At The Payments Innovation Conference on 4 July, conservative minister Lord Freud has announced that the Government has been developing and testing blockchain technology to keep track of welfare benefits.

Intention to revolutionize welfare system

The platform developed by the Department of Work and Pensions and GovCoin, a London-based startup, is undergoing a proof-of-concept trial where payments are recorded on a distributed ledger. The trial’s participants include Barclay, Npower and University College London.

Robert Kay, CEO of GovCoin said:

“GovCoin has united a team of strong professionals expertizing in financial services and international transactions. Our main objective is to create a platform that could significantly improve people's lives. Developing of prototype is the first step in that direction.”

Testing of the prototype was initiated in June, and according to David Freud, the Minister of State for Welfare Reform, the application of technology will be monitored to see whether there is a potential in that area, and most importantly, how benefits claimants can benefit from this approach.

Freud explained:

“Claimants are using an app on their phones through which they are receiving and spending their benefit payments. With their consent, their transactions are being recorded on a distributed ledger to support their financial management.”

David Freud, the Minister of State for Welfare Reform

Snooping on benefits spending?

Although it implies a certain freedom to chose whether transactions are transmitted to the app, it raises more questions.

Thus, the GovCoin is specializing in platforms that utilise alternatives to cash, such as Bitcoin. Does it mean that the government is considering the possibility to create a benefits currency in the manner of Bitcoin that could only be received and spent through the app?

While unveiling a potential of technology in the benefits space is certainly promising, the project run by DWP is rather questionable and looks more like an attempt of the state to keep track of people’s spending while they are on benefits to control claimant’s misspending.

Community is outraged

The initiative was already found to be unacceptable. The following are the reactions on social media:

“This is a violation of our human rights”

“The very little is stopping the government from creating algorithms to monitor ALL spending.”

“This is repulsive on every level. Presumably people can only shop in certain places that adopted the payment system. Will we be forced to walk across the town looking for one and then struggle home with my shopping?”

There are many spheres that could be revolutionized with the help of blockchain technology. Keeping track of state spending, e-voting, bringing more transparency to tax system are only a few of potential applications of technology.

However, the attempt to use blockchain to monitor and manage social benefits is questionable from the point of view of safety, and ethics.

Certainly, alcohol, gambling and tobacco aren't in line with what benefits are designed to support, but doesn't it look like a government is attempting to take a full control of citizen's lives by snooping on how people are spending their hard won welfare benefits?

Further discussions

Blockchain and digital currencies are gaining in popularity demonstrating that they can remove the need for notaries and banks in a thriving economy and therefore reduce spending, but in the wrong hands, technology can be terribly misused.

Application of blockchain remains on the state agenda. On 19 July, The Economic Affairs Committee has called for a special meeting to explore a range of issues related to the use of distributed ledger technology, including the possibility of creating a central bank digital currency, regulation matters and the use of blockchain for collection of taxes and paying benefits.