Recently, I asked Nitin Gaur, who currently serves as Director of IBM Blockchain Labs, his thoughts on how governments can get started with introducing Blockchain into their workloads. Prior to this role he was working in capacity of CTO, IBM Mobile Payments and Enterprise Mobile Solutions. Nitin lead the Application Infrastructure Portfolio of IBM Middleware before taking on MobileFirst Solution portfolio. In his 16 years with IBM, he has achieved various industry-recognized certifications. As a technical leader Nitin has been involved in many enterprise project implementations and technical paper presentations at internal and external conferences. The range of the topics presented by him span from software architectures to improvement of management processes. Nitin, has been focused on staying close to customer and providing IBM clients with Solution to realize Digital Strategy with IBM Bluemix and IBM MobileFirst Portfolio. Nitin holds MS in Management Information systems and MBA in Finance from the University of Maryland. Here’s our interview:
What is Blockchain? Why is it a game changer for the government, public sector?
Nitin Gaur: The Internet is evolving and the next major phase will be an era that allows the transfer of ownership of most anything of value among parties in a way that is transparent and secure. Blockchain embeds trust into technology. It establishes accountability and transparency while streamlining business processes, resulting in lower cost, faster transactions and less risk. Blockchain is a permanent digitized chain of transactions that is grouped in blocks and cannot be altered. By design, no one party can modify, delete, or even append any record in the blockchain without the consensus from others on the network, making the system useful for ensuring the immutability of contracts and other legal documents. Blockchain, ultimately, is a new technology that enables ecosystems in the for-profit, non-profit, and public sectors to work together with a lot more trust.
In the public sector, blockchain fundamentally addresses the notion of Time and Trust. These two constructs plagues various public sector systems with cost and systemic inefficiencies. With the potential to vastly reduce the cost and complexity of completing transactions, blockchain makes it easier to create cost-efficient business networks where virtually anything of value can be tracked and traded, without requiring a central point of control. Each participant has an exact copy of the data, and additions to the blockchain are shared throughout the network based on each participant’s level of permission. This way, all participants in an interaction have an up-to-date ledger that reflects the most recent transactions or changes.
Most people think of bitcoin and Blockchain simultaneously, but Blockchain is a fungible technology that can be a standalone. Beyond financial transactions, what other aspects of the transaction economy does Blockchain address?
Nitin Gaur: Fundamentally Blockchain addresses 3 aspects of the transaction economy:
- Trade – Goods and services traded across web of consortium or partner networks (e.g. Interledger). As long as anything is of value, such as a property, currency, reputation and even identity. This would imply not just digitization of the assets but also a reputation and validation system that is attached to the economies that surround the “Value of Things.
- Ownership –The ownership of digital goods and services needs to be validated by a system that is playing by the rules and a network is trusted by the users and yet based on trustless system. This implies a complex set of mathematically validated algorithms that provide a vehicle (consensus or mining type activity) to guarantee the ownership associated with the “Thing of Value.”
- Trust –This is a system of trust in the network that ensures that the system itself is trustless (a system that can store and validate ledger entries but is neither centralized nor can any single entity get control of the system). The term “trust web” is often used to describe the new era of such a system.
What is IBM Blockchain Labs? If applicable to the government sector, how does this mechanism improve public sector service delivery?
Nitin Gaur: IBM helped establish an open source blockchain project called Hyperledger along with financial institutions such as JPMorgan, the London Stock Exchange, and Wells Fargo, plus technical support from Cisco, Intel, and the Linux Foundation. IBM also offers a cloud platform called Bluemix for building and running [blockchain] applications and Bluemix Garage to help design and develop specific new breeds of applications. There's even a Bluemix Garage for blockchain, set up to help developers realize new ways of leveraging blockchain solutions.
IBM Labs have multi prong roles include solution verification, solution validation, solution assessment, and economic viability of a solution.
