Blockchain for Government: Trust, efficiency and open access

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The National Research Council (NRC) of Canada is currently trialing Bitaccess’ Catena suite of blockchain applications to publish its funding and grant information in real time. What are the applications and impacts that you see blockchain having on the role and function of government? How should Canadian governments move to adopt blockchain’s most promising features and mitigate its risks?

While the government has many roles in society, one important role it plays is to provide trust. It does so by establishing a set of balanced laws and procedures, which ensure that everybody can engage in commerce together with the knowledge that each party can trust the government to enforce those rules. This rule-based way in which government allows different parties to engage in commerce within its sovereign territory is typically the space where blockchain and governments can overlap. I therefore think that the initial blockchain opportunities for governments are going to be focused on interfaces where two parties have to engage in some type of contract – a smart contract in the case of blockchain applications – where the government is a trusted third party.

“Blockchain is here to stay and it is going to fundamentally change the way people engage in commerce.”

For example, if I want to purchase a vehicle, right now there is a registry of vehicles and I can get clarity on who owns the vehicle at any given time if I go to my local government and ask. But what if I could get information about a vehicle’s history without having to go to a government agency and what if I could engage in the purchase transaction on the internet in a very fast and modern way? A blockchain would actually enable this. The government could publish all vehicle registrations on a public blockchain and I could very quickly look at any vehicle’s registration number to verify who owns it, what the vehicle’s history is, whether it has had a safety inspection, and many other key pieces of information. So in this sense, a blockchain would enable much faster commerce and the government would continue to be the trusted third party in that they had verified this information as authoritative. These areas such as vehicle registrations, land registrations and property rights are the types of things where there is a huge opportunity to minimize the cost of doing business and where blockchain actually provides a valuable use case. They are the first real blockchain opportunities for government.

Our project with the National Research Council is our first implementation aimed at getting the government’s feet wet with blockchain technology, and an easy way to do that is to focus on the government’s mandate to publish public information. This first use case revolves around the requirement that spending information must be published through open data, but that is not done in a very modern way right now. Blockchain technology can be used to publish open data in a very fast, efficient and auditable way. For example, with the National Research Council, to date we have published spending records for research grants amounting to about $540 million onto a blockchain. Because we published this information onto a blockchain, any Canadian can access this information, audit how much money was spent and compare that to the records the Government of Canada files at the end of the year to ensure those two numbers line up. Because this information is published on a blockchain, it is possible to make changes and corrections to it, but those changes would have to be disclosed – the records cannot be erased. This adds a beautiful level of data integrity to open data. It also eliminates the possibility of accidentally or purposefully using funds in an incorrect way. So the blockchain adds another level of transparency as well as authority to public data and government operations.

“Blockchain technology can be used to publish open data in a very fast, efficient and auditable way. […] It adds another level of transparency as well as authority to public data and government operations.”

Blockchain does present potential risks as well. Ironically, the blockchain ecosystem is currently very much centralized on the concept of decentralization. What that means is that current blockchain networks, for the most part, are not run by governments or by any corporation – they are known as peer-to-peer decentralized networks. Therefore governments cannot control them and so, from a certain perspective, these blockchain networks are actually in some way competitive to the idea of government. I think this represents a certain risks in that if the government does not engage and start offering services that are competitive to these blockchains, it might become disintermediated from some of the services it used to provide since people will start to engage in commerce on these networks outside of government control. This is quite a big risk for us all since government does provide a certain standard of quality and accessibility that is required for a lot of commerce to occur.

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How should Canadian governments regulate the technology and its ecosystem in order to position Canada as a leader in terms of its development?

There are some facts that should be considered when speaking about regulating blockchain.

The first is that this technology is not going to go away. There is a general sense that if you regulate something, you can block certain activity from happening. That might be true in the traditional economic world but that is not necessarily true in the blockchain world. For example, no government has truly succeeded in banning bitcoin transactions – which run on blockchain technology – even though some have tried. So the first thing to consider from a regulatory perspective is whether a regulation has a chance of success if a government were to pass it. Regulators must be aware that their regulations may not be enforceable.

“Canadian governments should be measured in their regulations to ensure that they are not incentivizing Canadian blockchain businesses to pick up and move to a different country.”

The second thing is that blockchain technologies are inherently cross-border. It is very difficult to restrict access to these networks. So if the government were to regulate bitcoin, it is very difficult for it to enforce those regulations on offshore entities. So if the government choses to regulate whether or not Canadians are able to trade bitcoin or different tokens that are traded on blockchain networks, they may be able to enforce that regulation on domestic companies located in Canada, but it may have a very hard time ensuring that a company in Ukraine that is servicing Canadians follows those same regulations.

With these considerations in mind, it is very important that Canadian governments do not put Canadian businesses at a disadvantage with respect to international competition. While they do have mandates to protect Canadian consumers, they should be measured in their regulations to ensure that they are not incentivizing Canadian blockchain businesses to pick up and move to a different country. It is a really difficult line that Canadians governments considering bitcoin and blockchain regulation are walking right now, but we run the risk of regulating the industry out of existence in Canada if they take an approach that is too heavy-handed.

