Blockchain: Emerging Technology Offers Benefits for Some Applications but Faces Challenges - Policy OptionsGAO developed four policy options that could help enhance benefits or mitigate challenges of blockchain technologies. The policy options identify possible actions by policymakers, which may include Congress, federal agencies, state and local governments, academic and research institutions, and industry. In addition, policymakers could choose to maintain the status quo, whereby they would not take additional action beyond any current efforts.Blockchain combines several technologies to provide a trusted, tamper-resistant record of transactions by multiple parties without a central authority such as a bank. Blockchain can be used for a variety of financial and non-financial applications, including cryptocurrency, supply chain management, and legal records. GAO found that blockchain is useful for some applications but limited or even problematic for others. For example, because of its tamper resistance, it may be useful for applications involving many participants who do not necessarily trust each other. But it may be overly complex for a few trusted users, where traditional spreadsheets and databases may be more helpful. Blockchain may also present security and privacy challenges and can be energy-intensive.United States Government Accountability OfficeGAO_c090eb6a-92df-11df-b499-6b157a64ea2aKaren L. Howard, PhDDirector, Science, Technology Assessment, and AnalyticsNational Academies of Sciences, Engineering, and MedicineExpert Participation ~ We collaborated with the National Academies of Sciences, Engineering, and Medicine to convene a two-day meeting of experts to inform our work on blockchain technology; the meeting was held virtually on July 14–15, 2021. The experts who participated in this meeting are listed below. Many of these experts gave us additional assistance throughout our work, including 5 who reviewed our draft report for accuracy and provided technical comment.Kyle BurgessSpecialist Leader, DeloitteQuinn DuPontFounder and CEO, Alumni LabsTonya EvansProfessor, Penn State Dickinson Law, Penn State Institute for Computational and Data Sciences Co-HireMark D. FiskIBM Consulting – Federal Partner - Data and Technology Transformation ServicesStefan GstettnerPartner and Director, Boston Consulting GroupEmin Gun SirerAssociate Professor and Co-Director, Initiative for Cryptocurrencies and Smart Contracts, Cornell UniversityStuart LeviPartner, Blockchains and Digital Assets; Intellectual Property and Technology; Outsourcing; Cybersecurity and Privacy, SkaddenAnil JohnTechnical Director, Silicon Valley Innovation Program, Department of Homeland SecurityCaroline MalcolmHead, Global Blockchain Policy Centre, Organisation for Economic Co-operation and DevelopmentPramita MitraResearch Supervisor, IoT and Blockchain Applications, Ford Motor CompanyDawn SongProfessor, Computer Science, University of California, BerkeleyMark TreshockGlobal Blockchain Solutions Leader, Healthcare and Life SciencesSheila WarrenChief Executive Officer, Crypto Council for InnovationAaron WrightAssociate Clinical Professor of Law, Benjamin N. Cardozo School of Law, Yeshiva UniversityFrank YiannasDeputy Commissioner for Food Policy and Response, Food and Drug AdministrationBlockchain is appropriately used_13a72720-b479-11ec-be17-0c87fa82ea00To develop policy options to enhance benefits and mitigate challenges of blockchain technologies_13a7287e-b479-11ec-be17-0c87fa82ea00TrustEconomies rely on central authorities and trusted intermediaries to facilitate business transactions.VerificationBlockchain is a technology that could reduce the need for such entities while establishing a system of verification. It might therefore improve a variety of financial and non-financial applications. However, the use of blockchain technologies raises a variety of ethical, legal, economic, and social concerns.DecentralizationInteroperabilityData SecurityTransparencyAccountabilityStandardsUnify standards that focus on the development, implementation, and use of blockchain technologies_13a7293c-b479-11ec-be17-0c87fa82ea00Option 1Standard-Setting EntitiesThis option could simplify the wide variety of standards that at least 30 standard-setting entities are developing in the U.S. and abroad. It could also help identify gaps and reduce overlap in standard-setting efforts.This policy option could help address challenges around interoperability and data securityDefinitionsPolicymakers could collaborate to establish clear, concise, and shared definitions for blockchain-related terms that can be used to create and update standards._13a72a54-b479-11ec-be17-0c87fa82ea00Opportunity 1.1PrioritiesIdentify, develop, and update standards that would be most beneficial across different sectors of the economy or applications of blockchain_13a72b12-b479-11ec-be17-0c87fa82ea00Opportunity 1.2To operationalize this option, policymakers could identify the areas in which standards would be most beneficial across different sectors of the economy or applications of blockchain. Then policymakers could develop and periodically update those standards to help ensure that they remain current and relevant.OversightClarify mechanisms and create new mechanisms to ensure appropriate oversight of blockchain applications_13a72bd0-b479-11ec-be17-0c87fa82ea00Option 2Policymakers could clarify existing oversight mechanisms, including regulations, or create new mechanisms to ensure appropriate oversight of blockchain applications. This policy option could help address challenges with legal and regulatory uncertainty and regulatory arbitrage.ClarityEnable individuals and firms to more successfully engage in blockchain-related commerce in the U.S._13a72d10-b479-11ec-be17-0c87fa82ea00Opportunity 2.1U.S.-Based Blockchain FirmsU.S. oversight clarity could help keep U.S.