Interview #8 Juho Lindman and Livia NorströmJuho Lindman is an Associate Professor of Informatics at the University of Gothenburg in Sweden, and the Director of the University of Gothenburg’s Blockchain Lab. Livia Norström is a post-doctoral scholar at the Department of Applied IT at University of Gothenburg. They are both working in close collaboration with European municipalities that are exploring blockchain through the Blockchain Lab. In this interview they tell us about some of the work the Blockchain Lab has done to understand the challenges facing governments as they work on blockchain-enabled services and some of the factors which are driving this change.
Understanding Innovation in Blockchain in Government
Hello Juho and Livia! Let's start with the big question - where do you see blockchain in government right now in the EU?
Juho: Blockchain in government at the EU level is very much arranged around the European Blockchain Service Infrastructure (EBSI), is a joint initiative of the European Commission and the member states (operating collectively as the European Blockchain Partnership). The aim is to deliver EU-wide cross-border public services that leverage blockchain technology. EBSI is fully compliant with EU law in terms of privacy, cybersecurity, interoperability, and energy efficiency.
EBSI is organized into a network of distributed nodes, with applications focused on specific use cases. An initial four use cases were selected in 2019 - notarization, diplomas, self-sovereign identity, and data sharing - and different prototypes were built to address each case.
- The Notarization use case is focused on creating audit trails, automatic compliance checks and proving data integrity.
- The Diplomas use case is about consent management related to access to educational credentials, cost reduction for verification and increasing diploma credibility.
- The European self-sovereign identity use case gives users the ability to create and control their identity credentials.
- The Trusted Data sharing use case provides a means for secure data sharing among customs and tax authorities (esp. related to VAT identification and imports).
Livia: Three further three use cases were selected in 2020 – a European Social identification Number, SME Financing, and Asylum Process management.
You’re both from Sweden – so what’s been happening with blockchain in government in Sweden?
Juho: We have some early pilots in Sweden – most notably Lantmäteriet - Land Registry digital asset transfer, and a pilot from the Swedish Unemployment Agency.
The Lantmäteriet land registry is an example of using blockchain to enable a relatively ‘disruptive’ public service change. Lantmäteriet trialed a new electronic system built on a private blockchain that used smart contracts and digital signatures to automate the processing and recording of land transactions.
Many of this novel system’s benefits and efficiencies came from digitizing the existing analogue processes that recorded the transfer of land ownership, resulting in increased transaction speed which should lead to cost savings. The benefits of using a blockchain-based system included the fact that the actors running the network could share the cost of running the service, and increased transparency of the transfer process, which increased the technical trust in the recording of transactions on the chain. However, the ‘disruptive’ nature of the new service was likely one of the reasons the project encountered obstacles and scaling difficulties, as it required new ways of working – like legally enforceable digital signatures.
Livia: Another real-world example in Sweden that has users is the digitizing of the unemployment certificate process. AXA – the insurance company - wanted to digitize the payments of employment insurance. One of the prerequisites is that the person needs to be registered as an unemployed jobseeker with the State Employment Agency. The transaction process is very simple, but the legal framework is bureaucratic. In the pre-digital process, a person needed to visit the employment office to get their unemployment certificate (after an identity check), and the paper certificate that is produced can then be sent to the insurance company. The current legal framework prevents the State Employment Agency from sharing a jobseeker’s status with a third party. So the system requires an in-person visit to the employment agency every month – which is not an efficient process.
Can you give us a quick comparison between the EU approach and how blockchain in government is developing in the rest of the world?
Juho: We can see differences in approaches across the world – for example China and US have their own models - the US with a private-sector model, while China is focused on building a blockchain infrastructure.
Globally, there are several infrastructural projects that aim to build capacity, connect relevant stakeholders and ultimately support public services. These initiatives include, for example, the Chinese Beijing Municipal Blockchain Blueprint initiative (https://link.medium.com/hMYZHDgnR8). The purpose of this initiative is to improve government processes and services by assembling previously scattered expertise in the relevant areas on how to provide services and produce portions of the distributed core infrastructure.
Where is government in terms of blockchain adoption, vs. the private sector?
Juho: The government is behind the private sector, but the use cases are also different, so they’re not necessarily comparable in that sense.
We have a technology that clearly has disruptive potential, a series of proven use cases mainly from the private sector (many of which are linked to cryptocurrencies, fintech and other financial services, areas in which blockchain’s benefits seem different from most potential public sector use cases ), and anecdotal evidence from a number of early technology projects for which blockchain can be used for interesting new approaches or services that match public sector requirements.
Livia: As the private sector evolves on the use of digital technologies, citizen’s expectations have changed and are calling on governments to follow suit. In the context of increased dissatisfaction with traditional public institutions, governments may find in digital technologies and data an opportunity to transform internal processes, policies and services, and respond to the real needs of citizens.
