Use of Blockchain technology in Government Sector of Saudi Arabia

The Kingdom of Saudi Arabia is looking into the possibility of implementing blockchain technology across its government as well as allowing the use of cryptocurrencies. Blockchain technology is steadily gaining traction in Saudi Arabia, the country is certainly aware of its potential, as evidenced by the Saudi Central Bank’s involvement with several blockchain projects across the country. SAMA successfully conducted a CBDC experiment called “Project Aber” in 2019. It worked in collaboration with the Central Bank of the United Arab Emirates to examine whether blockchain technology could contribute to cross-border payments. The banks released a report on their findings in late 2020 concluding a dual-issued Central Bank Digital Currency (CBDC) was technically viable for cross-border payments and presented “significant improvement over centralized payment systems in terms of architectural resilience. So far digital currency in Saudi Arabia is in the experimental phase. It is worth noting that while SAMA is set to continue with its research on Central Bank Digital Currency (CBDC), it will explore the benefits and potential risks of implementing a digital currency. Although SAMA has not yet made a decision to introduce CBDC in the Kingdom, I believe that it will conduct the CBDC experiment successfully.

Moreover, Saudi central bank has become one of the pioneer central banks in the region to experiment with blockchain technology for money transfers. Other initiatives launched by the Saudi Central Bank to develop Fintech in the Kingdom include: The Fintech Saudi Initiative in cooperation with the Capital Market Authority (CMA), the introduction of the Saudi Central Bank Regulatory Sandbox, and an array of digital banking services and payments.

While this is the first time that the Kingdom’s central bank implemented the blockchain technology, this technology was already used in the Kingdom 2019 by the Saudi British Bank (SABB) and HSBC to execute a trade transaction involving a shipment of homogenized aluminum billets from Bahrain to Saudi Arabia. The Saudi Customs Authority had also experimented with the technology in early 2019 to facilitate cross-border trade. These developments are driven by the Kingdom’s long-term strategy “Vision 2030” which aims to accelerate economic diversification and modernization through the adoption of new digital technologies, presenting an opportunity for U.S. companies to compete in this field.

Blockchain Adoption in SMEs

Saudi Arabia’s government has adopted new emerging technologies at the individual and collective levels, with a greater focus on blockchain technology. In financial and government service sectors, institutions, and individuals are directed to integrate technology. However, different strategies are set for development in areas such as finance, government strategy, project planning, etc. This suggests that blockchain will play a major role in the development of Saudi’s government, commercial, and financial sectors in the future. Small and medium enterprise finance in the future will need a combination of financial technology and developing technology innovation. Blockchain-based applications track payments, contract fulfillment, and a variety of other business activities, this allows capital providers to make loan decisions based on more data, and application programming interfaces (APIs), which define how different software and devices interact in the trading environment.

Due to these benefits, it’s easy to see why a growing number of SMEs are investing in blockchain technology. Small and medium businesses may wish to change the way they do business entirely with the help of blockchain and smart contracts. SMEs may be able to compete in ways that are currently unimaginable due to international transactions.

To finance Saudi SMEs, Saudi policymakers should pay attention to the institutional determinants that stop investors from financing Saudi SMEs through new methods such as blockchain. As part of Saudi Vision 2030, one of the main goals is to reduce future unemployment, attract more investment, transfer technology, and hire more Saudis.

Use of Blockchain in Saudi Educational Sector:

New universities and educational organizations are increasing in Saudi Arabia with the increase in the need for high-quality education. This increased the need for a fast transformation to digitize the educational system in Saudi Arabia, which is one of the important pillars of the Saudi Vision 2030. A secure, fast, and transparent model is required in the education sector to verify academic certificates issued by various educational organizations. Blockchain technology can be used with high data security to empower the educational sector of Saudi Arabia in the digital transformation and to help the educational organizations in verifying academic documents. In order to avoid any document fraud and forgery, along with the ease of verification of academic records and educational documents for the students. Blockchain technology will shape the future of education sector through government policy, partnership and foresight. While blockchain is advancing, the majority of institutions hesitate to try their hands at this technology because of a few technical hurdles, such as scalability and data privacy. Today, these limitations are highly addressed on a serious note. However, continued investment in blockchain technology can help you look ahead to the next innovation and in the coming years in Saudi Arabia, blockchain will become a commonplace technology. KSA may use to implement a new technology called “Metaverse” to improve the quality of learning and will introduce the fun learning in school and universities in the Kingdom. Moreover, recently in 2023, Meta launches the Mena region’s first metaverse academy in Saudi Arabia. It will focus on shaping the metaverse ecosystem by providing training to 1,000 individuals in the first 18 months.

Prototype of Blockchain in Hajj Permits System in Saudi Arabia.

Different properties and applications provided by blockchain to manage some important functions and activities of the Hajj and Umrah pilgrimages in Saudi Arabia. These pilgrimages take place in Makkah, Saudi Arabia, and performed by millions of pilgrims from different parts of the world. The technology is highly desirable and beneficial in improving several management tasks of Hajj and Umrah.

