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The recent Government Office for Science report, Distributed Ledger Technology: beyond block chain, describes the algorithms that enable the creation of distributed ledgers as “powerful, disruptive innovations that could transform the delivery of public and private services”. Certainly, when we look at the phenomenal interest in blockchain technology shown by banks, it is clear that the UK Government’s view is shared – at least for now – by a number of goliaths of industry.

The Government’s report also talks about where the technology might be applied in the public sector: to collect taxes, deliver welfare benefits, issue passports, register assets, assure the supply chain of goods and generally ensure the better use and integrity of government records and services. In theory at least, there are few parts of government, local or national, that wouldn’t benefit in some way from the application of a distributed ledger or blockchain-based approach.

The problem, though, is that when massively transformational technology collides with massively complex services, the result is very rarely satisfactory or, indeed, transformative. Even setting aside commonly talked about issues associated with the technology, like privacy, security, governance, performance and cost, the language of “radical disruption” is anathema to those responsible for delivering uninterruptible public services.

So how do we break the deadlock? What is the best way of introducing distributed ledgers in the public sector?  

One answer may come from the realm of elite sport, in what Sir Dave Brailsford, general manager of Team Sky and former performance director of British Cycling, refers to as the “aggregation of marginal gains”.

Conventionally, the principle comes from the idea that if you break down complex activities into their discrete components and then make marginal improvements to them, you will achieve a significant increase in performance overall when you put everything back together. Sir Dave’s philosophy took British Cycling from sporting wilderness at the turn of the century to leading the medals table at the 2008 and 2012 Olympic Games. Since its launch in 2010, Team Sky has gone on to produce not just the first British victory in the Tour de France but three of them – in 2012, 2013 and 2015.   

In a government context, the theory of marginal gains suggests that we could break down the complex systems and processes that collectively make up public services into their discrete components, and then apply blockchain-based approaches only to those elements where they make a difference. We don’t necessarily have to reinvent the entire machinery of government, just those parts of it where distributed ledgers can marginally increase efficiency.  

We can think about marginal gains in another way, too. Each additional node in a blockchain-powered peer-to-peer network marginally improves the overall service the network can provide. Take the bitcoin blockchain, for instance: during the first few months after ‘Satoshi Nakamoto’ first released his bitcoin software in 2009, the network was comprised of only a handful of users. The advent of bitcoin didn’t change overnight the need for these early adopters to use real-world cash, but it did prove the principle of a digital currency and begin to garner interest from an ever-wider user base. Since then, the bitcoin network has grown substantially to become arguably the world’s largest distributed computing project, now handling more than 250,000 transactions daily. The lesson here is that we don’t necessarily have to rollout blockchain-powered digital services to the entire population from the outset, just to a sufficient number of enthusiastic users who can initially nurture and then subsequently grow the network while it runs in parallel with legacy systems.

Let’s take a practical example, like registering property in the UK, as described in our white paper, Blockchain: Enigma. Paradox. Opportunity. Currently, all land or property must be registered with the appropriate public sector body if it is bought, gifted, inherited, mortgaged or received in exchange for other property. Across the financial year 2014-15, the total number of residential property transactions completed with a value of £40,000 or above was over 1.2 million.

For the hundreds of thousands of people who buy and sell property in the UK every year, the process is complex, typically requiring the services of estate agents and specialised solicitors, known as conveyancers, to manage the information exchange between buyer and seller and ultimately register the transfer of ownership with the appropriate public authority.

In 2014, the UK’s Land Registry began a project to facilitate the transfer of a property title using conveyancers to act on behalf of the seller and buyer throughout the transfer of ownership. The key here is that the Land Registry was not trying to replace the entire process for transferring title ownership and registering properties, nor were they seeking to rollout the changes to cover all property transactions at once; they were simply aiming to demonstrate a small-scale concept for how appropriate authority could be delegated by buyers and sellers and how a relationship between two conveyancers could be established. Such experiments involve relatively few people and can be undertaken on a tiny fraction of the total number of transactions that the Land Registry handles – at relatively low cost. 

This ‘proof of concept’ project would be highly amenable to a blockchain-based approach where the engagement between two conveyancers could be handled via a peer-to-peer network, with details of the transaction – not necessarily the title itself – exchanged using the immutability and efficiency of a distributed ledger. The blockchain could also provide one additional crucial mechanism – a means to prove the identities of the conveyancers and provide assurance that they have been appropriately authorised to update the register.

With all the hype that surrounds blockchain at the moment, it is easy to assume that the technology will only ever be “radically disruptive” – and this certainly challenges conventional public sector approaches. With some careful thinking, though, the public sector could benefit substantially from distributed ledgers and blockchain-based approaches if they were applied in a more discrete way. The reality is that with the current complexity and scale of the public sector’s legacy services, there may actually be no alternative.

What do you think?

Find out more in Blockchain: Enigma. Paradox. Opportunity or by contacting Stephen Marshall from the Deloitte Blockchain Lab

 

Pete_professional

Stephen Marshall - Partner, Retail Banking

Stephen leads the Deloitte Financial Services Technology team. He has over 20 years experience in advisory and delivery programmes, and has worked on a broad spectrum of challenges with his many clients - from IT sourcing and cost reduction, organisation design and IT strategy, through to the delivery of large, complex business transformation programmes.

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