Decentralised Governance in the European Union: A Legal Framework for Blockchain-based Public Administration — A Short Extract from the Author’s Exposé

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The European Union is at the forefront of digital transformation. Yet its public administration remains burdened by bureaucratic inefficiencies, lack of transparency and fragmentation between member states. Could blockchain technology — with its decentralised, immutable and transparent characteristics — provide a solution? This short article provides a first insight into the legal implications of integrating blockchain into the EU’s governance structures as a part of the author’s exposé for a possible future doctoral thesis.

I. The potential of blockchain in public administration

Blockchain technology has the potential to revolutionise governance in the public sector by:

• Increasing transparency: Immutable ledgers reduce corruption and provide accountability.
• Increasing efficiency: Automated smart contracts can optimise administrative processes.
• Strengthening data security: Decentralised networks offer resilience against cyberattacks.
• Facilitating cross-border collaboration: A standardised blockchain infrastructure could improve interoperability between EU institutions and member states (e.g. “how many asylum applications were made in EU member state XY” — in real-time).

Case studies: First blockchain adaptations in EU-governance

Various governments have already tested blockchain-based public administration processes:

• Estonia’s e-Residency & Digital Identity: Estonia is using blockchain to secure digital identities and optimise government services.
• Sweden’s Land Registry: The Swedish government has tested blockchain for property transactions to increase efficiency and reduce fraud.
• EU Blockchain Services Infrastructure (EBSI): The EU is already developing blockchain-based public services with a focus on trusted digital identities and notarisation.
• Tackling the refugee crisis: The EU and national governments faced (and are facing) significant challenges during the refugee crisis, such as identity verification, tracking asylum applications and the efficient distribution of aid. A blockchain-based system could provide secure and immutable identity records, ensure efficient distribution of resources and improve cross-border coordination between member states.

II. Legal challenges and restrictions

Despite its potential, blockchain-based governance faces significant legal hurdles in the EU. The following key issues need to be addressed:

1. Compliance with EU data protection laws (GDPR)

One of the biggest challenges is the General Data Protection Regulation (GDPR). The immutability of the blockchain conflicts with the ‘right to be forgotten’ (Article 17 GDPR). If personal data is stored on an immutable ledger, how can individuals exercise their rights?

Potential solutions include:

• Off-chain storage with on-chain hashes: Sensitive data remains stored outside the blockchain, while the blockchain only stores references.
• Zero-knowledge proofs (ZKP): Users can prove the validity of data without disclosing the actual data.

2. Legal validity of smart contracts in public administration

Smart contracts could replace traditional administrative processes, but are they legally binding under EU law? Do we need a true European constitution — in the spirit of the work of Giscard d’Estaing’s? The eIDAS (Electronic Identification, Authentication, and Trust Services) Regulation already recognises electronic signatures, but there is still a lack of legal clarity for smart contracts.

Important considerations are:

• How can courts enforce smart contracts?
• Do public institutions have the authority to delegate administrative decisions to automated contracts?

3. Decentralisation vs. accountability in EU governance

A decentralised governance system raises questions about accountability:

• Who is liable for mistakes in a decentralised system?
• How can EU institutions maintain democratic control?
• Can a fully decentralised system be reconciled with the EU principles of subsidiarity and proportionality?

4. Interoperability between member states

This might be my personal problem child. For blockchain-based public administration to be successful, it must be interoperable between all EU member states. So not only do they have to consent to, they also have to execute it (Yes, I’m looking at you, Dublin III regulation).

This requires:

• Standardised protocols for blockchain governance.
• Harmonised legal frameworks to ensure consistent application.
• Integration with existing EU infrastructure, such as the European Blockchain Services Infrastructure (EBSI).

III. A legal framework for a blockchain-based public administration

For the EU to introduce blockchain in governance, a comprehensive legal framework is needed.

Key policy recommendations might include:

• Development EU-wide standards for blockchain-based administration under the leadership of the European Blockchain Partnership (EBP).
• Creation of a regulatory sandbox in which member states can test blockchain applications in public administration.
• Adaptation of the GDPR to introduce blockchain-specific provisions, e.g. exemptions for certain types of immutable data records.
• Determining the legal status of smart contracts to ensure their enforceability under EU law.
• Establishing a governance model that reconciles decentralisation with democratic control and accountability.

IV. Conclusio

Blockchain technology offers a unique opportunity for the EU to modernise public administration, increase transparency and improve efficiency. However, legal and regulatory challenges must be carefull addressed to ensure compliance with existing EU laws. A hybrid governance model, where blockchain supports but does not completely replace centralised control, could be the most pragmatic approach. If a solid (legal) framework can be established, it could set a global standard for decentralised governance.

What do you think? Can blockchain revolutionise governance in the EU or are the legal and actual implementation challenges too great to overcome? Let’s discuss it in the comments!