Blockchain technology for the improvement of the Dutch e-government authentication system DigiD: Revolutionary or impracticable?

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Blockchain technology for the improvement of

the Dutch e-government authentication system

DigiD: Revolutionary or impracticable?

University of Amsterdam

Name: Kris van der Werf

Student number: 10767983

Date: 26-06-2018

Faculty: Economics and Business

Specialization: Business Administration

Bachelor Thesis (12 EC)

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Statement of originality

This document is written by Kris van der Werf who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and has no sources other than those mentioned in the text and its references have been used in creating it. The faculty of Economics and Business is responsible solely for the supervision of completion of the work, not the contents.

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Abstract

By using previously conducted research, this thesis examined if blockchain technology has the potential to change the current socio-technical landscape in the Netherlands. Subsequently, it researched the usefulness of blockchain technology for the improvement of the Dutch e-governmental authentication system DigiD. It was found that blockchain technology does have the potential to change the current societal- and economic system in the Netherlands, keeping in mind that this will be a gradual and long-term process. Nevertheless did this research show that there are anno 2018 more barriers to overcome than advantages concerning the implementation of blockchain technology for DigiD. The major obstruction seems to be its feature of immutability, what can be conflicting with the right to be forgotten as stated in the General Data Protection Regulation. Taken all the aspects into consideration, this research recommends not to implement blockchain technology for the improvement of DigiD.

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1. Introduction

In 2008, Satoshi Nakamoto wrote his ground-breaking white-paper wherein he introduced the Blockchain technology; a distributed ledger that can offer the world much more than just being the network behind the Bitcoin currency (Nakamoto, S., 2008). Blockchain has been proven to be effective in today’s business world by making transactions, markets, and even whole industries more efficient and transparent. This disruptive basis is what makes it fundamentally different and innovative from other platforms (Ølnes, S., 2016).

In terms of e-governance, blockchain technology can provide a solution for data sharing in a more transparent, yet secure manner (Biswas, K., & Muthukkumarasamy, V.,2016). An e-government uses information and communication technologies (ICT’s) in order to improve the quality of public services being offered and to provide their citizens with information that is valuable for them. In this way, the relationship between the public and the government itself can be improved because their interaction will be more efficient, easy and smooth (Lee, S. et al., 2005). Nevertheless, there are disadvantages associated with the use of an e-governmental system: The personal information of the citizens that is being collected by the government can be obtained by cybercriminals trying to get access to these data. This can be the case since governmental institutions, and many other organizations, are sometimes unaware of the fact that their current information systems are outdated and therefore the information security does not function properly anymore (Kesar, S., 2011).

Since 2005, the Dutch government uses an e-government system called “DigiD”; a central authentication system that can be used by all the Dutch citizens and governmental institutions. Every civilian can request a personal login code via the mail so that they can enter the virtual environment and make use of the services provided by multiple Dutch governmental institutions (Jochems, 2007)(Logius, N.D.). Nevertheless has the Dutch minister of Interior affairs recently acknowledged that the DigiD system is currently not capable of meeting the EU eIDAS security requirements and that this still remains a prevalent issue that needs to be solved (Dijkstra, P., 2017).

The technology behind blockchain could possibly provide a solution for these earlier mentioned problems, since its potential has already been proven for the public sector (Ølnes, S., 2016). However, having potential is not the same as truly becoming a successful innovation and several studies emphasized that blockchain technology also has its drawbacks(Swan, M., 2015)( Zheng, Z. et al., 2016). Next to that, a successful (long-term) implementation of such a new technology is a tedious process which depends on several factors, as argued by Rogers (1995). Given the complexity of the system, the risks involved for the stakeholders, and the immaturity of the technology, research is needed to determine whether blockchain can actually improve the Dutch e-government service. Therefore, the following research question has been created: “To what

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extent should the potential disruptive blockchain technology be adopted for the Dutch e-government authentication system DigiD?”.

In academic terms, this research is highly relevant since there has hardly been any research done regarding the potential of blockchain technology for the improvement of e-government systems. In a practical sense, this study can consult the Dutch government on potentially improving their e-governance system using blockchain technology while simultaneously serving as a precedent

for entities offering similar services.

This research will contain a theoretical framework wherein the crucial concepts DigiD and blockchain technology will be explained in more detail. Also, a specified outline of the theories from Geels (2002) and Rogers (1995), which will be used as the fundament for the results section, can be found here. After that, there will be a methodology section wherein the used methods for this research are explained. Then, the results of this paper will be presented. The first section of this chapter is based on the multi-level perspective from Geels (2002) and the second part will use the diffusion of innovations theory from Rogers (1995). Both sections will be used to come up with the final answer for this research. This will be accompanied by a discussion section where the shortcomings of this research are outlined and the recommendations for future research are stated.

2. Theoretical background

First of all, a thorough study concerning DigiD, the Dutch authentication system that is currently being used, is needed. Also, the concept of blockchain technology and its features needs to be explained in more detail and subsequently how blockchain technology might be useful for the improvement of DigiD. After these two key concepts have been made clear, the two chosen theories that will form the backbone of this study need to be outlined. First, it has been decided to study the potential usefulness of blockchain technology for the Netherlands, using Geels’ multi-level perspective (2002). With the aim of this framework, the opportunities and constrains of the innovation for the Dutch digital economy can be thoroughly analysed. After that, the possibility to improve DigiD with the aim of blockchain technology will be studied using Rogers’ diffusion of innovations theory (1995). Here, the long-term success rate of blockchain-DigiD will be determined based on the five characteristics as described in his theory. In conclusion: After the key concepts will have been explained, this section will provide an in-depth analysis of both theories.

2.1 DigiD.

In January 2005, the Dutch government introduced their central online authentication system called DigiD. DigiD is a public software system that can be used by all the Dutch civilians. The administrator of the ICT system is Logius, a company that operates in the service of the Dutch

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7 Ministry of Internal Affairs (Logius, N.D.). DigiD is designed to encourage the end-user to communicate and interact with all the different aspects of the governmental services provided online. DigiD makes it possible for citizens to access digital services in an easy, reliable and secure manner. If the Dutch civilian wants to make use of these services, he needs to register first ergo their personal DigiD-ID and password are being sent. In order to make the system personal, this online ID is linked to their citizen service number. In June 2018, the Dutch government published on its website that 13.5 million Dutch inhabitants already requested their personal DigiD-ID (Logius, N.D.). The online authentication system is safe and secure and there are no costs for the instalment, management and support of the ICT system. By using DigiD, the public organizations will exactly know to whom they gave access to their digital services.

