Full of Potential: Blockchain in China's E-Government System
The properties of blockchain harmonize well with the demand for an integrated reform in China's e-government system, which makes the field somewhat promising as a driver for the real economy.
E-government implies the application of Information and Communication Technologies (ICTs) to government functions and procedures which aim at simulating efficiency, transparency and quality of public services.
Although the construction of China's e-government system began in 1999, it started to attract major attention among government bodies after 2013.
In July 2018, the State Council of the People's Republic of China issued the 'Guiding Opinions to Accelerate the Construction of a National Integrated Online Government Service Platform,' in which the policymakers put forward that it was imperative to build up the national integrated online government service platform before 2023.
This brings the blockchain industry a window of opportunities in real-world applications. As mentioned in the '2018 Blockchain White Paper' published by the Ministry of Industry and Information Technology, the adoption of blockchain technology allows government departments to safely authorize relevant parties in accessing data and recording the corresponding data extracting behaviors – this means it is possible to accurately hold accountable actors behind data breaches. Thereby, a credible environment that facilitates cross-level and cross-department data interconnection can be formed, such that the efficiency of government services can be improved.
China's e-government development is in an emerging stage with rapid growth
China's e-government service market reached CNY 310.7 billion by the end of 2018, with a CAGR of 13% in the five-year period starting from 2014. This suggests the fast-developing speed of China's e-government constructions under the strong support from policymakers.
Besides, results from the series of 'E-Government Service Reports' issued by the United Nations imply that the development level of e-government service in China is at a moderate stage – the E-Government Development Index (EGDI) of the country is above the world average but still a big distance from being the world's leading level.
Put together with the fact that the development of China's e-government service – measured by EDGI – is relatively fast compared to the world's average and the leading countries, e-government services still have plenty of room to grow in the country.
The pain point of traditional e-government systems and how blockchain may offer help
The development of China's e-government system is in a period of transition from the integration stage of cross-department construction to the stage of building platforms in sharing data and information.
With the properties of immutability, encryption and distribution, blockchain can potentially help to solve the three main pain points in the current system, and accelerate the process in launching the national integrated online government platform:
Disconnected data resources
The data of each department is kept separately and a lack of standardized interface across different units exists. This poses two problems: 1. It is difficult to integrate data and information between divisions and hard to provide complete data to higher authorities, and thus, not conducive to the formulation of macro planning; 2. It requires huge investments in both hardware and software to ensure security.
How blockchain can help: By connecting relevant departments and parties through an alliance chain network, affairs processing and data sharing within a certain range can be realized without affecting the original business architecture. Cooperation between parties means smart contracts and blockchain-based access control can be leveraged.
Hidden dangers in network security
Traditional e-government systems normally apply a client-server architecture, which tends to have weak capabilities in preventing external or internal factors from tampering with existing data and information.
How blockchain can help: Through blockchain, data and information are kept in a decentralized system. In this case, the failure of one node does lead to the failure of the entire system. Meanwhile, with the properties of immutability and traceability of blockchain, the parties can promptly identify and hold accountable actors in data breaches.
Low efficiency and low transparency
Although traditional e-government systems tend to be much more efficient than the paper documents approach, they still rely on manual processing by staff, which will not improve efficiency and reduce redundancy in the government system.
How blockchain can help: By using blockchain-based smart contracts, government affairs can be performed automatically, which significantly increases efficiency. Besides, the blockchain-based network helps to reduce corruption in the government system and raises convenience for the public in the supervision of government affairs – and thus improves transparency in the entire system.
At present, there are 40 ongoing or implemented projects of blockchain applications in the field of government affairs, which cover eight scenarios, encompassing digital identity, electronic certificates, electronic bills, property rights registration, industrial and commercial registration, data sharing, public affairs supervision and administrative approval.
Domestic tech giants like Alibaba Group (BABA: NYSE), computer appliance leaders in the A-share like Hundsun Technologies (600570:SH) and Thunisoft (300271:SH), and also blockchain-focused startups like Hyperchain and Fadada are all among the participants in this playground.
Here we will focus on introducing one typical e-government project leveraging blockchain capabilities – the digital identity authentication which implemented through the Hangzhou Government Service Chain.
Officially launched in December 2019, the chain is the first bottom layer blockchain infrastructure in the probably most blockchain-advanced city in China. The system started its six-month trial in May – more than three million blocks have since been produced.
The system is designed to support multiple municipal services scenarios, and the local government chooses digital identity authentication as a starting point, based on the following considerations: 1. Digital identity authentication is highly associated with the government's goal of enhancing the convenience of municipal services and improving government efficiency; 2. Blockchain can play a big role in data sharing and data credibility.
The system helps citizens deal with affairs that involve multiple departments more conveniently as follows: after the citizen submits his/her personal information, the data center of the local Data Resources Administration will initiate a verification request to the Ministry of Public Security for the verification results. If the verification result shows a pass, the data center will then issue a certificate and the data will be saved on the blockchain system. The certified identity can be extracted by different departments, and leaves a timestamp that represents the sequence.
Therefore, once the identity data is saved on the chain, citizens no longer need to read and verify the data back and forth from higher authorities like the Ministry of Public Security, which significantly improves the validity period and available range of citizen's identity information.
The Hangzhou Government Service Chain adopts a 'one main chain, multiple sidechains' architecture, which can be considered a cross-chain solution. Its layered structure allows decentralization, security and high capability to coexist to a large extent. Specifically, the main chain is what is connected with the local Data Resources Administration, and the sidechains are distributed to each application scenario. In the system, the main chain aims to maintain stability and security, while the capabilities of the sidechains are optimized according to the characteristics of specific scenarios, for example, scenarios with high concurrent shall match a sidechain with high TPS.
As of now, there is one application scenario (i.e., DApp on the top layer) and four nodes (i.e., government departments) operating on the network. According to the local government, the Hangzhou Government Chain will expand in these two aspects simultaneously.