Blockchain

Blockchain Tracker: Good For Governments?

There’s been chatter about 2017 being the year that blockchain sees the most government regulation.

“2017 is going to be the year when operationalizing of blockchain really starts to move from the hype and the headlines to a real business solution for early adopters in many industries,” said Laura Crozier, global industry director at Software AG, an end-to-end digital business platform.

And at the same time, experts say this could be the year for blockchain to be adopted into government activities to benefit taxpayers, voters, and other aspects and levels of the entire U.S. government structure.

“From a regulatory perspective, the states are not the right fit to regulate blockchain-based technologies, such as digital currency. The state-by-state regulatory framework is broken, overly complicated and burdensome and holding back innovation,” said Perianne Boring, founder and president of the Chamber of Digital Commerce, the world’s leading trade association representing the digital asset and blockchain industry, with a focus on public policy. “All governments are a fit. Anywhere you have trusted data repositories is highly conducive to be blockchain-enabled, creating efficiencies in issuance and authentication, and making the entire work flow radically transparent and auditable. Furthermore, states can save billions of dollars from this type of automation.”

Because public blockchains are arguably the most robust digital public record keeping system to be invented, experts say governments could use this technology to create truthful and accurate public records for anything and everything.

“Blockchains and federal, state and local government are a great fit,” said Paul Brody, blockchain leader at EY Global Innovation. “The U.S. tradition of open and accountable government goes nicely with blockchain technology.”

In fact, last year, Delaware became the first U.S. state to implement blockchain technology. Back in May 2016, Symbiont engineers began working with Delaware’s state officials. Governor Jack Markell appointed Andrea Tinianow as Ombudsperson and Marco Santori as blockchain legal ambassador and committed the state to use the technology, first with the Delaware Public Archives project. Now, smart public records are used to automate compliance with Delaware’s maintenance and destruction laws and create revenue for the state.

Experts say this is an ideal first step to integrating blockchain technology into government activities.

“They have found a ‘beachhead’ application, UCC filings, and this experimentation should reveal significant insights regarding user adoption,” said George Li, cofounder or WeTrust.io, which is a savings and insurance platform powered by social capital and blockchain. “The efficiency and transparency enabled by issuing UCC filings on blockchain should incentivize both the lender and borrower parties. Depending on how the rollout is executed, we expect additional filings to migrate to a distributed ledger.”

Some go so far as to call it bold, saying it will be a model for what other states will do.

“Having all the states run their own ledgers and then be willing to be counterparties to other state ledgers might be a good model for mutual support and trust,” said Andre Boysen, chief identity officer of SecureKey Technologies, an identity and authentication provider simplifying consumer access to online services and applications.

“The club is big enough for consensus, as well as to limit the effects of [distributed-denial-of-service] attacks,” he said.

Indeed, Delaware’s implementation of blockchain has not come without its bumps and hurdles. The state has already experienced issues relative to transition, uses, compliance, code security and cybersecurity and is still an experimental protocol. As a result, some experts are still wary. Some say the application is too new and doesn’t have enough proof points, tools or even best practices to really play a significant and beneficial role yet.

“We predict Delaware will be further plagued by future cybersecurity breaches and other growing pains. In the long run, we believe it will serve them very well,” said Jim Angleton, president of Aegis FinServ Corp, a wholesale issuer of debit cards and ATM digital kiosks and owner of BitcoinBankUS. “It could take a few more years and cost north of eight figures over time. Amortization of time over cost is equal to the net experience moving forward. The trouble with technology [is] it changes quickly and your cost base is forever increasing.”

Perhaps a different application for blockchain may be more appropriate and beneficial? Some experts say that every state that has approved recreational marijuana should consider exploring want to explore digital currencies, cashless and bBlockchain. Recently, Vermont started recognizing blockchain data as admissible in court and paving the way for legal precedent. Illinois’ Governor Bruce Rauner has expressed interest in implementing blockchain by announcing the Illinois Blockchain Initiative.

The latter application led by Gov. Rauner has struck a chord with and divided experts. Angleton at Aegis FinServ Corp called Gov. Rauner “a copycat of Delaware. This in our view is nothing but some grandstanding and attracting ink for the governor.”

Others say it’s a positive for the state and for related businesses.

“This approach can create more opportunities for powerful players like CME groups as well as startup companies and provide government officials and technologies with insights, resources and perspectives that they might not otherwise have,” said Adam T. Ettinger, partner at Sheppard Mullin, a full-service Global 100 firm with 770 attorneys in 15 offices located in the United States, Europe and Asia.

And yet others focus on what this means for startups, specially for University of Illinois Urbana-Champaign’s computer science program.

“Illinois’ announcement for their blockchain initiative is an attempt to make the state seem innovative and to entice business to bring entrepreneurship and jobs into the state,” said Maria Cardow, director of business consulting at Synechron. “Both the state [of Illinois] and the city of Chicago have been pushing innovation in the financial services space especially enthusiastically over the last few years, as they see this as a great fit and possible expansion to the local economy.”

Indeed, there are some insightful and compelling startups within innovative technologies, and experts anticipate them only to grow over the next few years because of this blockchain enthusiasm and investment.

“Incentives may encourage these startups to stay and build their companies in Illinois, instead of moving to the Silicon Valley,” said Li at WeTrust.io. “Other states will evaluate and may announce their own initiatives to attract talent.”

If anything, using blockchain in government activities is perhaps just the mode. Some say it’s even timely or fashionable given the recent election hacking topic.

“If you look at the security aspect of blockchain technology, it’s essentially an impenetrable ledger that safeguards processes, establishes identity, validates contracts, and certifies records or transactions,” said Peter Classon, partner of Strategy Studio at LiquidHub, a customer engagement company that partners with businesses to improve customer experience and drive growth. “Blockchain improves processes – it takes something that is complicated, inefficient and costly and creates a more streamlined, frictionless and efficient system.”

Of course, many still argue that the U.S. is still in the early adoption period of implementing blockchain, especially when it comes to government initiatives. But expert say that once the technology becomes more familiar, the federal, state and local governments can quickly benefit from improved automation.

“The wider adoption of blockchain technology by the government has the potential to validate this software for the rest of the economy and potentially influence how process interactions will flow in and out of government entities, and by extension, among non-government entities,” said Classon. “As blockchain continues to permeate other industries, including health care, banking and finance, this technology will reengineer business processes, create cost-effective value and provide another key pillar in the overall digital transformation of the near future.”

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