The working group was created in 2018 by Assembly Bill 2658, authored by Assembly Majority Leader Ian Calderon, D-Whittier and co-chairman of the California Legislative Technology and Innovation Caucus. That bill charged the group – which includes two electeds, four state IT leaders and representatives of the tech, financial and non-tech industries – with researching and reporting to the statehouse on blockchain’s potential uses, risks and benefits to state government and to business. Members approved the draft Monday, with recommendations for final changes and updates, in a 16-0 vote, with one abstention and two members not present for the final vote. Among the takeaways:
• The group worked to define blockchain in a way that would help the state set policy with “clarity and precision” according to the report draft, and spotlight the technology’s “most unique value” while being technically specific and understandable. It defined blockchain as “a domain of technology used to build decentralized systems that increase the verifiability of data shared among a group of participants that may not necessarily have a pre-existing trust relationship,” also specifying that any such system must have “one or more ‘distributed ledgers,’” and “specialized datastores” that offer a “mathematically verifiable ordering” of recorded transactions. The blockchain may also include “smart contracts” implemented by embedding software in recorded transaction, and which let participants “automate pre-agreed business processes.”
The definition and the report generally met with approval from the members, though Michael Magee, a legislative aide representing Calderon’s office, pointed out that the definition could be different from a legislative definition. Ultimately, he indicated, what might be needed is a definition by which technologies might be evaluated to determine whether they are in fact blockchain.
• The draft report offers a decision tree and matrix to guide the application of blockchain, asking readers to make determinations including whether a use case requires shared read/write access; whether regulators should be included in a project; and whether a permanent record is really needed, and can be created for the digital asset being considered.
“This is perhaps the most critical question that needs to be answered, since a blockchain needs to be the source of trust,” authors wrote. “If there are multiple sources of trust regarding the state of an object, then the object cannot be effectively stored on the blockchain.”
This section also examines ethical considerations; blockchain’s role; cybersecurity and risk management; privacy infrastructure; digital identity; and the state chief information officers’ perspective. Authors found that decentralizing trust and creating “online identity and trust layers” would bring “significant benefits” for California business, letting them become “more interoperable,” share information more easily, and reduce the amount of data they store as residents take control of their own information – possibly reducing significant data breaches.
In the CIOs’ perspective, authors examined the state Project Approval Lifecycle, results of a survey sent in January to state CIOs; and considerations for adoption. Here, authors found that key consideration factors included “procurement vehicles and overall cost,” the compatibility with state architectures; ease of deployment, security and privacy; and the value of “a well-defined business case” communicating the need for blockchain and its advantage over existing solutions.
• The report examines 12 potential areas of application including vital, health, property, finance, commercial business records and civic participation. Among their recommendations, authors suggest the state weigh using blockchain to “create and verify tamper-resistant digital certificates of government-issued documents”; that it hear from patient advocates, health groups, hospital CIOs and government agencies on health records and “develop a framework for providing patient identity and data operability”; and that it “explore issuing real estate licenses on a blockchain system” while continuing traditional issuance in parallel. Discussions with the California Department of Motor Vehicles should continue, authors wrote, to determine whether registration of motorists is a good use case for blockchain. And they indicated that the California Secretary of State Office’s archives division would be “an effective first blockchain pilot project” and that the Legislature should work with that office on how to move those archives off paper with blockchain, calling it a “relatively low-risk” pilot with possible benefits.
• Authors also make five recommendations around state government’s role in blockchain. They recommend that the state consider creating a Blockchain Innovation Zone to “incentivize and provide safe harbor” for blockchain companies addressing the state’s “most pressing problems.” They also recommend enabling collaboration through a “multi-stakeholder governance model” for regulating blockchain technologies, to include representatives of regulatory agencies, consumer advocates and industry stakeholders. The writers also recommend creating a unit in the California Department of Technology to monitor developments in the blockchain industry, with the possible responsibilities of looking in on consumer protection issues; training IT staffers in government agencies; working with lawmakers and local public sector on regulations; and attending or hosting conferences “to encourage responsible blockchain business development in California.”
