A Few Smart Moves Can Jumpstart the Promise of Blockchain in Cities
This blog post was written by Jonathan Reichental, a guest publisher of Block.co!
In 2009, Bitcoin, the first of many cryptocurrencies and still the most successful today, arrived on the scene. Eleven years later, despite repeated forecasts of its demise, Bitcoin and thousands of other cryptos continue to be in use, and some would say, thriving and disrupting the status quo of fiat currency and parts of the financial industry. Back in 2009, few would have predicted that the underlying technology that makes cryptocurrency work, the so-called distributed ledger, would come to be an even bigger story.
Distributed ledger technology (DLT) or blockchain, the term more commonly used, has captured the imagination of innovators, entrepreneurs, and a wide variety of stakeholders from across the economy. Its advantages, which I’ll describe briefly in a moment, have shown up in almost every industry and type of organization. Moreover, many government organizations have tentatively embraced blockchain in some creative ways. However, cities have warmed to the technology to a much lesser degree than other organizations and their efforts have been given much lower priority.
Why hasn’t this new technology rocked the world of city CIOs yet, or is it because the promise of blockchain has simply failed to deliver?
The benefits of blockchain
An abundance of articles have been written on what blockchain is and what it is not. You are likely to have at least some basic knowledge, but in case, here’s my quick primer.
I like to think of blockchain as a type of database. It’s a database that has some clever qualities. These include mathematically linking database entries, so it becomes near impossible to change transactions. It also prohibits the deletion of data making it possible to understand every transaction since the very first entry in the database. Best of all (in my opinion), new entries can only be added through a process of network consensus.
The blockchain database itself is distributed among all users, with no central system or governance. These properties increase the integrity of transactions, eliminate centralized management, lower the risk of cyberthreats and remove the need to rely on trust. A blockchain system is said to be trust-less.
The totality of this design means it’s possible to deliver some powerful capabilities such as having viable digital money; to process common transactions that require no middleman such as steps in a mortgage, and as a way to distribute independent logic such that it is reliable and auditable. This latter quality enables Internet-of-Things (IoT) devices, for example, to execute transactions without having to bear the burden of latency validating against a central system.
Uses of blockchain in government
With these features, what are some obvious applications in a city context?
Since cities, like all government agencies, collect, create, store and process an abundance of data, intuitively blockchain has the ability to increase the security and integrity of that data. By far, this is the most common use in City Halls that use the technology.
Blockchain has the capability to increase trust and transparency in digital government solutions. Enhanced integrity of digital transactions in a city means that blockchain has the ability to enhance and improve a wide variety of common functions that range from procurement to identity management.
With cities becoming a platform for a wide range of connected devices, from autonomous vehicles to IoT sensors, blockchain appears to also offer some compelling advantages for securely moving and processing data.
Surely then, with all these advantages, blockchain technology must be making a killing in our cities.
Not so fast.
While there is growing interest, city CIOs for the most part, have not made blockchain a priority. While government more broadly has been trending towards some mature experimentation and in some limited cases even production use, cities have been much more conservative.
That said, there have been some compelling city use cases. Here are a couple of examples.
The city government of Zug in Switzerland, sometimes referred to as Crypto Valley because it hosts over 450 blockchain-based organizations, is also a user of the technology. The city permits the use of Bitcoin for some government payments and in 2017 it began using blockchain as an identity solution for certain services. In an article in Smart City Hub, the mayor of Zug, Dolfi Müller said, “We want a single electronic identity – a kind of digital passport – for all possible applications. And we do not want this digital ID to be centralized at the city but on the blockchain.” Efforts continue to expand and today the city of Zug is fostering an international ecosystem of blockchain innovation.
In 2016, the city of Dubai in the United Arab Emirates in collaboration with the Smart Dubai Office and the Dubai Future Foundation, launched the Dubai Blockchain Strategy. Its focus is to explore and evaluate blockchain as a way to deliver seamless, safe, efficient, and impactful experiences.
By early 2020, the effort had produced over 24 use cases in eight industry sectors and established Dubai as a global leader in blockchain technology. One of the notable efforts was the use of blockchain to process payments by constituents for government services. In the old system, payment reconciliation and settlement could take an average of 45 days. The new blockchain-based system eliminated the delay entirely and issues are resolved in real-time.
In a blog post, she wrote for CoinDesk, Dr. Aisha Bin Bishr, director general at Smart Dubai Office, said, “Dubai’s adoption of blockchain technology at a city-wide scale is a testament to its commitment to positively transform government from service provider to service enabler.”
In both city instances, leadership and an appetite for bold steps were essential to move forward.
Risk aversion in cities
Blockchain has many supporters and proven benefits, but it is not without its detractors. Many argue that blockchain is being explored and used when a less complicated and more mature relational database could be used. They maintain that the technology continues to be too unstable and immature for use in critical systems (to a degree, I’d say that’s a fair assessment although the technology is quickly evolving).
The most damning criticism is that blockchain, aside from cryptocurrency, is a technology looking for a problem to solve. This kind of sentiment is often shared by more cautious (and skeptical) city CIOs who have seen lots of hyped technology come and go. In the risk-averse environment of local government, unfortunately, being more conservative can be the right strategy.
The prerequisites for moving forward
For city CIOs to move forward with blockchain and for its promises to be assessed, it will require a number of important prerequisites.
The first, I’d argue, is for more education on the topic. City CIOs and their technical teams need to get deeper into the weeds on the subject so they can understand its possibilities.
The second prerequisite is for city CIOs to ensure that they have the innovation ecosystem and a blockchain sandbox in place, to enable the exploration and experimentation of the technology.
Finally, the IT leader must educate their city leadership and elected officials. They need their support and formal approval.
While certainly not exhaustive, these three recommendations will better position the city CIO to move forward with some light-risk opportunities.
In the years ahead, solving our intractable urban issues in order to create smarter and more sustainable communities means there often won’t be the luxury of business as usual. City CIOs will be required to explore the art of the possible. Again, and again.
Without any guarantees of success in the short term, blockchain technology must be part of their innovation toolbox. There’s no evidence yet that the technology’s use in cities has failed to deliver. However, the promise of blockchain will always be elusive if it is not even given a fair try.
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