Blockchain in state and municipal governance

Decentralization

The absence of a main governing body is the foundation of blockchain technology. Distributed bases rely on nodes, which ensures full decentralization. Verification and validation of transactions in such a network is handled by users (specially authorized).

A blockchain-based system ensures immutability of records. Changes can be made only after the agreement of the nodes authorized for such transactions. Governing bodies can also be validators. In this case, each of them will have a different level of access, which will reduce falsification.

The nodes of a decentralized governance network on the blockchain can be:

• Public organizations.
• Universities.
• Ordinary citizens.

This distribution of authority will provide an even greater degree of decentralization. Blockchain technology is a platform for conducting the election process. It solves the problem of possible vote fraud, user confidence in the results.

Transparency

Blockchain in state and municipal government can serve as a base for storing information with public access. It is difficult to fake or change it. Transactions will be available to users instantly.

In a traditional centralized system, data is stored on servers run by units within the governing body. The trust of citizens depends on the attitude towards government structures. Servers and databases are accessed by several people, which reduces the transparency of public data.

Blockchain can serve as a base for different types of data. In this case, the level of trust of citizens in the government does not affect the reliability. Examples of information that can be stored in a blockchain and be necessary for ordinary users include copies of laws, regulations, and public information.

It is possible to organize access for law enforcement officers to documentation that is subject to inspection as part of the fight against corruption, abuse of power in terms of procurement, other financial or property transactions. This will reduce the number of such crimes and facilitate the disclosure of atrocities.

Efficiency

The costs of organizing the work of municipal and state structures take up a large part of the budget of a country, region or city. Blockchain will reduce these costs. Authorities operate at the expense of taxpayers. Reducing costs will have a positive impact on the spending of budget funds, and there will be an opportunity to redistribute money to other areas: medicine, education, security.

Cost reduction is possible due to the automation of processes. Smart contracts will help to work with the document flow, to open access to it. In addition to the practical side, blockchain will ensure the trust of citizens, which will lead to an increase in the rating of leaders.

The efficiency of the state apparatus is related to the collection of established taxes and mandatory payments. Blockchain technology can ensure the fulfillment of pre-defined rules and conditions. Fee and tax rates can be entered into smart contracts depending on the category of payer, income or profit. This will again reduce the cost of maintaining fiscal services and organizing the process.

Impact of blockchain in public administration

The application of decentralized networks is possible in different sectors and structures. Among the directions are:

• Organization of document management.
• Changing the principles of information transfer in medicine.
• Registration of land plots, real estate.
• Control of goods in logistics.
• Voting.
• Organization of purchases, tenders and auctions.
• Control of education.

Changes in document flow

Blockchain in state and municipal government is inextricably linked to optimizing citizens’ access to information. Many countries have problems with documenting services. The processes are non-transparent, contributing to the emergence of intermediaries. This leads to an increase in the cost of citizens’ appeal to the state structure.

To open a business, it is necessary to collect a lot of documents. To accelerate this process, a person turns to third-party organizations. Intermediaries help to obtain documents from state or municipal structures for an additional fee. In this case, a lot of time is needed, because the supporter also addresses the service with a request.

Acceleration of the document processing procedure

Decentralized data exchange based on blockchain will simplify access to information. Citizens will be able to interact with municipal services, receive certificates, answers to requests.

Administrative service centers are already operating in different countries. They are connected to the bases, authorized to accept citizens’ applications for the issuance of information and supporting documents with details.

In parallel, the load on the state structure is relieved, data exchange is accelerated. At the same time, the requirements for computer equipment are increasing. It is necessary to modernize the technical park taking into account possible scaling.

Getting rid of bureaucracy

This technology ensures that society receives information from the state. It is a system of governance with the help of an established apparatus. The growth of bureaucracy is associated with centralization of power.

The introduction of blockchain technology will get rid of the overpowering bureaucracy. Decentralized access to information will speed up obtaining necessary certificates. It will make it impossible for officials to abuse power and illegally spend budget funds.

Tracking all transactions through banks

Blockchain in the banking sector will allow to make transactions:

• Faster.
• More reliable.
• More transparent.

For banks, blockchain means lower operating costs, higher profitability. Users will be able to control transactions.

Blockchain will also provide data protection. Public and private keys will hide financial information from third parties.

Electronic voting

The electoral process is associated with gerrymandering of participants. The implementation of blockchain will provide advantages over the traditional system, making fair elections possible. Having said that, blockchain in voting is technically challenging.

Validation of transactions in a distributed network is done by validators. The voting is monitored by observers from different parties, because of which it is necessary to make them authorized too. At the same time, the party that has more nodes in the network will be able to make changes to the information included in the blockchain.

