Why you should care
Because, in the future, if you file taxes or vote online, you’ll probably have blockchain to thank.
In an age when we can communicate, work, study, move money and even watch movies or read a book from the comfort of our own beds, iPhone in hand, it’s remarkable that our relationships with government are so un-techy. We have to fill out and sign paper forms in order to set up a business or pay taxes, we have Social Security numbers printed on a physical card that our entire lives are tied to and we even have to drive to a high school or town hall to vote in elections in person, often by marking a slip of paper with a pen. It’s all very … 20th century. Not so in the small European nation of Estonia, where you can pay taxes, buy and sell property, sign contracts, conduct business and even vote in elections online.
And when I say “you can,” I mean it — Estonia has taken its digital governance project to a whole new level since 2014, when it launched a program called e-residency. Now anybody around the world can apply online to become a digital Estonian, accessing the same online platforms that the country’s physical economy is based on and the same online public services that domestic citizens can utilize (although, of course, only physical residents of Estonia can vote).
In the past couple of years the decades-long effort to digitize the country’s government services has accelerated thanks to blockchain, the tech underpinning Bitcoin and other cryptocurrencies. Blockchain, a way of storing information about transactions that is secure, distributed, encrypted and unchangeable, has the power to transform the digital infrastructure behind everything from Wall Street trades and movie streaming to industrial supply chains — and now governments are getting in on the action.
While Estonia is leading the way and might just be the world’s first crypto-country, its government is far from the only one finding public-sector uses for blockchain. The UK government is trying out a system to pay benefits claimants via blockchain, and the Australian government is “throwing money at” ways to replace separate passport and birth certificate databases with a single blockchain-based system, says Dr. Clare Sullivan, a cyber-lawyer at Georgetown University. The founder of Ethereum, the second-most widely used public blockchain system after Bitcoin, recently reached a deal with Russia’s state-owned bank to create a special national system called Ethereum Russia. And while China’s central bank declared Initial Coin Offerings illegal in a setback for the country’s private-sector crypto scene, it also recently developed a prototype of a potential national cryptocurrency.
And hopes are high that blockchain could soon enable other countries to join Estonia’s club of one that allows online voting in national elections — the holy grail of electoral reformists and govtech advocates worldwide.
It is not necessarily cybersecurity concerns that have prevented the increased digitization of government services up to this point, says Sullivan — though blockchain is indeed much more secure than existing systems. Rather, it has been the importance of “know-your-customer” protocols — the need for governments, banks and other institutions to verify individuals’ identities using physical ID documents and in-person interactions. In Estonia, citizens and e-residents are supplied with a government-issued digital ID as a way to replace the need for physical verification.
The extreme wing of the blockchain community wants to create entire virtual nations outside the jurisdiction of any sovereign state.
At the heart of Estonia’s digital society is a national secure online communication network known as the X-Road, explains Kaspar Korjus, managing director of the e-residency program. Various blockchain-based systems are plugged into it, including the digital ID registry, as well as private-sector applications from banks and utilities. Another such plug-in to the X-Road: a national database of medical records. As blockchain tech is fundamentally both distributed and secure, verified updates automatically follow patients wherever they go, and the system ensures that nobody can gain unauthorized access — in fact, anyone can log on to see specifically who has transacted with their their health records. “Blockchain gives mathematically verifiable integrity of records,” says Artur Novek, an IT architect at Estonia’s Health and Welfare Information Systems Centre, meaning that the system can immediately identify any unauthorized record tampering.
The Estonian model of adapting know-your-customer protocols to the modern age with digital IDs, however, opens up new problems precisely because of the internal immutability. Should any inaccuracy make it onto the blockchain records, through error or fraud, “it’s there forever,” says Sullivan, which means the systems of verification that feed into the blockchain records (from doctors approving prescriptions to those issuing digital IDs) must be as perfect as the technology itself.
— e-Residency: Estonia (@e_Residents) July 24, 2017
This can pose some problems when the extreme wing of the blockchain community wants to forgo existing structures altogether and create entire virtual nations outside the jurisdiction of any sovereign state, such as the Bitnation community. And, in truth, some of the rhetoric coming out of Estonia shares this utopian crypto-anarchism: E-residency is “one of the most important governmental experiments of the 21st century,” Korjus says. “It’s Estonia’s gift to the world, and it’s creating a new borderless digital nation for global citizens.”
And if this all seems a little mind-boggling, it’s that exact feeling that might prove to be the biggest stumbling block for government applications of blockchain tech. Nick Spanos, CEO of VoteWatcher, a product from U.S.-based Blockchain Technologies Corp that aims to implement blockchain into the voting system, thinks that actual online voting via the blockchain is still a long way off — “the only way to convince people is if they believe in the cryptography.” Instead, VoteWatcher is focusing on using blockchain to more securely record and tally the votes from in-person voting machines. So if you just can’t wait for app-based democracy, you know which country you need to move to.
* Correction: The original version of this story mistakenly referred to VoteWatcher as an independent firm.