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[The Future is Now] Seoul is planning a blockchain revolution

Oct 19,2018
Yoon Jeom-sook, a 62-year-old resident of Gangwon, drives to Seoul every month to take her husband to a clinic for a check-up. But they run into the same problem every time.

“We tend to go to different clinics for his different conditions, and they ask us what other medications my husband is on,” she said. “But we can’t always remember the names of everything. Even if we call the clinic to ask for this information, they tell us we need to show up at the clinic in person to receive this information on printed paper because of privacy laws. We go through quite a bit of hassle every time we find a new clinic.”

What the Seoul Metropolitan Government is hoping to do within the next four years is save Yoon the hassle.

“We have 14 projects planned until 2022 using blockchain,” said Yang Gyu-seok, an official in the city government’s Information System Planning Division. “They span across sectors including city administration, health care, voting, used car trading, charity funds, energy sharing and more.”

The Seoul Metropolitan Government announced on Oct. 3 a plan to create an ecosystem that promotes blockchain development, including 14 experimental projects that will run until 2022 and 100 billion won ($88 million) in investment in blockchain start-ups.

Blockchain refers to a type of database that stores information across a network of computers. Once a record has been added to the blockchain, it is extremely difficult to change, as the system constantly checks that all the information simultaneously stored on all the different computers, or nodes, is the same. When new information is added to the network, it needs to be validated by every node.

If developed as planned, blockchain will allow medical records to be safely stored on a single system that can be accessed by all hospitals and clinics. The city government hopes to launch this system by 2021.

“Citizens’ medical records will be saved in an encrypted format onto the blocks,” the city government said. “In 2019, we will experiment with district health centers, city-run hospitals and private hospitals. We hope to have the system up and running by 2021.”

The blockchain projects will impact the way some people trade and do business from as early as February next year.

“People will vote using blockchain and trade cars using blockchain from as early as February next year,” Yang said.

And that ought to bring some comfort for Seoulites like Mr. Lee. Lee runs multiple sports complexes throughout Gyeonggi. He collects cars in his spare time - when a new model is released, he switches it out with one of the used cars he owns.

“There is always the concern that whoever buys my car will never register themselves as the new owner,” Lee said.

“That means that I simply have to trust the middleman, because otherwise, I will continue to be taxed for the car after I sell it off to someone else.”

Information on a blockchain is incredibly difficult to delete, making it the perfect solution for situations where a verifiable and accurate record is crucial.

“Applying the technology to used cars, we can trace the history of each car and have a reliable record ready,” the city government said in its white paper on blockchain issued last month. “We will start using the technology at the Janganpyeong used car market from early next year, and expand it to other markets throughout Seoul in 2020.”

In short, if all goes to plan, blockchain is expected to revolutionize the speed of administration at the city government.



Seoul Mayor Park Won-soon, right, looks at the model of a blockchain-based satellite project by Dezentrum, a Swiss think tank, at Trust Square in Zurich on Oct. 3. [SEOUL METROPOLITAN GOVERNMENT]
One code for all

A recent college graduate surnamed Jeong is looking to find a job in Seoul.

“I know that the Seoul city government provides cash allowances to unemployed people in the city,” she said. “But I’m not sure if my family’s household income level will allow me to qualify for the program.”

Jeong also wants to look into the public rental housing available in Seoul for recent graduates like herself. Her query will be one of nearly 4 billion requests that city governments and local district offices receive throughout the year.

“There are more than 3.7 billion requests in local government offices throughout the country on health records, residential information and income history - all required when applying for welfare programs, student loans, public rental housing and more,” said the city government. “With blockchain, each government agency will be able to access all the needed information about a citizen in a secure way.”

The idea is that people like Jeong will be able to input a unique pin code assigned to her on the city government’s website to find out if she qualifies for the cash allowance for unemployed people or for public rental housing in Seoul within a few minutes.

“Today, if someone applies to the city government for the youth unemployment allowance, he or she needs to submit records from school, a certificate of residency in Seoul and health insurance information that will contain information about the applicant’s income,” said Kim Tae-kyoon, director general for IT for the Seoul city government.

“What blockchain will do is have all of this information about citizens stored safely and accessibly for government agencies, as long as the individuals give their consent.”

Along with the Seoul city government, the nodes in the blockchain network will include the Ministry of the Interior and Safety, Ministry of Employment and Labor, Ministry of Health and Welfare and the National Health Insurance Service.

“‘Is it safe to store all this information in blockchain?’ one may ask,” Kim said. “What is saved on blockchain will not look like the name of a person and his or her personal information, but an encrypted digitized code. In short, it will be hard to tell what that information means unless you are an authorized entity.”



Smart contracts

Blockchain will also ensure automatic payment upon fulfillment of contract requirements between the city government and its subcontracted companies.

“Using the smart-contract mechanism of blockchain, subcontracted companies will be paid as soon as the contract is fulfilled,” the city government said.

