'Silicon Prairie'? Midwest states start looking at blockchain's possibilities

Bitcoin grabs the headlines, but blockchain — the distributed ledger technology underlying cryptocurrencies — is beginning to get some serious attention from Midwestern legislators for its potential to rewire state governments.

The Illinois Blockchain and Distributed Ledger Task Force, created last June by a resolution (HJR 25), issued its report to the state’s General Assembly on Jan. 31. The 34-page document provides an overview of what blockchain is, how it works, and how Illinois can and should approach this cutting-edge technology.

“To broadly summarize our findings, this task force believes that blockchain technology and its built-in encryption can facilitate highly secure methods for interacting with government and keeping paperless records, increasing data accuracy and providing better cybersecurity protections for Illinois residents,” the report states.
For example, blockchain could revamp the delivery of services, from state grants and student loans, to Medicaid and food stamps. The use of blockchain-based smart contracts could mean waste management and snow removal happens automatically based on to-the-minute demand, while disaster recovery eligibility could be automated.
“Though the technology still needs refinement, government has an opportunity to help shape and adopt innovative solutions,” the report states.
In February, the task force’s co-chair, Rep. Michael Zalewski, introduced HB 5553, the Blockchain Technology Act. It would allow the technology to be used in transactions and proceedings and establish where it cannot. In addition, local governments would be barred from taxing blockchain or smart contracts, and from requiring licenses or imposing restrictions for their use.
In Nebraska, a trio of bills introduced by Sen. Carol Blood are pending in the Unicameral Legislature’s current session:
  • LB 691 would make the use of distributed ledger technology-based cryptocurrencies for illegal purposes unlawful, and require cryptocurrency users to report transactions of $10,000 or more to the state’s Department of Revenue;
  • LB 694 would bar local governments from taxing or regulating distributed ledger technology; and 
  • LB 695 would give blockchain and smart contracts equal legal status to paper or digital contracts. 
Nebraska has a bigger tech community than people realize, Blood says, adding her measures would be a signal to entrepreneurs “that not only do we accept [the technology], we embrace it.”
Legislators should learn about blockchain technology because it’s transparent, efficient and safe, she said: “As a step to fiscal conservatism … it’s the golden goose,” Blood adds. “It’s the most disruptive technology since the Internet, and it’s moving much faster.”
What is blockchain?
CoinDesk.com, a news website covering blockchain and cryptocurrencies, says blockchain shares some similarities with Wikipedia: Both rely on continuous updates by a community of users, and no one person controls the information.
Wikipedia is a “client-server” model — a client (user) with permission to edit can access a Wikipedia entry and make changes that everyone can see. But “control of the database remains with Wikipedia administrators, allowing for access and permissions to be maintained by a central authority.” 
In other words, one database or master copy, from one source.
With blockchain, “Every node in the network is coming to the same conclusion, each updating the record independently, with the most popular record becoming the de-facto [sic] official record in lieu of there being a master copy,” the website says.
Nebraska’s LB 695 defines distributed ledger technology as “an electronic record of transactions or other data which is: 1) uniformly ordered; 2) redundantly maintained or processed by one or more computers or machines to guarantee the consistency or nonrepudiation of the recorded transactions or other data; and 3) validated by the use of cryptography.”
While the “how” of blockchain might be difficult to understand, “it is clear that distributed ledgers can begin a transition to a smarter, cheaper and safer way to administer government,” the Illinois report says.
Outside the Midwest, many states have introduced or adopted blockchain-related legislation over the past two years.
With passage of HB 2417, Arizona established guidelines for blockchain-based electronic signatures.
Delaware’s SB 69, signed into law on July 7, 2017, lets corporations use blockchain to create and maintain corporate records, including the stock ledger, while Nevada’s SB 398 recognizes blockchain technology as a type of electronic record for the purposes of the Uniform Electronic Transactions Act. 
Colorado’s SB 86, introduced last month, would direct the state’s chief information security officer to evaluate the costs and benefits of using distributed ledgers in various government systems, and to determine blockchain’s capability in handling cyberattacks compared to traditional computer systems.
New York legislators are pondering bills to define blockchain (AB 8780), study its use to protect voter records and election results (AB 8792), and create an Illinois-style task force (AB 8793), as well as a task force to study the impact of cryptocurrencies on the state’s financial markets (AB 8783).

Congress dips its toes in blockchain waters; Estonia dives head first

The federal government’s exploration of blockchain technology is, so far, limited to a handful of contracts and requests for information issued by individual agencies.
In June 2016, the U.S. Department of Homeland Security awarded $199,000 to Factom, Inc., of Austin, Texas, for blockchain software to authenticate data from devices and secure their identities, as well as authenticating the devices and making them harder to spoof (an attack in which the attacker is disguised as someone or something else by using falsified data).
In October 2017, the U.S. Food & Drug Administration issued a “Small Business Sources Sought” notice for a project to add blockchain to the agency’s Real Time Application for Portable Interactive Devices capacity.
The project’s stated goals are to establish secure connections between the FDA and its partners in the United States Critical Illness and Injury Trails Group network, which is now called the Discovery network, and test data connections “in order to send information in real-time as it relates to safety with regard to severe respiratory infections using influenza as the case model.”
And the $700 billion defense spending bill signed by President Trump in December calls on the U.S. Department of Defense to study “potential offensive and defensive cyber applications of blockchain technology and other distributed database technologies” and report its findings within six months.
Then there’s Estonia.
The Baltic republic of 1.3 million people, which regained its independence just 27 years ago, is, like any good millennial, going full digital in a blockchain-based effort to put government services online. Known as e-Estonia, the system allows Estonians (and even foreigners who qualify for “e-residency”) to access myriad services with a personal digital ID card, which stores a unique identifier in a “key pair” — a widely used public key and a private key known only to the user.
Estonians can access land, tax, health and educational records, pay or contest fines, and even vote online. A national cryptocurrency, estcoin, has been proposed; it would be the second, behind Venezuela’s petro, which was launched last month.
Estonia’s system is backed up on servers housed in Luxembourg, a “data embassy” governed by the same international norms as physical embassies. In essence, the system can keep functioning even if the Estonian capital, Tallinn, is ever overrun.
Stateline Midwest: March 20182.88 MB