The potential of blockchain technology for the public sector

Blockchain technology is a cryptographically verifiable form of data management and transfer that has become increasingly important, particularly in recent years, as it offers innovative solutions to certain digitalisation challenges. Against the backdrop of the desired digitalisation in the public sector, blockchain could therefore also develop potential there.

The “Digital Strategy Germany” ^[1] points out that the lack of digital harmonisation between different authorities is one of the core problems of the current public administration. This refers to the fact that authorities do not regularly compare and synchronise their data with each other, which can lead to redundancies, especially in inter-authority processes. Blockchain technology can be used here as a cross-authority data management infrastructure to replace the existing individual systems of the authorities or to network them with each other.

Data can be stored tamper-proof in a blockchain and special rights can be assigned to view it. This makes it possible for each authority to manage its data there, but only have access to the information required to fulfil its tasks. Blockchain-based administrative systems thus ensure efficient coordination of interdepartmental administrative processes, which is particularly relevant in view of the federal system of government in Germany and the resulting distribution of competences. Such inter-agency cooperation has already been demonstrated in the FLORA project ^[2] of the Federal Office for Migration and Refugees. Here, blockchain was used to exchange and synchronise information between different authorities involved in the asylum process.

Due to its data structure, blockchain technology also offers the possibility of ensuring the verification and integrity of legally relevant processes through increased traceability. Blockchain can therefore help to improve transparency and security in public administration. For example, the potential of the technology in combating tax defaults on online marketplaces by improving the verifiability of tax processes in the Bavarian tax administration was analysed ^[3].

Distributed programmes (so-called smart contracts) can also be executed on a blockchain, making it possible to equip the blockchain itself with additional functionalities. By integrating these programmes, official follow-up processes can be initiated automatically as soon as the relevant requirements are met. For example, when registering or re-registering a business, the corresponding follow-up processes could be initiated automatically at the relevant tax office without the need for further manual process steps. On the one hand, this would lead to shorter waiting times and, on the other, to less error-prone processes.

Another challenge in the public sector is the digitalisation of proof of identity (e.g. ID documents). The main question here is how these can be implemented in a secure, privacy-protecting and sovereign manner. As a verifiable data structure, blockchains offer the possibility of implementing the concept of self-sovereign digital identities (SSI). These digital identities are designed to protect privacy and can be issued and utilised by both private individuals and companies. This serves the data sovereignty of private individuals and companies and at the same time prevents a risk scenario of the transparent person.

With SSI concepts, the public administration takes over the provision of the underlying data and benefits above all from the secure usability of the identities for administrative processes in order to be able to digitise these end-to-end. These potentials are being tested by authorities at federal, state and municipal level as part of the “Secure Digital Identities” showcase projects of the Federal Ministry for Economic Affairs and Climate Protection ^[4].

Comparability with analogue phenomena

The use of blockchain technology in public administration can be compared to the use of a conventional, centralised database. Blockchain technology simplifies the identification and verification of public records and documents, particularly in terms of transparency. As great importance must be attached to the authenticity and security of the data to be processed in the area of public administration, a blockchain can offer a decisive advantage over a conventional, centralised database.

Inter-agency coordination and cooperation can avoid the previously frequent re-entry of master data and its parallel storage, thereby reducing redundancies and increasing efficiency gains. Due to the decentralised distribution of data blocks, the dependence of IT security on a centralised infrastructure can be avoided and the location-independent, ubiquitous availability of relevant data can also be made possible in the event of a crisis. As a result, blockchain technology offers significant advantages over conventional databases in terms of security, transparency and efficiency. These characteristics make it ideal for applications that require a high level of data integrity without the need for a centralised authority.

Social relevance

The application of blockchain technology in the public sector is highly relevant to society. By integrating this innovative technology, public administration can significantly improve the transparency, efficiency and security of its processes. Blockchain enables decentralised and tamper-proof data management, which strengthens citizens’ trust in state institutions. In addition, smart contracts and automated processes can reduce bureaucratic hurdles, leading to faster and ultimately more cost-efficient services for society as a whole.

However, as the technology has not yet been implemented nationwide due to a lack of data collection in the area of scalability of blockchain-based systems, it remains to be seen how concrete applications of such systems will be designed in public administration. The use of blockchain in the public sector promises not only to modernise administration, but also to increase effectiveness and transparency, which could ultimately have a positive impact on the relationship between citizens and the state.

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