Nevertheless did the Dutch online authentication system received a number of criticism over the past years: In 2006, various people claimed that the system could get hacked, since the required digital signature was not secure enough. This made it possible to steal someone’s online identity (Jochems, M., 2007). Although it has never been proven that online identities actually got stolen, the administrators behind DigiD still took precautionary safety measures. One of the measures was that every user had to double verify himself via an ‘one-time code’ received at the end-users’ mobile phone. Nevertheless can the security level of the system behind DigiD not be considered as strong, since face-to-face verification is not necessary when requesting a DigiD-ID (Jacobs, B., 2015). In addition to this, the current system software of DigiD is not capable of meeting the EU eIDAS security regulatory. This regulations requires every public organization of all the members of the EU to possess recognized means of logging in for their digital services provided (Digitale overheid, 2018). This also implies a high level of security standard for its online authentication systems. This improvement needs to be done before the 29th_{of September this}

year, since the regulation will take effect on that day. A potential solution that is often heard is to add a personal chip in order to be able to enter the online environment, ensuring a more secure authentication process. To date, this desire has not been fulfilled yet (Jacobs, B., 2015). Furthermore is Logius not a thinktank. They only manage and develop the online infrastructure of the Netherlands, on behalf of the Dutch ministry of interior affairs. They do not have a research and development department and thus no budget to research new potentially useful innovations for the improvement of DigiD (Logius, N.D.).

Despite this, did Logius introduce an application for mobile phones and tablets in order to make the system more user friendly by the end of 2017 (Logius, N.D.). Also do they declare on their website that in 2018 an extra identity control will be introduced. A one-off check must be carried out on a passport, drivers licence or identity card to verify the true identity of the person using the specific DigiD-ID. This action must be performed to reach the level of substantial security (Logius, N.D.).

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2.2 Blockchain technology.

In 2008, the first distributed ledger technology was introduced by Satoshi Nakamoto; a decentralized currency system with a main purpose of facilitating the trade of goods, without using a mediator. This technology therefore distinguishes itself by the fact that with the use of this system there is no need for a trusted third-party anymore: The system makes it possible to have an online collective bookkeeping with all the parties involved. It is available in a distributed ledger called blockchain technology (BCT). A blockchain consists of blocks with information about the transactions that have been made including who participated in the transaction, the amount of spending and the time and date the transaction was made. Each node in the chain, what looks like a block, contains a full-copy of the current blockchain including the new information of the recent transaction. Via cryptographical rules, the transaction will then be verified by the so-called miners, volunteers who want to verify the transactions in a sort of replicated ledger. They will be rewarded for this in the form of bitcoins. This is what makes Bitcoin and blockchain technology interdependent; the cryptocurrency makes it possible to transfer assets between two parties and provide the miners with their incentives, but it cannot exist without the use of the blockchain network (Ølnes, S., 2016). However, due to these cryptographical rules it is certain that every transaction is being treated in the same way, and then accepted or rejected. If any party tries to falsely change a transaction, the nodes will not agree on the transaction and therefore the transaction will not be added to the blockchain. This verification by hundreds of nodes makes that the system is so transparent yet secure (Nakamoto, S.,2008). Due to this decentralized form of the truth, which is publicly accessible, the blockchain can be called fundamentally different from the previous systems. In here, the active parties had to trust the independent third party. Nevertheless can blockchain technology offer the world much more than just being the network behind the Bitcoin currency: This technology offers potential for applications as the Internet of Things, optimizing supply chains, improving manufacturing systems, sharing of information in a safe and secure way and many more (Hou, H., 2017). At this moment, blockchain has proven to be effective in today’s business world by making the transactions, markets and even whole industries more efficient and transparent in innovative ways. Anno 2018, Nakamoto’s work is being used worldwide and its influence is still expanding every day. (Ølnes, S., 2016). This is why it will be very interesting to research the potential of blockchain technology for the improvement of the Dutch e-governmental system.

For this research it is needed to know what are exactly the advantages, but also the disadvantages of using blockchain technology for the Dutch e-government authentication system. By investigating what the benefits and the barriers of the innovation are, a well-considered decision can be made whether to implement blockchain or not.

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2.3 Multi-level perspective.

Figure 1: A dynamic multi-level perspective on technological transitions. (Geels, 2002).

The multi-level perspective model of Geels (2002) is a functional tool to analyse whether blockchain technology has the potential to change the current socio-technical landscape in the Netherlands; This theory will be used to analyse the pro’s and contras of this innovative technology by using the seven dimensions present in the socio-technical regime. The results will be used to draw the conclusion for this paper.

Geels defines technological transitions as major transformations for the society concerning infrastructure, housing, communication and feeding (2002). He argues that these transitions are not only about the core technological change, but also about the differences in other elements such as the user practices or the market wherein the transitions evolves. By this, he states that the technological change itself does not have power; it only adds true value to the society when the technology is being combined with human practices, social structures and businesses (2002). Mainly due to these already existing social structures, radical new technologies face a greater

challenge with breaking trough.

In order to get a better understanding of these socio-technical changes, Geels (2002) set up the multi-level perspective framework wherein three levels are being elaborated; the landscape developments, the socio-technical regime and the technological niches. The multi-level perspective model shows that the technological niche forms a part of the socio-technical regime

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10 and this level is anchored in the landscape level; the success of a new technological transformation strongly depends on the regime, an thus the landscape, in which it evolves.

At the niche level, radical innovations arise and will further develop in protected areas within the regime level. Important to take into consideration here is that these innovations occur in an already existing regime, having its own rules and limitations. However due to these protected areas, there is always an opportunity for the innovation to grow and to expand its social network needed to become adopted by the current regime. This socio-technical regime is mainly responsible for the stability and coordination of the current occurring technologies. Nevertheless is the regime level very dynamic, causing incremental opportunities for innovations to develop. As stated earlier, these regimes exist in the context of the landscape level. Here, developments occur relatively slow since this level is based on structural trends containing norms and values, broad political movements and the economic situation. Innovations that do occur at this level consist of broad political- and cultural changes. This is what causes that individual actors cannot control or influence the landscape level.

