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Bitcoin, Not Blockchain for Governments Everywhere

Governments are among the biggest consumers of technology. Amazon has a whole separate AWS cloud for governments. I would not be surprised if very, very few corporations approach, for example, US government’s database transaction volume. Imagine hundreds of millions of tax filings, border crossings, purchases, sales, emails, surveillance records, court files, and highway traffic data stored, processed and retrieved every year. Wait, strike court files. Those are probably still handled in paper form or through private databases, at least in North America.

If the government is so tech hungry, will it eventually become the biggest user of blockchain? The answer of course depends on your understanding of blockchain.

But first, governments have unique requirements, which are sometimes set in stone (made law). A common set of such requirements would often be something like this:

  • Bidding by pre-qualified vendors (qualification by evidence of domicile, assets, experience and so on).
  • Principled selection of vendors (which doesn’t have to be based on complex or even smart principles: sometimes governments just go for the lowest price).
  • Standardized contracts including support agreements.
  • Publication or release of aggregate or particular purchasing data for public scrutiny (confidentiality is an exception rather than a rule).

Now read this list and ignore it for governments’ use of blockchain tech. Why? First of all let’s consider why governments would need blockchains in the first place.

None of the massive transactional use cases listed in the beginning of this article require a blockchain. Databases and the cloud serve these use cases well. In any case, blockchains today are not even close to scalability required for handling volumes of big governments such as the US federal government.

Then what is a blockchain good for? Start by memorizing this: blockchains are not databases. They are not primarily to store, update, delete and retrieve data. Oracle and Amazon are good at that.

True blockchains are independent, perpetual, impervious, immutable, inalienable, and authoritative repositories of digital property rights or timestamped documents. Their three most common current applications are cryptocurrencies, ICOs, and timestamping records.

Digital property rights are hard because it’s cheap to copy digital data. If you represent property such as cash as a digital file, you want to guarantee that no one can copy this file for obvious reasons. It is a hard problem to solve without some central database that assigns each digital file representing a property unit a unique ID and connects this ID with a specific person (that’s what banks do). Blockchains like bitcoin solve this problem without banks or any intermediaries. They solve it so well that bitcoin looks like artificial intelligence that has its own existence independent of any human institution. People hold bitcoin because they are confident no one can: 1) take it from them; 2) copy it; 3) debase it by making more bitcoin than expected; 4) confuse bitcoin with anything else.

If blockchains solve digital property rights they can also solve another problem. How do we conclusively prove that a digital document existed at a certain time in the past? This is an important issue in law, history, science and so on. For example, it’s not hard to forge metadata in digital photos: date, time, and place. If a photo can decide a lawsuit, it’s scary that we can’t completely trust its internal date and time information. True blockchains like Bitcoin can conclusively prove that a digital photo existed on a certain date and at a certain time. Just take a hash of the photo and send a transaction into the bitcoin blockchain with this hash. The global bitcoin network timestamps all transactions in fashion that is “independent, perpetual, impervious, immutable, inalienable, and authoritative” (see above). Again, it’s like a global hive mind remembered the timestamp of the photo and you can never erase it. Problem solved.

What use can governments have for the powerful qualities of blockchains? The number one use case that comes to mind is democratic accountability. Number two is adjudication. Number three is issuing bonds on blockchain and facilitating a purely digital market for government debt where advanced users have the option of acting without intermediaries.

Can the government build and run a blockchain for this? No. Just use a database like banks already do. Most of our traditional money is database entries. The whole point of blockchains that makes them impenetrable to attack is that no single institution or person are behind them. You want to move away from traditional finance because you want the option of handling your own property without banks or other intermediaries. That’s why no one “runs” blockchains. True blockchains run by themselves.

Can the government use one of the common blockchains? Maybe. The number one consideration for governments choosing blockchains should be decentralization. Why would a government give up control of its infrastructure to a group of people who are often abroad or unaccountable in some other way. Only blockchains where no governing committee can interfere with digital assets tracked by the blockchain make sense for governments. Otherwise, governments are delegating power to unaccountable or even unknown groups.

The only blockchain that has been tested sufficiently and that does not have a record of influence by third parties is the Bitcoin blockchain. It is like a standard Internet protocol such as email or web. Governments don’t choose vendors of basic protocols; they just use them. It doesn’t mean vendors cannot sell solutions built on top of the Bitcoin network to the government. But those solutions will have the protected decentralized foundation of the Bitcoin network rather than a blockchain that allows direct third-party influence.

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