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Blockchain: the honest bureaucrat

Blockchain: the honest bureaucrat

Originally posted by Julian Bajkowski @ themandarin.com.au

Blockchain has shifted from being an ‘around the corner’ technology to a ‘here and now’ proposition across multiple economic sectors including finance, logistics and property.  It is blockchain’s core ability to act as the “honest bureaucrat” which makes it such a game-changing technology for governments, offering large transformative opportunities for policy, regulatory, service and procurement redesign.

Peer-to-peer transactions, thwarting money laundering, automated regulatory oversight, managing healthcare sensitive cross-sector data flows, energy market design, secure records management, supply chain and payments system, and digital identity.

Ask for a list of the potential applications for blockchain evangelised over the past year alone and those are just the start. The fact is it may be a quiet revolution, but it’s happening now.

And with the logistics and financial services industry all rapidly trialling pilot projects, it’s a technology with very real potential to revolutionise the very foundations of government.

It’s happening now

Ask yourself this: how many regulated multi-party transactions that demand high levels of assurance and integrity is government involved in? And could property, securities, registration and licensing all benefit from automation and harmonisation?

Applications and standards may still be forming, but they are forming fast even if they still don’t easily form mainstream media soundbites.

There are Australian government pilots and studies now underway across the welfare, health payment and identity spaces, and it is the ability for blockchain to be massively extensible that is capturing the attention of leading government technologists.

Differentiate to derive value

One of the biggest points of confusion around blockchain for non-technologists has been filtering out the din of consumer noise around bitcoin and cryptocurrencies, as opposed to its industrial application in government and enterprise processes and systems.

The simple fact is that there’s a lot more utility to the technology than you can put in a short soundbite if you dig a little further.

The bottom line for government and its many stakeholders is that quiet, yet powerful revolution, is now underway in the efficiency and integrity of transactions and records that underpin the daily activities of business, the public sector, regulators and registries.

So the challenge for many chief information officers will now be how to get their organisations ready and on top of blockchain quickly rather than being left in its wake.

Global supply chains already shifting to blockchain

In terms of real-world applications for blockchain with global impact, there is already significant movement in digitising the once paper and legacy standards-dependent sphere of international logistics and supply chains.

In January 2018, global freight, shipping and ports leader Maersk and IBM announced the creation of a pivotal joint venture company that will offer a co-created global trade digitisation platform built on open standards and designed for use by the entire global shipping ecosystem.

With the value of shipped goods now around US$4 trillion a year, the complexity and volume of trade documentation needed to process and administer has been estimated to be as high as 20 per cent of actual physical transportation costs.

Now, by using blockchain in combination with other cloud-based open source technologies including artificial intelligence (AI), IoT and analytics, delivered via IBM Services businesses, regulators and consumers all stand to potential benefit from an uplift in productivity, security and efficiency.

It means that as global trade processes are digitised and start to use blockchain, a new form of command and consent can be applied to critical flows of information. This allows multiple trading partners to collaborate and create a single, authoritative and shared view of a transaction — without compromising sensitive details, privacy or confidentiality.

It’s a project that has been going since 2016 but will now start to deliver over the next six months with global manufacturers, freight forwarders, terminal operators and authorities and regulators coming on board.

They initially include Customs authorities in the US and the Netherlands, with strong interest also expressed by authorities in Singapore and as far afield as Peru.

The future is distributed

Put simply, blockchain is a digital distributed ledger – a shared, immutable record and history of transactions and who made them. Build on open standards, blockchain has the potential to create a new generation of transactional applications that establish trust, accountability and transparency.

When you consider the extent of authorisation, settlement, batching and reconciliation that many transactional sectors intersecting with government go through, it’s clear the uplift factor extends beyond the hype. In a confirmation blockchain is now being taken seriously, the Federal Budget committed $700,000 for the Digital Transformation Agency to develop an identity application using block chain. This initiative was personally supported by the Prime Minister.

What’s driving blockchain implementation and exploration around the world is its potential to greatly improve data integrity and access, reduce costs and kill inefficiency, and deliver better and trusted outcomes with vastly improved oversight.

It’s logical the private sector has moved first, with blockchain adoption unfolding at such a pace there’s serious discussion about when it will be the underlying norm for any transaction.  That organic growth is not a bad thing for government.

Digital government is fast becoming reality. Major portfolios are making large-scale investments in digital infrastructure, systems and practices, and agency Chief Information Officers are looking to exploit these investments.

Over the following weeks, we will examine this critical next phase of transformation and the core capabilities, processes and technologies that public sector CIOs will need to focus on, in order to extract the benefits for citizens of the shift to digital government.


Sharper focus, better vision

The broad vision is this: blockchain (done well) rapidly facilitates a network of automated and immutable digital ecosystems that span across industry and government registries and transactions; simultaneously they eliminate risks and friction endemic in manual processing.

