Blockchain to boost digitisation in the public space

Centralized systems are unsafe and complex

In many areas, digitization has brought enormous benefits for customers and significant productivity gains for companies.

However, some essential areas of our social infrastructure have been stuck in an innovation bottleneck for decades and have not yet reached the 21st century from a technology perspective. Major digital disruption has yet to happen in energy, health and care, transport and many other areas of government, business and society.

For decades, we have been trying to create centrally organized major IT systems to make these large areas of society more efficient. This top-down approach usually fails because of two fundamental problems: First, it is virtually impossible to make central systems truly secure. And secondly, it is difficult to change complex systems in a dirigiste way.

In Germany, the digital health card shows particularly impressively how major central IT projects fail. Although the card is not much more than a membership card, it has taken 14 years to plan and cost more than a billion euros. And yet almost all stakeholders in the health sector agree that it should not be introduced in its current form.

The blockchain, the technology behind Bitcoin, is decentralized. Together with other so-called ‘Distributed Ledger Technologies (DLT)’ the blockchain offers promising solutions for successfully digitizing even large social systems so that they become more efficient, secure and usable for citizens and companies.  

Security in central systems practically impossible

Safety is top priority, especially in public systems. Millions of citizens’ personal data or secret national security information must be protected from external attacks.

Central systems offer lucrative points of attack for hackers. With a successful attack, criminals or foreign states gain access to large amounts of data.

The examples of recent years have shown that neither the largest companies nor the most powerful and richest countries can protect themselves against attacks by hackers on their IT systems. The German Federal Government, the American FBI and corporations like Yahoo! are victims of hacks. By now, it is pretty clear that every central system will sooner or later be hacked.

It is therefore irresponsible to store and process highly sensitive data such as military secret information or patient files in centrally organized systems.

Blockchains work decentralized

Blockchain technology works decentrally. Used correctly, there are no central points of attack in blockchains.

Data is stored in distributed form. And there is no administrator who can access the entire database with a master password. Consequently, there is no central actor on which all users must agree and whom all must trust. Every user has per se control over his data.

It is uneconomical to hack decentralized systems. If a hacker breaks into a user account, he has access only to the data belonging to that account. To access millions of records, you’d have to hack millions of accounts.

The blockchain is therefore better suited than central systems for securely storing and using sensitive data so that it can be responsibly shared with others.

Complexity prevents centrally controlled innovation

Digitization has often failed not only because of security and data protection. It has also failed, because major IT projects could previously only be planned, financed and implemented centrally. This means that the entire complexity of the system to be created must be recorded and planned in advance. Even in large companies, this often leads to IT projects becoming unmanageable and never reaching their goals. In even more complex environments outside clearly defined company boundaries, this problem is intensifying. The already mentioned health card shows that large IT solutions are either never ready or are already obsolete if they are used after years of development.

Bitcoin and Ethereum – Evolutionary Development in Open Systems

Bitcoin is an example of how complex systems can be created evolutionarily on the basis of open protocols. Initially, only a description of the basic protocol and a reference implementation for a Bitcoin client software existed. With the program you could manage Bitcoin accounts and become a co-operator of the Bitcoin network (‘Miner’).

Bitcoin does not have a central authority that controls who should develop which application with which features and when. And yet – or precisely because of this – an evolutionary process has created an ecosystem worth billions building on the basic protocol in just a few years. Now there are competing wallet apps for payment management, online exchanges and specialized mining software. And the Bitcoin blockchain is also used for applications that have nothing to do with the original idea of money transfer.

The situation is similar with Ethereum, the second largest blockchain. On the open Ethereum blockchain, thousands of companies are creating applications of all kinds, which can all work together because they use the Ethereum blockchain and the associated protocols as a common basis.

Blockchain Ecosystems for State and Society

What Bitcoin has demonstrated for global financial transactions can be applied to other economic and public fields. With the help of blockchain technology, we should build decentralised basic infrastructures, for example for health care, the energy industry, public security and transport systems. Open and freely available protocols based on cryptographic procedures could provide the basis for security and decentralised cooperation.

Developers could use this as a basis for programming applications. Specific solutions for clearly defined, small problems could be implemented immediately without having to wait for a top-down planning process. In an evolutionary process, those applications that offer the best benefits will prevail even without central control. Comprehensive systems will gradually develop from the interaction of many small solutions.

In the interests of security and efficiency, states or supranational organizations should support and promote the development of blockchain-based protocols for core areas of society.

Author: Collin Müller
Online professional for over 20 years, more than 10 years in the communications and media industry.