Per the terms of Assembly Bill 2658, authored in 2018 by Assembly Majority Leader Ian Calderon, D-Whittier, the working group must present a report to the Legislature by July 1 that would describe potential uses, risks and benefits of blockchain for state government and business. Among the takeaways:
• A portion of the draft available online far expanded the definition of blockchain in AB 2658, as “a mathematically secured, chronological, and decentralized ledger or database.” The draft defined it in part 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 relationship,” and indicated: “The intent is to bring increased trust and/or disintermediation in the overall system.” Blockchain technology includes distributed ledgers and may also include “‘smart contracts’ that allow participants to automate pre-agreed business processes,” the definition said. Further, blockchain technology, it said, “is the most widely recognized approach to building co-operative, auditable, multi-stakeholder information systems that avoid the need for a single organization to operate and own the center of the datastore.” This, the definition noted, has “positive implications for government roles in market regulation, processes to issue permits, manage digital identities, and many more use cases.”
“Through blockchain technology, California can pursue a highly agile approach to enabling businesses and residents to participate in the digital economy,” said the definition, which was created by members Brian Behlendorf, executive director of Hyperledger, and David Tennenhouse, chief research officer for VMware.
Group members, however, debated the definition’s length and its intent. Berkeley Councilman Ben Bartlett said: “It’s more helpful to have a bold two-line sentence that sums it all up and then go from there.” Ultimately, members indicated a preference to move the “intent” sentence and the third paragraph defining blockchain as “ … the most widely recognized approach … ” to the report’s narrative.
• The draft didn’t just offer recommendations and ideas for the Legislature – it spelled out the role of state government, suggesting lawmakers “amend the statute related to vital records” to let county recorders issue certified copies of marriage records “by means of blockchain technology.” The report also advised leaders consider creating a Blockchain Innovation Zone “to incentivize and provide safe harbor to blockchain companies working to solve California’s most pressing problems”; and promote collaboration through a “multi-stakeholder governance model” for regulating blockchain technologies; and by creating a resource for best practices to be “shared and co-created among businesses … .”
• The report indicates the state should use blockchain to “create a public payment and benefits distribution system for its struggling families,” starting with a “digital cash and voucher assistance (CVA) pilot project” for low-income families in emergency. Deployment should initially be restricted to “pre-approved products and services” and a limited set of vendor partners, but could be expanded to new use cases over time.
Other possibilities: “small-scale or low-stakes pilots, especially those designed to enable more people to vote,” offer transparency on the pros and cons of Internet voting and to advance voting technology; and a pharmaceutical pilot program that convenes manufacturers, distributors, retail pharmacies, healthcare providers, researchers and others.
• The group’s recommendations on cybersecurity and risk management included regulating certification or licensing of developers who develop or supply blockchain applications to the state; and adopting “disruptive defenses” including ensuring the provenance of a transaction before it enters the blockchain; preserving the confidentiality of sensitive information “within and outside the blockchain”; and preserving the integrity of transaction data even outside the blockchain.
Tennenhouse, however, said he was “concerned about the mission creep,” adding: “Each of these things looks good on the surface, but when you look below the surface, I just think we’re going way beyond our technical competence.”
Member Arshad Noor, CTO for StrongKey, worked on this section and said: “California is attempting to embark on using a technology that definitely has benefits for the state and its constituents, but the risks are also enormously high. (It) is precisely these kinds of risks that I’m trying to mitigate with these recommendations in the cyberworld. As little as I would like to be prescriptive, unfortunately, there is no other way to provide these kinds of guardrails.”