An important point Geels (2002) makes with his theory is that the success of a new innovation is dependent on the developments in the socio-technical regime and in the landscape level and thus not only depends on a successful development at the niche level. Therefore it is important that an innovation is able to put pressure on the current regime, so that it can create an opening to break

through.

Geels (2002) distinguishes seven different dimensions in the socio-technical regime: Technology, Industrial networks and strategic games, techno-scientific knowledge, sectoral policy, markets and user practices, infrastructure and the culture and symbolic meaning. These dimensions are linked with each other and do cooperate, notwithstanding that each dimension internally interacts as well. If these seven characteristics are being further investigated for blockchain technology, its pro’s and contras can be determined with a system-wide and integrative view. Figure 1 represents the visualisation of this framework.

2.4 Diffusion of innovations theory.

In order to find out what the adoption rate will be for blockchain technology, the theory of Rogers (1995) will be used. His diffusion of innovations theory describes diffusion as the communication of innovation among the participants of a specific social system via multiple channels and a certain amount of time. He created five categories of specific types of adopters: The innovators, the early adopters, the early majority, the late majority and the laggards. This can be seen in figure 2.

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Figure 2: The diffusion of innovations theory by Rogers (1995).

Next to that, Rogers (1995) states that the diffusion of innovations contains four elements: time, the social system, the different communication channels and innovation itself. For this paper the focus will be on the element ‘innovation’. There are some critical factors that determine the success of the specific innovation; these factors can explain the different adoption rates of innovations. Innovation is seen as an idea, product or service that is perceived as new by the adopters (1995). Rogers set up five characteristics of innovation that are suitable to determine the potential adoption rate with: Relative advantage, compatibility, complexity, trialability and observability. The diffusion of innovations theory states that the better an innovation fits these five characteristics, the more likely it will be that the innovation will be adopted over the long-term by the market.

Relative advantage: Relative advantage is a degree that measures to what extent blockchain technology would be perceived as better than the technology it supersedes. It is possible to measure this relative advantage by using multiple elements such as the satisfaction level, convenience level and social-prestige factors. What is important for an innovation to become adopted is that it is being perceived as advantageous by the (early) adopters. The bigger the perceived relative advantage of an innovation, the higher the rate of adoption will be.

Compatibility: The compatibility of blockchain technology describes to what extent the innovation is easy to understand and to use by the adopters. Compatibility shows the level of consistency with the current values and experiences and the needs of the potential adopters. If the new innovation is not consistent with these existing elements in the social regime, the innovation cannot be adopted. Only when a new value system will develop in the social regime, the adoption of that new innovation might take place.

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12 Trialability: The trialability of blockchain technology explains to what extent the adopters are able to experiment with the new innovation ergo it truly has to be implemented by them. The possibility to experiment with the new innovation gives the adopters the opportunity to learn while doing which ensures the innovation to be perceived as less uncertain. A higher trialability level of an innovation makes that the adoption rate will increase.

Observability: The term observability entails to what extent an innovation’s impact will be visible to others. The visibility of an innovation will stimulate to start a conversation as others will ask the adopter about their experiences. If the benefits are more visible for others, the adoption rate of the innovation would accelerate.

Rogers (1995) concludes that innovations that score high on the characteristics relative advantage, compatibility, trialability and observability but are less complex will be adopted faster than innovations that do not meet these requirements. Nevertheless does Rogers state that these characteristics are not the only factors affecting the adoption potential of an innovation, but he argues that these five elements do have the biggest influence. That is why this research will use these five characteristics to determine the adoption potential for blockchain-DigiD in the Netherlands.

By determining the benefits and constraints of using blockchain technology for the Dutch online authentication system using a system-wide and integrative view with the aim of Geels’ (2002) multi-level perspective theory and by identifying the chance of this innovation being successfully adopted over the long-term using the diffusion of innovations theory by Rogers (1995), the implementation success of blockchain technology for the Dutch e-government service DigiD will be determined.

2.5 Conceptual model.

Based on the theoretical background, a conceptual model has been set up. Figure 3 serves as a visual representation of how the research will be performed. It is important to realize that the two theories, from Geels (2002) and Rogers (1995), will be separately used for two different parts of the research. This is the reason why the seven dimensions of the multi-level perspective theory have been separated from the diffusion of innovations’ characteristics. Based on the theories, two relevant outcomes will be generated: The first will proof whether BCT has the potential to become a landscape changer for the Netherlands and its e-government or not. The second result will show to what extent BCT in combination with the DigiD software has the potential to become a long-term success. Finally, these results will be combined in order to be able to determine to what extent the Dutch government should adopt BCT for the improvement of its

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13 Each arrow represents the effect one factor has on the other. The existence of the effects has already been proven by the makers of the two theories, but the sort of effect, e.g. positive- or negative, shall be further analysed in the results section.

Figure 3: The conceptual model: A visualisation of the execution of this research.

3. Methodology

In this section, the research methods that were being used to review, collect, analyse and implement the relevant information and data, will be further outlined in more detail. For this research, a literature study was conducted that is supported by two interviews. Figure 4 represents the methodological framework, that has been set up wherein the steps that were taken in this research are being outlined.

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3.1 Defining the research problem

The first step that had to be taken for this research was to define the research problem of the study and accordingly to narrow down the scope of this research. Multiple literature studies of various sources were used and consulted to do so. By studying previously conducted research concerning e-governments and their e-governmental tools offered, the issue of not being able to ensure an entirely safe data storage for its civilians came forward. Next to that, a small literature review was conducted regarding the possibilities of blockchain technology for data storage in common and for e-governments in particular. By doing so, the existing knowledge gap concerning this technology for e-governmental data storage was determined. This combination of an unsolved problem and the lack of scientific knowledge, led to the research problem. Since both e-government and blockchain technology are broad concepts, it was decided to narrow down the scope of this research to just one e-government and one specific tool they were offering. In consultation with the supervisor of this paper, there has been chosen for the e-authentication system DigiD, that is in possession of the Dutch government.

