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Original research, analysis and reports across the frontier of cryptoeconomics, blockchain technology, and digital assets.
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Governance

August 23, 2016

Blockchains: Applications in Urban Governance

Cities are very complex systems, with communities of people, flows of money, and allocation of physical land in perpetual movement managed by local governance. Blockchains and distributed ledger have tremendous potential applications in city government.

Overview

Cities are very complex systems. They are communities of people, flows of money, allocation of physical land. They are in perpetual movement. Local governance is a critical element in these systems. Many aspects of cities are begging for reform; governance (City Hall) is one of them.

There are exciting experiments in local governance today. The Urban Hackathon and City Governance 2.0 movements have helped open up city data, integrate new technologies into city operations, and involve citizens in urban decision-making in new ways. Apps are letting citizens interact with their local governments in more persistent, light-touch ways.

But there are bolder experiments and more disruptive technologies on the horizon. Blockchains and distributed ledgers are one of them, and they have tremendous potential applications in city government.

  • Transparent record keeping and public archives
  • Fraud-free voting
  • Distributed, tamper-free registries
  • Smart contract administration
  • Grant distribution and tracking
  • Distributed decision-making


Overall, there are several levels of integration between blockchain technology and municipal governance beyond digital currency and finance systems.

Blockchain as a data-management tool

Blockchains have the potential to make data more secure and transparent. Data accessibility has become a priority for governments at many levels, and in the wake of recent data hacks, data integrity should become a higher concern.

Many issues have prevented progress, but one that blockchains would help solve is centralization of data-management responsibility. Putting data or data pointers onto a secure distributed ledger , accessible to anyone who chooses to help store these records, could help.

Companies and governments are exploring such applications. Delaware has recently announced a blockchain initiative, which includes a pilot project for public record keeping. London Mayoral candidate George Galloway proposed Mayorschain, to bring transparency to the city’s budget and help crowdsource ideas for cost savings.

Bitland wants to create a land registry for Ghana on the blockchain. Factom is piloting a similar project and aims to move more public data to the blockchain. Tax lot and assessor data could be more easily maintained, updated, and shared in a similar fashion.

Public health is another essential aspect of governance that can benefit from dependable data storage. BTC Media is convening experts to apply the blockchain to the healthcare industry, and the US Department of Health and Human Services is actively soliciting white papers on blockchain technology in healthcare. In healthcare, data privacy and sharing is a paramount concern. Alleviating these concerns can promote sharing of health data to guide city-wide interventions, and can even impact decisions on energy usage, social services, and police records.

Blockchains vary in how they are implemented, how they are secured, who can access them, and how they interface with other data technologies. These are each critical design details with implications for local governments, and research projects can find the best designs for different cities.

Blockchain as management automation

There are many functions in a city government that could be automated or digitally augmented but haven’t been: data management, administration, human resources, and others. Many factors help explain this, including cost, labor pushback, old technological infrastructure, and a technical literacy gap.

However, one persistent reason is cultural – we are simply uncomfortable with software ‘making decisions’ humans used to make. Who is software accountable to? Who maintains the software? Who programs it?

Smart contracts offer a unique twist on the automation story: simple business logic that can automatically transfer ownership, information, or money, with humans still making the tough decisions.[1]

Smart contracts are great for actions governments take that typically do not involve staff discretion, from distributing payroll, overseeing routine contracts, and ministerial land use decisions. This would amount to simplifying large but mostly invisible functions within a city government.

The UK Government is trialing the distribution of welfare and pension payments via a blockchain. UK Minister Matt Hancock expressed support for using blockchains to improve public service delivery.

"Monitoring and controlling the use of grants is incredibly complex. A blockchain, accessible to all the parties involved, might be a better way of solving that problem."

— U.K. Minister for the Cabinet Office Matt Hancock [2]

Distributed energy management can also simplify how local governments and utilities provide electricity through either hub-and-spoke or peer-to-peer contractual relationships. LO3 Energy is developing blockchain-based microgrid systems, including one in Brooklyn. Grid Singularity is focusing on the full-stack of an energy grid governed by multiple interlocking smart contracts. TheSunExchange is seeking to crowd-fund a solar energy utility is South Africa.

Blockchains are not panaceas for bureaucracy, but they could streamline operation of certain city government functions. Over the long-term, they may lead us to explore new management structures. It is also a more palatable application of software to human governance: instead of AI replacing human decision-making, it is the automated implementation of decisions that humans have made.

Municipal government as distributed autonomous organizations

This is the most radical form of blockchain implementation: operating government itself as a distributed autonomous organization. The Ethereum community conceived the idea of a distributed autonomous organization (or “DAO”) as a set of smart contract codes capable of organizing value transfers and assigning rights without a central leader or operator. Code can move capital, react to decisions, issue new contracts, present humans with decisions, and execute those decisions—exactly what an organization or corporation does, except it runs on a distributed ledger (blockchain).

Today, DAOs have an understandably bad reputation: the DAO that was launched on Ethereum was hacked, temporarily losing over $150 million, until the Ethereum network decided to fork to return the funds.

Despite its failure, the governance structure behind this implementation of a DAO was a fascinating one. At a high-level, it was a crowdsourced funding entity: people who hold shares in the DAO could review proposals by people who want funding from The DAO. The blueprint resembled a venture capital firm, with The DAO taking profits from those it funds. This isn’t the only way they can be structured, though– money can flow back into the DAO for redistribution in the same way public funds flow to and from city coffers.

Funds can be distributed automatically, allowing for automated outcomes-based funding. As new forms of value beyond money become codified and measurable, we may soon see distribution of these in a similar fashion.

In this governance model, entire city departments could be converted to DAOs. City staff could serve a curation and advisory role, citizens could hold a decision-making role, and the entire process could be transparent by nature.

Blockchain as inspiration

Some of these implementations are practical and could see deployment in real cities in the next five years. Others, such DAO governments, are more useful as thought experiments.

Blockchain technologies have opened the door for distributed networks across a variety of industries. Municipal government should be one of them.


[1] In practice, “smart contracts” are neither truly complex (i.e. “smart”) nor legally binding (“contracts”). They allow if/then statements to run automatically and transfer information and anything that information represents. They are neither artificial intelligence nor particularly long or complicated software.

[2] Quoted from "U.K. Considering Government Applications of Blockchain Technology", accessed July 27, 2016.

Acknowledgements: Thanks to Connor Patterson of Smith+Crown and Alex Voto of IFTF for their comments.