Elon Musk is exploring the idea of using public blockchains to improve government efficiency and cut down on wasteful spending. According to Bloomberg, he believes that blockchain technology could play a significant role in his proposed Department of Government Efficiency, known as DOGE. However, no official announcements have been made yet.
If Musk manages to implement blockchain within the U.S. government, it could change the game for the global blockchain industry. Other governments might follow his lead, marking a crucial moment for blockchain technology.
Public digital ledgers that can’t be tampered with could help track government spending and secure sensitive data. They might even simplify payment processes. But there are still technical, political, and educational hurdles to overcome.
Boris Bohrer-Bilowitzki, the CEO of Concordium, a layer-1 blockchain, says the right blockchain could streamline internal processes and revolutionize government contracts. He believes it could enhance international payments without needing a central bank digital currency. The potential for efficiency gains is significant, as new structures built on blockchain could lead to savings that current databases can’t achieve.
John Deaton, managing partner at the Deaton Law Firm, points out that blockchain can allow government agencies to record their spending on an unchangeable digital ledger. This could not only save money but also reduce rumors and corruption, restoring public trust.
Bloomberg reported that Musk's discussions about blockchain covered various applications, including tracking federal spending, securing data, and managing facilities. However, applying blockchain to such a vast entity as the federal government is still an untested concept.
Where could this start? Deaton suggests the U.S. Department of Defense, which has many departments that could benefit from blockchain, especially for tracking supplies to prevent fraud. The IRS might also use it for tax collection, and programs like Medicare and Medicaid could improve how entitlement payments are managed.
Additionally, smart contracts could automate payments, reducing human error and improving efficiency. Imagine tracking foreign aid in real-time with smart contracts that release funds automatically when certain conditions are met.
Ernst & Young (EY) has been working on integrating blockchain into the public sector for years. They developed a tool called Public Finance Manager (PFM) to track funding flows and verify public investment outcomes. Paul Brody, EY's global blockchain leader, mentions that PFM has been adopted by several global agencies and even the city of Toronto.
Brody explains that blockchain can enhance accountability in government spending by tracking every dollar spent. He believes that the biggest long-term return on investment will come from improving procurement processes, although other uses, like document notarization, may be easier to implement.
Of course, there are challenges ahead. Deaton notes that career politicians might resist this change. They may not want the public to see how taxpayer money is spent.
Naseem Naqvi, founder of the British Blockchain Association, emphasizes the need for more education among policymakers about blockchain's benefits. He cites the U.S. Congressional Blockchain Caucus, noting that fewer than 20% of Congress members engage in blockchain-related policymaking. Educating lawmakers is a crucial first step.
The financial stakes are high. The lack of transparency in public spending leads to an estimated loss of 2% to 5% of global GDP each year, which amounts to about $1.5 trillion to $2.6 trillion. The U.S. has been slow to explore the benefits of blockchain in government.
More than a dozen countries, including the UK, China, India, Estonia, the UAE, and Germany, have already developed national blockchain strategies. Naqvi points out that the UAE's Smart Dubai initiative saves the government $3 billion annually while eliminating millions of hours of processing time.
Estonia has built its entire government infrastructure on blockchain. Over the past decade, it has issued over 400 million digital signatures, saving significant time and resources. This includes areas like healthcare, property registries, taxation, and even e-voting.
The world is watching closely as Musk considers these blockchain initiatives. While Estonia's efforts are impressive, they don’t have the same global visibility as a U.S.-led project could. Bohrer-Bilowitzki believes that if the U.S. government embraces blockchain, it could supercharge the industry and attract more talent to develop solutions.
Brody predicts that a U.S. government initiative in this area would send a powerful message, inspiring similar actions worldwide. Deaton is confident that eventually, most government spending will be recorded on an immutable distributed ledger, but the timeline for this shift remains uncertain.
Naqvi concludes that if the U.S. wants to lead in the global economic landscape, blockchain technology needs to be at the core of government operations, not just in financial systems but across the entire socio-economic fabric.