Why Local Governments Aren’t All Aboard the Blockchain Train

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From high costs of implementation to more pressing regulatory concerns, current barriers to entry make the technology difficult to implement.

WASHINGTON — Most local governments aren’t racing to adopt blockchain while the technology remains in its infancy, policy experts said Thursday during a National League of Cities event.

Not to be confused with cryptocurrency, which exists on blockchain, the technology functions as a transaction ledger that can only have “blocks” of information added to it but not altered. Cryptography ties new blocks to preceding ones in the “chain” by having hundreds of computers and servers in the network solve the same mathematical proof, called “mining,” thereby validating the transaction.

Reports of people investing in cryptocurrency scams and the once-theoretical “51 percent attack”—whereby hackers accumulate 51 percent of central processing unit power in a network in order to rewrite transaction history—have raised concerns about public blockchains.

Local governments are more interested in private blockchains like IBM’s Hyperledger because they are permissioned networks where participants agree on the party or parties doing the mining, but they lack public protections, said Julie Hamill, an attorney with Harris Bricken.

Some of the earliest instances of local governments using blockchain involve smart contracts, where the terms of agreement are coded into a blockchain and self-executed. Cook County, Illinois spent three months working with a private contractor to load property information into a blockchain, so buyers or lenders can now obtain a certified digital file in lieu of a paper deed—combating deed fraud.

The county’s pilot highlights the problem of not yet having a “killer app” for blockchain that is indispensable to the marketplace, said Russell Truell, former chief financial officer of Franklin, Tennessee.

“You’re going to have to have something ... shared among probably many agencies in order for it to be big enough to be cost effective,” Truell said. “Without this ubiquitous application that scales in order to bring down the cost of implementation, most organizations are withholding judgement of the technology.”

Blockchain could prove itself cost-effective if it winds up replacing the existing cloud servers most cities use to store data, Truell added.

With so many ledgers to choose from, buyers are wary of making a large financial commitment right now, Hamill said.

“I don’t think any local governments are really going to go out there and spend millions of dollars on this technology, and that’s a smart move because we haven’t seen the final product yet,” Hamill said. “I think that there are going to be different iterations … two years from now.”

Adding to cost concerns is the fact a single blockchain transaction uses as much energy as the average U.S. household uses in a day, she added.

Other issues preventing local governments from implementing blockchain include the lack of data standardization, need to amend state laws, and scarcity of best practices and advisories on the subject, Truell said.

Local governments won’t venture into blockchain anytime soon while they deal with more pressing matters like the sudden entrance of e-scooter companies into their cities or towns, said Xavier Hughes, chief technology and innovation officer with the International City/County Management Association.

Early blockchain success stories involve the private sector taking full control, he added, like when IBM partnered with Internet of Things device company SweetSense to monitor groundwater use at an at-risk aquifer in northern California. Blockchain allows farmers to sell their limited pumping rights if they decide not to water their land during a certain season.

“It’s really critical that local governments pace themselves, they learn more about it, they start thinking about how they could govern this, how they can adopt it,” Hughes said. “I see it more in the short term as a hyper-efficient ledger associated with microtransactions at an accounting level.”

Vehicle maintenance tracking of local government fleets offers another early potential use, he added.

In the Cook County example, the pilot involves a lot of transactions—making it a good trial of blockchain technology, Truell said.

“That’s probably where local governments are going to start out,” he said. “They’re going to start with something innocent like a utility bill and find a way to start encrypting some of the payment transactions and test it that way.”

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