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Public Sector - preparing for blockchain

Public Sector expert Bill Sulman, examines the benefits blockchain could bring to the public sector.

Blockchain is often associated with the cryptocurrency Bitcoin, but this technology has the potential to transform a wide range of operations. Aon’s public sector expert Bill Sulman, examines the benefits it could bring to the public sector.

Shrouded in mystery and its fair share of jargon, blockchain technology offers a secure and transparent way to record transactions. While there are plenty of misconceptions around this technology, it has the potential to drive significant benefits to public sector organisations.

First, let’s translate some of the jargon. Blockchain is a shared digital ledger technology enabling a continuously growing number of transactions to be verified and recorded electronically over a network of computers.

Secure and transparent

Transactions are verified by the network and once added to the ledger cannot be changed or deleted. This means it provides a permanent record of every transaction that takes place.

It’s also incredibly secure. Although there’s often nervousness around the security of emerging technologies, a well-implemented blockchain has high levels of confidentiality, integrity, resilience and other security features. It’s also tamper-proof: if anyone attempts to amend a record, this will be visible.

In addition, as it’s a decentralised ledger, with each node in the network holding a live copy, there are inherent security advantages. Martin Hopkins, a security consultant at Gotham Digital Science, says blockchain redefines trust. “It gets rid of the need for intermediaries, driving efficiency but also increasing transparency and removing the need to trust those intermediaries,” he explains. “Users trust the network instead.”

The technology is also designed to operate even where some of the computers (known as nodes) are down and it can also withstand instances where a party may be acting maliciously.

Blockchain applications

Looking at some of the ways blockchain can be used helps to highlight the benefits. While its most commonly known as the system used to underpin Bitcoin, it could potentially be used for more traditional banking transactions.

As an example, take a cross-border payment. Currently, this is generally a slow and expensive process involving a handful of banks. With blockchain, it only requires the two parties involved in the transaction to be part of the network, and the money can be transferred within an hour and with a substantially lower fee. Hopkins says that with current cryptocurrencies this could potentially be as little as 1% of the transaction, compared with a fee as high as 25%, which is the case with some traditional payment systems. Its charging structure also makes it a valid mechanism for managing very small payments. Blockchain could also be used to manage foreign aid.

As well as cutting the costs and speeding up the transfer of funds, as every transaction is recorded, it could be easier to see how the aid was spent.

Another area offering huge potential is supply chain management. As examples, it could be used to track shipping logistics, replacing all the paperwork and creating greater transparency; or to evidence provenance, for instance in the food supply chain, where it could inform a product recall, or the airline industry, where there could be issues with counterfeit parts.

Public sector potential

The nature of blockchain also means there are plenty of potential applications within the public sector. As well as transforming back office processes where data needs to be shared, it could also be used to manage and provide greater transparency around outsourced contracts.

The security of the system also means it could be used to hold personal information such as the electoral register or entitlement to a parking permit or a place at the local school. As an example, the NHS is exploring the use of blockchain as a means to hold medical records, enabling healthcare providers and other stakeholders to access them in real-time, and to prove auditability into their completeness.

Financial transactions could also be transformed, with blockchain bringing cost savings but also greater transparency and auditability. As an example, smart contracts can be set up on blockchain with suppliers to ensure that payment is only made when agreed conditions or standards are met.

Similarly, at the other end of the scale, it could be used for micropayments, even making it cost-efficient to collect a 15p library fine electronically.

Making it happen

A number of obstacles still lie in the way of blockchain being adopted more broadly. As well as cost implications associated with moving to new systems, a lack of guidance from regulatory agencies and government coupled with concerns around security means there’s still reluctance to adopt the technology.

However, there are plenty of indications that this will change. Many organisations are already exploring how blockchain could be used to transform their processes and the UK government has also invested £10m to investigate how it could use distributed ledger technologies.

The insurance industry has also explored the risks blockchain poses and how it could be covered. In most cases, it would be viewed like any other technology platform or system and could be covered under existing programmes.

Given the benefits it offers, and the interest being shown in developing suitable applications, many expect blockchain will become an essential tool in the next few years.