3.2 Data collection

After the research problem was defined, relevant data needed to be collected. Most of the information needed was found in the available literature on Google Scholar and Web of Science. By using these sources, an overview could be given of the existing knowledge and current theories about blockchain technology and its specific use for online authentication systems. Multiple sources were being used to collect this data. Since blockchain technology is a relatively new innovation, not much scientific research has been done yet about its potential value for governmental purposes. This sometimes caused the lack of evidence to proof whether certain statements were true or not. Nevertheless do have technology consulting- or IT companies published relevant papers as well about blockchain technology and its features. If these researches were considered to be valid and useful for this study, it was decided to process them too. This combined use of multiple resources led to a critical overview of the most relevant findings.

In consultation with the supervisor, it was decided that at least two interviews were needed with experts so that the results found in the literature could be confirmed or invalidated. In this way, the results found in the literature review are being verified so that a more valid conclusion can be drawn. At least one expert of DigiD was needed and one blockchain technology expert. Therefore, the first person that was interviewed was Martin Dias d’Ullios, Product owner of the authorization process for DigiD. Since this is his profession for over 5 years now, he is seen as an expert of the DigiD software system. The main purpose of this first interview was to obtain extra information about the current developments in combination with blockchain technology for DigiD.

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15 The other interviewee was Colin Meulema, who is currently working at Bitcone, a company specialised in educating others about Bitcoin and blockchain technology. That is why he is seen as a suitable candidate to verify the literature findings of this research; he can be called a blockchain expert since he is working with this technology on a daily basis. His expertise was used to review the findings of blockchain technology as successful long-term innovation for DigiD. In order to collect all the relevant data from the interviews, they were recorded after both interviewees had given their permission to do so.

3.3 Data analysis

After the relevant data was collected, it needed to be analysed. This was performed via a system analysis and subsequently a characteristics analysis. The system analysis formed the first part of the data analysis. It was decided to perform a system analysis to get a system-wide and integrative overview of the processes that lay behind the potential adoption of blockchain technology for the Netherlands. By doing so, an overview was given concerning the opportunities and the constraints of the innovation for the Dutch digital economy. The multi-level perspective theory of Geels (2002) was being used to execute this analysis, and mainly focused on the seven dimensions in the socio-technical system: technology, industrial networks and strategic games, sectoral policy, markets and user practises, culture and symbolic meaning, infrastructure and techno-scientific knowledge. The possibilities and challenges that came forward in this dimension analysis were connected to their corresponding actors involved. In order to create an overview of the entire system, the interrelations of the dimensions were being observed. This overview coherently shows the processes that influence the adoption rate of blockchain technology for different socio-technical levels. Subsequently, the possibility of blockchain technology becoming a landscape

changer in the Netherlands was determined.

As a second, the research narrowed down to the analysis of blockchain technology as potential innovative tool for the improvement of DigiD. This has been performed with the use of the five characteristics as outlined by Rogers (1995): Relative advantage, compatibility, trialability, complexity and observability. Based on the fit between blockchain technology as improvement for DigiD and these five traits, the long-term success rate of blockchain-DigiD could be determined. In order to analyse the information obtained from the interviews, the recordings were transcribed and subsequently encoded. The process of encoding the interviews proceeded as follows: First, the entire interview was red and the most relevant text fragments were given a label. These labels show the main theme of each fragment. After that, the matching main themes were connected in an overarching code. This encoding is useful to get an overview of the relevant information that was given in the interview. In this way, the most relevant information could be included in the

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paper.

Lastly, the conclusion was drawn and the recommendations for future work were given.

4. Results

In this part of the research, the results will be presented that were conducted based on the theoretical background. First, the potential transition by several dimensions in the socio-technical regime based on Geels’ (2002) multi-level perspective for blockchain technology will be outlined. This creates the opportunity to identify the opportunities and constraints of the innovation by using an integrative and system-wide perspective. After that, the potential implementation of blockchain for the Dutch government will be determined by using the diffusion of innovations theory by Rogers. Here, the long-term adoption potential of blockchain-DigiD will be analysed.

4.1 Multi-level perspective.

4.1.1. Technology

The first dimension of the socio-technical regime in the multi-level perspective from Geels (2002) is technology. The technology behind blockchain appears to be a promising innovation since trusted third parties are no longer needed. Nakamoto (2008) describes the technology as a chain of digital signatures. Every holder of a bitcoin who wants to make a transaction, needs to digitally sign the transaction using a hash; a cryptographical hash, that is a mathematical algorithm, is almost impossible to invert. Blockchain is currently using the hashing algorithm SHA-256, meaning that the output will have a fixed length of 256-bits. The only possibility to obtain the input from the hash’ output is to try all the options possible, the brute-force method, which is a time-consuming process. The possibility to create a collision using this manner needs 2128 computations on average (Gilbert & Handschuh, 2003). By the implementation of this cryptographical hash within the technology, a secure transaction method was created.

According to the digital signature that was given by the previous owner, the public key of the new owner is needed as well to complete the transaction, what can be seen in figure 5. By doing so, the signatures can be used to verify the current ownership of that specific coin. In order to guarantee the privacy of the owners, it has been made possible to keep the public keys anonymous. This means that all the people involved can see that a transaction has been made from one to another person, but they cannot access the personal information leading to the identity of the previous owner. However, a so-called multi-input transaction can be used to eventually reveal this identity.

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Figure 5: A visualization of the transaction process using blockchain technology (Nakamoto, 2008).

Without the use of Nakamoto’s innovation, the owner-to-be would not have been able to check if the previous owner did not already spent the coin. In previous systems, a trusted-third party, like a bank, would have been introduced here but Nakamoto (2008) argues that the fate of the complete system then relies on them. That is why he came up with the idea of ‘timestamping’ the hash. This timestamp is the proof that the data did exist at that specific time and can therefore no longer be double spend. It also includes the timestamp of the previous transaction in its hash, so that a chain can be formed. After this, it is important that the hashed transaction will be verified what is currently done by the miners. The includes the involvement of a nonce, a number that can only be used once. The inclusion of the nonce makes it far more difficult to obtain the original input of the hash than to verify the hash. If a miner finds the nonce that creates the desirable hash, the transaction will be verified and will subsequently be included in the blockchain. The miner receives its reward in the form of bitcoins. If an attacker wants to manipulate the data that has been stored in previous blocks, he needs to redo this verification process of that previous block and all the newer blocks. Then, he needs to be able to catch up with and outpace the honest miners. Nakamoto (2008) proofs that the probability to succeed in this is close to zero.

