In a recent event organised by the Nepal Bankers’ Association, Maha Prasad Adhikari, the Governor of the Central Bank of Nepal, announced the implementation of Central Bank Digital Currency (CBDC) by 2026 and a rollout of the centralised KYC (cKYC) system. Digitisation of the identity management system and our currency will be a landmark milestone for banking and commerce. However, selecting the right technology and architecture will be critical because it will be the key driver in determining the success, usability and longevity of these digital solutions designed for public consumption.

Fast-evolving technology is significantly impacting the delivery of worldwide public services, leading to governance efficiency, citizen engagement and trust-building changes. One key reason for this transformation has been the use of blockchain technology. Initially synonymous with cryptocurrency, blockchain’s decentralised, transparent, auditable and immutable capabilities can be game-changers for our inefficient public sector services.

Blockchain-based solutions

Identity management is one domain in which blockchain technology is making major inroads globally. Bhutan recently introduced a blockchain-based national digital identity system enabling citizens to have a Self-Sovereign Identity (SSI). The decentralised digital identity holders in SSI have complete control over their identity and can share it with anyone they have authorised to access. The digital data, stored in a verifiable data registry, can be issued by any authorised entity and verified by any verifier without the need for integration with the registry. For these reasons, it is touted that Bhutan’s blockchain-based national digital identity system is superior to a centralised identity system like the Aadhar of India.

However, we must be mindful of whether the Central Bank’s cKYC system will be fit for the future. This is because the world has moved to a decentralised SSI system that can be used not only for KYC purposes but can have multiple functionalities like a national digital wallet to store users’ day-to-day records or access government and private sector services and even integrate with CBDCs. A siloed cKYC system will be obsolete soon and costly for the country if every state engine implements its own KYC system.

For instance, Sebon & CDSCL has also rolled out its version of cKYC to be used in the security market of Nepal, and by using similar developments like the Nagarik app and National Investigation Department, we could potentially have several identity systems. A single SSI rail will eliminate such duplication, reduce cost, enhance coordination and serve all kinds of purposes like KYC or for land registry, voting, health care, student record, driving license record, etc. The transport management department plagued by fake issuance of driver’s licences can effectively eliminate duplicity and ensure authenticity using the SSI rails. Student’s education degrees, if stored in a blockchain-based registry, can be accessed by any verifier without physically checking the original documents.

Blockchain technologies and their applications are also rapidly being used in other public sectors. The United Arab Emirates has declared that its state engines are fully going to be powered by blockchains. Dubai’s police department and the Ministry of Health have launched the blockchain platform to store data and provide services to the public. Various Scandinavian countries are exploring the use of blockchain in their welfare systems. Even the Indian government is experimenting with its diverse uses, such as CBDC, recording CBSE certificates, Covid vaccinations, etc.

Similarly, many countries worldwide, including India, are exploring the use of blockchain solutions for land registries. It is the most pursued blockchain project initiative around the world, second to the identity management system. Blockchain is also extensively being piloted for voting because blockchain-based digital voting can decentralise the voting process, making it secure, transparent, robust and immutable.

Numerous countries have used blockchain or provided an enabling environment, thereby finding a marketing niche for their country. Malta, a small island country in the Mediterranean, is establishing itself as a blockchain innovation hub, attracting many blockchain-based organisations to the island. In El Salvador, blockchain technology has led to financial inclusion, improved public services with transparency, better record keeping and reduced fraud. This has built greater trust in public institutions and improved governance. Apart from these, countries like Singapore, the United States, Canada and Europe are already in the front league in adopting cryptocurrency and blockchain-based technology. In a world where we engage more through the digital space, decentralised solutions enable people to participate more effectively in the digital economy.

Blockchain solutions in Nepal

Nepal may not be ready to use cryptocurrency as a currency, but it should consider the application of blockchain technology in its public services. While cKYC is better than the current nonexistent system, we must create a single digital identity rail that is more futuristic, innovative and progressive and can be a single source of identity verification. Similarly, the decentralised network, transparency, immutability, and security features of blockchain would make good use in the land registry, which can put an end to contentious land ownership issues like the Lalita Niwas case or Kamal Pokhari that morphed into Chhaya Centre in Thamel. Land registry in blockchain can solve current inefficiencies and issues like fraud, time delays, title verification issues and payment concerns. Most importantly, tax evasion issues.

Imagine a future when the buyer (or lending bank) can verify the authenticity of property documents, check land ownership history through blockchain land registry and use smart contracts to pass the land title to the buyer and trigger funds transfer to the seller using digital currency.

The interoperability of blockchain-based programmable currency (say CBDC) and the digital identity stack can benefit the real estate business and enhance social security allowance distribution. The SSI system and CBDC can make the process robust, transparent, auditable, cost-effective and future-proof. Blockchain will then take over the world as a security tool and be considered an ideal solution for public service delivery, such as identity management and CBDC. Therefore, “code is law” has become the new catchphrase because code will ensure automated governance, which our public sector lacks.