The state is getting ready to exploit blockchain

A state task force is seeking to position Texas as a leader in blockchain technology, which the group’s leader described as “another emerging path” to bolster the economy.

The report by the Texas Work Group on Blockchain Matters, formed by a 2021 state law, described potential use cases for the technology, which is essentially a decentralized digital ledger that securely and immutably records transactions.

The task force said blockchain has a number of beneficial use cases for Texas, including smart contracts, property registration and governance if the state embraces decentralized autonomous organizations (DAOs). Carla Reyes, assistant professor of law at Southern Methodist University’s Dedman School of Law and the task force’s chair, said the state already has a “robust” blockchain industry, but it can do more.

Blockchain could help governments usher in an era of smart contracts if the state’s Uniform Commercial Code that governs transactions is amended to handle new technologies. Using blockchain can help “encourage performance of obligations” that are either contractual or statutory, Reyes said, and make the administration of those contracts more efficient.

The task force also urged the state to encourage counties to pilot the integration of blockchain technology into their land registry system to support the preservation of property records, allowing for a “more thorough, auditable record of the land’s history,” Reyes said. A related use case could enable an easier transfer of land ownership using blockchain via ownership of non-fungible tokens.

Individuals’ digital identities can be made safer and more secure with blockchain, the task force said, giving people more autonomy over what information they share with the government. Reyes gave the example of the current requirement to show a driver’s license as proof of age to purchase alcohol. This identification contains all kinds of personally identifiable information that could fall into the wrong hands, she said.

Blockchain can provide what Reyes called “self-overwhelming data,” giving people the ability to share only the credentials that are necessary. Such a system gives individuals “more granular control” over their data, she said, and could prevent governments or businesses from using that data for monitoring or surveillance.

The group’s final report, which came after more than a year of study by its 16 members, also said Texas should change its corporate law to give DAOs more freedom to form and operate. Managed by a combination of algorithms and human members, DAOs are designed to be more transparent and have a “flatter” corporate governance model, Reyes said. In theory, this could mean that decisions are made in a more democratic way.

The task force also recommended a smaller tax burden on electricity purchases used to run a Bitcoin mine or other large flexible loads. Reyes noted that the recent volatility associated with cryptocurrency has “very little to do with the underlying [blockchain] technology.”

Despite the optimism surrounding blockchain technology, others are not as convinced of its usefulness. In an open letter to lawmakers in June, a group of 1,500 computer scientists, software engineers and technologists said blockchain is “ill-suited for just about every purpose currently touted as a current or potential source of public benefit,” calling it a “solution in search for a problem.” The group also said the technology has “few, if any, uses in the real economy” and it has “severe limitations and design flaws” that prevent it from being as secure as advocates say it is.

In response, Reyes said that while people may “legitimately disagree” about blockchain use cases, there are already more and more businesses being built around it.

To help support the state’s nascent blockchain economy, the task force also advocated for the state legislature to support blockchain-related “educational initiatives,” which are already underway at several colleges and universities across the state. Reyes said academic institutions are “catching on and starting to offer the curricula and courses necessary to educate people” about the technology, and those efforts should continue to grow.