Is Blockchain Ready for State Government Use?

As a decentralized system of records, blockchain offers a potentially low-cost and highly secure method of supporting transactions for state and local governments. Over the past two years, states such as Delaware, Colorado and Illinois have started to assess and implement the distributed ledger technology underlying cryptocurrencies to support various initiatives, according to Brookings.

In the results of a survey published in April, Brookings designates seven of the 50 U.S. states as “actively engaged,” or examining the governmental use of blockchain. In Vermont, for example, the court system recognizes blockchain data as legal records, according to Bitcoin.com. At the other end of the spectrum, Brookings says eight states are “unaware” of blockchain, meaning they have considered no executive or legislative measures on blockchain, although the technology is actively used within their jurisdictions.

Delaware Walks Back on Blockchain

In 2016, Delaware launched the Delaware Blockchain Initiative. Working with a company called Symbiont, the state planned to move its public records for corporate franchising to blockchain. But a new administration in Delaware has voiced more caution. Delaware has a reputation as a very corporate-friendly state. As such, it makes a quarter of its annual income from corporate franchising taxes and fees collected by the state, according to The News Journal. More than 1 million businesses have incorporated in Delaware, the newspaper reports, including 64 percent of Fortune 500 companies.

Blockchain advocates argue that moving the state’s incorporation records to blockchain would give Delaware a competitive edge in the business of incorporation, speeding transactions and increasing transparency. But Delaware Deputy Secretary of State Kristopher Knight tells The News Journal that the state must carefully assess how blockchain will impact this valuable source of revenue. So, the state is moving forward with the initiative, albeit more cautiously to not disrupt the collection of corporate taxes and fees.

Colorado Takes a Closer Look at Blockchain Security

In Colorado, the legislature is weighing a bill that would require state entities to annually assess the benefits and costs of implementing blockchain technology and consider secure encryption methods to improve data security, as Governing reports.

Colorado CIO Suma Nallapati backs the bill and the use of blockchain technology to secure government data, saying it would improve government efficiency, Nallapati tells StateScoop. The state CIO says she would like to see her state use blockchain for recording keeping within the next year.

Illinois Pilots Explore Distributed Ledger Transactions

On Jan. 31, Illinois issued a report from its Illinois Blockchain Task Force, saying, “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.”

Government Technology reports that the task force endorses using blockchain for secure digital identities, providing access to government services and fueling greater economic participation. Last year, Illinois began assessing six pilot cases for blockchain use, including a health provider database and tracking continuing education credentials, as part of the Illinois Blockchain Initiative.

Cautionary Steps Forward for Government Blockchain

Speaking to Illinois House members at a hearing in late February, George Chikovani, an executive at the Innovation and Development Foundation, said new blockchain systems could focus on other kinds of transactions, such as exchanging titles for houses, cars and more. He argued that instead of relying on one government agency’s computers, blockchain could decentralize the whole infrastructure for these sales, making them faster and cheaper, compared to what would normally be a slow, complicated trudge through bureaucracy. But at a congressional hearing in February, experts expressed security concerns around the technology and called for the creation of standards and regulations around blockchain use in government.

States like Delaware are justifiably cautious with rolling out their blockchain initiatives. Concerns raised by Illinois in its Blockchain Task Force report may well resonate with other states: Open and decentralized governance is not automatically equitable, and decentralized market structures remain untested. Look for further developments as states tiptoe into blockchain over the next several years.

This article is part of StateTech's CITizen blog series. Please join the discussion on Twitter by using the #StateLocalIT hashtag.