Cast your mind to the extent government, business or any sector that relies on a combination of registries (who) and ledgers (what, where when) for day-to-day processes can benefit, and the appeal is clear.

This appeal is beyond formal registries.

Governments – like banks in the money markets – play a key intermediary role across numerous sections of the community.

Think of blockchain as a computerised notariser, time stamping “transactions” as diverse as the birth of a child, payment of a medicare payment, or the issue of a welfare benefit.

It is blockchain’s ability to act as the “honest bureaucrat” which makes it such a game-changing technology for governments and one the formal review of the Australian Public Service will need to centrally consider.

Rather than having the many interactions between government and its ecosystem managed bureaucratically, many of these are capable of being codified into blockchains and managed virtually. Safely.

Well-orchestrated implementations don’t just happen either. Government needs to be a collaborative participant that can nurture an ecosystem from inception to deployment, which requires attention and commitment.

More than a single solution

Notwithstanding it’s clear utility and potential, it’s fair to say that blockchain is not ‘one thing’ – it’s many. And the manner and pace at which it is unfolding isn’t necessarily uniform or linear, even if it is fast.

For the public sector as a whole, there are serious near and medium term implications in the way in which blockchain gets sectoral and industry take-up, not least because evolving adoption pathways will ultimately intersect with agencies, regulators and policymakers.

Transaction reporting standards, taxonomies, regulatory requirements authentication and identity integrity requirements all come into play. Standards –  as dry as they may be –  are everything.

Well-orchestrated implementations don’t just happen either. Government needs to be a collaborative participant that can nurture an ecosystem from inception to deployment, which requires attention and commitment.

So, for government organisations to influence how blockchain plays-out, rather than being a passenger, they need to become a leader on stewarding standards.

Need to know: where is blockchain getting traction and why it matters

There’s little doubt the financial sector is leading some of the largest and most innovative applications of the technology.

In Canada, major banks are now combining their resources to provide more efficient ways to approve loans and enable customers to move between banks. And to support this, blockchain technology is enabling identification verification between banks, both through the government’s national identification system and through mobile verification using Canada’s largest telecommunications service, Rogers.

That’s worth keeping in mind as Australia moves towards widespread adoption of digital identity credentials.

The technology to support the sharing of information between government, banking and telecommunications sectors in Canada is SecureKey which leverages Hyperledger Fabric –  a core blockchain technology running on IBM Cloud.

The system works through a customer’s mobile phone and its GPS locator. Assuming the customer has their phone, Rogers can tell where a customer is. Linking it to the government photo ID, the application provides a government-authenticated picture of the individual. And this can then be tied in with the banks around their ‘Know Your Customer’ processes.

Efficiency to the fore

For banks, this is an important efficiency play – they don’t have to deal with the paperwork of background checks because another bank has done it. This requires collaboration between banks, and a willingness to share information, for this process to be successful.

For those in charge of government technology – whether at a regulatory or transactional level – there’s a tangible interest in achieving this sort of trusted interoperability. Automated income reporting, payments, taxation, licensing and property, assets and securities could all come along for the ride.

And beyond the finance sector, there are a range of new and emerging applications – including land titleshealthcarerefugee and humanitarian support.

Australia’s emerging leadership

Within Australia, blockchain has also already taken a strong hold in cornerstone commercial institutions.

The Australian Stock Exchange (ASX) announced in December 2017 a plan to upgrade their settlement and clearing system to blockchain technology with the support of Digital Asset Holdings, a financial distributed ledger developer whose strategic investors include global banks and market operators, including the ASX and IBM.

The decision was made to improve the transparency and efficiency of the market and drive down costs for participants, and it has unquestionably put Australia on the front foot for a widespread future.

Air cover for innovation

The move certainly didn’t go unnoticed in government, with Treasurer Scott Morrison applauding it as putting Australia at the forefront of digital innovation. Significantly, it came after both Australia’s Prime Minister Malcolm Turnbull and Morrison articulated ambitions for Australia to become a leading fintech hub.

Importantly, both Treasury itself and the CSIRO’s Data61 are closely tracking how fintech and blockchain developments are unfolding across the broader economy. For those leading technology efforts in government, this implies a strong expectation from policymakers that agencies cultivate an awareness of what’s coming down the line and how they can deal themselves into the game.

Instructively, as an early adopter of the blockchain, the ASX was acutely aware their project would attract the spotlight. As a highly regulated entity, they undertook a complex due-diligence process to ensure they were confident with the technical capability of the system and it would provide the right level of visibility to regulators.

For those working in government, a key consideration will be how to stay on top of developments, with committed technology leaders like IBM remaining a valuable reference point.

Open standards. They matter

In terms of opportunity for government, a ‘permissioned blockchain’ environment like Hyperledger Fabric offers immense potential because of its ability to transfer trust and encourage and facilitate stakeholder collaboration.

