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Elon Musk hit the headlines in late January for a reported plan to run parts of the US government on blockchain. The idea became an international story, even though Bloomberg’s sources were anonymous and neither Musk nor the US government announced anything official (Musk did express support for the idea on X however.)
The concept clearly has fans in the crypto community. Coinbase CEO Brian Armstrong posted: “Imagine if every government expenditure was done transparently onchain,” while Binance co-founder Changpeng “CZ” Zhao opined that “all governments should track all their spending on the blockchain, an immutable public ledger.”
There was even speculation about which blockchain platforms Musk could be looking at. “My view is that these will be US-originated chains such as Solana Foundation, Ripple, Sui Foundation, Aptos Foundation, The HBAR Foundation,” posted Lory Kehoe, chief commercial officer at M2.
And just last week, thehead of the Wyoming Stable Token Commission,Anthony Apollo, endorsed a similar proposal to track expenditures through the State Treasurer’s Office using blockchain.
“We are living in interesting times,” Roman Beck, Chester B. Slade professor at the computer information systems department at Bentley University, tells Magazine, “and the notion of placing infrastructure on decentralized rails — a seemingly dry theme — is very important.”
He says that while similar efforts have faltered in Europe, the United States could potentially break new ground.
“What [Europe] lacks and what Washington right now has in excess — it is the political willingness to see things through,” Beck tells Magazine.
European Blockchain Services Infrastructure: A model worth following?
If Musk is looking to research other governments and organizations that have tried to run public agencies on distributed blockchains he might do worse than look to the European Blockchain Services Infrastructure (EBSI), a collaborative effort between the European Blockchain Partnership and the European Commission (EC).
It is a public, permissioned blockchain network built on Hyperledger BESU, which means the public has free access to read the digital ledger, but only authorized parties can write on it.
Launched in 2018, its vision is to leverage blockchain technology to create cross-border services for public administrations, businesses, and citizens “to verify information and make services trustworthy.”
Where EBSI differs from some other governmental blockchain efforts — like Baltic nation Estonia’s, say — is in its decentralized nodal configuration. Blockchain “nodes” typically verify, process and record all transactions across a network. They play a key administrative function.
In the EBSI system, validator nodes are hosted by member states. France runs a node. Slovenia runs a node. Denmark has its own node. And so on.
Any one of EBSI’s 29 member states can propose and sign new blocks on the digital ledger. Brussels, or some other seat of government, doesn’t have the final say on what will be included on the blockchain. In that sense, the system is decentralized.
Beck, who served for six years as Denmark’s representative to EBSI, thinks Musk is “spot on” with his blockchain aspirations (assuming it’s more than just a thought bubble).
“The United States, as a federal system, could benefit enormously from a national blockchain network that streamlines administrative processes across state borders for both individuals and businesses, while protecting their sovereignty,” he posted on LinkedIn in support of the idea, adding:
“Such a network could combine two powerful elements: digital wallets that give citizens control over their personal data through sovereign identity management, and a nationwide blockchain system that makes transactions simple and cost-effective.”
Every US state could have its own blockchain node
Moreover, a “USA chain” could have a nodal framework like EBSI’s, except with individual US states like California, Michigan and Texas running validator nodes. “California is pretty independent, as are the other states,” Beck comments. Importantly, not everything would be controlled from Washington, D.C.
Erwin Voloder, head of policy at the European Blockchain Association (Germany), tells Magazine the idea is feasible:
“It’s not a stretch of the imagination to assume that each [US] state could be a participating node in a [USA chain] network.”
Voloder agrees that blockchain technology could be a powerful tool for reducing wasteful spending, fraud and abuse. “If you put the government’s finances on a tamper-proof ledger where auditors, regulators (and even the public) can see where the money is going – that’s a real-time check against fiscal profligacy,” he adds.
At its highest level, blockchain technology can be seen as a means to dilute concentrated political power — in a positive way — another reason this notion has appeal. A blockchain, properly designed, can “lead to the decentralization of power,” according to Princeton University’s aptly named Center for the Decentralization of Power Through Blockchain Technology. It posits that blockchain can share power “in more democratic, transparent and resilient ways.”
