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Five Reasons I’m Bearish on U.S. Government Blockchains (for now)


Source: David Birch

The concept of a blockchain was originally dreamed up in 1991, but in the last ten years since Bitcoin began, blockchains have erupted across the tech sector. They have been touted as the best way to manage foodborne illnesses and the savior of a national economy. These days, a significant amount of attention is being paid to the private sector development of blockchain solutions and the legal frameworks needed to encourage them. Its application and benefit for government operations (at least in the U.S.) is decidedly less clear. 

U.S. governments look for blockchain solutions so they can foster local economic development and appear innovative, rather than to take advantage of the decentralization and empowerment touted by blockchain evangelists. There have been a variety of global pilot projects exploring the use of blockchain to support government operations and services, but in the U.S., a widely successful “killer application” still hasn’t arrived.

Why is this? Here are a few reasons:

  1. Although public trust in government is at an all-time low, in a global context the United States does not seem to have systemic corruption issues. Since blockchain is commonly used in low-trust situations, there is little incentive to apply it in the U.S. government context. (Thanks, Emily Shaw!)
  2. Leveraging the full potential of a blockchain solution means rethinking how power and authority are distributed. Decentralization can, in a very literal sense, support the elimination of a government’s authority, but those in existing power structures will seek to preserve them. Smart contracts encourage automated decision-making, but government processes typically need to have a degree of flexibility that only humans have.
  3. There are a limited number of use cases for unchangeable, transaction-based, and distributed record-keeping. Even in situations where all three are needed, existing technologies are often capable of meeting that demand.
  4. The incentive model to operate blockchain nodes (for decentralization) in a government use case is extremely unclear. While some solutions will use public blockchains designed with financial incentives for participation (e.g. Ethereum), all of the nodes in a private blockchain must be maintained by either the government directly, or its private sector partners. 
  5. Blockchain presents some challenges to privacy that governments see as a key part of their responsibilities. Sensitive information permanently stored in public blockchains, even using modern security techniques, may be vulnerable to exposure in the long term. As states (for example, California) and local governments move to pass “right to be forgotten” laws, it’s important to note that blockchain applications that hold data related to people (even if not sensitive) may end up violating those laws.

Despite these considerations – or perhaps to work on overcoming them, there are more than 40 chapters of the Government Blockchain Association scattered across the country. Legislatures like Colorado’s are forcing state agencies to seriously consider their use for operational purposes. Perhaps we are closer to finding that “killer application” than I think.

When it does come, governments will have some new concepts to think through. With that in mind, we’ve assembled a few resources to help:

  • Blockchain and Data Practices discusses the impacts that blockchain solutions will have on common data management work which many governments now carry out.
  • Blockchain Applications for Government explores the various ways that the three branches of U.S. government (legislative, executive, and judicial) have been approaching this new technology. It also includes three case studies – one state, one county, and one municipal.
  • Deciding to Use Blockchain provides some context for the hype around this emerging technology, includes two of the best decision trees available, and has a brief discussion on the concept of consensus to help public officials avoid confusion over what it means.

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