permanently evolving. If you believe that the impact of blockchain on your administration will be positive, start gathering blockchain insights and best practices; take a look at similar administrations using blockchain. Next, pilot some of the most promising ideas to assess where and how blockchain could be useful. Finally, implement the successful blockchain initiatives and focus on streamlining and digitizing processes end to end. This will increase the speed of implementation and help you avoid roadblocks. As a company embracing digitization, we can only advise governments to study the new opportunities that can be derived from blockchain. As a company embracing digitization, we can only advise governments to study the new opportunities that can be derived from blockchain and build business cases across government agencies to assess and realize the benefits of this promising new technology.

14 14 Roland Berger Focus Blockchain Imprint WE WELCOME YOUR QUESTIONS, COMMENTS AND SUGGESTIONS AUTHORS Stephan Janssens Partner Pierre Bastien Principal Kevin de Patoul Senior Consultant Kevin.dePatoul@rolandberger.com Sylvain Burniaux Consultant Sylvain.Burniaux@rolandberger.com This publication has been prepared for general guidance only. The reader should not act according to any information provided in this publication without receiving specific professional advice. Roland Berger GmbH shall not be liable for any damages resulting from any use of the information contained in the publication ROLAND BERGER GMBH. ALL RIGHTS RESERVED.

15 Blockchain Roland Berger Focus 15 About us Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 34 countries, we have successful operations in all major international markets. Our 50 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 220 Partners. Navigating Complexity For half a century, Roland Berger has helped its clients manage change. Looking at the next 50 years, we are committed to supporting our clients conquer the next frontier. To us, this means navigating the complexities that define our times. We help our clients draft and implement responsive strategies essential to success that lasts.

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