You would be hard pressed to have not heard the term “blockchain” over the past year. You have probably heard it most often referred to within the context of digital cryptocurrencies like Bitcoin and Ethereum, but as a concept and technology beyond currency, blockchain has the potential to revolutionize business models in both the public and private sectors.

As a management consultant, I have spent my career working with public sector organizations to transform the way they are structured and operate. Most of these transformations are driven by disruptive, external forces which require an organization to adapt or become irrelevant. When I look at blockchain, I see one of the most potentially disruptive forces since the widespread adoption of the internet- and in some important ways, it may be even more disruptive than that.

A blockchain is a distributed, digital ledger which publicly and permanently records transactions made against it. It almost sounds unremarkable when it’s described that way, but here’s what’s important to understand: blockchain is not just a technology revolution- it is a trust revolution. Any intermediary which provides a service based upon being a trusted third party is at risk of being disrupted by blockchain technology.

It just so happens that governments are some of the biggest purveyors of trust in the world (I know this may read like a joke to some, but it is true!). The preamble of the US Constitution cites “establish[ing] Justice” as one of the foundational principles of government. Governments do this by creating systems of laws, with associated institutions for enforcement and adjudication. As citizens, we rely upon those institutions to uphold the law in the face of those who may seek to flout it. This is especially important for contract law, which creates the conditions for us to trust one another as private citizens by imposing fines or imprisonment if we do not honor our agreements.

But what happens if some of that trust can now be created by a shared digital database stored on a decentralized blockchain which no individual, organization, or even government controls? What happens when we can create immutable “smart contracts” with real economic value, through computer code which binds parties together into an agreement without any possibility of breach? What existing forms of economic activity could be transformed by this type of system, and perhaps more importantly, what new forms of economic activity could it create? This is the nature of the trust revolution blockchain is ushering in.

Here are seven trends for the state of blockchain that anyone who works in the government (or with the government as a consultant / contractor) should be aware of:

1) Interest in cryptocurrency, cryptoassets, and the blockchain technology behind them, is exploding.

The World Economic Forum predicts that by 2025, 10% of global GDP may be stored on blockchain platforms. If that prediction holds true, it would equate to nearly $10 trillion USD. This would be a dramatic increase from the current valuation of assets stored on blockchain (approximately $100 billion USD at the time this was written). Cryptocurrency will allow for new forms of economic activity (through innovations like micropayments and smart contracts) and could one day rival the use of traditional fiat currencies in some countries. The biggest beneficiaries of this shift may be those who live in countries with unstable, highly inflationary currencies and the underbanked.

2) The private sector is looking to blockchain as a way to reinvent existing business models and create entirely new ones.

Industry is jumping headlong into the blockchain space. Nearly every major financial institution has already created an in-house blockchain lab, focused on experimenting with the technology to improve their speed and quality of service while reducing costs. Since financial services is the industry expected to be most disrupted by blockchain, this is a prudent move, but the interest in blockchain is now moving into other areas. Blockchain projects gaining major corporate support include the Enterprise Ethereum Alliance (including Microsoft, Intel, Cisco, Samsung, Toyota, JPMorgan, MasterCard, ING) and Hyperledger (including IBM, SAP, American Express, Daimler, Wells Fargo). These projects are looking at broad sweeping applications of blockchain technology- ranging from banking and insurance to healthcare to supply chain.

3) Beyond cryptocurrency applications, the US federal government is taking some important first steps toward encouraging blockchain solutions.

Last week, I attended the Second Annual Blockchain Conference here in Washington, DC. At this year’s conference, there were over 500 attendees, compared to a much smaller group from last year. Attendees included many federal government employees, with even more attendees from the federal contractor and private sector communities. Participants were eager to learn more about blockchain and how they could apply it to their organizations' most pressing challenges.

The US General Services Administration's (GSA) Emerging Citizen Technology group recently held a “US Federal Blockchain Forum,” inviting managers from across the federal government to come to the table with potential use cases for how blockchain technology could support their respective agencies’ missions. The goal of this engagement is to ultimately create a US federal blockchain atlas and roadmap. Over 100 federal government managers attended and presented over 200 potential use cases. While many of them might not pan out, if even a fraction of them take hold, they could produce tremendous benefit by minimizing cost, increasing transparency, improving accountability, and eliminating fraud in the delivery of government services. It is likely that many of these initially proposed use cases focus on migrating existing processes and services to a blockchain; however, I expect that we will soon start to identify entirely new services which the government could only deliver through the use of blockchain technology.

