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Insight

Blockchain: Now a Reality and Rising Rapidly in the Public Sector

The pace of adoption is accelerating

Blockchain implementations are modernizing and streamlining procurement processes at the General Services Administration (GSA). Cybersecurity prototypes are helping the Department of Homeland Security (DHS) better safeguard United States infrastructure and its citizens. Proofs-of-concept (POCs) are giving the Centers for Disease Control and Prevention (CDC) the ability to improve real-time access to critical data and accelerate the response time of public health workers.

These are just a few examples of where blockchain technology is already making a difference for federal government agencies. The advantages of blockchain are many, which is why its popularity within the public sector is rising rapidly. It’s also why it’s more important than ever to understand blockchain–and the benefits it delivers.

Primarily known as the technology underlying digital currencies, blockchain entered the public consciousness nearly a decade ago with the advent of bitcoin. However, bitcoin was just the tip of the iceberg. While initial blockchain ideas may date back 20 to 30 years with Stuart Haber’s and W. Scott Stornetta’s work, the opportunity to exploit those ideas is much greater today with faster processing, more computing power, ubiquitous integration, artificial intelligence (AI), machine learning, cloud and virtually unlimited storage capacity.

Industries around the globe are striving to develop blockchain use cases as they race to exploit the appealing benefits it offers. The public sector is no exception. With an eye toward modernizing legacy systems and processes, the reality of blockchain transforming the federal government and how it services its citizens has begun. However, disparate systems are in place within government agencies, and the duplication of key information and activities has created data siloes, redundant processes and many points of potential failure. 

Author

Aleksandar Zelenovic

Senior Director, Strategy & Consulting

The pace of adoption is accelerating

Blockchain implementations are modernizing and streamlining procurement processes at the General Services Administration (GSA). Cybersecurity prototypes are helping the Department of Homeland Security (DHS) better safeguard United States infrastructure and its citizens. Proofs-of-concept (POCs) are giving the Centers for Disease Control and Prevention (CDC) the ability to improve real-time access to critical data and accelerate the response time of public health workers.

These are just a few examples of where blockchain technology is already making a difference for federal government agencies. The advantages of blockchain are many, which is why its popularity within the public sector is rising rapidly. It’s also why it’s more important than ever to understand blockchain–and the benefits it delivers.

Primarily known as the technology underlying digital currencies, blockchain entered the public consciousness nearly a decade ago with the advent of bitcoin. However, bitcoin was just the tip of the iceberg. While initial blockchain ideas may date back 20 to 30 years with Stuart Haber’s and W. Scott Stornetta’s work, the opportunity to exploit those ideas is much greater today with faster processing, more computing power, ubiquitous integration, artificial intelligence (AI), machine learning, cloud and virtually unlimited storage capacity.

Industries around the globe are striving to develop blockchain use cases as they race to exploit the appealing benefits it offers. The public sector is no exception. With an eye toward modernizing legacy systems and processes, the reality of blockchain transforming the federal government and how it services its citizens has begun. However, disparate systems are in place within government agencies, and the duplication of key information and activities has created data siloes, redundant processes and many points of potential failure. 

"If agencies do not integrate blockchain into their processes in a way that makes it known to the affected individuals, they will ignore it."

What is blockchain?

Blockchain technology–which is a de facto type of distributed ledger technology (DLT)–should not be narrowly considered as an application, a database or a background architectural piece. Rather, it should be viewed as an ecosystem with a decentralized ledger that keeps a record of all transactions that take place across a peer-to-peer network. Put differently, blockchain can be thought of as a logically ordered collection of data that is equally owned and shared among a network of peers with each piece of data representing a transaction that occurred within the network. 

Blockchain’s decentralized characteristic means that instead of storing data in one central location for individual peers to access and view, data is duplicated across all peers; there is no “master” copy and each peer’s copy is equally as valid as the next. To avoid disputes, at the very onset, the network must collectively agree to a process for generating consensus and resolving differences as they arise. This consensus process is then directly programmed into the network’s blockchain, enabling the data to be continuously validated and kept in sync across all peers, without the need to trust one another or rely on a costly third-party arbitrator. Once the blockchain is initiated, each transaction executed within the network is cryptographically secured into a block of data with a unique digital fingerprint and linked to the previous block. This creates a transparent, secure and immutable chain that serves as the foundational data layer of the network’s IT ecosystem.