Another advantage of using blockchain technology is that it can save up disk space since the transactions are being saved in a Merkle tree. This means that only “the root” of the transaction’s hash needs to be stored so that older blocks can remove the rest of the saved data. This is being visualised in figure 6.

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Figure 6: Blockchain technology using a Merkle tree for the data storage (Nakamoto, 2008).

Despite the fact that the technology behind the blockchain network has many advantages, there are some disadvantages as well. One of them is that in 2015, the bandwidth of the technology already consisted of 25GB what takes about one full day to download (Swan, M., 2015). Secondly, blockchain technology is only capable of processing 7 transactions per second, what will be an issue as the network increases by its frequent deployment (2015). Next to that, the processing time of a transaction takes up to 10 minutes, while the waiting time of a Visa card only takes seconds (2015). Also, more energy is needed to keep the system running when the blockchain becomes a more frequently used system. In June 2017, it was calculated that every second, 5 quintillion 256-hashes were generated by the miners. It has been researched that this costs around 500 megawatts, what will be enough to provide 325 000 households with energy (Fairley, P., 2017). In 2015, this use of energy cost already about $15 million dollar per day (Swan, M., 2015). A transaction in the blockchain network uses 5000 times the amount of energy that is normally needed for a transaction with a credit card. Based on predictions concerning the increased use of the blockchain network, the energy demand will rise to 14 gigawatts by 2020; Denmark uses that amount on a yearly basis (Deetman S., 2016). Lastly, using blockchain technology contains the risk of a so-called 51% attack: A security related issue that allows miners to double spend a bitcoin for its own advantage, since they are able to gain control over the blockchain network when performing this attack. However, the incentive they receive as reward for their mining activities stimulates them to be “good-players” (Ølnes, S., 2016) (Swan, M., 2015). Solutions need to be found so that these barriers can be overcome.

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4.1.2 Industrial networks, strategic games

Figure 7: An overview of all the actors that will be involved in the adoption process of blockchain technology.

It is important to realize that multiple stakeholder are being involved in the adoption process of blockchain technology, all with different wants and needs. In order to get a clear overview of this network, figure 7 is being set up wherein 8 main categories are being presented accompanied by their corresponding actors. This model is based on a white paper from Deloitte, wherein they further elaborate on the various stakeholder that are being involved (Seffinga et al.,2017). They assume that every stakeholder eventually pursues the same goal; wanting to be better positioned than the rivals in their specific market using blockchain technology. However, every category that is presented in figure 7 uses different processes in order to reach their goal and will therefore not be necessarily coordinated by one main actor, what can create multiple challenges for the full adoption of the technology on a landscape level. Therefore, the interrelations need to be analysed in order to determine the opportunities and obstacles for implementing blockchain technology in the near future. For this research, the main focus will be on the actors “Dutch government”, and “E-governance”: The Dutch government can have a major influence on the success or failure of an innovation due to the policies and regulations they have set up, what will automatically affect the other categories, with E-governance and Governmental bodies in specific. The same effect applies when the stakeholder Regulators make a decision concerning the technology. However, they can also form a cooperation so that new opportunities for the innovation can be created. This will be further discussed in section 4.1.3.

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4.1.3 Sectoral policy

Within the socio-technical regime of the multi-level perspective, the (local) government, including its regulations and policies, plays an important role for an innovation to become succesfully adopted over the long term. In August 2017, the innovative sharing bike was banned by the municipality of Amsterdam because of the inconvenience it caused for its residents (Litjens, P., 2017). Due to this decision, the innovation was no longer able to fully integrate at the regime level and thus was not adopted at the landscape level in the Netherlands. Also does the Digital Planet Report (2017) conclude that public policies play a major role in the succession of a countries digital economy. Countries with a strongly evolved digital economy typically were accompanied by strong governmental policies (Chakravorti, B. & Chaturvedi, R., 2017).

Blockchain technology is an innovation that can be applied to multiple proceedings in the public sector and especially in cases where a valuable transaction is involved, a registration of an identity or ownership is necessary, a process wherein more than two parties are involved and when the integrity of an actor is from crucial importance (Verschueren, W. & Criel, G., 2017). Also for the Dutch government, blockchain technology could be an innovation that can be used for the improvement of their current e-governance systems. The term E-governance stands for the development, implementation and the enforcement of the policies, regulations and legislations that are needed for the well-functioning of the e-government (Otjacques, B. et al., 2007). Next to that, it encourages different governmental institutions to cooperate in a more effective way and it improves the work efficiency of citizens and businesses (Lee, S. et al., 2005).

In march 2018, the Dutch minister of finance, wrote a letter to the chairman of the second chamber wherein he illustrates what the future policies regarding cryptocurrencies such as Bitcoin entail (Hoekstra, 2018). He explains that the current supervision methods and regulatory framework towards the cryptocurrencies are inadequate and therefore need to be updated. Due to the cross-border nature of the cryptocurrency market, the minister argues that the closure of these policy gaps requires an international approach. Hoekstra (2018) wants to actively participate in the creation of new policies and regulations with regard to cryptocurrencies, accompanied by his colleagues on a European level. However, this will be a long-term process that requires time and alignment between all the stakeholders. Also, the European anti-money laundering directive will be revised to the developments of cryptocurrencies. It is expected that this adapted directive will come into effect by the end of 2019 so that criminal activities via cryptocurrencies can be easier penalized (2018).

On the short-term, the Dutch government will raise more awareness among consumers and investors about the risks that are associated with cryptocurrency investments. Risk management will be the main task of the Dutch government towards these currencies in order to maintain the

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21 integrity of the financial system. Next to that, the letter clearly states that the cryptocurrency itself will not be prohibited by the Dutch government and that the innovative technology behind the cryptocurrencies must be preserved. This creates a somewhat more stable environment for the further development of blockchain technology at the socio-technical regime level. Also, the opportunity for blockchain technology of becoming adopted over the long-term increases due to these favourable sectoral policy regulations.

4.1.4 Markets and user practises.

Figure 9: The adoption rate of blockchain according to the 200 government leaders interviewed by IBM (2017).