This problem has been addressed:

• Massachusetts Institute of Technology.
• Center for Distributed Registry Technologies of St. Petersburg State University and others.

The research reports of these organizations contain lists of problems and solutions for the implementation of electronic voting based on blockchain technologies. The model of the expression of the will of voters using a distributed register may look like this:

• Formation of the list of participants in the electoral process.
• Issuance of a person’s vote – token.
• Identification of participants on the site.
• Transfer of the token to the account of one of the participants.

Electronic voting systems on blockchain are being tested in different countries. At the same time, elections with the full-fledged application of a distributed registry have never taken place. A number of problems need to be solved.

Auctions and tenders

Blockchain in public administration will help to fight fraudulent purchases for budget money. The technology will make it possible to control the allocation of funds, the conduct of auctions and tenders.

In Russia, it was proposed to use “coloring” of budget money to check transparency. In case of improper spending, automatic blocking is possible.

Ukrainian developers have created the e-Auction 3.0 project. This is a service of electronic auctions, which helps to conduct procurement and eliminates the participation of officials in decision-making. In the public domain are:

• Terms.
• Process.
• Results.

Government scoring

The concept of customer scoring is used in the banking sector. The user fills out a questionnaire where each item has a score. The computer calculates the results and determines the trust rating for granting loans.

A similar system is applied in China. Scoring in the PRC is called social credit or trust rating. Big Data analysis technologies, facial recognition, mass observations of the country’s inhabitants are applied. Four areas receive information:

• Government affairs.
• Business.
• Society.
• Courts.

Private companies are brought in to assist. Citizens with low ratings may receive restrictions or sanctions such as:

• When applying for civil service.
• When applying for social security benefits.
• Being banned from expensive schools for children.

Positive deeds, such as volunteering or donating, increase the social rating. A high score provides discounts on tickets, electricity and others.

In Russia, the digital profile of a citizen is also considered. In this case, there is a problem of getting a person’s personal data to third parties with subsequent misuse. Smart contracts will provide security, provided the system is flexible.

Company registration

Blockchain in public administration will optimize business registration. Company registration is a complex procedure involving obtaining information from different structures. Often intermediaries are involved and take over part of the process. This makes registration more expensive and time-consuming.

Blockchain will automate this process, information exchange will become easier, and a unified storage system will provide access to data to interested parties. Transferring the company registration procedure to a distributed network is an element of the transition of the state and municipal sector to another level.

In addition to saving time, blockchain will reduce the budgetary costs of maintaining the bureaucratic apparatus, paperwork and reduce the corruption component.

Cadastral registration

Registration of land plots is another function of the government. The process differs from country to country, but has similar difficulties and problems in terms of transparency of the procedure. There is a corruption component.

Blockchain will make the procedure of registration of land plots and real estate objects quick and easy. Improvement of cadastral registration will avoid disputes between owners. Data will become open and available for viewing.

In the distributed register it is possible to record the rights to the plot, the process of movement of owners. The introduction of blockchain in cadastral registration is not of interest to corrupt officials who have organized “business” on this procedure.

The use of distributed base technology in land registration is important for developed and developing countries. The former optimize existing systems, the latter apply blockchain in the organization of the registry. Ghana, Sweden, Georgia, Honduras and others have advanced in this direction.

Health care operations

A distributed base in healthcare will ensure the reliability of information in a person’s medical history. Data cannot be changed or deleted, medical appointments, procedures and contraindications will be visible to every interested person regardless of the institution.

At the same time, electronic records and remote access to medical history, personal data of patients are already in use, including without the use of blockchain technologies. There are problems of information reliability and the possibility of its unauthorized change.

Some countries (Estonia, USA, Netherlands) are testing blockchain-based systems. Such networks also simplify interaction between patients and insurance companies.

There is a medical center in Moscow called Open Clinic. It transfers patient records to blockchain and realizes the integration of a data exchange system between participants in a partner network of clinics.

Work of educational institutions

Blockchain provides record keeping and access to graduation documents of educational institutions. Other advantages of implementing a distributed method of data storage in the educational process:

• Registration of diplomas, confirmation of pupils’ and students’ qualifications.
• Access of employers to the database, viewing the level of training of the applicant for a position.
• When obtaining other education it is easy to use information about passing courses, disciplines for re-crediting.
• Falsification of diplomas of graduation from universities and other educational institutions loses its meaning.

Fighting corruption

The problem of officials using their official position for personal enrichment exists in many countries. This also applies to the states formed after the collapse of the Soviet Union. The use of blockchain technology can help in the fight against corruption.

