The UK government recently began a trial using blockchain technology to track the distribution of benefits, which has raised some privacy concerns.

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Blockchain, the digital ledger technology that holds data for transactions such as those using Bitcoin, will now be used by the UK government to track the spending of welfare recipients.

For the uninitiated, the blockchain is a globally distributed platform that is supposed to make it easier to track and clear transactions, without the oversight of a central authority. In the Bitcoin example, purchases can be made without the backing of a bank or other financial institution.

The social welfare payments distribution trial started in June. In early July, Lord Freud, the minister for welfare reform at the department for work and pensions, spoke at the Payments Innovation Conference 2016 to explain the trial.

"Claimants are using an app on their phones through which they are receiving and spending their benefit payments," Freud said. "With their consent, their transactions are being recorded on a distributed ledger to support their financial management."

Freud also noted that the UK government had been working with GovCoin Systems, Barclays, RWE npower, and University College London on the trial of this project. GovCoin Systems seems to be the main partner in the project. The company itself works with governments and NGOs exclusive on a platform to reduce the $1 trillion it claims is "lost annually due to friction and fraud costs in the distribution of social welfare and aid."

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The move makes sense, given that the UK's Welfare Reform Act 2012 moved to increase penalties for fraud and error. Also, as noted by ZDNet's Charlie Osborne, UK chief scientific adviser Mark Walport suggested using blockchain technology to "set rules at both the recipient and merchant ends of welfare transactions," earlier this year.

In theory, the system could be used to crack down on non-essential purchases such as alcohol or luxury foods. However, I can't help but point out the irony in a technology that is lauded for its ability to limit oversight in financial transactions being used by a government to increase its oversight in financial transactions.

"This initiative focuses on adding an additional layer of richer data and identity onto payments, so that a deeper and more effective relationship can be established between the government and claimants," said Jeremy Wilson, vice chairman of corporate banking at Barclays.

While the project is only in a testing phase with 24 users currently, it does raise some additional concerns about the ethical implications of tracking each and every purchase made using benefits. Joseph Lorenzo Hall, the chief technologist for the Center for Democracy & Technology said that this also raises some major privacy concerns.

"This is nuts," Hall said. "There is a tendency to think of the blockchain as the 'accountability salve' that will solve all our problems, but there are serious problems with inserting sensitive information--and purchasing habits are definitely that!--on the blockchain, where it is by definition public and impossible to remove (by design)."

Hall also said that encrypting sensitive information placed on the blockchain, such as blockchain voting, is also a bad idea as "we expect to break or find flaws in the underlying crypto in coming years."

What do you think?

Should the UK use blockchain to track the spending of welfare recipients? Tell us your opinion in the comments.

The 3 big takeaways for TechRepublic readers

The UK government is using blockchain technology to track the spending habits of welfare recipients, in hopes of cutting down on fraud. The UK government is working with GovCoin Systems, Barclays, RWE npower, and University College London on the trial, which began in June with 24 users. The program is in a proof of concept phase, but it raises concerns about the privacy issues it could present for users and the ethical concerns of the government tracking the spending of benefits recipients.

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