Based on your work in the Blockchain Lab, what do you think are the main drivers for the adoption of blockchain by governments?
Juho: We can identify a couple of early themes that seem to be driving adoption, but it’s still early in the process to be definitive about this. I can speculate though - here are 5 of the things that I think are driving blockchain adoption.
1 - Value
You can identify a range of potential benefits that blockchain-enabled services might bring to the public sector, including improved transparency, fraud avoidance, reduced corruption, increased trust, auditability, resilience, better data quality, and security. Current blockchain proposals are often linked to aims such as decreasing transaction costs, disintermediating trusted third parties, increasing transaction transparency, and mitigating processing risk using an irrevocable shared account of earlier transactions.
The most critical part of setting blockchain project goals is clearly identifying the business benefit the project is expected to deliver. Gartner Insight has suggested that 90% of blockchain projects are either driven by a fear of missing out, or do not actually need blockchain to meet their requirements, or result in solutions that are unsuitable for the current IT infrastructure.
2 - Technology
The second success factor is the project’s appropriateness. Specific technology benefits that come from blockchain deployments include increased trust, auditability , and information security (Earlier use cases analysed for this include land title registration , immigration-related registrations , and banking fraud reduction). On a more technical level, researchers have found that blockchain can be deployed using various methods and configurations. Therefore, the relevant design space and design trade-offs in developing a blockchain solution are not trivial and should not be underestimated.
3 - Stakeholders
Identifying and engaging relevant stakeholders is important for any development project, but especially so for a blockchain project due to its technical novelty and the frequent need to onboard whole networks of stakeholders. Usually, there is a public sector customer and one or more blockchain start-ups or other companies that provide the technology.
4 - Users
Most current software approaches highlight the importance of customers and users as active participants in the design and development process. Many early blockchain projects began as technology processes aimed at implementing a specific idea for a service. However, putting the customer in control and acquiring end-user input are considered important for service design.
When the technology has matured, blockchain services should not be primarily seen as technology-driven projects, and therefore user focus is a critical success factor.
5 - Willingness to experiment
Studies have highlighted the need for blockchain experimentation. The purpose of this experimentation is to build in some flexibility and variation for a specific innovation process, so that various attributes of the technology can be tested to learn about their potential real-world outcomes. This means testing various potential approaches/concepts during the pilot/project, and learning about their constraints.
This can also be done in a blockchain-agnostic way - it might not be necessary to decide before a project or pilot begins that the implementation must incorporate blockchain. Instead, blockchain can be one of the potential technologies the project investigates as part of service design/redesign.
That’s quite a varied set of drivers! Why do you think that is?
Juho: The reasons why public sector agents want to use blockchain to digitally transform services and organization combine external and internal drivers and outside and inside factors. Studies of public sector managers’ views on digital transformation show that more than 80% felt there were external pressures for service transformation. These outside factors could include pressure from citizens, from businesses, and from political actors. External agents are used to and inspired by the effects of digital transformation in the private sector and expect public institutions to also be efficient and innovative in their service delivery. External drivers reflect technological change in society as a whole.
Livia: Blockchain has been widely hyped for the last few years, which has definitely affected design decisions on the use of blockchain (for good and for bad) in the public sector. Internal drivers of change are often managerial, through business processes renewal and business/service model updates.
What are the main barriers for blockchain adoption in government?
Juho: We can’t give a definitive answer yet – as we are still in the early stages of adoption. But we can highlight three types of challenges pilots seem to face - disruptiveness, limited scalability, and legal uncertainty.
1 - Disruptiveness
The more a development project has the potential to disrupt current public services (i.e. by significantly changing how it is designed or delivered), or to affect existing markets, the more complex it will be to implement. Our review of the field revealed hundreds of inactive projects that were previously self-marketed and/or reported in other publications, but of course, many were small-scale proofs of concept or pilots that were aimed at testing the technology and learning. There was no lack of project ambition, and the high number of inactive projects is not surprising. What is a bit more surprising is that successes in this space seemed relatively rare.
2 - Limited scalability
Many early blockchain projects were small-scale pilots intended to facilitate learning about the technology and then to potentially scale up. Some design decisions made during early phases did not scale well, such as the number of nodes or load in the network or the number of transactions. Projects like this can deliver learning through experimentation, but they will probably not deliver new services.
3 - Legal uncertainty.
In what is sometimes referred to as a “reality feed”, there are legal points when a blockchain and the physical world intersect. This is a potential risk if the project is looking to change a service and there is legal uncertainty or ongoing regulatory developments. One example of these legal issues in Europe is the question of GDPR compliance. Different countries are now building legal sandboxes to test what would be legally possible for their blockchain services.