A truly enabling technology, the blockchain data layer can be leveraged far beyond its basic shared-ledger functionality. For example, a process for automatically resolving disputes could be programmed on top of the blockchain. Additional process and decision automation can be added as well–called “smart contracts”–that specify predefined actions to be automatically executed once certain conditions are met.  

In their very primitive form, smart contracts are “if this, then that” functions translated into code language and programmed into the blockchain. Depending on the business processes requiring automation, smart contracts may be: 1. As simple as generating an email alert when a specific party completes a transaction 2. Extremely intricate algorithms that automatically calculate and transfer payments based on usage data from customers subscribed to an agency’s services.

The major benefit of smart contracts from a business perspective is their ability to enable endto-end automation of a defined business process. On its own, pure blockchain may not always be a fruitful solution. Based on practical experience, blockchain works well when it connects or “strings together” dispersed components, systems and players within an IT enterprise. Once in place, the result is an ecosystem that accelerates information sharing, leverages automation and provides a foundation that can be further modernized by layering advanced capabilities such as AI, machine learning and robotic process automation (RPA). 

Blockchain ecosystem

While often confusing given its association with cryptocurrencies, public ledgers and financial-based applications, blockchain as applied within the enterprise (common for most public sector use cases) is best understood as an enabling technology. On its own, pure blockchain cannot solve a business problem. Rather, blockchain is a foundational technology used to enhance or build new components within an ecosystem to solve a future problem.

Early adopters emerge

Early adopters within the United States federal government are exploring blockchain to transform and improve their agencies. Notable for their innovation and dedication to changing the digital landscape, these organizations are among the first to embrace blockchain principles.

For example, the U.S. General Services Administration (GSA) is looking to modernize government acquisition by automating portions of its procurement process. Companies seeking to conduct business with the government submit offers that are automatically reviewed and evaluated using smart contracts, greatly reducing processing time while increasing transparency and accuracy. In addition, GSA is promoting collaboration, exploration and adoption through the launch of its Emerging Citizen Technology Inter-Agency Blockchain Program, which serves as a central portal for tracking government blockchain initiatives and knowledge.

Given the exponential importance of cybersecurity within the intelligence community, it should come as no surprise that the Department of Homeland Security (DHS) is exploring and developing blockchain-based prototypes to better safeguard United States infrastructure and its citizens. In addition, the Centers for Disease Control (CDC) has been working to produce several POCs mostly focused on public health surveillance, with the goal of greatly improving real-time access to critical data and accelerating the response times of public health workers in times of crisis.

As blockchain understanding, application and impact further develop, many federal organizations are exploring opportunities. There is incredible interest and excitement in what can be done to not only further an agency’s mission but to better serve their workforce and citizens as well. 

So why consider blockchain? For starters, blockchain can:

  • Enable flexibility
  • Decrease fixed costs
  • Reduce transactional friction
  • Improve process efficiencies
  • Minimize manual work
  • Increase data security
  • Enable smarter decisions

Where to begin?

The key challenge for government organizations goes beyond understanding what they can potentially do with blockchain technology. The focus is shifting instead to how agencies should apply the technology to optimize their specific services. Government, like any potential blockchain user, should begin by looking at the specific pain points in their current business processes. Next, government should envision how to optimize those processes by leveraging blockchain and smart contracts. Once a future-state vision is in place, it should be formalized with a use case that will guide the solution design.

Given the relative nascence of blockchain, determining blockchain-suitable business processes requires experimentation. With a “start small” mindset, governments can use the decision tree (see Figure 2) as a starting point for validating potential use cases.

Is blockchain a good fit for your organization?

To determine the potential uses and advantages of blockchain technology, government organizations should begin by looking at the specific pain points in their current business processes, then explore specific use cases to guide solution design.

