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Decoding Blockchain for State and Local Governments

Blockchain isn’t new, but state and local governments’ interest in it is fairly recent. And for many state and local government leaders, even those in tech, blockchain is still shrouded in mystery and confusion. Blockchain offers state and local governments new opportunities, both for improving citizen services, streamlining government operations, and improving local economies.

In 2008, Satoshi Nakamoto, the name used by the designer of the cryptocurrency bitcoin, conceptualized the first distributed blockchain. It was implemented the following year as the public ledger for all bitcoin transactions.

What is Blockchain?

To put it simply, blockchain is a decentralized and distributed shared ledger for recording transactions that cannot be altered without affecting all other blocks in the chain. A blockchain ledger consists of two types of records–transactions and blocks. Individual transactions are grouped together into batches, which form blocks. The blocks are linked to the block before it and the one that comes after it. The linked blocks form a chain, which ensures that transactions cannot be altered retroactively.

Blockchain offers increased security and simplicity for every transaction taking place online. Blockchain also requires all parties involved in a transaction to give their consent before a transaction can be added to the ledger. The shared ledger also reduces, or potentially eliminates, all paper processes–potentially increasing speed and efficiency.

How Can Local Governments Use Blockchain?

Blockchain can have many applications for state and local governments. In a recent study, IBM identified government blockchain pioneers and, based on their responses, teased out four areas where blockchain would provide the best benefits for governments–citizen services, regulatory compliance, identity management, and contract management.

Blockchain has the potential to streamline and modernize citizen services. Specifically, IBM highlighted that because participants in a transaction on blockchains have access to the same records, there is no need for third-party intermediaries to validate transactions or verify identities or ownership. Business licenses, property titles, vehicle registrations and other records could all be shifted to blockchains, according to the study. Additionally, blockchain brings greater transparency into city services. Since the technology uses a distributed ledger, city councils and other government leaders would be able to see whenever a contractor or service provider finishes a task. Additionally, citizens would be able to register complaints or requests in an open format and track the response.

The technology can also reduce the burden of regulatory compliance. The study found that 90 percent of leaders believe the technology can reduce the time, cost and risks of enforcing regulatory compliance. Because blockchain records cannot be retroactively altered, it creates a transparent audit trail and reduces the costs of managing and enforcing regulations.

Blockchain also presents opportunities in identity management. On the Federal level, the USPS and Department of Homeland Security are researching the potential for blockchains to establish secure identity management. States could learn from the Federal government and apply the technology at their level.

State and local governments could also use blockchain to assist in contract management. According to IBM, by using blockchains for contract management, issues such as the failure of any party to meet a deadline or complete a task, for example, could be more immediately visible. Over time, a vendor’s history captured on blockchains could be used to validate its reputation and trustworthiness, the study found.

Blockchain could also be used to spur economic investment and development in states and cities. Passing favorable regulations and legislation can bring startup companies to the area and encourage further investment. This also means state and local government leaders must make sure there is a deep enough talent pool of trained and educated tech professionals.

What are Local Governments Already Doing With Blockchain?

States are taking a varied approach to blockchain. Some are jumping in with pilot tests and funding for practical applications of the technology, while others are beginning to pass legislation regulating the use of blockchain–some states have yet to even consider the technology.

For states looking to capitalize on blockchain technology, Illinois is leading the pack.

Last year Illinois launched the Illinois Blockchain Initiative (IBI), which is a consortium of state and county agencies that will collaborate to explore potential applications of blockchain and distributed ledger technology. Along with launching the IBI, Illinois published a Request for Information (RFI) to invite participants to submit nonprice information about blockchain applications for the state government.

Currently, the IBI is ready to move ahead on six use cases to see how the public and private sector can partner to improve government services using blockchain. The use cases include using blockchain to secure land title registries, validate academic credentials, register health providers, create a marketplace for energy credits and secure vital records. Specifically, the IBI is investigating whether blockchain can be used to track medical licenses. IBI partnered with U.S.-based blockchain startup Hashed Health to see if blockchain can streamline how medical licenses are issued and tracked.

Virginia also is trying ahead of the curve with blockchain. In June, Virginia Gov. Terry McAuliffe pledged nearly $50,000 in funding to SynaptiCAD for the commercialization of blockchain technologies. The funding was part of the Commonwealth Research Commercialization Fund.

Other states are content to pass regulatory legislation making their state appealing to blockchain startups.

The Delaware Blockchain Initiative, which was launch last year by Gov. Jack Markell, is engaging with technology vendors to help businesses and state agencies use blockchain technology to distribute, share, and save ledgers and contracts.

Beginning this month, Delaware now allows companies to use blockchain technology to issue and track stocks–the first state in the nation to do so. The new law will lower costs and increase efficiency for states that choose to move their records to blockchain.

In a bid to incentivize blockchain startups, Nevada became the first state to ban local governments from taxing blockchain use. Additionally, the law also stipulates “if a law requires a record to be in writing, submission of a blockchain which electronically contains the record satisfies the law.” The new legislation makes using blockchain, and developing new blockchain applications and technologies, more lucrative. It also makes Nevada a desirable headquarters location for blockchain startups.

Similar to Nevada’s recent legislation, Arizona has a new law that recognizes blockchain signatures and smart contracts. Specifically, the law says signatures recording on blockchain are “considered to be in an electronic format and to be an electronic record.”

 

Kate DeNardi
About Kate DeNardi
Kate DeNardi is 21st Century State & Local's Assistant Copy & Production Editor, covering Cybersecurity, Education, Homeland Security, Veterans Affairs
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