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Blockchain could underpin UK welfare system, reduce tax fraud and protect critical infrastructure, says Government Office for Science

Out-Law News | 20 Jan 2016 | 12:20 pm | 3 min. read

Distributed ledger technology could be used by the UK government to support access to welfare, reduce tax fraud and protect the UK's critical infrastructure, according to a new report by the Government Office for Science.

Other potential use cases for distributed ledger technology, or blockchain, were also highlighted in the report, which urged the UK government to support research into its potential application as well as trials of the technology.

Blockchain is best known as the technology that underpins trading involving the digital currency bitcoin, however it has many other potential uses. It is a type of database and, using cryptography, can be operated as a system of public ledger for recording information, such as the transfer of assets between two or more parties.

Technology law expert Yvonne Dunn of Pinsent Masons, the law firm behind Out-Law.com, said: "Much of the hype around blockchain has centred on its potential use in the financial services sector, and so it is interesting now to see the public sector considering how it might be used."

"With the pressure on public services, innovation is the key to delivering 'more for less' and blockchain has great potential to help with that aim," said Dunn. "There will be regulatory concerns around using blockchain. In that sense the public sector is no different to the financial services sector in grappling with issues that could delay its use."

The potential for blockchain to revolutionise financial services is already being explored by many in the industry, including in respect of payments processing and clearance and settlement procedures. However, the Government Office for Science's report (88-page / 1.46MB PDF) has highlighted the opportunities for the technology to be used to alter government services.

"Distributed ledger technologies have the potential to help governments to collect taxes, deliver benefits, issue passports, record land registries, assure the supply chain of goods and generally ensure the integrity of government records and services," Mark Walport, chief scientific adviser to the UK government, said in the report.

"In the NHS, the technology offers the potential to improve health care by improving and authenticating the delivery of services and by sharing records securely according to exact rules. For the consumer of all of these services, the technology offers the potential, according to the circumstances, for individual consumers to control access to personal records and to know who has accessed them," he said.

The potential use of distributed ledger technologies (DLTs) in the UK welfare system was examined in a case study contained in the Government Office for Science's report.

"A large number of welfare claimants are un- or under-banked and face barriers to greater financial inclusion such as credit checks, access to traditional financial products, and the costs of unauthorised transactions," the report said. "DLTs offer a cheap and supportive means of getting these claimants into the benefits system. Digital identities could be confirmed through distributed ledgers running on securely-encoded devices – or even through software on a mobile device – which would allow end-users to receive benefits directly, at reduced transaction costs to banks or local authorities."

"This may allow them to become more fully included in the financial system through a secure distribution point that is more reliable than a bank account. Such a solution could also be linked with other systems to reduce the level of fraud and official error in the delivery of benefits, as identities would be more difficult to forge," it said.

The new report backed the creation of new standards on privacy and security relating to use of digital ledger technologies and called on the UK government to "consider how to put in place a regulatory framework for distributed ledger technology".

"Regulation will need to evolve in parallel with the development of new implementations and applications of the technology," it said. "As part of the consideration of regulation, government should also consider how regulatory goals could be achieved using technical code as well as legal code."

The report said the Alan Turing Institute could be a hub for research into potential uses of distributed ledger technologies and encouraged the government to support trials of the technology.

"Understanding the true potential of distributed ledgers requires not only research but also using the technology for real life applications," the report said. "Government should establish trials of distributed ledgers in order to assess the technology’s usability within the public sector. We suggest that the trials should be co-ordinated in a similar fashion to the way that clinical trials are implemented, reported and assessed, in order to ensure uniformity and maximise the rigour of the process."

"Areas where we believe work could be taken forward include the protection of national infrastructure, reducing market friction for SMEs and the distribution of funds from DWP and other government departments," it said.