Members of the group’s Finance Subcommittee will need more research to identify key milestones they wish to accomplish, its chairperson, Camille Crittenden, executive director of the Center for Information Technology Research in the Interest of Society (CITRIS) and the Banatao Institute, told Techwire via email. But subcommittee member Audrey Chaing, founder of Blockchaing, indicated blockchain might find potential around process automation. Among the takeaways:
• The state is interested in applications of blockchain, and officials are in the early stages with two departments of exploring the idea of a small-scale pilot of the technology, the group learned during its meeting Jan. 17. Committee members didn’t name the two departments, but the idea would potentially be a small use case that, if it failed, wouldn’t have a major impact. Interest from the statehouse —shown last year in the group’s formation —isn’t unexpected, Crittenden said.
“At the same time, we want to be deliberate and thoughtful about its implications for operational workflow in state agencies and potential effects in efficiency, security, etc., for end users,” she said. The group is charged with researching blockchain’s potential uses, risks and benefits to state government and to business — and issuing a report to the Legislature by July 1.
• Members discussed the use of a blockchain system compared to Automated Clearing House (ACH) and Society for Worldwide Interbank Financial Telecommunication (SWIFT) money transfers, said Chaing, who authored a report to the subcommittee on banking. In that report, she noted blockchain businesses doing “value-exchange” for clients “may be deemed money transfer agents.” She pointed out that purchases or cryptocurrency exchanges, “no matter how small,” can trigger “tax consequences and burden of tracking,” discouraging taxpayers from using cryptocurrency. Bank policies make it difficult for blockchain companies to access services, “which is why crypto-specific banking services exist,” Chaing said in the report, asking the group for input on encouraging better access.
• But blockchain systems can offer automated payments, representing a “more efficient use of resources,” Chaing said via email, adding: “I think automated is the way to go with blockchain, and since there would be a clear record of these payments, any errors or refunds could be dealt with easily."
On the question of using blockchain in automated versus manual payments, Crittenden said the technology is now being used in areas including “logistics and supply chain management for ‘smart contracts,’ where transactions may be automated based on satisfying certain conditions. We are still investigating where state transactions might benefit from such automation.”
• The group plans to seek security experts' opinions on points of abuse in the system that blockchain might address, Chaing said. It will also look into “the newly formed public benefit banks,” mull an “in-state payments transfer application,” and develop a public questionnaire on pilot projects. Overarching questions it will address include whether a “state stable coin” might make sense and whether banking and tax regulations come under its regulatory or finance sections.
Asked about the structure/infrastructure needed for public blockchain usage, Chaing said it likely would be a “relatively involved project” to stand up a state blockchain system capable of handling multiple use cases and interfacing with solutions that might not be interoperable. The investment could “pay off well” long-term, she said, indicating it would make sense to start with smaller projects and proofs of concept to build experience and success.
