Unlocking blockchain's potential

Although blockchain is inextricably linked to bitcoin in many people's minds, federal leaders have begun extolling its virtues for a wide range of government activities. Each block in a cryptographically secured chain of records contains transaction data, creating an open, distributed ledger that is resistant to modification. As a result, the technology has the potential to safeguard government transactions, increase transparency and build trust with the public.

On Nov. 8, FCW gathered a group of federal leaders to talk about what makes blockchain worth exploring and embracing. Some are already putting the technology to use, while others are trying to find ways to help their agencies understand how it works and how it could revolutionize the sharing of data and more complex resources.

The discussion was on the record but not for individual attribution (see below for a list of participants), and the quotes have been edited for length and clarity. Here's what the group had to say.

Test or dive right in?

The discussion began with an effort to explain why blockchain makes sense for the government.

"What blockchain and distributed ledger technology provide is a new way of thinking, really a new intellectual paradigm for how you reconcile disaggregated information in a way that is much more efficient," one executive said.

Another added that "blockchain allows you to disaggregate and decentralize data and push everything to the edge. It creates a higher level of security because [hackers] don't have a centralized point to attack."

Several participants pointed out that agencies' business processes rely heavily on intermediaries, and therefore activities such as managing identities, supply chains and records could benefit from blockchain. Indeed, the question wasn't whether to use blockchain, but how aggressive to be.

"People talk about whether we can afford to risk testing the value of disintermediation," one executive said, but a better question is: "Can we afford not to as a government? Look at how fractured things are. It could only get better, so we have to challenge ourselves to do this."

Blockchain runs counter to the government's longtime bias toward centralization, so one executive advocated a measured approach that starts with low-risk activities.

"Taste it, smell it, feel it, get your hands dirty," the executive recommended. "Chip away at that risk. After that initial assessment, you still have to say, 'OK, but are there other things out there that could solve this problem and that are better, faster, cheaper than a blockchain solution?' You're not just looking for a nail to hit with a blockchain hammer. It's more of a thoughtful, responsible way of tackling problems."

Another executive agreed on the need for caution. "When cloud came around 10 years ago, we didn't start with our mission-critical systems. We don't plunge into blockchain. Let's try those low-hanging business processes first."

However, one of their colleagues said the situation is beyond the thinking and testing phase; it is time to act before the U.S. is left behind. He cited the example of a China-based company that provides the bulk of the world's auto parts. It is investing $50 million into applying blockchain to the entire manufacturing and distribution process.

"You've just created OPEC if you have that level of visibility and you have the ability to keep your labor costs low," he said. "I think we have to push into it or else we will be governed by the rules that are established by whoever the first mover is. You cannot turn your head on the fact that this is a competition."

Beyond bitcoin

One participant predicted that "2018 will be the year when we see use cases that create business value. But we have to have a higher bar than that. Not only do they have to create business value, they have to create an understanding of what blockchain is. If we don't remove the fear of the unknown, no matter how much business value we create, it could be undone."

Another executive had a slightly different take: "The fear isn't in the technology. The fear is in the investment. I have to get an ROI that's going to make my system more efficient. That's my bottom line: Is blockchain going to give me that ability to make something better?"

Some participants, however, said they are already using blockchain. One executive's agency developed a smart contracting capability to automate financial analysis and prepare for contract negotiations. He said setting up the smart algorithm was easy, but overcoming his colleagues' skepticism and misconceptions was trickier.

"The hardest piece was getting away from 'blockchain is used for bitcoin,'" the executive said. "All the documentation that exists is about that. The hardest part was getting everyone to say, 'Well, we could just try it for something a little bit simpler.'"

Another participant agreed, saying, "We started using the technology to track physical assets. We asked: Where do we have transactional inefficiencies? Where do we have places where we have a lot of friction? Where do we have a third party that probably doesn't need to be there? Can we automate some of the things on a ledger that we're doing manually now?"

