Chinese version of UK government report “Beyond Blockchain”

Rage Review : On January 19, 2016, the British government released an important report on blockchain technology. The report, titled "Distributed Ledger Technology: Beyond Blockchain", mentioned that the British federal government is exploring distributed ledger technologies such as blockchain technology and analyzing the potential of blockchain in the traditional financial industry. This shows that the British government is actively evaluating the potential of blockchain technology and considering using it to reduce financial fraud and errors, as well as to transform the current paper-based processes, thereby reducing costs. The report also pointed out that decentralized ledger technology has great potential to change public and private services. It redefines data sharing, transparency and trust between government and citizens, and will dominate the government's digital transformation planning program. Any new technology will certainly bring challenges, but if the relationship between leadership, collaboration and governance can be handled well, distributed ledgers may bring great benefits to the UK.

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Follow the WeChat public account “区块链笔Blockchain” and use the keyword “UK report” to view and download the full text of this report.

Mark Walport, Chief Scientific Adviser to the UK Government

The algorithms generated by distributed ledger technology are a powerful, disruptive innovation that has the potential to transform the way public and private services are delivered and improve productivity through a wide range of applications.

Ledgers have been a core element of commerce since ancient times and are used to record a wide range of things—most commonly, assets like money and property rights. The media on which these records are kept have evolved, from clay tablets to papyrus to vellum and paper. But for so long, the only significant innovation in this area has been the computerization of data, which initially simply turned paper data into electronic data. Now, for the first time, computer algorithms are making it possible to collaboratively maintain digital, distributed ledgers that have properties and capabilities that go beyond traditional paper ledgers.

A distributed ledger is essentially a database of assets that can be shared across a network of multiple sites, geographic locations, or institutions. Participants in a network have access to a single, true copy of the ledger. Any changes to the ledger are reflected in all copies, with a response time of minutes or even seconds. The assets stored in the ledger can be financial, legal, physical, or electronic. The security and accuracy of the assets stored in the ledger is maintained cryptographically through the use of public and private keys and signatures to control access to the ledger. Records in the ledger can be updated by one, some, or all participants, based on the rules agreed upon in the network.

Blockchain is the underlying technology for this distributed ledger, which was originally designed for the peer-to-peer digital cash system Bitcoin, which was implemented in 2008. The blockchain algorithm allows Bitcoin transactions to be grouped together in "blocks" and added to a "chain" of existing blocks through cryptographic signatures. The Bitcoin ledger is constructed in a distributed and "permissionless" way, and anyone can add a block containing transactions by solving the cryptographic puzzle required to generate a new block. Currently, the system is incentivized by a reward of 25 Bitcoins for each block solved and generated. Anyone with an internet connection and computer computing power who has the opportunity to solve these cryptographic puzzles and add transactions to the ledger is called a "Bitcoin miner." The mining metaphor is apt because mining Bitcoin requires a lot of computer computing power and therefore a high energy consumption. It is estimated that the energy required to run the Bitcoin network exceeds 1GW (billion watts), which is comparable to the electricity consumption of Ireland.

Bitcoin is like cash on the Internet. Cash is verified by physical appearance and features, while banknotes are verified by serial numbers and other security features. However, in the case of cash, there is no ledger to record transactions, and both coins and banknotes are vulnerable to counterfeiting. In the case of Bitcoin, the ledger of transactions guarantees their authenticity. Both coins and Bitcoins need to be stored securely in a wallet (physical or virtual respectively), and if this step is not perfect, both coins and Bitcoins can be stolen. The fundamental difference between Bitcoin and traditional currencies is that traditional currencies are issued by central banks, while Bitcoins are issued by a global "cooperative" mechanism called Bitcoin in amounts determined by consensus. Cash has been used as a tool for exchange and business operations for more than a thousand years. In this sense, agate shells, forged pennies, and Bitcoins are all related.

But this report is not about Bitcoin. It is about the algorithmic technology that makes Bitcoin possible, and about the potential of this technology to revolutionize existing ledger systems as a tool for recording, facilitating, and maintaining a wide range of transactions. So, the basic architecture of the blockchain can be modified to incorporate rules, smart contracts, digital signatures, and other new tools.

Distributed ledger technology has the potential to help governments collect taxes, distribute benefits, issue passports, register land titles, keep the supply chain running, and generally ensure the accuracy of government records and services. In the UK National Health Service (NHS), this technology has the potential to improve the healthcare system by improving and verifying the delivery of services and sharing records securely according to precise rules. For consumers of these services, this technology has the potential to allow consumers to control access to their personal records and be aware of other organizations' access to their records, depending on the circumstances.

Current data management solutions, especially for personal data management, are usually large traditional IT systems set up within a single organization. This also introduces a series of network and communication systems to achieve communication with the outside world, which also adds additional costs and complexity. Highly centralized systems have a high probability of single point failure. This also brings the risk of being attacked by hackers, and data often has problems such as being out of sync, out of date or inaccurate.