First of all, the distributed network will ensure transparency of information for citizens and government agencies. The monopoly of individual officials on access to necessary data will disappear.

In addition, the advantage of blockchain is the immutability of information. No one will be able to make unauthorized adjustments. The fight against corruption is possible in various spheres. For example, business registration, cadastral registration, obtaining permission to drive a vehicle, registration of residence, etc. The problem is the procurement system, fair tenders involving budget funds. Auctions based on blockchain technologies will ensure transparent spending of money and exclude the personal interest of officials.

Blockchain can also help make the process of donations transparent and verifiable.

Some countries are already testing the new technology. Georgia, the U.S., Estonia and other European countries are furthest along.

Disadvantages and limitations of blockchain in public administration

Blockchain in public administration has a number of disadvantages and limitations, with problems related to implementation in the administrative sector.

Among the disadvantages is the immutability of the information recorded in the distributed network. On the one hand, this is an advantage – no one can delete or rewrite the data. But in the case of a trivial mistake, it will not be possible to correct the situation, because the blockchain does not allow you to make changes.

It is necessary to think through the process of collecting primary data, entering it with precision and accuracy.

Theoretically, it is possible to organize the blockchain network in such a way as to modify previously entered information. However, this would require verification of the corrected data by the participants admitted to validation. This can lead to user disagreement, distrust in blockchain-based governance.

Confidentiality of some data is an issue. Blockchain provides participants with access to information. But this is not always necessary: there is personal or private information that is not desirable for outsiders to access. Especially if that information cannot be legally altered or rewritten. For example, information about a criminal record. It is allowed to remove this status as a result of full rehabilitation of a person (in some countries there is such a practice). It will be difficult to change criminal record information. Although it is possible to use token burning or other cryptographic proof methods.

The problem of blockchain implementation is related to incomplete realization of the network’s capabilities by officials, unwillingness to change the order. In countries where corruption is rampant, the use of distributed bases is “slowed down” at all levels. After all, blockchain is a threat to a bureaucracy built on the principle of illegal enrichment of officials and employees.

In addition, there are risks of implementing blockchain in the governance system. Measures to mitigate or prevent them should be considered during the development of technical specifications for programmers.

Practice of blockchain application in foreign countries

Among the countries, the United States is the furthest advanced in the implementation of distributed registry in government agencies. The following countries stand out:

• Great Britain.
• Canada.
• China.
• Singapore.
• Israel.
• Germany.
• Switzerland.
• Sweden.
• Japan.

Also, blockchain adoption in public administration is taking place in the following countries:

• Estonia. The implementation of a decentralized open system includes different structures and bases. Residents of the country have electronic documents, which allows them to use the network, saving on their turnover. The system for e-Voting operates on the private capital market and is designed to manage shareholder companies.
• Netherlands. Developed a blockchain-based application for easier access to services for seriously ill patients.
• Sweden. Developed a solution for working with land plots and real estate objects. The service is used by buyers, sellers, owners, company agents and cadastral service.
• Georgia. Blockchain-based cadastral accounting has been developed. Since 2017, the project has been put into practice. The mining company BitFury participated in the development.
• Ghana. A blockchain-based cadastre is compiled. Tokens are used, which allow to solve issues with land plots (register, sell, buy).

Networks have been launched or are being tested in Singapore, USA, South Africa, South Korea.

Trends in the development of the technology in Russia

Blockchain in the Russian Federation is at the stage of implementation, projects are being developed with the support of federal and municipal structures. In June 2021, the government commission on digital development considered the strategy of digitalization of the Russian economy, and the following directions were defined:

• Healthcare.
• Education.
• Management.
• Social sphere and others.

The Moscow government held voting based on a distributed registry. In September 2021, elections to the authorities were held. For online voting, a blockchain-based platform was created on which citizens registered an account.

The Unified State Health Information System (USHIS) is also being created. This is a comprehensive network to support the medical structure and citizens – from state procurement to receiving assistance.

Summary

Blockchain in public administration redistributes responsibility for public tasks. The transition of some functions from central structures to private organizations is possible. Society must be prepared for such privatization of power.

Therefore, the application of blockchain as a decentralized framework should be evaluated not only from the technological side. It is necessary to analyze the possible weakening of the regulatory functions of the state. The task of a distributed registry is to transfer responsibility to a large number of users. Centralized management consolidates power in the hands of officials, so the introduction of blockchain into government agencies should be done in a balanced manner, after analyzing pilot projects and taking into account the experience of other countries.

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