One executive predicted that next-generation 5G networks and distributed ledger technology will revolutionize the sharing of data. Using the example of cancer data collected by the National Institutes of Health, he said anybody in the United States could interact with that data on a mobile device and do whatever they need to do with it.

"You've essentially just created an artificial neural network," he said. "When I talk about blockchain, I don't say, 'Oh, we're going to secure our supply chain.' I say the entire industry can be reformed because I can put this capability as a layer in a 5G network, allow for mobile interactions, create immutability around the data and allow for interactions at a decentralized level."

How blockchain can build trust

Restoring trust to government processes was a recurring theme throughout the discussion. The group talked about the need for citizens to have insight into the process of receiving government benefits, with one participant citing the example of filing for unemployment benefits and then waiting for a response to come via the mail.

"Imagine having the ability to go onto a mobile device or computer, and in real time, the second you submit the information, it will be flagged for what's missing immediately and you'll have complete transparency as to where you are in the process," the executive said. "That is huge in terms of creating trust."

Another participant agreed, saying, "It's the speed and the transparency the ledger can bring, not anything inherent about its decentralization."

One of their colleagues went even further. If someone is filing for unemployment benefits, "it's not just that I want to qualify for my weekly check," the official said. "I want to know if there are other programs that I am also eligible for that give me different benefits. If I'm a veteran, I need to know what my veteran's benefits are. There are multiple agencies already involved in this person's life."

Similarly, another executive said, "I would love to have a digital identity that has my health records, my marriage license, my driver's license, the title of the house I own, all these pieces of paper, all these things I'm doing through all these different agencies at the federal, state or even county level. I have zero control over where that information goes, who sees it, who uses it, if they lose it."

Another executive said the federal government's push for open data often fails to address the trust issue. "People feel that the system is rigged against them, that numbers are meaningless, and that essentially we can come up with anything," that participant said. Therefore, when citizens want to know what blockchain means for them, agencies should say, "'You can open the data. You can close it. You can do whatever you want with it, but blockchain has the potential to ensure that it is trusted and traceable.'"

Another participant added that blockchain could also help tackle fraud, waste and abuse and potentially eliminate the billions of dollars' worth of improper payments the government makes each year.

The sky's the limit

One participant noted that the discussion had focused on only a small part of what blockchain could do. Beyond simplifying administrative activities, blockchain could play a role in the internet of things and create trusted environments far beyond the confines of the U.S.

"We could have Airbnb on spacecraft where you can share spacecraft with other nations because you are in a partially trusted environment. Can we share a satellite with Germany and we use it sometimes, they use it sometimes?" He predicted that such consolidation and shared resources could happen in the next 10 years with the help of blockchain.

Another participant said the use of the technology can be divided into two orientations. "One is the mission orientation and how we apply blockchain in a situation where we're serving our customers. There are also our internal operations, which we spend a lot of time trying to refine and improve. They're very different use cases. We need to tease that out from all the excitement about 'Blockchain's going to remake the world.' OK, how's it going to help me with my open data? How's it going to help me with my compliance issues?"

A third executive agreed and cautioned against jumping ahead too quickly: "In the last 15 minutes, we've talked about how blockchain is going to improve unemployment benefits, Airbnb for spacecraft, medical health records, trust in government. And yet our audience does not understand what blockchain is at all. We've got to slow down a little bit and focus on education because a lot of us have heard this before. The internet was going to do this and then the cloud."

One participant offered this advice: "You have to pick a business process that someone's going to benefit from. It's really easy to understand when you show a live demo, but theoretically talking about blockchain, it's almost impossible to explain. If it's not going to impact people, if it's never going to touch them or make their lives easier, then they could care less. What they're excited about is the redesign of their user interface and the fact that they have full transparency. They do not care what is powering that at all."

Participants concurred that the key challenge is blockchain's subtlety. "When you invest in a new website, you see the website. You see the redesign," one executive said. "With blockchain, when it works, people are just going to know their day went better. No one says, 'Wow, that process really went well.' That's the added challenge: If it's a great success, people won't know they're using blockchain."