The potential for Blockchain in local government

30th May 2016

By Dr Catherine Mulligan*, Associate Director of the Imperial College Centre for Cryptocurrency Research and Engineering, and Lee Omar, CEO of Red Ninja Studios

Distributed Ledger Technology (DLT) came to prominence through its application within the digital currency Bitcoin. The benefits of the underlying distributed ledger, commonly referred to as the Blockchain, however has gained increasing attention over the past 18 months as its potential outside of the financial services industry has begun to be appreciated. Where the Internet created a platform for the exchange of information, the Blockchain creates a platform for the exchange of value. The potential for Blockchain within local government and cities more generally is now being taken seriously.

A distributed ledger is essentially an asset database that is shared across a network of people or even organisations where every participant has a copy of the ledger. Every participant in the network records all transactions. In this way, the distributed ledger acts to authenticate the transactions, provide an immutable record that they have occurred and ensure traceability.

The removal of middlemen or the provision of a transparent and immutable record of transactions can radically redefine how we run cities and how government provides local services.

The reason that this is so powerful is that by every participant providing the consensus around the ledger, it enables the removal of middlemen, or intermediaries in many industries. Using Bitcoin as an example, the distributed ledger removes the need for a central bank to provide trust in the currency, as is currently the case in most nations. Far beyond the world of financial institutions, however, the removal of middlemen or the provision of a transparent and immutable record of transactions can radically redefine how we run cities and how government provides local services. Some states, like Delaware, are already investigating how to use these so-called smart contracts within government and businesses.

Dr Catherine Mulligan, Imperial College, and Lee Omar, Red Ninja Studios
Dr Catherine Mulligan, Imperial College, and Lee Omar, Red Ninja Studios

Local services can be established that allow both greater transparency for citizens, councils and also companies. Take waste management as an example. Through using a distributed ledger, councils could see an immutable record of when every subcontractor had completed its task. At the same time, citizens or local companies would be able to register problems, like garbage that has not been collected in a part of town.

Cities are set to reap the benefits that DLT platforms provide both for ability to deliver services at lower costs as well as the innovation potential for local citizens and companies.

The distributed ledger would enable citizens to register issues transparently and the subcontractor would receive an automated notification that there was an issue, allowing them to fix the problem immediately rather than the citizen needing to register a complaint with the council. Where a subcontractor has repeatedly failed to provide the service they are contracted to do, the distributed ledger–through the use of a smart contract, would be able to automatically penalise them. This is a very simple example, but through applying distributed ledgers in this manner, it is possible to remove a large amount of transaction costs in the delivery of local services, while also providing greater transparency and participation for citizens.

Other services could be created that allow for an immutable record of different aspects of a city’s performance around environmental, educational and health quality that allow citizens and city leadership to track these changes transparently over time.

Perhaps the greatest disruptive potential for cities is in applying distributed ledgers is the creation of peer-to-peer enabled economies. As mentioned, DLT allow for the removal of middlemen. DLT can enable citizens to transact with one another directly–rather than needing to use existing intermediaries such as banks to transfer money to one another. This can also remove transaction costs for local traders and create new forms of localised supply chains and ensuring the creation of the sharing economy in a transparent and fair manner–examples within this space include slock.it.

Moreover, it would allow the development of new types of supply chains altogether–some may even allow traders to bypass large, globalised supply chains. Examples include the use of DLT for ensuring provenance of products within food supply chains, like Provenance.org–using the immutability of the ledger ensures that consumers are assured that the product is in fact what it says it is and comes from where it says it does.

DLT are undoubtedly new and like all emerging technologies, the excitement needs to be tempered with an appropriate respect for the privacy and security of citizens. The potential, however, is similar to that of the early days of the Internet and broad scale disruption can be expected over the next few years. Cities are set to reap the benefits that DLT platforms provide both for ability to deliver services at lower costs as well as the innovation potential for local citizens and companies.

*To learn more about Blockchain, register to attend the Major Cities of Europe annual conference in Florence from 30 May to 1 June, where Catherine will be speaking on Tuesday

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