Saudi Central Bank Continues CBDC Experimentations.

In the light of the new experiments and research both central bank; the Saudi Central Bank (SAMA) and Central Bank of United Arab Emirates (CBUAE) led this project as an innovative driven initiative. The initiative sought to explore whether distributed ledger technology could enable cross-border payments between the two countries to be reimagined: using a new, dual-issued digital currency as a unit of settlement between commercial banks in the two countries and domestically. The name Aber was selected because, as the Arabic word, for “crossing boundaries”, it both captures the cross-border nature of the project as well as our hope that it would also cross boundaries in terms of the use of the technology.

Project Aber was accomplished by a fruitful collaboration between all stakeholders, including valuable contributions from both the central banks, participating commercial banks and technology partner, reflecting the shared urgency to shape the application of DLT to prevail over existing pain points in cross-border transfers. The path to success was interspersed with numerous challenges. During the project, several challenges were overcome, and key milestones were achieved. The project was successful in achieving its key objectives which include using a new DLT based solution for real time cross-border interbank payments between commercial banks without the need to maintain and reconcile Nostro accounts with each other. This promises to address the inefficiency and costs that are inherent in existing cross-border payment mechanisms. Another contribution of Aber protocol was its handling of the safety, privacy and audit ability implications of multiple jurisdictions. This added a completely new dimension to the interbank payments problem and the solution. Notably, project Aber is a significant step forward in the world of dually issued single currency CBDC (Central Bank Digital Currency) initiatives.

However, The Saudi Central Bank (SAMA) is ramping up its research into central bank digital currencies (CBDCs) but is yet to announce a deployment.

How Blockchain Can Accelerate Saudi Arabia’s Digital Transformation?

The Kingdom of Saudi Arabia has an ambitious plan for digital transformation, outlined in its ‘Saudi Vision 2030’ initiative, which includes investment in cutting-edge technologies like IoT, artificial intelligence, smart cities and blockchain.  At the recent Blockchain for Saudi Vision 2030 Summit in Riyadh, blockchain industry leaders, academic experts and representatives from companies working with the Saudi Arabian government discussed the role of blockchain technology in advancing digital transformation in the country. This event was hosted by the BSV (Bitcoin Satoshi Vision) blockchain’s international association and ThinkTech, an initiative by the Saudi Arabian Ministry of Communications and Information Technologies.

The BSV (Bitcoin Satoshi Vision) blockchain was the central topic of discussion at the event, as it offers a scalable and reliable platform on which to build government- and enterprise-scale applications thanks to its large block sizes, low transaction fees and stable underlying protocol. Speakers from within the Bitcoin Satoshi Vision (BSV) ecosystem impressed attendees with demonstrations of how the Bitcoin Satoshi Vision blockchain can solve real-world problems across industries while retaining public auditability and preserving the privacy of personal data.

Beyond the shadow of a doubt

Whether warranted or not, the shadow around cryptocurrencies is a deterrent between asset tokens and Riyal transactions, as crypto is still the default intermediary. Therefore, the future of blockchain depends on users’ ability to build trust in the technology.

Fortunately, some mechanisms could be harnessed here. The introduction of regulatory legislation to codify novel holding companies, where beneficiaries are token holders rather than traditional shareholders, could ease any doubts in transactions between those token holders and registered host countries. Of course, trust is still an essential element for potential investors. Still, if these special purpose vehicles are legal in target countries, and the rule of law in those countries is perceived as unimpeachable, it may be that all that is needed to engender greater trust is close management of the details by company constitutions.

Is Saudi Arabia capable of fostering public confidence at this level and becoming a true trailblazer for blockchain innovation? Perhaps yes, but only if it first overcomes the prevailing skepticism toward crypto as the link between asset tokens and money. The country would also need to overcome technical limitations impeding scalability. At the same time, the high energy consumption required by certain types of blockchain must be addressed, along with challenges around integration with the legacy system.

If the Kingdom can solve these challenges, it may enjoy all the gains that come with the first-mover advantage. If not, blockchain will likely remain a tool restricted to use in a particular niche, serving only a tiny fraction of the population and laying waste on many upcoming opportunities.

Bottom Line

The adoption and execution of blockchain in government sector, transforming industries across the world. Infusing trust and reducing third-party involvement in financial transactions, supply chains, and internal government processes. The Saudi Central Bank (SAMA) recently announced that it is continuing to experiment with the adoption of a Central Bank Digital Currency (CBDC), as it is working on a phase of a project that focuses on domestic wholesale of currency use cases in collaboration with local banks and fintech. However, the implementation of blockchain is expected to bring about smarter and more cost-efficient business operations while eliminating the element of fraud. The Kingdom’s adoption of blockchain technology in government sector, provides a significant development as it supports Saudi Arabia goals of becoming a digitized nation. This transformative technology naturally integrates with the Kingdom’s Vision 2030 journey as it is set to bolster its transformative endeavors and redefine the delivery of services to its citizens, businesses and to the rest of the world.