It works like this: in a permissioned environment, essentially each partner in the chain knows who the organisations and users are in that network, enabling confidence and verification of who they are transacting with.

This, again, is where standards come into play – because the partners in a chain need to agree on the process through which a transaction will occur. Assisting this process are the open standards a permissioned blockchain is built upon.

By providing the various partners or sectors in a blockchain process with a broadly agreed set of standards, much of the negotiation is already done for the parties. And the open standards provide assurance that the  system will still be utilising relevant standards in years to come, with the flexibility that it can be expanded or evolve as needs change.

A secure and open sandpit

As a long-haul supporter of open standards over proprietary lock-ins (think rail gauges), IBM recognised early-on that open source standards would be pivotal to blockchain’s success and collaborated with the Linux Foundation to build a genuinely independent community of interest.

Today, Hyperledger Fabric is one of the fastest-growing open source blockchain projects, not least because of its genuinely collaborative and independent stance.

Crucially, its open standards provide vital certainty that systems will still be employing relevant standards as time and technology march on.

It’s these factors which have enabled the swift uptake and innovation of blockchain at a rate that requires government to pay urgent attention to the technology.

How blockchain helps government

The existing applications of blockchain are designed to improve efficiency in processes and be more effective in delivering outcomes through collaboration. Initially, it’s an opportunity to overhaul costly, paper-based manual processes or isolated legacy systems.

But it is also a pivotal opportunity to create vastly more efficient ways to manage registries, supply agreements and sharing of information between agencies and across jurisdictions.

Governance in today’s world requires greater interoperability not just between agencies and jurisdictions, but with the private sector. More and more, government is turning to the private sector to support government deliverables – from building infrastructure to the delivery of foreign aid and information sharing to supporting national security initiatives.

And the household impact from sectors including finance, energy and insurance are increasingly becoming political issues, with greater transparency urged by government.

Keeping it real

But the sales pitch for blockchain within government should be the efficiency and integrity it immediately delivers – with an add-on being better deliverables to its customers.

Today, many regulations have either validation of identity, authority or transactional behaviour at their core. Blockchain provides visibility and assurance for many of the systems government is rightly concerned about, especially regulators.

At the same time, automation reduces the regulatory burden as customers get faster, easier, more predictable transactions with government.

And while potential uses for blockchain seem endless, obvious wins include land and vehicle registrations, medication tracking and enhanced and automated identity verification.

Put simply, where one version of a truth is needed across sectors and government, blockchain is a potential solution that needs to be considered.

Thinking beyond technology

To harness blockchain’s full potential, its application should be more than a technical solution, even when that suffices. Today, governments need to think about existing and emerging ecosystems and burdensome business practices it wants to move away from. This requires not only conscious leadership from within agencies, but an open mind to assess new use cases and innovations.

Political push and willpower will undoubtedly be in the mix, as experiences overseas demonstrate.

The Smart Dubai initiative aims to create the world’s first blockchain city and is now investing substantially in innovative ideas that will further this agenda.

In Australia, the push within government is also evident. The Department of Industry, Innovation and Science’s recently-released Digital Economy initiative identifies Bbockchain as a technology that can “disrupt and revolutionise financial transactions and services” with its potential applications in “health, government services, real estate, media, energy and more”.

Government itself is investing in blockchain technology, with an $8 million grant awarded to a blockchain-powered distributed energy and water system last November.

What government did next

It is now a matter of Australia’s public service actively supporting wider adoption in developing a framework to support distributed ledgers – including legislation and regulatory frameworks – as well as bringing new sectors and the public along for the ride.

The health sector with its maze of manual processes, jungle of service providers and deep need to manage data and information securely, is a key candidate for blockchain consideration.

Distributed ledgers and the emerging ‘regtech’ sector are becoming purpose-made for any agency running a registry. Identity credentials, similarly, can be federated using blockchain enabling one agency to easily accept the identity check of another.

And any situation where government or regulated industries need to verify the provenance of an item – whether it’s ammunition, infant formula or abalone – is again a logical use of blockchain.

Where to start: real insight and the right support

There is, of course, time and money that needs to be invested to deliver an efficient, effective blockchain environment that can build the confidence of partners and the public to embrace the technology.

Services such as IBM Bluemix Garage, which includes a Melbourne-based garage, enable government to interact with technical and business experts trained to assist clients in understanding what blockchain is, what it can do, and how it can assist in solving the biggest pain points of an organisation.

Engaging experts in this space can also facilitate sharing of knowledge of how to encourage key stakeholders to become promoters of blockchain – including regulators that may commonly need to access government or sector information for oversight and reporting.

And there is more support continually growing on a daily basis from emerging examples of blockchain adoption and new technology providers willing to assist in supporting business assessments, cases and implementation.

Government is not alone on the blockchain journey – but it does need to be a leader in this space today, not tomorrow, to ensure its outcomes are achieved and not just the business objectives of the private sector.

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