Blockchain is best suited for trust minimized environments where multiple individuals or entities must have write access to a shared database. Those entities may be so distrustful of one another that they cannot rely upon any third party to act as an objective intermediary. Alternatively, it may be too costly or otherwise impractical to engage such an intermediary for a given transaction (e.g., a micropayment). These types of situations, which are ideal for blockchain solutions, could exist between governments and citizens (including corporations), between federal and state governments, or between governments internationally.

Some logical first candidates of government services which could migrate to a blockchain (note: these are speculative) could include identity management (including biometrics and passports), asset management (including securities and land registries), supply chain management (including food safety and imports), fleet and property management (including government property and military materiel), and government payments (including welfare and Social Security).

4) A patchwork US regulatory environment may hinder the adoption of blockchain technology in the short term.

The US federal government has cautiously waded into the blockchain and cryptocurrency space over the years through a series of disparate regulation. The Internal Revenue Service (IRS) classified cryptocurrency as “property” for tax purposes in 2014. Recently, the Securities and Exchange Commission (SEC) rejected two applications for exchange traded funds (ETFs) based upon cryptocurrency. And just last week, the SEC also ruled that certain types of digital assets may in fact be subject to securities laws. Some viewed this ruling as a setback for cryptocurrency / cryptoassets, but others viewed it as an increasing signal of the “normalization” of such assets.

The biggest barrier to broad scale adoption of cryptocurrency / cryptoassets across the US is the patchwork of federal and state laws governing money transmitter licensing. Under current laws, businesses which transmit, sell, or exchange cryptocurrency are classified as “money transmitters,” requiring a host of registration, record-keeping, and reporting requirements. Some states have passed more permissive laws around cryptocurrency / cryptoassets, such as Delaware and Nevada, but until there is more consistency in these laws across the United States, we can expect a slow path to mainstream adoption.

It is worth noting that these restrictions may not necessarily not impede the creation of blockchain solutions for many non-monetary applications.

5) Many countries around the world are making bold moves to actively encourage the growth of their nascent blockchain industries.

Countries like Switzerland, Japan, Singapore, UAE, China, and Russia may be at the forefront of the blockchain revolution in a few years’ time. Many of these countries are moving quickly with blockchain technology because they feel it is a way to gain (or regain) a competitive advantage in the global economy. A brief summary of some of these efforts follows: Switzerland created a “Crypto Valley” in the canton of Zug by establishing progressive laws to allow organizations to experiment with blockchain technology. Some of Zug's initiatives include allowing residents to pay for government services with digital currency and establishing a blockchain-based identity system for voting and accessing government services. Japan officially recognized Bitcoin and other digital currencies as a legal method of payment and is actively developing accounting standards for cryptocurrency. Singapore took initial steps to potentially digitize its currency. Dubai aims to become the first blockchain-powered government by 2020. China and Russia are experimenting with blockchain technology, in coordination with their central banks and private industry, and are said to be examining a broad range of applications for the technology.

6) The cultural changes blockchain brings will likely be harder to deal with than the technology changes.

Blockchain can connect participants in business models where their only intermediary is a shared blockchain network. They may not have to rely upon any trusted third party to broker a transaction- a role that may have been traditionally played by governments or companies. At a minimum, this will mean radically overhauling current processes, and in more extreme cases, it may mean completely scrapping entire business models. These types of changes are difficult for any organization to cope with, but especially for governments. Coupled with other technologies, such as artificial intelligence and the “internet of things,” blockchain could lead to unprecedented workforce disruption and job loss. While new jobs would eventually emerge after such an upheaval, in the interim we should expect significant, organized resistance to such changes from industry and labor groups.

7) Blockchain will not solve the government’s data management challenges.

Under the provisions of the Digital Accountability and Transparency Act (DATA Act), US federal government agencies are required to make data on federal expenditures easily accessible and transparent. At least in the short term, we should not expect blockchain to make this much easier. Blockchain will not supplant any near-term initiatives to enhance public access to such data; however, in the long term, it may have this potential (e.g., if federal accounting systems migrated towards blockchain-based platforms).

Also, do not expect to store all of an agency’s databases and files on a blockchain. Due to the distributed consensus model blockchains employ, it is typically slow and very costly to store large amounts of data on a blockchain. As such, blockchains are not a replacement for most traditional or cloud-based data storage solutions. Instead, think about the “fiduciary data” (e.g., the information which serves as the ultimate record of value held or transferred) as the type of data you’d want to store on a blockchain. In that regard, a blockchain could serve as a relatively small, but very important layer in an agency’s overall technology stack.

﻿For the next few years, I expect that the US federal government blockchain landscape will focus on identifying potential use cases and experimenting with a few proofs of concept. In most cases, we are still a long way from being ready to deploy a blockchain solution into a production environment for the public sector. But over time, that will change, and when it does, it may very well herald a new era of citizen-focused digital government.