General use case exploration

In exploring potential blockchain applications, it’s helpful to consider the many multi-dimensional use cases already uncovered. Current government use cases primarily focus on two key areas:

  1. Increasing Operational Efficiency – such as identity management, benefits management, contracting and procurement, asset tracking, trade and regulatory compliance
  2. Improving Citizen Services – such as constituent engagement, voting, taxation, permitting, entitlements and aid, healthcare and disaster recovery

Increasing operational efficiency 

Performance and deliverable-based smart payment
Using service level agreements (SLAs) between government agencies and contracted service providers is a common practice for validating contractual terms for performance and/or determining whether or not completion milestones are met prior to payment. To streamline the process, the government could transpose SLA, performance/delivery requirements, and applicable dates directly into smart contracts that would execute on the specified date and ensure payment is released in proportion to the contractual terms fulfilled. The blockchain could then be extended to automatically share the performance data captured with other agencies considering contracts with the same service providers.

Smart procurement 
Accounting for roughly $500 billion annually, procurement by the United States federal government is highly regulated, fragmented and paper-based. A decentralized, standardized and blockchain-based procurement ecosystem could greatly reduce disjointed systems and processes while providing agencies with transparency and flexibility to make smarter purchasing decisions. For example, blockchain could consolidate commodity purchase contracts such as printers, paper or phones to transparently deliver increased purchasing power and a more even playing field for vendor selection.

Artificial intelligence (AI)
Agencies can further improve decision-making by supplementing blockchain with an AI engine. For example, if purchasing paper in bulk, the AI engine could offer recommendations and draw conclusions to support decisions such as the cost effectiveness of buying paper from distributors versus printers.

International trade transparency
For international trade, government agencies interact with multiple lenders, suppliers and customs agencies. There are also several third parties involved over which the agency has no control. Oftentimes, trust among the many parties is lacking or difficult to maintain. With blockchain, agencies could connect and transact with intermediaries and third parties in an open format, resolving bottlenecks and transparency concerns.

Smart asset tracking
Government agencies track tens of thousands of assets. For example, an agency might have more than 10,000 federally owned vehicles in use. With smart asset tracking, coupled with the internet of things (IoT), the agency could track the vehicles with blockchain in real time, capturing transactions and enabling more efficient auditing, monitoring and planning.

Audit automation
When a government or regulatory agency performs an audit, several other agency, local, independent and bank auditors get involved. Throughout the process, these parties must inform each other of what stage the audit is in, what the findings are, when to sign off, and so on. A distributed ledger can drastically simplify this process by tracking the status and automatically alerting parties at precisely the right time via smart contracts. Additionally, the distributed ledger provides one place for auditors to read and react to information. It creates an audit trail that does not require hundreds of people to verify the information. 

Robotic process automation (RPA)

To expand upon automation enabled by the distributed ledger and smart contracts, agencies can leverage RPA to further eradicate repetitive tasks throughout the workflow. For example, if upon receiving an alert via smart contracts that a party needs to extract key information and enter it into an internal application for further processing, an RPA tool can be used to seamlessly transfer the information in an efficient and consistent manner.

Personnel management
When people become federal employees, records are created and tracked throughout their careers, which include information such as years of service, where they worked, salary history, performance appraisals, and much more. With many disparate systems in place, the process has become complex with information spread across multiple systems, offering little or no transparency. Blockchain can connect the many agency tracking systems to cryptographically secure the sensitive personnel data and ensure it is accessible only by those with appropriate permission. Furthermore, by leveraging machine learning in combination with smart contracts, the information can be cleaned, validated and standardized.

Machine learning
When information such as a date, phone number or address is incorrectly formatted, a machine learning service can recognize the error, enabling a smart contract to then properly update and make the information available when it would have otherwise been lost or unavailable.