In contrast, distributed ledgers are inherently difficult to attack because, rather than using a single database to store records, they retain multiple shared copies of the same database, so hackers must target all copies simultaneously to be effective. This technology also has the ability to prevent unauthorized changes or malicious tampering, because participants in the network will immediately notice that a part of the ledger has been tampered with. In addition, the method used to maintain information security and update information means that participants can share data and ensure that all copies of the ledger are consistent with each other at all times.

However, this does not mean that distributed ledgers are immune to hacker attacks, because in principle, anyone who can find a way to "legally" modify one copy can modify all copies of the ledger. Therefore, ensuring the security of distributed ledgers is an important task, just like ensuring the security of the digital technology infrastructure that modern society relies on.

Some local governments are beginning to incorporate distributed ledger technology into their operations. The Estonian government has been experimenting with a distributed ledger technology called Keyless Signature Infrastructure (KSI) developed by Guardtime for several years.

This infrastructure allows citizens to verify the correctness of their records stored in government databases. This also seems to eliminate the possibility of privileged insiders engaging in illegal activities within government networks. With this guarantee, Estonia has launched digital services such as the e-Business Register and e-Tax. This reduces the administrative burden and costs on the state and citizens. Estonia is listed in the "D5 group of nations" along with the United Kingdom, Israel, New Zealand and South Korea. (Translator's note: The Digital Five is a project sponsored by the British government to improve the quality of public services through digitalization). The British government has the opportunity to learn and implement the application of blockchain and related technologies together with these and other like-minded governments.

The business community has long seen the potential this technology offers. Distributed ledgers offer a new way to ensure ownership and provenance of goods and intellectual property. For example, Everledger offers a distributed ledger that ensures the identity of diamonds and records relevant information from mining, cutting, sale and insurance. In a market where relatively many paper documents are forged, this technology makes the classification of diamonds more efficient and has the potential to reduce the risk of fraud and prevent "blood diamonds" from entering the market.

A major challenge facing such technologies is how to explain their importance to policymakers and the public—an important purpose of this report.

The first difficulty in communicating about this technology is the seemingly close connection between blockchain technology and Bitcoin. Bitcoin is a type of cryptocurrency because it uses cryptography to secure and track the supply of money. Bitcoin's connection with illegal transactions such as Silk Road (which has since been shut down) and "dark web" trading sites has caused public and government policymakers to be suspicious of it. However, central banks and government financial departments in various countries have a certain interest in digital currencies and are conducting research. This is because unlike physical cash, the electronic distribution of digital cash can improve efficiency and create a transaction ledger without physical cash.

The second difficulty in communicating about this technology is the confusing terminology. Simon Taylor provides a series of definitions at the end of this section to help clarify these terms. One term in particular is “distributed”, which can be misleading, as it means that the system must be unregulated and unowned. This is not entirely wrong, but it is also not necessarily true - it depends on the specific design rules of the ledger. In practice, there are many models of distributed ledgers, with different degrees of centralization and different types of access control mechanisms to suit different business requirements. In this space, there are “permissionless” ledgers, which are open to anyone who can contribute data to the ledger and the ledger cannot be owned by a single person or organization; there are also “permission-based” ledgers, which may have owners and only the owner can record and verify the contents of the ledger.

The key message is that by fully understanding the technology, governments and private organizations can choose the specific design that best meets their business needs, striking a balance between security, centralized control, and the convenience and opportunity to share data across different organizations and individuals.

As with most new technologies, the future uses and possible problems of these technologies are still unclear. As with all new technologies, the key is not whether the technology itself is good or bad, but what are the application scenarios of this technology? Why is it designed? How to apply it? What corresponding safety measures are there to avoid possible problems?

To help answer these questions, the UK Government Technology Office has selected experts from business, government and academia to form a high-level group to evaluate the opportunities for distributed ledger technology within government and the private sector, and to determine how government and other departments need to take advantage of and avoid risks in the use of distributed ledger technology. The goal is to help policymakers and stakeholders understand the terminology behind the technology and provide them with a vision and proof of concept for the technology to help them decide what measures are necessary and how best to deploy them.

Overall, distributed ledger technology provides a framework that governments can use to reduce fraud, corruption, errors, and the costs of paper-heavy operations. It has the potential to redefine the relationship between government and citizens in terms of data sharing, transparency, and trust. Similar potential exists for the private sector.

This editor’s note provides eight recommendations from our research, covering vision, technology, governance, privacy and security, disruptive potential, applications, and global perspectives. These chapters are written by experts in the field of distributed ledger technology, but in a style that is accessible to laymen. I am deeply grateful for the guidance and thoughtful contributions of these experts.