What have you learned from looking at BLING’s blockchain pilots?
Juho: While we don’t have many blockchain applications in the public sector that we can refer to or study to identify and understand barriers to the adoption of blockchain, however we do have access to several pilots and proof of concepts within the BLING project that we have been able to study.
Livia: In our analyses of BLING’s blockchain work we are looking at how the design processes of these pilots worked out, how different actors involved in planning and development reflect over the design decisions they made (both from a technological and organizational point of view), and why they think some things worked out and some things didn’t.
Juho: Early results from our reviews show that the hype and the pressure to jump on the ‘blockchain bandwagon’ could have hampered the possibility of scaling of some pilots. Often pilot engagement was restricted to one or a few enthusiasts in the organization, with no long-term plans for scaling and user involvement, and with little experience of digital innovation and transformation projects. Project leaders did also put quite a lot of trust in external developers to develop blockchain solutions quite independently from the host public organization. The complexity, jurisdiction and culture of public sector organizations were thus not fully taken into account. The pilots and concepts were primarily technology driven rather than need and context driven.
However, even though these efforts at a first glance may seem to be naive or technologically led, they also create knowledge and legitimize blockchain innovation both internally and externally - by extending the network of the public organization beyond organizational borders, by supporting local tech start-ups, and through getting knowledge about their activities out to a wider audience.
If we take a broader view of the pilots and look beyond the start and end of a specific project, then their efforts and the lessons learnt could be seen as the beginning of blockchain implementation in the public sector. We see that most of the development and implementation barriers were only identified when organisations started experimenting with blockchain – so they weren’t factors that were already known or to be expected or predicted. These pilots should never be seen as failures, since the knowledge they gained is immensely valuable for future blockchain efforts.
To understand blockchain implementation in the public sector we think that it is important to see digital transformation (change through technology) as a process of constant revision of outcomes, and not as a series of projects or pilots with clear ends. And identifying barriers (to adoption) is part of the process.
Another barrier to adoption is the tension between technological promises and organizational culture – it is important to make the distinction between technological functionality (what is potentially possible) and how the technology actually ‘plays out’ when it is used in an unique organizational context. We think this is especially important for blockchain implementation, due to the hype surrounding this technology. It is also important for public sector organizations since they differ from private organizations – where most of the literature and discussions of blockchain usually take place.
While the private sector is primarily driven by economic advantages and competition – which may restrict the sharing of good ideas – the public sector is more motivated by the need to build organisational and delivery capacity and to increase service effectiveness – so the public sector may be a better place for innovation. On the other hand, the public sector is less flexible than the private sector. Legislation, policy and services are usually designed to help business innovate – but not necessarily to help the government innovate – which means laws are sometimes contradictory and may hinder public sector innovation.
Have you identified any common approaches to innovation as governments look to adopt blockchain?
Livia: Early results from our research on blockchain in the public sector have identified three approaches to collaboration/innovation as part of wider public sector digital transformation efforts. In some of these blockchain’s technological promises and public sector logic align, and sometimes they may not.
A key argument for using blockchain is to decrease costs by increasing efficiency – as blockchain is believed to spur process re-design which reduces service delivery costs. This view of blockchain’s transformative capacity aligns with a new public management (NPM) paradigm of making internal operations more efficient and measuring performance. However, we doubt how innovative this rationale is in practice, since NPM is not believed to drive innovation.
Blockchain technology is also thought to provide a path to better service delivery to citizens, providing an improved way to support approaches like providing economic support to fragile groups, increasing the transparency of democratic processes, and decentralizing services to neighborhoods and communities. These efforts to use blockchain for transformation towards more transparent, accountable and secure services are a promising approach to delivering innovation.
A third dimension of blockchain engagement is collaboration between municipalities and industry – with firms and entrepreneurs. In this approach one reason for introducing blockchain in a municipality is to support local entrepreneurs by offering collaboration opportunities. A lack of internal technological skills is also an argument for external collaboration.. Opening up an organization for collaboration and innovation is part of a participatory public sector logic of co-production. In this dimension blockchain is engaged to collaborate beyond organizational boundaries, inspired by an open innovation paradigm and entrepreneurial organization.
To really understand how adoption is going, more research is needed on what happens after pilots finish. How were the barriers of misalignment tackled? Even if a blockchain pilot was not scaled up or deployed, did the work to setup and deliver the pilot lead to a transformation of ideas and thoughts and perspectives (leading to a changed organizational culture)? And what lessons do managers and staff bring with them about innovation and barriers from the pilots to future innovation projects?
Juho Lindman recently published a report on "The uncertain promise of blockchain for government". You can find the report here.