Should governments and administrations work with Ethereum? The pros and cons.

The cryptocurrencies are becoming increasingly important. In addition to the most well-known cryptocurrency Bitcoin, there are currently more than 2000 cryptocurrencies with a total market capitalization of more than 300 billion US-Dollars. As a lawyer focusing on the Public Sector in Germany and Europe with a passion for the blockchain technology, people ask me:

“Why doesn’t our administration allow the use of cryptos?”

It’s a fair question. But there’s no general answer. There are tons of altcoins with very different use cases, and not every one of them has a good use case for the state sector.

This essay is dedicated to the topic of the possibilities of using Ethereum in the public sector and forms part of the several publications to the alternative cryptocurrencies. Initially, the blockchain was developed as a booking system for internet currency. The new possibilities are fascinating: transactions are possible without intermediaries. Now, the blockchain creates security. It intervenes in many areas of life: logistics chains such as pharmaceutical transports can always be viewed without any gaps. The blockchain validates and maintains a permanent public record of all transactions and keeps the user’s information anonymous. There are already numerous concepts that could decisively influence future work processes. It is foreseeable that this trend will stop not least in front of the public sector because the blockchain technology provides a framework for the simplification of administrative procedures, which are still characterized by high administrative overhead.

What Is Meant By The Public Sector?

The public sector (also called the state sector) is the part of the economy composed of both public services and public enterprises. Public services include public goods and governmental services such as the military, Law enforcement, infrastructure, public transit, public education, along with health care and those working for the government itself, such as elected officials. The public sector might provide services that a non-payer cannot be excluded from (such as street lighting), services which benefit all of society rather than just the individual who uses the service Public enterprises, or state-owned enterprises, are self-financing commercial enterprises that are under public ownership which provide various private goods and services for sale and usually operate on a commercial basis.

Special Features Of Ethereum And Its Differences To Bitcoin

Ethereum was developed by a Russian-Canadian programmer Vitaliy Buterin and is a public, open-source platform based on blockchain offering smart contracts. It would be wrong to define Ethereum as a cryptocurrency or confuse it with Ether, a cryptocurrency member of the Ethereum system. Ethereum was created as a platform that allows users to develop programs without the involvement of intermediaries. On this, there are also central servers to store information, with which they have a lower risk of abuse by these intermediaries and authorities. Ethereum opened on 30 July 2015 and is the second most important cryptocurrency on the market with a capitalization of 37 billion euros. The concept change of ether-mining from proof-of-work to proof-of-stake to reduce the electricity costs of this process is always the topic.

Smart Contracts

Ethereum is the most popular platform for smart contracts. There are different types of smart contracts. How is a smart contract executed? In Ethereum, smart contracts are treated like an account acting autonomously. So there are no single individuals who have access to this account. Instead, the actions to be performed are performed on the network. This account can be thought of as a set of statements (program code) being executed. These include performing calculations, storing information, and sending transactions to other accounts. Today the blockchain offers its users a clear and straightforward way to perform contractual verification. A smart contract is a digital agreement between two or more persons that can be accessed by scanning the blockchain at any point in the future. Smart contracts have already found widespread use in trade finance because they can settle transactions without the need of a third party for verification.

Although people write smart contracts and store on the blockchain, after that the execution is solely the responsibility of the network and the user is no longer able to make changes, this means that errors can still occur due to incorrect programming. Much more important is the question of how reliable the smart contracts are. If a smart contract has been programmed correctly, interpretation difficulties in terms of the agreement are virtually eliminated. Also, the loss of documents is excluded.

There are numerous applications for such smart contacts, such as e-voting systems, crowdfunding, identity management, and virtual organizations. Ethereum and Ethereum Classic are distributed systems whose participants, the Ethereum or Ethereum Classic Contacts and Accounts, use a peer-to-peer network to exchange a variety of data without a central server.

E-voting Systems For The Public Sector

Voting procedures are an indispensable part of democracy. The new technology enables us to carry out the voting procedure using blockchain.

The Innovation and Development Foundation presented the initiative for the implementation of the electronic voting process in Ukraine. On February 11, 2016, at the IDF Reforms Lab, the leading IT-experts, blockchain-experts, and business representatives had presented an innovative system of electronic voting Vox. It marked a new milestone in the development of electronic democracy in Ukraine.

In South Korea, the Ministry of Science and ICT and the National Election Commission (NEC) plan to jointly test the implementation of blockchain technology within the online voting system. The trial period has been scheduled and was conducted by the Korea Internet and Security Agency (KISA) together with Seoul National University’s Blockchain Society.

In 2018 several regions worldwide have announced the consideration of blockchain-based systems for voting, such as Catalonia, and the Japanese city of Tsukuba.

Limitations And Weaknesses For Use In The Public Sector

One of the problems of the public Ethereum blockchain is that it is still in development, and the underlying protocol can be changed at any time. If two versions of the protocol are incompatible, the public chain will split. These so-called hard forks have already taken place several times. Besides, due to the theft of a large sum of ETH, the Ethereum community, using a flawed Smart Contract, decided to run the most controversial hard fork to refund the stolen money, a massive loss of confidence in the finality and reliability of Ethereum Smart Contracts and blockchains, in general, can be considered. It should be kept in mind when developing applications for the public Ethereum Network.

It is also conceivable that backdoors are programmed into the program code. The reliability and immutability of a digital contract based on a blockchain depend on its programmer. Also, the terms of the agreement may change at random. If Mr. John Doe gets his Volkswagen car delivered, but the car is damaged, does the digital contract register that, or does he automatically pay the car dealer? Another aspect is the limited application. Not everyone in the world has Internet access or an Internet-enabled device.

Conclusion And Outlook

Undoubtedly, the blockchain offers incredible potential to change our lives on all levels. However, new opportunities are accompanied by many new challenges. Especially the data protection stands in a tension related to the latest technology. However, in this regard, we should not prematurely abandon a technology that has the potential to change our lives in a (positive) way, as the Internet has done recently.

The possibility of directly implementing the voting procedure through technology represents a revolutionary step towards direct democracy even in a region of the country. The signing and execution of the treaties, without the involvement of a third party, brings speed to the economy and also to the public sector. It remains to be seen if further application scenarios will be developed and implemented.

In future articles, I’ll check out other popular cryptocurrencies and their use-case in the public sector.

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Altcoin Magazine

In Search Of An Altcoin For The Public Sector (I): Ethereum was originally published in ALTCOIN MAGAZINE on Medium, where people are continuing the conversation by highlighting and responding to this story.