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California Blockchain Bills Would Enable New Understanding, Private-Sector Trial

Two bills from the California Legislature, one of which is headed to the governor's desk, would convene a working group on the technology and conduct a private-sector use case if approved.

Blockchain, the electronic ledger technology being eyed by several states, could see some private-sector availability next year in California along with some state-level scrutiny, as two bills centered on the topic near Gov. Jerry Brown’s desk for a signature.

Assembly Bill 2658, authored by the body’s Majority Leader Ian Calderon, D-Whittier, cleared the Assembly on Aug. 27 and is headed to the governor. If Brown signs it by Sept. 30, it would establish a working group on blockchain by July 1, 2019, to study the technology's uses, risks, benefits and legal implications for state government and the private sector, with input from stakeholders. The group would report its findings to the state Legislature by July 1, 2020.

The group, the Legislature specified, should include the state CIO or a designee; the state director of finance or a designee; three other state agency CIOs; one member each from the Senate and the Assembly; and 13 appointees.

In a statement from the state Senate’s most recent analysis, Calderon said the state needs to create an environment that encourages entrepreneurs and innovators to develop around blockchain if it is to continue to be a “global leader in fostering innovation and new technology.” Calderon said blockchain has “near limitless” applications and added: “It is in California's best interest to encourage innovation with and investment in blockchain technology."

The bill, Calderon’s office said in a fact sheet, defines blockchain technology for the first time, “which will provide businesses and industry greater certainty regarding the technology’s legal standing.” Assembly Bill 2658 defines blockchain as “a mathematically secured, chronological, and decentralized ledger or database.”

It shares that definition with the latest version of Senate Bill 838, which is authored by state Sen. Robert Hertzberg, D-Van Nuys. The bill needs only Senate concurrence, or agreement with Assembly revisions, before heading to Brown’s desk too — but that must happen by midnight on Aug. 31, the final day of the legislative session.

If it clears the state Senate and Brown signs it, SB 838 would provide the authorization for California corporations “to issue and transfer stock on a blockchain,” as an alternative to issuing traditional share certificates and a share ledger, Hertzberg’s office said in a fact sheet. Both bills would sunset Jan. 1, 2022.

His goal in introducing SB 838, Hertzberg told Government Technology via email, “is to try to offer some vision and some willingness to take risks on future-facing ideas.”

“My hope with this bill is for California to take a first step in incorporating blockchain technology into our day-to-day lives. Allowing corporations to utilize a more secure technology will increase consumer protection and help prevent cases of fraud. The sunset date for this bill will allow us to study its implementation and make recommendations for future ways to incorporate blockchain into California law,” the senator said.

In an Assembly Floor analysis of AB 2658, officials indicated “the intent that this bill's study and developed definition of blockchain will inform both this bill, and SB 838's statutory definitions, if enacted.”

In a response via email, Calderon told GT the two bills “coexist perfectly,” with SB 838 taking “a modest step to allow stock certificates to be recorded on a blockchain” and AB 2658 tasking the working group to study uses “by both public and private entities and [recommend] policies that protect consumers and ensure the growth of this technology in California.”

“These bills share a common goal: to provide more certainty to innovators in California that their use of blockchain is not only permissible but encouraged,” Calderon said, indicating the sunset provision will give lawmakers a chance to “evaluate the efficacy of SB 838” and update the definition of blockchain with guidance from the working group.

Katie Hanzlik, Hertzberg’s press secretary, said the two lawmakers worked together on the blockchain issue and said SB 838 is in some ways not unlike a pilot program.

“I think they’re both trying to get to the same kind of ending place, which is to start getting government more familiar with the idea of using blockchain. But they’re kind of going about that two different ways,” Hanzlik said.

Theo Douglas is assistant managing editor for Industry Insider — California, and before that was a staff writer for Government Technology. His reporting experience includes covering municipal, county and state governments, business and breaking news. He has a Bachelor's degree in Newspaper Journalism and a Master's in History, both from California State University, Long Beach.