The smart-contract mechanism ensures that when the conditions defined by parties in a contract are met, the agreement is automatically enforced.

The city government hopes to enter into agreements with companies in Seoul to use the platform to ensure part-time workers in the city get paid on time.

“Some 60 percent of part-time workers work without a proper contract,” the city government said. “Blockchain technology will keep a transparent and untampered record on the hours worked by each part-time employee and ensure that he or she gets paid on their agreed payday.”



Direct democracy

Blockchain-based online voting will be one of the first pilot projects to be rolled out, as early as February next year.

The city government intends to upgrade its online voting platform M-Voting using blockchain. The platform has been used to receive public opinion on city policies, but with varied levels of success. Most of the ballots open over the weekend had less than ten votes.

“The reason why people don’t participate in online voting is that they cannot trust the results,” Kim said. “Blockchain ensures that every person votes once and prevents anyone from tampering with the results. That will encourage more people to participate in voting.”

It will also help settle community disputes, Kim added.

“There are 1.37 million households living in apartments in Seoul,” he said. “Many of them are old, and at some point, the residents need to decide whether to completely knock the building down and build a new one, or to remodel it in parts. With blockchain, a consensus could be reached faster.”

To encourage more citizen participation, the Seoul city government intends to reward those who actively take part in city programs with its own cryptocurrency, tentatively dubbed S-Coin.

“S-Coin is a cryptocurrency to be developed by the city government,” Yang said. “By using blockchain, we will be handing out S-Coins instead of mileage.”

The city government has been awarding people who take part in an initiative to drive less and take public transportation more with “mileage” that can be turned into cash or used online to pay for taxes. It has also been rewarding patients with diabetes and high blood pressure who regularly receive checkups at local clinics with similar types of mileage that could be used for discounts in medical bills.

“S-Coins handed out in place of this mileage can be used to pay for taxes, parking fees and medical bills and for goods at certain stores,” the city government said.

Though governments around the world, including that of Russia, have announced plans to issue their own cryptocurrencies, none have been released yet.



Not benchmarked

So where did Seoul get all of its ideas on blockchain?

“We looked into cases in Britain, Estonia, Switzerland and more, but each country and city’s environment is so vastly different, you can’t simply take one system and apply it elsewhere,” Yang said. “As far as I know, some of our projects on equal labor practices that utilize the smart-contract functions of blockchain to ensure part-time workers are paid in time or subcontracted companies are paid transparently are quite unique to the city.”

Seoul has been studying up on the technology for the past year, according to the mayor.

“We began to study the technology a year ago,” Seoul Mayor Park Won-soon said at the city hall of Zug, Switzerland, also known as the cryptovalley of the country, on Oct. 3.

Park traveled to Spain, Switzerland and Estonia earlier this month to study examples of blockchain-based public administration and smart city development. During the trip, he announced Seoul’s four-year plan on blockchain.

“Our hope is that Seoul will take a place among top blockchain cities and countries in the world like Zug and Estonia,” Park said.

He also met with the mayor of Tallinn, Estonia, and president of Estonia to sign accords to cooperate in the field of ICT, smart city development, e-governance and cybersecurity.

The Estonian government began experimenting with blockchain technology in 2008 and put it into official use since 2012. It provides electronic ID cards to 98 percent of its citizens and uses blockchain to keep information secure. Estonians use their digital ID cards to provide identification while traveling within the European Union, for health insurance, banks, voting and filing tax returns.

It also has a blockchain-based health care system where medical records of a patient are pooled for doctors to access.

“Estonia’s health care and citizen identification systems that are based on blockchain are exemplary,” Yang said. “If there are any similarities found between the projects in Estonia and in Seoul, it would be on these two.”



National initiative

Within the country, Seoul is not alone in experimenting with blockchain.

Jeju Gov. Won Hee-ryong has a plan to apply the technology to the agricultural sector on the island.

“If you have visited the island, you will know that there are numerous pork barbecue restaurants that advertise themselves as ‘the place for authentic black pork barbecue,’” Won told the JoongAng Ilbo in an interview last month. “Even if they put up certificates or licenses on their restaurant signed by the governor of Jeju, there is really no way to check if they are breeding pigs and producing food in the certified way.

“But with blockchain, we can see the complete record on where and how the pigs were bred and will be able to determine which restaurants are serving qualified pork products,” he said.

The idea is not isolated to the local government.

The Ministry of Science and ICT plans to cooperate with the Ministry of Agriculture, Food and Rural Affairs this year to record information on how and where food products were made.

“The goal is to be able to track down the farm or slaughterhouse of a livestock product within six minutes if we find something wrong with the product,” the Ministry of Science and ICT said in its white paper for blockchain technology development in June.

Recalls on poultry or meat products have been made before over influenza or other disease scares.

The central government has outlined its own projects regarding the technology - there are six experiments planned for this year, on voting and citizen identification as well as land registry and in real estate, which are to cost around 4.2 billion won.