- Solution Design Workshops to Enable the Joint Creation of Ideas: a two-day IBM Design Thinking workshop to refine ideas and prioritize projects. It will build concepts for solutions and deployment plans that create innovation. In addition, a Global Business Services consultant will provide consulting to aid clients towards the incorporation of blockchain technology
- Solution Verification Service for Verifying Ideas: Working with clients in as little as six weeks, IBM will design, and conduct prototype development to determine project feasibility, perform user testing, and verify and improve ideas, to prepare for full-scale development.
- Solution Development Services for Turning Ideas into Reality: Over 13 weeks, IBM will design and develop a blockchain application in IBM Bluemix. It will connect the API of the new application to be developed in Bluemix with existing systems and perform a non-disruptive deployment in the production environment.
What are some common government functions that Blockchain could enable governments to transform?
Nitin Gaur: Many governments are overwhelmed in addressing emerging challenges across their industry (Public Sector), of these challenges include but not limited to:
- Stagnant economic growth and resource constraints - Economic stagnation and resulting austerity measures continue to place financial pressures on government budgets while the shortage of skilled resources creates further challenges for governments globally;
- Increased Complexity - Growing geopolitical instability and asynchronous threats are creating increased risks and complexity in operations while the data explosion is creating both new opportunities and challenges;
- Increased demand for services and citizen expectations - Growing and aging populations are creating increased demand for services while customer expectations for improved and enhanced access to services through multiple channels are rising.
Our recent IBM Business Value (IBV) Study identified top areas of investment in blockchain. For example, here’s a few: regulatory compliance, contract management, voting systems, financial transaction, identity management, asset management, borderless services, citizen engagement services, land registries, patents, copyrights, trademarks, and other intellectual property.
Blockchain could also effectively provide an audit trail for government information as it is shared, updated, and acted upon (in the areas of):
- Data authority. For example, the Social Security Administration and its authority over who a Social Security Number belongs to.
- Data accuracy. Process transparency lets stakeholders check on data accuracy, while consistent storage, management, and permissioning helps protect that data's long-term viability.
- Access control. Blockchain solutions can keep track of which information is public versus private, including details on the data itself, the transaction related to the data, and who is allowed to make updates to data records.
There are many reported benefits –for example, cost savings, redistribution of human capital, reduces time for processing transactions, and mitigates risks -- global governments can reap by implementing Blockchain. But this requires a transformation of business processes. What types of business and operating models must government consider when implementing Blockchain?
Nitin Gaur: As the industry and enterprise soaks in the potential of Blockchain technology and reimagine the business networks, which is laden with archaic processes, paperwork, technology and resulting systemic costs, there are long tem considerations of adopting the route of Blockchain powered business network. I have said many times that promise of Blockchain is business network with implies trust and a platform for disintermediation leading to market and cost efficiencies. The work that we have done in past few years focuses on technology maturity and consumption of such by enterprise and business to not only solve current pain points but also pave the way for new business models.
The adoption of blockchain is a balancing act for governments and enterprises, as it not only has to run, manage, and maintain its existing infrastructure but also pave the way to this new computational model that promises to fundamentally change enterprises and even whole industries. For regulated industries, this means a dual impact on the cost of compliance, because even a new technology platform has to adhere to well understood regulatory frameworks and proven technology architecture and design that pass the regulatory mustard test.
For the Public Sector to meaningfully realize the promise of blockchain, it must examine and innovate cost models. For example, consider the following:
a. Transformational cost models – IT costs: redundant and duplicative systems and/or opportunity costs, including capital and liquidity costs from inefficient [government] operations due to asymmetric information flows; or
b. Disruptive costs models – New business models, such a P2P value exchange platforms and crowd sourced models. (ICO or initial coin offering is one such example - where the industry is disrupting some aspects that was a public sector domain)
[Governments] can shift the focus from efficiency to efficacy. In many cases such as land registry, central banks functions - Monetary policies, RTGS systems, financial systems, collection of taxes and disbursements, benefits and remittances, etc. each of these functions require accountability and in many of the use cases discussed government and public sector is the trust intermediary. So the notion is for government to shift the focus from efficiency to efficacy is to employ technology to reduce costs, increase transparence and aim towards a platform that connects rather than govern because trust and transparency would be systemic.