In 2017, IBM published a research wherein they predict that by 2018, 9 out of 10 governments will have invested in blockchain technology (Higgins, S., 2017). Related to the theory of Rogers (1995) as discussed the theoretical background of this research, a certain amount of actors in a system need to adopt an innovation ergo it will become a success. This tipping point will be reached when around 10-20 percent of the people will have adopted the innovation. In combination with the research of IBM, for which they conducted a survey for 200 governmental executives in 16 countries, the tipping point for blockchain technology will already occur in 2018 (IBM, 2017). The results of their research is being visualised in figure 9. Also does Rogers (1995) claim that the observability of an innovation is important in the adoption process, meaning that institutions that have already adopted a new innovation will indirectly encourage others to do the same. This supports Geels’ (2002) statement that markets and user practices are an important dimension for an innovation’s potential success and therefore, the current market and user practises concerning blockchain technology need to be researched.

In 2017, multiple blockchain projects were already being executed by various governments from all over the world and it was expected that more projects would follow (Killmeyer et al., 2017). One of the public blockchain projects is the ‘Dubai Blockchain Strategy’ as announced in December 2016. In here they express their desire to become the world leading government that executes all its transactions using blockchain by 2020. They claim that this will lead to an annual saving of $1.5 billion (Smart Dubai, 2016). Also the United Arab Emirates has the in April 2018 released “UAE

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22 Blockchain Strategy 2021”, wherein the UAE states that by 2021 50% of their governmental transactions need to be fulfilled with the aim of blockchain technology. According to their calculations, this transformation to a more efficient way of working will save up to $3 billion per year (Emirates Blockchain Strategy 2021,2018).

Estonia claims to be the worlds’ leading blockchain nation, especially when it comes to identity management. The use of blockchain makes it easier for citizens to verify the data that is being held on them and to control who can access these records. The Estonian government started issuing E-Identities that is secured by blockchain technology. People from all over the world can apply for an e-ID, by which they can make use of various online services such as the registry of their business. This is in fact an E-residency of Estonia meaning that the Estonian policies and regulations apply for them. Next to that, the Estonian citizens are now able to vote via the internet using e-ID (Sullivan, C., & Burger, E., 2017). Also the Dutch government is currently executing several blockchain pilots in order to improve their e-governmental activities, thus the possibility of using blockchain technology is not a completely new idea (Pomp, M. & Hartog, C., N.D.).

Many more governmental blockchain projects are currently being executed and therefore it can be stated that the current market and consumer practises are in favour of the further development and implementation of blockchain technology, what will positively influence the adoption rate over the long term.

4.1.5 Culture and symbolic meaning.

The Netherlands is currently tending to fall behind when it comes to the digitalization of their economy: In 2017, the Digital Evolution Index was published by the Fletcher School. This index measures a countries’ main opportunities and barriers to determine their digital evolution potential (Chakravorti, B. & Chaturvedi, R., 2017). Innovation is one of the key elements that determines the ranking of all the participating countries. For this category, the Netherlands is performing far below the average, which is 1,72, having a trend score of -4,87 (Chakravorti, B. et al., 2014). As a second, the speed of digitalization of each of the 60 countries over a period of eight years (2008-2015) has been calculated. They conclude that this pace can function as a good indicator for their future potential as well. The Netherlands is currently being placed in the category “stall out”, as can be seen in figure 10, meaning that this country used to achieve a high rate of development but are now relatively falling behind. On the one side, this seems logical since less developed countries with a lower score can more easily improve their digitalization rate. However, in the period 2008-2015, The Netherlands showed a rapid decrease in relative digitalization and scores a 1.33 out of 5. Nevertheless, their full score based on the four elements that are measured, so not just innovation, is 3.55 out of 5. This is still far above average, ensuring a 13th_{rank (Chakravorti, B. & Chaturvedi, R., 2017).}

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Figure 10: The Digital Evolution Index Trajectory Chart (2017).

The results of this paper are in line with the Dutch cultural dimensions which has been researched by Hofstede (1984). In this research, he describes the effect of a culture of a specific society on their members behaviour. He distinguishes four different dimensions of national culture: Masculinity, individualism, power distance and uncertainty avoidance. For this research, it will be interesting to know how risk-avers the Dutch culture is with regard to implementing blockchain technology for their e-government. The dimension of uncertainty avoidance investigates to what extent a society feels threatened by an unknown scenario and whether they want to avoid these situations or not (1984). The Netherlands has a score of 53, meaning that the Dutch society slightly prefers to avoid uncertain situations and resisting innovation can be have the preference (Hofstede, G., 1984). In 1991, Hofstede added an extra dimension to his model: long-term orientation. This dimension researches to what extent a society deals with its past and use this information for current and future decisions (Hofstede, 1991). The Netherlands scores 68 on long-term orientation meaning that they are willing to adapt to changed situations, want to invest in long-term projects and strive to achieve goals. This characteristic of the Dutch culture can have a positive effect for the adoption potential of blockchain technology, since this will need long-term

investments by its government.

In order to cope with the continuously changing digital economy, The Netherlands must keep investing in new technologies and innovation, what can create openings for the further development of blockchain technology in the socio-technical regime.

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4.1.6 Infrastructure

As being stated before, the world is currently undergoing a fundamental change: it becomes data-driven, what will not only affect the technological sector; the entire societal system will feel its influence (Zyskind, G. & Nathan, O., 2015). In order to manage this period of critical change, building a sustainable infrastructure is needed. These kind of networks do already form the backbone of our society since the Industrial Revolution; it ensures an efficient, safe and well-organized system (Shrier, D. et al., 2016). However, some of the major challenges of the 21st

century ask for a change in the current societal infrastructure: To urge megacities in becoming more energy efficient, ensure enough water and food for every person and improve current governance practises are some examples. A centralized, self-regulation system that maintains safety and security seems the solution (2016). The architecture of the blockchain network seems to fit these criteria.