They include developing a blockchain-based platform that tracks identification information to be made accessible to expats; pooling land registry among government bodies and real estate institutes to simplify buying and selling of properties; and establishing a blockchain-based voting system for national elections.



Regulations

Governments around the world are increasingly looking into using blockchain.

There are 202 public initiatives across 45 countries to apply blockchain to systems related to citizen identities, land registry, supply chain management, social security, contracts and voting, according to the Observatory of Public Sector Innovation of the Organization for Economic Development and Cooperation. The number has nearly doubled since last year, when there were 117 public initiatives in 26 countries.

Though the Korean government may be following the global trend in applying blockchain to public administration, its initiatives could struggle in the local regulatory environment.

The Korean government has banned initial coin offerings (ICO), the process by which an entrepreneur can ask parties to invest in a cryptocurrency they have invented to raise funds for a business. The Financial Services Commission prohibited all forms of ICO in September last year, citing criminal activities with fake cryptocurrencies and overly speculative activities.

ICOs are banned in only a handful of other countries, including China, Macedonia, Ecuador, Morocco and Pakistan.

Government bodies experimenting with the technology in Korea say, however, that the regulation will not affect their projects, as they will be operating on private blockchain.

“There are two types of blockchain, public and private,” said Kim of the Seoul city government. “Public means everyone can participate as a node in the network. Private means that only a group of authorized people or entities participate as nodes. There is no public blockchain project at the Seoul city government - thus, they have nothing to do with the ICO regulation.”

Though it may not impact the government projects directly, the regulation still has an impact on the technology footprint in the country as it tends to an exodus of developers who are seeking more favorable environments out of the country.

“Blockchain companies are leaving Korea to find new homes in more favorable environments in Switzerland or Singapore,” said Bareunmirae Party Rep. Choung Byoung-gug. “Due to this exodus, we are losing some 1 trillion won a year.”

There are some in the government pushing for deregulation in Jeju Island.

“I have made a proposal to the president to create a regulatory sandbox for blockchain in Jeju Island,” Won said in a forum on blockchain at the island on Sept. 12. “The plan is to create an environment in Korea where new blockchain start-ups can experiment with technologies and companies can develop cryptocurrencies. Instead of an all-out regulation, the government must come up with preventive mechanisms on cryptocurrency fraud and create a regulatory sandbox in the country.”

Choung said he is working on an amendment to the law to establish a regulatory sandbox in Jeju.

But the regulation regarding the ICO ban is one of some dozen proposals on blockchain and cryptocurrency sitting at the National Assembly, according to Choung.

“There are 11 amendments to the law regarding blockchain tabled at the National Assembly - none of them have been discussed and all of them concern different things about blockchain,” he said. “Each has a different definition on blockchain or cryptocurrency. We have not made progress with these bills because we are still trying to find out if what we drafted about the technology is really the best we can do. We are still learning.”

Establishing a legal framework for wider blockchain use in Korea will require at least three different amendments to existing laws, according to the National Assembly Research Service (NARS)

“Given that we cannot delete information from blockchain, this can clash with the Personal Information Protection Act, which guarantees one’s right to request deletion of personal information,” NARS states in its study published in June. “The technology’s use can also clash with the Civil Act, which separates the action of offering and accepting contracts. The smart-contract function of blockchain means once a condition in a contract is met, it leads to automatic acceptance of the contract.

“We also have to determine if information registered on a blockchain-based platform can legally be accepted as a form of electronic document as specified in the Framework Act on Electronic Documents and Transactions,” NARS said.

The conundrum is not unique to Korea.

“Blockchain technology is not covered by existing laws,” said Matsudaira Koichi, a member of the House of Representatives in Japan. “For example, if you have carried out a financial transaction using blockchain on a smartphone and there was a bug, then who should be responsible for it - should it be the blockchain program developer or the smartphone communications provider? These are the questions we’re asking.

“Another issue is on regulations regarding nodes,” he added. “If they are located all over the world, which country’s laws do they follow?”

Experts agreed that there is a general lack of consensus on regulations regarding blockchain.

“We really desperately need global standards and oversight - we need to have dialogue around what do we commonly agree on among policymakers,” said Sandra Ro, CEO of Global Blockchain Business Council at a blockchain conference in the National Assembly last week. “There is so much research, white papers, documentation, conferences about blockchain, but here is the problem - every one’s doing it in a silo and we need more communication and collaboration from the influencers and the policymakers.”

Ro also emphasized that cryptocurrency can be a friend to regulators, not the enemy.

“If you are [concerned] about money laundering, counterterrorism - actually cryptocurrency and blockchain can be tools to help you [prevent] this,” Ro said. “We need to help with education at policymaking level for policymakers to understand how that can happen.”

BY ESTHER CHUNG [chung.juhee@joongang.co.kr]


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