Those who follow developments in technology and business have been inundated over the past several months with stories about the rapid adoption of blockchain technologies across the private sector. Less discussed is the U.S. government’s exploration of the use of blockchain technologies.
At a high level, a blockchain is a decentralized, distributed transaction ledger. What makes blockchain technology unique relative to other distributed databases is that blockchain technology is built from the ground up to facilitate secure transactions through a combination of cryptography and decentralized transaction authentication performed by a large number of actors across a network. By entrusting validation and authentication responsibilities to the entire network, blockchains eliminate dependence on central authorities and costly intermediaries and remove the likelihood of manual errors. Popular public blockchain platforms include the payment network Bitcoin and the smart contracts platform Ethereum.
Although many commentators confuse these particular platforms with blockchain technology generally, the blockchain concept is application-agnostic and can be used for a wide variety of transactional and data management contexts beyond digital currencies. Given the scale and nature of data management problems faced by the federal government, it is not surprising that innovators in the public sector have started to explore the potential application of blockchain technology to such problems. Additionally, lawmakers are particularly focused on understanding the implications of blockchain adoption in the financial industry and its impact on jobs, tax revenues, and the economy. Some recent examples include the following:
- Congress: On February 9, 2017, Representatives Jared Polis (D-Colo.) and David Schweikert (R-Ariz.) launched the Congressional Blockchain Caucus, whose mission is “dedicated to the advancement of sound public policy toward blockchain-based technologies and digital currencies.” On June 6, 2017, the Blockchain Caucus sent a letter to the IRS requesting guidance on “the tax consequences and basic tax reporting requirements for transactions using virtual currencies.”
- Foreign Policy: In early June 2017, the State Department announced the formation of a Blockchain@State Working Group to, among other things, look into “applications of Blockchain or distributed ledger technologies in U.S. foreign policy.”
- Procurement: On June 19, 2017, GSA published a request for quotation “to obtain contractor support to develop a proof of concept for DLT (Distributed Ledger Technology), automated machine learning technology, and/or artificial intelligence based exchange implementation” into GSA’s proposal review processes.
This is just a small sampling of the activity underway at the federal level to consider potential consequences of, and applications for, blockchain technology. Several states are doing similar work and we expect many more similar announcements to be made soon. Morrison & Foerster’s Blockchain + Smart Contracts Group will continue to monitor and provide updates on key public sector blockchain developments.