Blockchain Tech Adoption in Municipalities: Opportunities & Risks

Blockchain Tech Offers Efficiency for Local Governments

Blockchain technology has been touted as a potential solution to the administrative inefficiencies of local governments. Moody’s report says municipalities can cut up to 35% of administrative costs over the life cycle of a bond by using blockchain-based platforms for bond issuance and government operations. Although the use of blockchain in municipalities has the potential to provide several benefits, it also comes with potential risks that require attention.

Possibilities

One of the significant benefits of blockchain technology is the transparency and auditability it provides. Blockchain is an immutable ledger, meaning that once a record is entered, it cannot be changed, making it an excellent tool for public services. For example, mobile voting can be made possible by using blockchain technology, which enables citizens to vote from their homes, while increasing the transparency and auditability of the electoral process.

The report also highlights that several municipal debt sales have been registered on the blockchain, representing a first small step towards incorporating blockchain into the municipal bond issuance process. The benefits of using blockchain for bond issuance are many, including streamlining the bond issuance process to make it more efficient, ultimately reducing administrative costs.

Risks

While there are many benefits to blockchain adoption, there are also potential risks that need to be considered. Cybercrime is one such risk. The report warns that blockchain-based platforms are not immune to cyber-attacks and that government agencies must take appropriate measures to secure their systems.

The other risk associated with blockchain adoption in municipalities is regulatory uncertainty. Digital assets and blockchain technology are still in their early stages and regulatory frameworks are not yet fully developed. As a result, government agencies must be aware of legal and regulatory risks and work closely with regulatory bodies to ensure compliance.

Mining revenues

In recent years, local governments have benefited from additional revenue from Bitcoin mining companies setting up shop in North America, particularly in Texas. The report cites Argo Blockchain’s site in Dickens County, which accounted for $17 million, or 6% of the county’s $283 million property tax base by the end of 2022.

But relying too heavily on mining company earnings is risky, given the volatility associated with the industry and the potential environmental impacts. The mining industry was hit hard last year when bitcoin prices fell and power costs rose, leading to thin margins for mining companies. Some companies, such as Core Scientific, filed for bankruptcy, leaving their municipal partners in a financial crisis.

Final thoughts

The introduction of blockchain technology in municipalities provides an opportunity to make government operations more efficient, increase transparency and reduce administrative costs. However, government agencies must also be aware of the risks, such as cybercrime and regulatory uncertainty as explained by Moody’s. In addition, revenue from mining companies is not always a reliable source of income and can pose a risk to local economies. Overall, the report highlights the potential for blockchain adoption in municipalities, while emphasizing the need for caution and risk management.

Giancarlo is an economist and researcher by profession. Before joining Blockzeit’s dynamic team, he handled several crypto projects for both the public and private sectors as a project manager for a consulting firm.