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In its early days, Bitaccess went to Silicon Valley to get funding and mentorship through Y Combinator. Do you still consider such a move essential for Canadian tech start-ups? If so, what more must be done in Canada to support the tech start-up ecosystem and provide its promising innovators and companies with the tools and capital they need to build up here at home?

The first thing I would say is that if there are any Canadian entrepreneurs who believe that they have a big idea and have the opportunity to go live and work in Silicon Valley for any period of time, I highly encourage them to do it. As much as I am a patriot, I am very much an entrepreneur and sometimes the best thing for an entrepreneur is to be around other high performing entrepreneurs, and there is a very high concentration of them in Silicon Valley.

To Silicon Valley’s credit, they have built a very good ecosystem that entrepreneurs can enter as an unknown person with a big idea, take on very good talent, build a big company, and then move on. Not only that, but that top talent stays in that ecosystem and goes on to work for other companies. That is a very difficult system to replicate and I am not sure that any attempts to recreate it elsewhere will succeed. What Canada can do instead is to engage with it and build its own homegrown talent, but I do not think we should attempt to replicate Silicon Valley.

“We need more investors as well as more acceptance of big ideas in Canada, and the acceptance that some of these ideas might fail.”

What must improve in Canada is investors’ receptiveness to new big ideas. Canadian investors can be overly prudent and the case of Bitaccess illustrates that this is to our detriment. When we got started at the end of 2013 nobody was really talking about bitcoin or blockchain. It was a very wild idea and I had a number of meetings with investors in Canada where I was effectively laughed out of the room because I told them we were working on projects focused on money that is not issued by a government. But that same idea was not being laughed out of the room in Silicon Valley. At the time, Y Combinator was the only seed stage fund that had funded another blockchain company and that’s who we sought out and received support from.

My advice to Canadian investors is that while I understand that Canadian investors can be risk averse, it is important to believe in big ideas and accept failure. Blockchain was one of those big ideas that had a very high chance of failure, but that builds entirely new industries and leads to big polarizing ideas. We need more investors as well as more acceptance of big ideas in Canada, and the acceptance that some of these ideas might fail.

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Which Canadian industries are ripest for disruption by blockchain?

Investment is definitely an industry that will start to see competitive threats from the blockchain sector in that blockchain can be used to build products and services that are likely very low cost and that could provide much better services with lower regulations to Canadians. Canadian businesses that are regulated are going to have a hard time competing with offshore companies that will start competing in the Canadian market using blockchain technology. Canadians are going to start investing more and more of their assets into digital assets and unless Canadian companies provide good products and services that compete internationally, they might see some of their business move offshore.

“Canadians are going to start investing more and more of their assets into digital assets and unless Canadian companies provide good products and services that compete internationally, they might see some of their business move offshore.”

The Canadian banking sector has become incredibly consolidated and its incumbents have been asleep at the wheel. It is currently being chipped away at from many fronts. Whether it is Wealthsimple going after registered retirement savings plans (RRSP) or new online banks going after retail banking, fintech as a whole is coming after large financial institutions.

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How do you envision disruption by blockchain playing out and what will its effects on current economic activity be? How should Canadian companies and governments prepare for its impact on the future economy?

I do not necessarily believe that a large amount of current economic activity is just going to be eaten alive by blockchain, in the sense that Amazon is going to integrate blockchain payments and Visa and Mastercard are going to become disintermediated, for example. Blockchain will not cannibalize current business. But we will see a completely new set of economic activity that will occur on blockchain networks.

“Avoid thinking about blockchain as a threat, but to think about it as an opportunity.”

Blockchain is a new opportunity for a new type of economic activity and new types of transactions that we have not seen before. For example, CryptoKitties is an application that came out of Waterloo, Ontario. It was effectively a different form of Pokémon cards that are traded on the Ethereum blockchain. Within a few months it generated about $1.2 million in revenue from people essentially trading digital cats. While this might not be very exciting to people in traditional finance, I think it is really exciting because it is a new economic activity that has never happened before, but people are engaging in it and there is money to be made there.

So my advice to companies and their leadership right now is to avoid thinking about blockchain as a threat, but to think about it as an opportunity. Companies must enable their people to explore the space, to be creative and to try to find new opportunities to use these services. They shouldn’t think about replacing their current processes with blockchain.

“Let us build the Canadian blockchain.”

My advice for the Canadian Government is that blockchain is here to stay and it is going to fundamentally change the way people engage in commerce. I look at it as a 0-to-1 technology: the world was completely different after blockchain came into existence – kind of like the railroads for Canada. If I were the leaders of the technology sectors inside the Federal Government of Canada, I would effectively build a Manhattan Project focused on blockchain and say: “The railroad connected Western and Eastern Canada and was a nation building exercise, let us build the Canadian blockchain”. Canada should build a national blockchain that is built for Canadian businesses, that is built for Canadian governments and we should get all stakeholders engaged in this. We should make sure that Canada is the first G7 nation to totally modernize its entire government structure around blockchain and put ourselves at a huge competitive advantage compared to the rest of the world.