Improving citizen services 

Digital identity management
When considering the many elements of an individual’s identity–from name, age and address to employer, credit score and family members–it is easy to understand the importance of allowing individuals to have complete control over which elements are shared, who they’re shared with and for how long. The government plays several roles in managing a citizen’s identity, from issuing and maintaining, to validating and serving as the source of authoritative truth. The government processes and systems that maintain and secure the information are highly fragmented and costly. In addition, citizens bear the risk and potentially enormous consequences of data mismanagement. By using a distributed ledger to provide a highly secure, self-sovereign digital identity for each citizen, the government’s maintenance burden would be greatly alleviated, enabling greater trust and control by citizens. With identity elements maintained by citizens and then validated through consensus, government could leverage blockchain as a source of truth for tendering and tracking additional citizen services.

Smart health records and surveillance 
In its role of protecting the health and well-being of citizens, the government requires access to massive amounts of sensitive health data to monitor for and proactively prevent disease outbreaks. With the cooperation of health systems to securely connect health information exchanges to a distributed ledger, the government could be given access to de-identified health records while leveraging smart contracts for near real-time alerts to reported diagnoses. 

Smart voting
Across the country, processes and technologies used to accurately conduct voting vary widely. Voter fraud, vote count accuracy and cybersecurity compromises are major concerns. In combination with blockchain-based identity management, voting can be digitized and executed on a distributed ledger using smart contracts. All citizens could be automatically validated as eligible to vote and issued a “token” for each vote they are allowed to cast, eliminating instances of double-counting or voter fraud while also providing a fully transparent and verifiable audit trail of votes.

Aid and entitlements
Nearly 50 percent of U.S. citizens receive assistance from the government in the form of financial aid, healthcare benefits or other entitlement and welfare programs. Many systems and processes for managing the benefits programs are severely outdated and rife with fraud and abuse. Additionally, given the lack of interoperability with other government systems and the difficulty securing data, many citizens rightfully deserving of aid are delayed from receiving it. Again, in combination with identity management and stringing together data sources from across the government onto a blockchain solution, smart contracts can be used to automatically qualify and register citizens to receive the aid they need. Ongoing tracking and monitoring of the program could also be automated to prevent fraud and overpayment.

Fast-tracking blockchain

Clearly, blockchain offers many benefits to resolve frequent data integration and sharing challenges. But making the case for blockchain may still be difficult given the complexity of system and hardware migrations or upgrades inherent with any new technology implementation. The following three success factors are crucial for helping agencies overcome these obstacles:

1. Technology – Agencies will not need to lean heavily on proprietary blockchain implementations, as many open source platforms are available and frequently updated. A large part of the challenge will be moving away from legacy systems to enable faster and more efficient communication between systems, people and processes via blockchain. Security is another valid concern as well. But like cloud migration, smart ways of going about blockchain implementation, such as combining Agile and DevOps or building a smart ecosystem, can resolve such concerns.

2. Process – Blockchain technology at its core is not the most complicated technology. Most blockchain obstacles will come out of a business process. Blockchain will change the business process, from an organizational level down through how it affects workflows, specific roles and responsibilities. Government agencies need to spend time reengineering business processes and service design. Agencies also need to incorporate a practical change management approach to handle the inevitable changes and provide the most value to their citizens.

3. People – The key challenges relating to personnel fall into three areas: user interface (UI)/user experience (UX) design, user buy-in, and organizational impact. From a UI/UX perspective, blockchain is not an intuitively visible technology for people. If agencies do not integrate blockchain into their processes in a way that makes it known to the affected individuals, they will ignore it. Therefore, one big question agencies will have to answer is: How do I build an internal understanding of blockchain integration into business processes?

Driving toward adoption

Ultimately, the purpose of government is to serve its citizens. Blockchain offers the promise of doing just that—greatly improving transparency, accountability and interaction while reducing the time and cost to provide citizens with far greater value of federal services. As federal organizations look to modernize their IT systems, blockchain has the flexibility to support change that is incremental, responsible, well-paced and long-standing.

The reality of blockchain transforming federal government has arrived, and its pace of adoption by forward-looking and technology-savvy agencies is gaining momentum. The government has the ability to marshal resources and champion lasting change unlike any other sector. Gone are the days of adopting innovation from other industries.