Blockchain stands for distributed, decentralized computing, that consists of three building blocks: storage, processing and communication (Xu, X. et al., 2016). The first element, storage, entails the saving of tokens, storage of metadata, files and it ensures the data exchange between owners and users. For the processing of all the data, smart contracts are an often used tool. A smart contract is placed on the blockchain network and will be used by the different actors to reach agreements without the need of trust. The contract can be easily adjusted and will still be secure with the aim of timestamps. The last building block is about the communication of data and their according value to other components in the network. In conclusion, the blockchain infrastructure ensures a communication tool between owners of data and the users by the aim of smart contracts, that consist of data that is immutable and a payment infrastructure that is secure (2016).

Shier et al. (2016) argues that current technologies are no longer good enough for the creation of a sustainable infrastructure so that future challenges can be managed. They conclude that blockchain technology might be able to create a sustainable infrastructure by setting up a trust network: This is a computer network what is supported by legal policies and regulations. Smart contracts are legally binding and do specify the consequences in case of abuse of the user permissions. Next to that, it allows individuals to change or even withdraw their personal data at all times. Using this combination of legal policies and personal data in one system, the possibility of giving an individual more authority seems realizable (Shier, D. et al., 2016). Receiving more authority will give the user more digital trust, which is an key element for the further development of the digital economy (Chakravorti, B. & Chaturvedi, D., 2017). Currently, the digital trust environment in the Netherlands, based on the elements of privacy, security and accountability, is already quite good: The Netherlands is second best and scores 3.64, where Estonia has the best trust environment with a score of 3.66 (2017). Based on these results, it does not seem urgent to

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25 implement blockchain technology for the improvement of the digital trust in the Netherlands. Nevertheless has the blockchain network the potential to provide the world with a sustainable infrastructure so that future challenges can be tackled.

4.1.7 Techno-scientific knowledge

Blockchain technology is not the only innovation that would be suitable for the improvement of the Dutch governmental systems. There are other recently developed techniques that might be able to improve e-governmental systems with the same quality as blockchain technology. However, the media, one of the eight actors involved in the adoption process for the technology (see 4.1.2.), seem to be the reason why blockchain received so much attention and the other techniques did not (yet). Nevertheless can these other techniques form a serious threat for the successful adoption potential of BCT on a landscape level. That is why two of the most promising techniques will be further outlined in the following part:

4.1.7.1 DLT

The distributed ledger technology (DLT) stands for a database, being supported by its own network, that is shared and synchronised among all the participants. It ensures transactions being made publicly available, meaning that every actor can request the full list of transactions at all times and when a change in the data has been made, the other actors will get informed about this (Nakamoto, S., 2008). This distributed ledger technology is being used for blockchain as well. What is important to realize is that every blockchain uses distributed ledger technology, but not every distributed ledger is a blockchain. The following two promising techniques also use DLT:

4.1.7.2 Tangle

Schueffel (2017) describes Tangle technology as a blockchain without its blocks and the chain. The difference with blockchain technology is that Tangle does not require its users to have up-to date information all the time. Next to that, their proof of work is being executed in a different way: If a user wants to carry out a transaction, it has to approve two random chosen previously made transactions first (Popov, 2016). The advantage of doing this is that when making a transaction it does not have to wait until the transaction is approved by the miners. This means that miners are no longer needed, and so are transaction fees. Another advantage of Tangle technology is that when more players get involved, the faster the transaction process will proceed (2016). Lastly, Tangle can reach a speed up to 800 transactions per second, where blockchain technology can achieve a speed of 3-4 transactions per second (Schueffel, P., 2017).

4.1.7.3 Hashgraph

Also Hashgraph does not require its users to have up-to date information. However, it is mandatory for any user to share its entire transaction history with various other randomly

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26 selected participants. If new information about transactions is being received by one of the actors, it will automatically add this to its own transaction recordkeeping and so it will be shared with the next randomly selected users. This means that not only information of the current transaction is being shared, but also the information about previous actors (Schueffel, P., 2017). Next to that, Hashgraph says to be the fastest when compared to blockchain technology and Tangle: 250.000 transactions per second can be made when using this technology (Yu, Q., 2018). However, this has not been tested in a public setting yet, since Hashgraph is not an open source technology. Hashgraph has been patented and this can be seen as their biggest disadvantage. Therefore, Hashgraph technology is at this moment not the solution for the improvement of e-governmental systems.

Several other DLT based techniques are now rapidly developing too. Think of techniques such as Ceptr (Brock, A. & Harris-Braun, E., N.D.) or Byteball (Churyumov, A., 2016). Also these innovations can potentially form a threat for blockchain technology if they prove to be better in the near future. That is why these possible threats must be taken into consideration when evaluating the adoption potential of blockchain technology and for the improvement of e-governmental systems in specific.

4.1.8 Blockchain technology as landscape changer

Geels (2002) concluded that the full development of an innovation depends on the active processes on the regime level and subsequently on the landscape level. By this, he wants to argue that innovations are context-dependent and that makes the multi-level perspective a useful tool for the analysis of a technical transition (2002). With the aim of this multi-level perspective including its seven dimensions, an analysis has been made on the transition potential of blockchain technology. Here, the opportunities and constraints of the innovation were being outlined using an integrative and system-wide view. Based on the analysis made it can be concluded that at this moment, the advantages of blockchain technology do outweigh the barriers and therefore the innovation has the potential to truly add value for the Dutch digital economy including its e-governmental systems. Nevertheless is it expected that this landscape change caused by blockchain technology will take decades ergo it will be fully implemented. This is because blockchain technology is a foundational innovation meaning that it will be possible to transform the existing societal and economic foundations using this technology. Therefore, this technological transition will not occur as sudden and intense, but it will be an adoption process that will proceed as steady and gradual: Changes will occur in waves (Iansiti, M. & Lakhani, K.,

2017).

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27 blockchain-DigiD as innovation, so that a deliberate decision can be made concerning the adoption rate of blockchain by the Dutch government, for its online authentication system DigiD.

4.2 Diffusion of innovations.

In this part of the research, the adoption potential of blockchain technology for the Dutch e-government and their online authentication system DigiD in specific, will be further determined. The diffusion of innovations theory from Rogers (1995) will be used to carry out this analysis.

4.2.1 Relative Advantage

The term relative advantage is being described by Rogers (1995) as the degree to which the innovation is perceived as better than the current system used. Nevertheless, is it important to notice that a higher perceived value does not mean that the technology must actually be better

than the current one.

