5 Big Questions on Blockchain, according to the OECD

The Organization for Economic Co-operation and Development hosted their 2nd annual Blockchain Policy Forum in Paris earlier this month, and if anything was made clear, it is that governments and multinational organizations are placing big bets on blockchain.

Despite the variety of topics discussed, the conference centered on a few recurring questions that will determine how this technology is deployed and the extent to which the benefits of blockchain will extend to the greater global population.

What is blockchain?

The blockchain community still struggles to answer this fundamental, perhaps existential, question: how does the international community define “blockchain?” Differences in governance models, the degree of decentralization, and consensus mechanisms complicate how international standard setting organizations like the International Standards Organization (ISO) define aspects of blockchain. In fact, the ISO doesn’t plan on making any determinations about blockchain terms until 2020, which means that secondary standards on which foundational definitions rely will not be debated until after 2020.

The lack of definitions and industry standards has some big implications for governments interested in exploring blockchain pilots. Hazy definitions mean that governments cannot pass the new regulations, which put investments in blockchain organizations and pilots in precarious positions that may result in non-compliance. Blockchain applications also require standards to ensure interoperability; governments and NGOs will not be early adopters if it increases the risk of embedding obsolete standards.

How should blockchain technologists engage with government?

Tight collaboration between government, civil society, and technologists is not a recommendation, but a requirement. In order to maximize the gains of this technology and capitalize on network effects, blockchains need to integrate with existing databases, software, and digital systems used by governments and NGOs to create a fluid and interconnected data ecosystem. Without fully understanding the complexities of how data is collected, organized, and processed currently, technologists will not be able to meet the existing or future needs of government.

Governments and NGOs serve another critical purpose: as conduits to the beneficiaries that civic blockchain applications are designed to serve. Developing a product in lockstep with the end users will increase the likelihood that the blockchain will be operable and useful to everyone, reducing financial risk or political liability to innovators in the public sector. Blockchain is as much a technology decision as a business and organizational decision, and broad buy-in will ensure the ecosystem scales beyond a pilot.

How should blockchain technology be regulated?

The benefit of blockchain extends deep into regulated areas like financial services and law, which can lower access barriers for under-served populations. To balance the potential benefits with the risks of technologies, world leaders support regulatory sandboxes to illuminate how innovation and regulation could, and should, work together for the public good. Not only will experimentation help with defining standards, but it enables policymakers to pressure test blockchain in real-world settings and make adjustments before full integration into public services.

Eventually, policymakers envision encoding regulation directly into blockchains to automatically enforce compliance. But even this vision for blockchain will require off-chain arbitration at times, emphasizing the need for legal frameworks to adapt new regulation to solve conflicts when blockchain cannot.

Does supporting decentralized technology imply sacrificing sovereignty?

As cryptocurrency and blockchains shift power to central authorities to users, leaders of financial and economic regulatory agencies questioned if decentralization will undermine their ability to pursue national economic policy goals. Technologists believe that decentralized protocols are the key to vibrant innovation that will improve government services. More options in choosing technology partners empower governments to find better solutions that preserve sovereignty while adding privacy and transparency.

How should governments and industry foster blockchain innovation?

Pioneers in the public sector provided a few key takeaways as governments explore this solution:

• Consider the on-chain governance and off-chain dependencies when estimating the complexity of a project. Pilots that demand a less complicated governance ecosystem will increase the likelihood of success.
• Blockchain requires high quality, digital data. Don’t make the pilot more difficult by starting with low-quality or analog data sources, or even more challenging, building an entirely new database from scratch.
• Government can help by navigating technology partners through bureaucracies and identifying inefficiencies in existing processes. Citizens are more likely to use a service if it makes their interaction with government more efficient or less expensive.

Blockchain is still in early days, but it is clear that members of the OECD Blockchain Policy Forum are committed to a future in which blockchain plays a key role in government administration and public services.