Last year, I remember listening to an NPR piece in which the testimony of a senior dept. of treasury official said Blockchain can enable digital transformation. In your point of view, how can Blockchain enable digital transformation in government?
Nitin Gaur: Blockchain is described as a digital trust web via radical openness, and while this may be true for cyber currency blockchain, enterprises still have to consider the meaning and impact of radical openness.
The promise of blockchain stems from the vision of an Internet of Value or, in some cases, Internet of Transactions, with a foundation in the systemic, secure exchange of data leading to the trading and transference of value through smart contracts, such as business intermediaries. These foundational elements lend themselves to the rails that enable a secure movement of things of value with non-repudiation―or, at least, that is the intent. In my previous discussion of blockchain and value networks, I emphasized the importance of a trust system in blockchain that aims to disintermediate the trust intermediaries and enables information symmetry for business network participants. This level of disintermediation relies on the provision of a computing framework to ensure the backing of computer power and proven algorithms that provide a robust trust system, thereby replacing the trust intermediaries.
Blockchain promises systemic security as a trust currency. Economic transactions on a distributed ledger can be programmed to record virtually anything of value: your identity, a will, a deed, a title, a license, intellectual property, and also almost any type of financial instrument. The digital transformation begins with transforming every element of government function that provides trust to the broader economic and social ecosystem - leading to trust, transparency and better governance.
It is important to understand the path before we embark on the journey of transformation. We now understand that in many cases blockchain technology may radically alter the process through which enterprise interacts as well as the way (financial) institutions process transactions. Specifically, the technology could remove cost and friction from the process, create transaction records that are immutable, and facilitate near-instantaneous transparent ledgers. It could also dramatically change the way the existing processes are designed inside of an enterprise.
The UN, State Department, World Food Programme have all started Blockchain projects. Dubai has committed to replace all paper processes with Blockchain by 2020 and many US states, including Illinois, have implemented Blockchain projects. How can governments around the world start implementing blockchain? To be more specific: If governments were to create a Blockchain roadmap, what would you recommend their roadmap start and end with?
Nitin Gaur: The idea behind blockchain implementation for targeted use cases that encompass transaction processing is aimed at reducing operational costs, as well as enabling new business opportunities that rely on the “network effect” of bringing multiple participants into the origination(s), including shared costs of risk profile/analysis and the approval process, mitigating systemic risk, and rewards to participating enterprises.
To give structure to this type of methodology, I propose a four-step process that enables any enterprise, including governments, to channel its resources judiciously and ensure that the work product at every step of the way can be functionally applied to a collective decision-making process. The four-steps include:
1. Identifying an appropriate use case - I recommend expending a lot of time up-front at this stage to ensure that the use case we pick has two set of characteristics:
a. Public sector impact—The use case destined for blockchain adoption, after it passes the blockchain litmus tests (trade, trust, ownership, and transactionality), in fact addresses enterprise time and trust issues, resulting in significant cost savings and addressing time and trust imperatives that manifest as redundant systems and processes. This will help justify costs, investment in the blockchain project, and an overall ROI—a language that [global government leaders] understands.
b. Industry impact—The promise of blockchain is to create a network of value, which implies an interconnected set of networks that help transfer things of value with relative ease and at significantly lower cost, due to implied trust in the system that eliminates the need for trust intermediaries. So the use case that is picked ought to also include industry wide issues: that is, the enterprise cohorts should also have a similar set of issues. Some examples include capital market interaction between lenders and borrowers, corporate actions, etc.
