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Why public institutions should deal with the blockchain

Monday, September 25th, 2017 | bitcoin updates

The blockchain technology has its origin in the financial sector and has been known by the crypt diet Bitcoin. Now more and more states and political institutions are expressing interest in the technology behind the digital currencies. What are their motives? What are the chances? And what hurdles are there to take?

Leading the implementation of blockchain in the public sector is the nation of Estonia. The IT infrastructure of the Estonian authorities is based on the principle of decentralization, which is the same main infrastructure as the blockchain.
This is because e-Estonia's network infrastructure is based on inter-connectivity (ie interconnection of multiple independent networks) of individual subscribers and network elements. This form of interoperability is made possible, among other things, by an open platform from e-Estonia, which allows everyone with the right to use the public IT infrastructure – the so-called X-Road. This is in turn linked to the Keyless Signature Infrastructure Blockchain by the company Guardtime. Instead of money transactions like the bitcoin blockchain, "government transactions" are processed and stored here. If, for example, an address change is made, a certificate note is entered or a company is founded, then these transactions are recorded on the KSI blockchain. Even the health data of the Estonian population are now running through the KSI-Blockchain.
The one-time storage significantly reduces the risk of false information or duplicates. Subsequent manipulation is not possible; any entry that has ever been made can be followed by everyone with appropriate authorization. In addition to a reduced administrative burden, abuse can be effectively prevented. In addition, cyber security plays an important role. Decentralized distribution makes hacker attacks more difficult because it is usually no longer sufficient to identify a central attack point and infect it with a Trojan or virus.
If you would like to know more about Estonia's e-government program, you can check out our Bitcoin and Blockchain report in Europe, where we talked with those in charge.
In many other countries as well, political institutions are conducting blockchain projects – Eg Sweden with a blockchain cadastre or USA (Delaware) with a corporate tax base based on the blockchain.
But to what extent can the blockchain applications of the public institutions be compared with the concept of the known bitcoin blockchain?
The answer is: only with strong restrictions.
Blockchain is not equal to blockchain
If a public institution were to implement a blockchain based on the bitcoin blockchain, it would lose control. After all, it is a public blockage whose code is open-source and can be used by anyone without authorization and authentication. The result would be a total disclosure of all data and the task of previous control and monitoring possibilities.
It is correspondingly understandable that the blockchain applications of public institutions differ significantly from the design of the bitcoin blockchain.
In countries with functioning institutions, blockchain technology can improve these and improve their efficiency. A complete replacement of institutions, on the other hand, is only of limited use and has some problems. Nevertheless, depending on the extent of the implementation of the blockchain, the question arises as to how much state or institution is wanted. Finally, a basic principle of blockchain is the abolition of trust instances, since their function can at least be replaced theoretically by the blockchain network infrastructure.
For this purpose it is important to distinguish the following dimensions of a blockchain: Public (public) / Private (private) and Permissionless (Permissioned) / Permissioned (subject to authorization). Depending on the chosen combination, the consensus mechanism, the decision-making system, is also influenced. Within a private blockchain in which all participants are verified and known among themselves (eg, within a company or authority), the same requirements do not exist for a consensus mechanism as in a public system accessible to everyone, in which the participants are anonymous or pseudo-anonymous.
An expensive, cost-intensive and proof-of-work approach is therefore not necessarily necessary in a private and mandatory blockchain system. All nodes (nodes in the network) and miners (ensure transaction processing) involved in the consensus process are known and do not require any separate verification.
For this reason, companies and, in particular, banks tend to be private and blockchains subject to authorization, in order to protect internal competition information, to ensure data protection and to keep control. This is similar in many cases to the public institutions.
Basically, each institution must ask itself whether a change to blockchain is really useful or whether a classic database can guarantee a higher functionality. If the decision falls on a blockchain, then it has to be clarified to what extent it should be publicly visible and, above all, programmable / controllable. In particular, to ensure data protection and data control, blockchains subject to authorization are hardly to be circumvented in the public administration.

About Sven WagenknechtSven Wagenknecht is the chief editor of BTC-ECHO and, in addition to editorial planning, is also responsible for Business Development. After studying as a banker, he studied politics and economics in Münster and completed various career positions, for example, in one of the leading company consultations and the Federal Ministry of Economics. In the field of blockchain technology, he is particularly fascinated by the long-term implications for politics, society and the economy. As a speaker, most recently at the St. Petersburg International Economic Forum 2017, he talks about the macroeconomic potential of the blockchain.View all posts by Sven Wagenknecht

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