State Blockchain Report Examines Potential Pilots, Uses for the Technology

The California Blockchain Working Group examines the technology's potential uses, risks and benefits to state government and business in its new report to the Legislature — which could have considerable influence on policy and direction. Among its findings are three recommended pilots and possible future use cases.

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The California Blockchain Working Group’s new report on the electronic ledger technology was created at the behest of the state Legislature and has an understandably heavy public-sector focus. But the 179-page document has considerable interest to the private sector as well.

From potential pilots to possible future vendor opportunities, the report offers a perspective on blockchain crafted by key members of the public and private sectors, that may itself go on to shape policy. (Group membership includes four state IT leaders including state Chief Information Officer Amy Tong; two lawmakers including Assembly Majority Leader Ian Calderon, D-Whittier; and representatives of technology and industry including David L. Tennenhouse, chief research officer for VMware, and Audrey Chaing, founder of Blockchaing.) The group, created in 2018 by Calderon’s Assembly Bill 2658, was tasked with researching blockchain’s potential uses, risks and benefits to state government and business, and compiling that information in a report to the Legislature due July 1. Group Chair Camille Crittenden, executive director of the Center for Information Technology Research in the Interest of Society (CITRIS) and the Banatao Institute, said via email that it delivered the report last week, but is unsure whether the Legislature — now in recess — will hold a hearing on it. However, group members are hoping for a virtual launch event around the report in early fall, Crittenden told Techwire. Among the takeaways:

• The working group identified “three recommended pilots” for the state. In one case, it suggested the California Secretary of State’s Office work to move State Archives online, highlighting blockchain’s potential for improved access and storage capacity. The California Department of Food and Agriculture (CDFA) could use blockchain to “more quickly trace” food-borne contamination sources, by aggregating and organizing data from growers, transporters, wholesalers and retailers to find products in the system and speed up recalls and notifications. CDFA leaders have indicated their interest in doing so, and in working with the agricultural industry to enhance food supply transparency, the authors wrote. The California Department of Motor Vehicles (DMV), the group noted, found three possible pilot candidates to improve process, in standing up a digital wallet for identification; creating a “common blockchain platform” to track vehicle life cycles; and building a “fine-grained security structure” to share driver records at a state level. “For the moment, DMV has put this project on hold to focus on the state’s response to the COVID-19 pandemic,” the authors wrote.

• Real estate could also offer vendor opportunities. While the report’s authors recommended simply monitoring ongoing work for possible applications around land titling, they also recommended exploring “issuing real estate licenses on a blockchain system,” though running the process in parallel until any new blockchain-based system proves itself. Additionally, they recommended encouraging counties to consider blockchain, to the extent it can make functions like title searches, record validation and error or fraud detection cheaper, faster or more accurate; encouraging lenders, title insurers and other private-sector entities to adopt efficient new technologies; and encouraging “new players to enter the space.” On vendors and procurement in the real estate application area of blockchain, the report recommends letting vendors describe the system they can build and its costs; letting them choose “the underlying technologies to employ”; and having state procurement officials choose the most competitive bid.

• The report cautions those considering the use of blockchain to keep their options somewhat open. In the report’s section on blockchain’s definition, its authors write that “(a)s in most technology policy domains, but particularly in the application of this technology, it is crucial to avoid vendor lock-in” and that using open standards and/or open source software is preferable. They note that “these are widespread characteristics” in blockchain.

“The only reason to use blockchain technology to solve a problem is to avoid that dependency on single organizations or individuals to keep the system of record honest and accountable,” according to the report.

• Public and private sectors have work to do on the process, authors wrote in a section on cybersecurity and risk management. Blockchain users should have “mechanisms to appeal” transactions that include the state as a participant, until it’s decided they are sufficiently secure to replace current methods, the authors write, adding: “To the extent it is commercially reasonable to do so, operators of applications serving the private sector should be encouraged to have similar appeal mechanisms.” Among their recommendations: The state should encourage training and, possibly, licensing and certification of app developers creating or supplying blockchain platforms to the state. The authors also suggest adopting “an experimental period for permissionless blockchain applications,” potentially defined as five to seven years, during which “implementations of blockchain-based systems of record are restricted to only private and/or permissioned blockchains, under the State’s authority, for use-cases that reflect public data.” They noted that this doesn’t mean the state shouldn’t implement blockchain-based apps — only that it avoid “sole reliance” on permissionless, public blockchains in early adoption phases. “While regulation does not guarantee the elimination of security breaches, the absence of regulation may create an environment for continued systemic breaches, which may exacerbate losses to consumers,” the authors wrote, indicating companies and government agencies must agree on transaction protocols and rules to regulate transactions if they collaborate on transactions in business processes.

Theo Douglas is Assistant Managing Editor of Techwire.