California IT Leaders Examine Blockchain

The distributed digital ledger system could have a big impact on existing government programs, but the lack of standards remains a problem.

Blockchain, known mostly for its relationship to cryptocurrencies, could offer public entities safety, efficiency and speed, which explains why so many IT leaders are actively exploring its use in government. Some examples include: finance, contracts, election systems, land/property ownership, autonomous car ownership and even medical records, all of which depend on security and assured reliance on identity. 

A blockchain facilitates secure online transactions; it is a decentralized and distributed digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the cooperation of the network.
Last week, several business consultants and several leaders from the California Department of Transportation (Caltrans) discussed blockchain and its uses.
“(Blockchain) is more widely adopted in developing countries,” said Bertrand Sirodot, an advisory system engineer at Dell EMC. “Many developing countries have an incentive to develop these technologies because they do not have a stable, financial infrastructure in place.” Governments that have mature financial infrastructure and trust institutions, such as the United States, are lagging on this technology, he added.
Currently, the state of Delaware is piloting a blockchain-based corporate registry system in addition to exploring share issuance, a use affirmed by the July 2017 passage of state legislation approving the trade and maintenance of corporate stock on a blockchain. Several federal agencies — including the General Services Administration, the Department of Homeland Security, and the Health and Human Services Department — have announced blockchain pilot programs. Also, New York, Illinois and Texas are among states that are piloting and testing blockchain applications. California currently is not pilot testing the technology.
Other countries — Canada, the United Kingdom, Brazil, China, India, the United Arab Emirates and Estonia — are running pilots, tests and trials to examine both the architecture’s broad utility as a basis for government service provision and procurement, and developing individual blockchain-based applications for internal use. 
Blockchain records are seen as secure because the data is held across several sources in a chain with no third-party intermediary involved. However, the technology still faces some hurdles. “There are several issues for blockchain that must be worked out,” said Karl Kopper, chief information security officer at Caltrans. “There are some security challenges that must be looked at.”
Kopper referred to issues with the DAO, a digital, decentralized autonomous organization and a form of investor-directed venture capital fund that is built on Ethereum, a system designed for building decentralized applications. In 2016, the DAO triggered a crisis that has sparked doubts about the security of blockchain data.
In 2016, the DAO, using a set of smart contracts developed on the platform, raised a record $150 million in a token sale to fund the project. Users of the DAO exploited a vulnerability in the organization’s code to enable them to siphon off one-third of the DAO’s funds into a subsidiary account.
After much controversy over the theft, the Ethereum community decided to hard-fork the Ethereum blockchain to restore virtually all funds to the original contract. This was controversial and led to a fork in Ethereum, where the original unforked blockchain was maintained as Ethereum Classic, thus breaking Ethereum into two separate active blockchains, each with its own cryptocurrency.
A hard fork is a rule change to the blockchain software that will see old rules as invalid. To prevent a blockchain split, all nodes running the old software upgrade to the new rules. 
“The fact that you can make the blockchain go in a different direction is a failure of the system,” said Kopper. “This issue must be worked out before it is applied in the government sector.”
“Currently there are no agreed on standards in blockchain,” said David Law, principal solutions architect at Dimension Data. “Blockchain is currently like the wild west and it will take a while for the ecosystem to be standardized,” he said. “But there is tremendous potential for the technology.”
Eventually, most government agencies will use a private blockchain to house vital data like voting records and real-estate transactions, according to Sirodot. “Private blockchain will have a finite number of nodes, and they will be housed within your department, so you will not need the same security as a public node.”
Once government sees how it can transform its business processes by using blockchain to house records, there will be wider adoption by government bodies in the United States. “This is beta tech,” he said. “We all need to keep learning about it. Eventually, vendors may be able to build use cases that are very attractive” for government agencies.
Elizabeth Zima is a former staff writer for Government Technology. She has written in depth on topics including health care, clinical science, physician relations and hospital communications.