2. Devising a business blueprint - Apply a design-thinking approach, where the idea is to distill the existing business process into a blockchain-based transaction model. In this step, the idea is to understand the existing business process, with compliance and dependency on external systems. Furthermore, as we progress in this step, the existing business process is distilled down to the blockchain-based model, which espouses characteristics such as provenance, immutability, flat ledgers, and smart contracts that govern the validation and distribution of the ledgers. This is an important step, as work products of this stage will lead into the technology design and blueprint. This process defines technical elements such as the block data format, consensus, structure, and governance of smart contracts—essentially, the design of the interaction between various enterprise entities (and external entities in the future, as industry aims for a network effect), and the trust and governance models.
3. Mapping the business blueprint to technology—blockchain technology blueprint - For technology to align with business imperatives, we need to ensure that we are making the right technology and architecture choices to address the business requirements—such as TPS (transactions per second), enterprise integration, external system integration, and regulatory and compliance requirements—which make blockchain real for an enterprise. These considerations are also the technical due diligence needed to understand and mitigate blockchain project budget and risks.
4. Enterprise integration with adjacent systems - We should also consider adjacent enterprise systems that would require enterprise integration for blockchain applications for operational considerations. The idea is to ensure the elements of trade, trust, and ownership, and the inherent properties of blockchain such as immutability, provenance, and consensus, lending itself to a trust system that aids in eliminating redundant and duplicative systems and processes. These duplicative systems cost enterprise significant allocation of resources, leading to delayed transaction processing and associated opportunity costs. Our goal should be to address the fundamental pain point of the existing process, leading to a flat and transparent ledger that aims to address the element of trust and time, significant costs savings, and better client service.
The idea behind defining the path to blockchain enterprise adoption is to ensure that we have a microscopic focus on a singular use case and that we distill the existing business into a blockchain paradigm. This implies both business and technology models. We take a singular use case that has an industry and enterprise impact and apply business and technology acumen to the problem domain. The result is a well-thought-out business architecture and technology blueprint, along with requirements for compliance, audit, and enterprise integration. The point of this exercise is to expend time and energy with the right business domain expertise and blockchain technology expertise to derive an adoption model that enlists and surfaces hurdles, challenges, and factors in the costs and economic viability of the blockchain solution.
If you were to provide a recommendation to governments on how to scale Blockchain, what would you recommend?
Nitin Gaur: In Public sector there is a broad set of considerations. This is a broad topic that ranges from governance model around managing and maintaining technical artifacts such as a technology infrastructure, management, monitoring, etc. to data governance and governance of smart contracts in a blockchain network. It is best to layer the governance that can logically be categorized such as:
- Blockchain network/technology governance
- Blockchain data governance
- Blockchain smart contract governance
- Blockchain transaction management governance, etc.
The objective is to ensure that the network has not only sustainable operational elements but also sustainable business growth dynamic elements. For instance, devising a model where every participant can deploy the chain code that governs their own business process as they accept/deal with digital assets, putting the business participants in control as the business process, policies and regulatory policies change.
To this end, I’d also like to suggest that global governments consider my seven (7) design principles of sustainable Blockchain Business networks:
- Providing network participants control of their business.
- Provision for an extensible business network, enabling flexibility in joining and leaving the business network.
- Permissioned but protected network. Providing the choice protecting competitive data while facilitating a peer-to-peer transaction network.
- Open access and collaborative global network –facilitating collective innovation
- Scalability – addressing scale not only from transaction processing but also encrypted data processing.
- Security – factoring in enterprise security while addressing the new security challenges imposed by a shared business network.
- Co-existing with existing systems of record.
The core of the 7 design principles is just a starting point or must have basics to ensure we are focused not just on network initiation but also on sustainability and longevity of the business network for governments.
As we debate the merits of signing the transactions vs. mining the transactions to establish trust in the network, the Blockchain powered business network is limited by the aspirational quotient of the current business network as they evolve. It is not a technology problem but a business ambition issue. If the system design of the business network is not aligned well with the tenets of blockchain (trade, trust, ownership, transactionality in a multi-party scenario), the greatest strengths of blockchain may result in its greatest weakness, and a business network may never realize the promise of blockchain networks.
Disclaimer: The opinions expressed in this piece are not official IBM opinions.