-based blockchain firms from moving to other countries. Clear, industry-specific oversight frameworks could allow individuals and firms to more successfully engage in blockchain-related commerce in the U.S.Regulatory SandboxesUse tools such as regulatory sandboxes to improve blockchain oversight_13a72e32-b479-11ec-be17-0c87fa82ea00Opportunity 2.2PolicymakersPolicymakers, including regulatory entities and developers, could use tools such as regulatory sandboxes to improve blockchain oversight.Regulatory EntitiesBlockchain DevelopersArizonaFor example, 11 companies participated in the state of Arizona’s financial technology sandbox from October 2018 to April 2021.Consumer Financial Protection BureauAt the federal level, the Consumer Financial Protection Bureau has created a Compliance Assistance Sandbox for companies to obtain safe harbor for testing innovative products and services for a limited time while sharing data with the Bureau.Efforts like this could provide mechanisms for policymakers to more effectively carry out their statutory obligations by better enabling compliance in the face of regulatory uncertainty.Illicit ActivityPromote safety and soundness, consumer protection, and compliance with applicable laws and regulations to combat illicit activity_13a72f5e-b479-11ec-be17-0c87fa82ea00Opportunity 2.3PolicymakersPolicymakers could provide coordinated and timely clarity to promote safety and soundness, consumer protection, and compliance with applicable laws and regulations to combat illicit activity in blockchain-related commerce. ConsumersFinancial Crimes Enforcement NetworkFor example, the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) recently proposed a rule requiring banks to submit reports, keep records, and verify the identity of customers in certain cryptocurrency transactions to ensure the cryptocurrency industry appropriately addresses challenges around anti-money laundering and national security risks.Department of TreasuryEducational MaterialsSupport the development of educational materials to help users and regulators better understand blockchain technologies_13a7303a-b479-11ec-be17-0c87fa82ea00Option 3PolicymakersPolicymakers could support the development of educational materials to help users and regulators better understand blockchain technologies beyond existing financial applications.Blockchain UsersBlockchain RegulatorsThis policy option could help address challenges around limited understanding and undefined benefits and costs.TrainingEnable instructors to train a workforce to be more skilled in developing, implementing, and using blockchain-based products_13a7310c-b479-11ec-be17-0c87fa82ea00Opportunity 3.1InstructorsInstructors could use the educational materials to develop vocational training that may help establish professional development courses and certifications in sectors affected by blockchain.WorkforceConsumersIt could also increase consumer literacy and help reduce negative public perceptions of blockchain.This option could enable instructors to train a workforce to be more skilled in developing, implementing, and using blockchain-based products.InnovationStimulate critical thinking and innovation_13a731d4-b479-11ec-be17-0c87fa82ea00Opportunity 3.2Pharmaceutical Supply ChainsFor example, additional education could prompt innovative research and development on blockchain applications that track and trace prescription medicines in pharmaceutical supply chains.Could stimulate critical thinking and innovation.ExpertiseExpand beyond currently available education and training_13a732a6-b479-11ec-be17-0c87fa82ea00Opportunity 3.3Could expand beyond currently available education and training, which generally focuses on beginner-level knowledge and financial applications, according to an expert. Latest TechnologiesHelp prepare policymakers to better use and regulate the latest technologies_13a73382-b479-11ec-be17-0c87fa82ea00Opportunity 3.4PolicymakersDepartment of JusticeFor example, following the 2021 Colonial Pipeline ransomware attack, the Department of Justice brought together a group of skilled investigators, trained law enforcement and prosecutors to successfully review the cryptocurrency ledger, track multiple transfers, and seize a portion of the cryptocurrency paid to the bad actors.Could help prepare policymakers to better use and regulate the latest technologies.Appropriate UsesDetermine when blockchain is appropriate to achieve goals and mitigate challenges_13a73454-b479-11ec-be17-0c87fa82ea00Option 4PolicymakersPolicymakers could support activities designed to determine whether blockchain is appropriate for achieving specific missions and goals or to mitigate specific challenges.This policy option could help address challenges around risks to the financial systems and undefined benefits and costs.BenefitsCapture the benefits the technology may offer_13a7353a-b479-11ec-be17-0c87fa82ea00Opportunity 4.1Actively investigating where and when blockchain would be the most useful could allow entities to capture the full benefits the technology might offer.Systems & ProcessesModernize systems and processes_13a73616-b479-11ec-be17-0c87fa82ea00Opportunity 4.2U.S. Federal AgenciesWe previously reported that U.S. federal agencies have struggled with appropriately planning and budgeting for modernizing legacy systems; upgrading underlying infrastructure; and investing in high-quality, low-cost service delivery technology. Blockchain could be one means of improving or replacing existing systems for greater efficiency and effectiveness.Data ManagersAdditionally, it could be part of larger data management efforts by policymakers.Blockchain technologies could help modernize some existing systems and processes.PilotsConduct pilots, identify lessons, and transition efforts beyond the pilot stage_13a736f2-b479-11ec-be17-0c87fa82ea00Opportunity 4.3CompaniesAccording to one think tank report, some companies have started experimenting with blockchain-based systems to add transparency, trust, and traceability to their operations.Coffee Supply ChainsFor example, as we discussed earlier in this report, blockchain has been piloted for use in coffee supply chains.Federal GovernmentFurther, we also described how the federal government has piloted using blockchain across several different proof of concept efforts.Supporting blockchain use, where appropriate, such as by conducting new pilots, identifying lessons from existing pilots, or transitioning some efforts beyond the pilot stage could enhance transparency and accountability of existing systems and services... These efforts were designed to evaluate the potential for blockchain to offer operational benefits and cost savings.2022-03-312022-04-05https://www.gao.gov/assets/gao-22-104625.pdfOwenAmburOwen.Ambur@verizon.net