Socitm blog

Blockchain technology: could it transform digitally-enabled councils?

By Dr Andy Hopkirk, Socitm Head of Research

As the professional network for digital leaders in local public services, Socitm is at one with those that think there is great potential in blockchain technology, and perhaps even a step change on the road to a truly all-digital, open e-economy.

Blockchains underpin Bitcoin and other digital currencies, the first applications of the concept. These ‘digital crypto-currencies’ are viable alternatives to fiat paper money systems. They can operate without the need for a central bank or any other kind of single authoritative organisation to manage the money system and engender trust in it.

As of 3 August 2016, there are, in round numbers, just shy of 16 million Bitcoin ‘in circulation’. At the exchange rate of £428 per Bitcoin, that’s £6.85bn worth of ‘virtual money’ entirely made and managed by software running on a network of computer servers essentially not owned or under the direct control of any governmental or banking authority. This is precisely the opportunity or the threat of this application of blockchains depending upon your viewpoint.

As a general principle, the blockchain distributed ledger concept and enabling open source software technologies behind Bitcoin, which verifies each currency transaction, can be applied to any circumstance where a single, immutable, trusted record of peer-to-peer transactions – not just of the money type – between people, organizations or objects in the Internet of Things would be useful. And this is where it is potentially transformational and disruptive at least, potentially fatal even, to the business model of any intermediary party who makes a living from taxing the transaction traffic flow.

The government agrees, according to the paper Distributed Ledger Technology: beyond block chain published by the Government Office for Science in January, which suggested that:

“Distributed ledger technology has the potential to transform the delivery of public and private services. It has the potential to redefine the relationship between government and the citizen in terms of data sharing, transparency and trust and make a leading contribution to the government’s digital transformation plan.”

In a recent briefing on the topic, we have highlighted a number of potential applications in local public services and examples of new businesses aiming to disrupt the business plans of the likes of Uber, eBay, as well as Spotify, Apple and other online entertainment intermediaries.

Recent press reports of an experiment involving the Department for Work and Pensions is now bringin the technology to the public sector.

There is a small trial running involving the DWP, Barclays, Npower, University College London and a UK-based distributed ledger platform start-up called GovCoin. The partners are developing and piloting a smartphone app that tracks benefits claimants’ receipts and spending patterns in order to subsequently offer financial management advice to those who would benefit from it.

This many be a helpful development from some perspectives; but sceptics have already noted that this could also be an efficient way for the DWP to audit and control exactly how benefits payments are spent without the government being seen as a covert Big Brother – an opportunity to apply the theory of nudge to modify behaviour perhaps?

There’s no point in speculating about motivations and desired outcomes here, but this small example amply illustrates that the issue of trust is a complicated thing that needs careful handling. Likewise perceptions of ‘how’ and ‘why’ something is being introduced, if willing cooperation rather than outright opposition is to be triggered.

Perhaps the biggest opportunities for transformational changes are in the use of ‘smart contracts’ between parties and the new thinking that the technology engenders.

Smart contracts (contracts that exist only online and whose purpose is to be the terms of the asset exchange between the parties to the contract) could be between a conventional service provider (bin collection, hotel bedroom, newspaper) and a person who is the service consumer – a well understood scenario.

Adding the Internet of Things to the mix means there could be so much more innovation and disruption. One can envisage a set of dynamically, internet-linked smart contracts between, say, objects like an autonomous, self-driving taxi and your smartphone, the taxi and the garage pump it goes to for refuelling along the way to your destination, the smart phone you are carrying and the in-car entertainment system, and the phone and the car and the local authority’s street parking meter you use to keep the vehicle available to you while you are in the restaurant with friends – and you get an automatic local resident discount applied to your parking fee.

All this without your consciously, actively ‘paying’ for any of it in real time. And you and all the service providers in this mini-journey can trust you won’t be diddled because you are protected by the cryptographically-protected audit trails in the blockchains keeping track of the value exchanges along the way.

In terms of new thinking possibilities, it is now conceivable that individuals, businesses and ‘things on the internet’ can have unique, secure, virtual identities in a blockchain-assured distributed ledger from which they can ‘smart contract’ to give or receive a wide range of services. That means the opportunities for those who are envisaging new digitally-enabled policies, policy instruments and public services operating models just got enormously bigger.

There are limitations, of course, and devil is in the detail that many, including CIPFA members, will undoubtedly identify. But these do not negate the potential at all, so it only remains for the entrepreneurial and imaginative to get cracking…

This piece first appeared in Public Finance, the magazine from the Chartered Institute of Public Finance & Accountancy (CIPFA). It was first published there on Friday 5 August 2016.