Texas is encouraged to become a hub for cryptocurrency and other blockchain technology
While many still lack a true understanding of the new technology known as blockchain, Texas is positioning itself to help promote the small industry that is growing up around it.
Blockchain is part of emerging technology related to Web3, or what some technologists consider the next iteration of the Internet. A blockchain is a form of distributed database that stores data in chronological groups called blocks. Individual blocks can be added to the chains, but they cannot be edited or removed. One of blockchain’s best-known uses is its role in cryptocurrency.
Now, a group of industry leaders working to help Texas become a hub of activity for blockchain and related technologies, including cryptocurrency, has come up with its first set of recommendations for the state.
The group — called the Texas Workgroup on Blockchain Matters and made up of a dozen members from state agencies, Texas universities and the blockchain industry — outlined more than 20 measures to bolster the growing blockchain industry here.
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Christopher Calicott, CEO of Trammell Venture Partners, an Austin-based early-stage venture capital firm, is part of the group, which was established during the 2021 session of the state legislature to help Texas take a strategic approach to the industry.
Calicott said the group’s recent report containing its recommendations should help clarify for policymakers how the technology and industry work, potentially leading to new legislation to help the emerging blockchain industry.
“I hope that this report will help shed light on things that we have identified as important,” he said. “The report is really the first step and invites a great sharing of ideas.”
The report contains recommendations for how the state should use the technology for commercial contracts, digital identity, privacy and education. It also has ideas for regulating blockchain-related businesses such as DAOs — or decentralized autonomous organizations, which are internet-based organizations owned and managed by their members and with no central leadership.
The Lone Star State is already home to a significant amount of blockchain activity, including cryptocurrency mining, although many people in the state are still unfamiliar with how the technology or industry works. For those in the industry, however, Texas is becoming a key place to consider setting up shop, Calicott said, especially after China banned bitcoin mining.
“It’s still pretty early (but) it’s definitely growing,” Calicott said. “If you’re a serious business operator and you’re somewhere else and you’re thinking about participating in, for example, securing the bitcoin network, you can definitely consider what the options might be in Texas.”
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Calicott said the industry is growing both in tech-friendly cities like Austin and in rural Texas.
“The (cryptocurrency) miners started to find that Texas was a stable, favorable regulatory environment, and startups also increased their interest in moving here or forming new companies here,” he said. “It will eventually create an abundance of all kinds of different jobs in different places.”
The task force hopes bitcoin and blockchain remain on the minds of state lawmakers as the new legislative session begins. But emerging technology requires a lot of education, Calicott said, so members of the group will make themselves available to policymakers as the legislative session begins in hopes that some of the recommendations will be adopted.
“Texas is very uniquely positioned,” he said, noting that the state has encouraged companies to locate here while others have squeezed some of the activity out.
In addition, the state’s already large technology industry is helping to attract blockchain-related companies and talent. Its energy resources also attract bitcoin mining.
“We’re going to continue to have an outsized opportunity (in Texas), at least on the energy and mining side of the spectrum,” Calicott said. “And because of all the startup activity in Texas, other companies are going to be based here as well.”
Texas politicians have previously expressed their support for cryptocurrency and blockchain, including Governor Greg Abbott, who said last summer that “Texas is open to crypto business.” Texas Senator Ted Cruz, an investor in bitcoin, the first and highest-profile cryptocurrency, has also advocated for digital currencies.
Last year, after hosting the Texas Blockchain Council at the governor’s mansion, Abbott predicted that Texas “soon we will be #1 for blockchain and cryptocurrency.” The Texas Blockchain Council is an industry advocacy group.
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Proponents of cryptomining have argued that the industry could help stabilize the state’s electricity grid, as the industry is power-intensive and its appetite for electricity could spur investment in new generation. In times of high overall electricity demand and grid load, they have said crypto miners can reduce their own usage to make more power available across the country.
But some experts fear that the expansion of crypto mining in Texas could have the opposite effect online.
The recent report from the blockchain task force contained a number of energy-related recommendations, including a proposal to create a tax break to encourage investment in natural gas-fired power plants. It also said the state should use tax incentives to attract large power users such as bitcoin miners who can vary the timing of their demand, if they agree to voluntarily cut power consumption when needed.
In addition to state governments, the city of Austin has also been interested in new blockchain-related technologies.
In March, city officials and local business leaders announced a series of initiatives aimed at making Central Texas a leader in the area. Since then, however, a city-commissioned report on potential uses in municipal government has advised city departments to tread carefully when using the new technology, making it unlikely that Austin residents will pay their electric bills with crypto anytime soon.
Meanwhile, the timing of the state blockchain task force report has similarly renewed turbulence for cryptocurrencies and related industries. A number of major cryptocurrencies have crashed in value in recent weeks, and one of the largest crypto exchanges, FTX, collapsed and filed for bankruptcy.
But even amid the disruption, Calicott said his firm is still investing in the Texas industry, and that a number of Texas-based blockchain startups are operating at full speed.
“Some of the real differentiated work is actually happening here in Texas,” he said. “Maybe the rest of the world thinks it’s a surprise, but as a native Texan, it’s completely unsurprising to me. That’s why we’re making some important efforts here in Texas.”
