Illinois’ First Blockchain Report Highlights Challenges and Opportunities of Adopting Tech

Illinois has made it no secret that it wants to be the nation's first smart state. It's on a mission to continually investigate and roll out new technologies, and blockchain has been high on its agenda. The unchangeable distributed ledger technology underlies bitcoin, but has the potential to do much more.

The state recently released its first official report about blockchain's role in government. It outlines the successes and possibilities for many of its six statewide blockchain pilots. The report, which is fittingly hosted on a blockchain and distributed ledger peer-to-peer file storage system known as the InterPlanetary File System (IPFS), summarizes the initial findings of Illinois' Blockchain and Distributed Ledger Task Force.

While it also identifies several challenges to implementing blockchain, the overall findings were promising about the technology's future for state and local governments.

"This task force believes that blockchain technology and its built-in encryption can facilitate highly secure methods for interacting with government and keeping paperless records, increasing data accuracy and providing better cybersecurity protections for Illinois residents. Though the technology still needs refinement, government has an opportunity to help shape and adopt innovative solutions," the report states.

Illinois isn't the first state to consider blockchain. New York Assemblyman Clyde Vanel recently introduced several bills that look to study the tech's use in everything from voter security to smart contracts. But Illinois is the first to release a comprehensive study on the potential impact of the software in local government.

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Opportunities for Blockchain in State Government

Blockchain has long been touted as a way to ensure transparency and accuracy in government.

"Blockchains have the potential for opening up new markets, for allowing any participant to enter into business whether they have a lot of capital or very little capital. Blockchains open up the global economy to everyone from large communities down to small rural communities," states a report released last year by NASCIO.

Indeed, Illinois' government officials see that hope reflected in their findings.

"Blockchain can play a key role in creating a highly efficient, hyperconnected and secure government, which translates into better services for our citizens," said Kirk Lonbom, state CIO and acting secretary for the Illinois Department of Innovation & Technology (DoIT), in a press release.

In particular, Illinois' blockchain report points out three key advantages for state governments.

1. Transaction Reconciliation — Reconciliation, the report points out, is the act of "ensuring that two sets of records agree." By requiring those entering information into the ledger to share data points in a single format, blockchain could eliminate the need for reconciliation entirely, the report argues. Another subtler but still important part of that is it standardizes data and transaction formats for governments, vendors and IT teams.

2. Immutability and Data Integrity — Blockchain offers government bodies unchangeable and permanent storage for data. This not only offers that data integrity, but also eliminates the need for government audits. "Forensic analysis and legal discovery processes could be conducted without the need for special methods, expensive technologies or significant resources being employed. The clear benefit here is reduced court costs where a jurisdiction recognizes the facts in the distributed ledger as admissible," the report states, adding that this would also help to encourage honesty and transparency in government.

3. Improved Transaction Security and Resilience — Blockchain ledgers are owned by all parties, which means they lack a central point and, therefore, a central point of failure. "The ledger is owned by all participating parties which means that in the event of failure everyone can keep their own copy of data and transactions. This form of resilience and security provides the opportunity to create new identity systems where users own the data, which remains universally consistent and cannot be destroyed," the report states, noting that this gives it a significant security edge over existing systems.

Challenges Ahead for Blockchain Adoption

Yet, as with any new technology, challenges persist. The report points to four main issues with blockchain use cases.

1. Energy and Processing Power — Bitcoin mining, which uses the same underlying technology as blockchain, is currently using up massive amounts of the world's energy (even threatening to overwhelm Iceland's power grid). Blockchain could add that same cost via computational power and energy.

2. Scalability — "As ledgers are designed to retain all previous transactions, the ledger's size will increase. This increase in size will continually need to be forecast against both the capabilities of the network and the future behavior of the users," the report notes. This could be an issue if the network becomes so large that it is no longer cost-effective for users.

3. Interoperability — In order for blockchain to reach its full potential, all parties will have to be on board, but that will require updates to legacy IT systems across the country to accommodate the new tech. This is exacerbated by the fact that there are several competing blockchain technologies across the globe, meaning the market could be fragmented, unless we standardize the technology. "Transactions on blockchains will need to have stable URLs and an equivalent of HTTP redirection to point to updated locations. Further standardization efforts are needed to create URL schemes for blockchain transactions," the report says.

4. Privacy — Once something is in blockchain, it can't be removed. While this is certainly a positive when it comes to transparency, it also means that any private, inappropriate or illegally entered information can never be removed. "The potential impacts of the permanence and persistence of this information could potentially impact the privacy of individuals," the report states. To prevent and manage potential privacy challenges the task force advocates for "thoughtful design and good governance," going forward.

Despite the challenges ahead, the task force notes that this is simply the start of state and local investigations into blockchain use cases.

"The surface of using Blockchain and distributed ledger technology is just being scratched and Illinois has been intentionally laying the groundwork to benefit economically through business growth, as well as finding practical uses for our citizens," State Rep. Keith Wheeler, R-50th District, said in the press release.