How The UK Government Applies Blockchain in 2016by Fintechnews Switzerland June 13, 2016
Blockchain had been widely associated with banks but less frequently associated with governments. This article would open your horizons on the importance of blockchain to the UK Government based on their recently published whitepaper.
We will extract key points from this 88-page long whitepaper for your easy, bite-sized consumption on the go. First of all, it should be noted that the UK government is serious about blockchain. They even went as far as to equate the weight of blockchain with the Magna Carta, which established the rule of law and forms part of the British Constitution.
The UK Chief Scientific Adviser proposed that the UK government appoint a minister to guide the implementation of the blockchain throughout the administration. It is also revealed the UK forms part of the Digital 5 group of countries with Estonia, South Korea, Israel and New Zealand to work and learn from each other. There are some useful initiatives, but I would point out three noteworthy applications of the blockchain.
Smart Contracts For UK
Before I proceed further, it is useful that blockchain is an electronically distributed ledger system that is designed to be immutable. Once the record has been entered, it cannot be changed at least for the open source unpermissioned network. The UK government is championing the permissioned blockchain network where it can be controlled by trusted actors such as governments and banks.
Unlike traditional paper-based ledger, whenever a trusted actor made changes, the process would generate a digital signature that can be seen by other users in the system. The reconciliation process easy because when one party’s record is corrupted, other parties can authenticate the document.
Taking it a step further, the UK government wants to apply blockchain to smart contracts for industries as wide as food, financial services, health, and utilities. These contracts will restrict access to sensitive information using computer code instead of access being granted by an administrator.
Governance Using Both Legal & Technical Codes
Legal codes are the laws of the land while technical codes are the programming structure that allows systems to run. Legal codes are described as ‘extrinsic’ where the rules can be broken and punishment would follow later. Technical codes are ‘instrinsic’ where the rules cannot be broken as the system will simply stop if illegal activities are detected. This assumes no hacking or security breaches.
The UK government wants the rule of law to govern the operations of technical codes. The private sector such as Visa had already demonstrated that they can use technical codes to enforce their set of rules. For the UK government, they want the best of both worlds.
They want blockchain technical codes to be regulated by laws and they also want technical codes to help them enforce the laws. It was recommended that the government understand how existing technical codes regulate industries such as finance and incorporate them into laws. Web developers can use blockchain to create a more robust internal governance process at lower compliance cost for the general public.
Prevention Forgery & Money Laundering
The immutable and distributed nature of blockchain would make it harder for documents to be forged. Forged documents are instrumental to the smuggling of diamonds which allows them to be converted to cash. Diamonds are small and easy to carry which is the preferred hard currencies for criminal and terrorist financing.
The diamond industry combats this issue by introducing blockchain technology system Everledger which provides a digital passport for each diamond. Every time the diamond is bought or sold, the passport will record this transaction and the system would prevent forgery and the money laundering that goes along with it.
The UK government also warned against the unpermissioned blockchain that allowed criminal activities to occur such as the ‘Silk Road’ marketplace. They preferred the permissioned blockchain structure which allowed the authorities to control financial flows with ‘off-ramps’.
The UK Government is serious about blockchain, and it wants to compete effectively with other technologically advanced countries such as the Unites States and Singapore. Blockchain is no longer the novel technology, and the establishment has accepted it. The only question is how can governments apply blockchain effectively to the governance process and also to improve the productivity of their industries.