For this research it will be needed to investigate to what extent BCT can supersede the currently software technology that supports DigiD. The current software behind DigiD is at this moment not capable of meeting the EU eIDAS security requirements, what has already been discussed in the theoretical background. In an interview with Logius, the administrator of the DigiD system, it was declared that DigiD indeed needs to become a more secure system: “We are currently working on

a project, which has the main goal to make DigiD more secure in accordance to the related European directive. At this moment, DigiD is not capable of meeting these standards. However, only Germany

is currently able to do so.” (Dias D’Ullois, M., personal communication, 2018).

This eIDAS regulation requires every EU nation to have a high level of security standard for its online identification systems. Due to this, the system needs to be improved because this European regulation takes effect on the 29th_{of September. Atzori (2017) claims that blockchain technology}

can have a true added value for the support of online authentication systems under the eIDAS regulation. This can lead to benefits such as civilians having more trust in the software systems, an improved technical performance and a higher level of privacy for its users. Next to that, the

liability and the legitimacy of the public software systems will increase when using BCT (2017). Rogers (1995) argues that the prestige status of an innovation plays an important role according

to its relative advantage as well. He states that especially the innovators and the early adopters, care more about the social status of an innovation. An often mentioned statement about blockchain is that the technology is currently being hyped and therefore can be seen as socially desirable: “When people want to implement blockchain technology, we often see that the technology

itself is seen as the main goal rather than a means for the improvement of the current way of working” (Dias D’ullois, M., personal communication, 2018). This increases the relative advantage

of the innovation. Based on this it can be stated that BCT does possess a better perceived relative advantage compared to the current ICT system that supports DigiD.

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28 Despite all this did Logius explicitly state in the interview held that there are currently no formal developments concerning the use of blockchain technology.

4.2.2 Compatibility

In this section, the extent to which blockchain technology will be easy to adopt by the end-user will be investigated. This depends among other things on the level of consistency with the current values and needs from a society: “An example of an incompatible innovation is the use of

contraception in countries where religious beliefs discourage use of birth-control techniques, as in Moslem and Catholic nations” (Rogers, 1995). The contraception has proofed to be a successful

innovation, but not for nations where this innovation is not compatible with their values and beliefs.

Blockchain technology ensures a safe storage of the end-users’ personal information and more control and power about what kind of information they want to share with whom. On the one hand, this technology seems compatible for the Dutch society since it concerns a solution for privacy related issues, such as identity-theft and more control over users’ own data (Manohar, A., & Briggs, J., 2018). Privacy is namely a hot-topic in the Netherlands anno 2018. This is evident from e.g. the referendum held in March 2018, where the inhabitants were asked to give their opinion about the Intelligence and Security and Services Act. In this act, it is stated that the Dutch security service is allowed to collect the telephone- and internet traffic of an entire neighbourhood if they found evidence that a potential threat for the society might live there. This affects the privacy of the local residents and that is why some civilians revolted and initiated a referendum, where the majority eventually voted against this act (de Vries, J., 2018).

Another initiative regarding the privacy of individuals is the General Data Protection Regulation (GDPR), which applies since the 25th_{of May 2018 in the entire European Union}

(Authoriteit Persoonsgegevens, 2018). This regulations stands for stronger and more extensive privacy rights. From this date forward, organizations need to ask permission for the processing and storing of personal data and the withdrawal of the permissions must be just as easy. One of the additional rights of this regulation is the right to be forgotten, meaning that everybody has the right to ask a company to delete their personal data and also to require them to pass on this removal request to all the other organizations that have received their data from this company (European Commission, 2016). One of the features of blockchain technology is that stored data cannot be easily changed nor removed. For cryptocurrencies, this is a desirable feature since it resolves the issues of double spending. Nevertheless forms this feature of the technology a barrier for the storage of personal data since it is in violation of the GDPR. “How do you want to execute

the right to be forgotten using blockchain technology; a technology were no data ever disappears, never?” (Dias d'Ullois, M., personal communication, 2018). Those involved can no longer

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29 personal data. Therefore, it might be concluded that blockchain technology is not that compatible as innovation for the Dutch government and its authentication system in specific. “One of

blockchains’ best features is its capability of making data immutable. That is why I personally believe that the technology is not the best option for the improvement of a system where is must be possible to delete data. The government would probably benefit from new research to these kind of technologies” (Meulema, C., personal communication, 2018). At this moment, adapted blockchains

are being developed so that previously added data can still be removed, but this adjustment of the technology will probably affect its relatively high level of ‘relative advantage’ in a negative way.

4.2.3 Trialability

The higher the degree to which blockchain technology can be tested by its users on a limited basis, the less risky the full implementation will be due to the learning by doing opportunity it creates (Rogers, 1995). Based on the current availability of applications of the innovation, its trialability seems relatively high: In almost every industry and for many products and services, an application has already been made so that the technology can be easily tried and potentially adopted (Friedlmaier, M., et al., 2017). Technical organization such as IBM are currently offering a beta version of a blockchain platform for free. This gives those businesses the opportunity to get familiar with the innovation. In November 2016, The civil service for identity data, that is part of the Ministry of interior affairs, claimed that they were exploring the possibilities of blockchain technology for digital identities. They set up 4 user stories in order to make the subject less broad and complex. The follow up session would be to build a prototype that is running on blockchain for one of these stories (Pomp, M. & Hartog, C., N.D.). This shows that blockchain technology is an innovation that can be experimented with ergo it needs to be fully implemented throughout the entire governmental department.

4.3.3 Complexity

In order to measure the level of complexity of blockchain-DigiD, the focus will be on the level of complexity perceived by the employees working at Logius. This is because they will have the power to decide whether or not to implement blockchain technology due to its complex features. The innovation is based on three different pillars: cryptography, decentralization and consensus. Although this will provide an unique mix of features, it makes it quite hard to understand as well for new adopters of the technology (Friedlmaier, M., et al., 2017). Next to that, an in 2017 published article in the Harvard Business Review investigated the complexity level of the implementation activities for blockchain technology. They define complexity as the degree to which coordination is necessary on a landscape level; the amount of actors needed so that value will be created using this technology. When the public use of an application rises, it will thus become more complex since more actors will be involved (Iansiti, M.

Blockchain technology for the improvement of the Dutch e-government authentication system DigiD: Revolutionary or impracticable?