Estonia: Running on blockchain since 2008?
EBSI hasn’t drawn an overwhelming amount of global attention until now. By comparison, tiny Estonia is often applauded as a pioneer for attaching its government infrastructure to a blockchain. According to Invest in Estonia, a government website, “Estonia developed X-Road, its proprietary decentralized, distributed system in 2001 and has utilized Blockchain since 2008.”
Some have challenged this characterization, however. Yes, Estonia has digitized, but it hasn’t been using a public blockchain platform, they say. Its digital infrastructure lacks core blockchain elements like a distributed consensus mechanism.
Estonia also claims to have used blockchain technology since 2008, but how is that possible when the first application of the technology wasn’t until 2009 (when Satoshi Nakamoto mined the first Bitcoin)?
Government on blockchain: ‘Not a silver bullet’
“I think the idea of applying blockchain technology to government agencies is a promising one,” Anthony Di Iorio, a co-founder of Ethereum who was also the first chief digital officer of the Toronto Stock Exchange, tells Magazine. He is currently the CEO of the blockchain company Decentral.
Blockchain technology has the potential to improve government operations through the application of its “core strengths” of immutability, transparency and decentralized verification. These can help to ensure that transactions are recorded accurately and are auditable. “But it’s not a silver bullet,” Di Iorio warns.
“I envision a model that could be multichain in nature, where different government agencies or even states could act as nodes within a broader decentralized network,” says Di Iorio. It could have specialized chains depending on the needs of specific agencies or functions. They would be interconnected enough to maintain an overall consensus.
As for the consensus mechanism, a hybrid model might work best, Di Iorio suggests. Full decentralization (e.g., each US state serving as a consensus node) would offer increased resilience, but some level of centralized oversight might be necessary to enforce standards and ensure accountability.
Incorporating secure, decentralized digital identity solutions should be part of the process, too, Di Iorio adds. “Whether for handling transactions or verifying records, having robust, government-grade digital wallets and identity systems would be essential.”
“Enterprise wallets” — i.e., wallets not controlled by governments — are essential, in Beck’s opinion. “You want to have a wallet from the market and not one provided by the government.”
Warwick Powell, an adjunct professor at Queensland University of Technology and chairman at Smart Trade Networks, believes budgets could be programmed into the code.
“‘Self-executing’ smart contracts could assist in ensuring that prescribed expenditure parameters are complied with,” he says, adding that actually writing the software code may not be so easy. “The reality is that not all future states, or contexts, can actually be identified a priori.”
Elon Musk has big hurdles to overcome
But challenges abound — technical, political and educational. On the political side, overcoming bureaucratic inertia is bound to be difficult. The shift to a more transparent system “can be a double-edged sword for entities accustomed to opaque operations,” Di Iorio adds.
On the technical side, scalability and interoperability are significant hurdles. “Government systems often deal with vast amounts of data, and current blockchain solutions might need further evolution to handle such loads efficiently,” says Di Iorio.
Voloder agrees scalability is a huge problem. “Blockchain networks operating at the scope and scale of a government’s finances would need to be highly scalable, ensuring transaction throughputs are quick and cheap while maintaining data privacy where applicable,” Voloder says. “You also have the mammoth task of shifting the legacy system onto new rails, which could take some time.”
Public blockchains (at least those not employing privacy-preserving technology) can’t be used everywhere, either.
“Radical transparency might not be best suited for things like national security data, classified contracts and citizen records,” says Voloder. Governments will surely want to establish “no-go” areas related to the national defense “where it’s probably not the best idea to put all of that information onchain.”
What’s recorded on public blockchains also can’t be erased, but governments may want to have “the ability to edit the past,” Campbell Harvey, a finance professor at Duke University, tells Magazine. And if that is the case, “a public blockchain may not be suitable.”
Reluctant to “pull the trigger”
The EBSI project can offer insights for designers of government blockchains, but it has only moved the ball so far. It remains a pilot network, with its 40 nodes spread across Europe supporting test projects like EBSI-CAN, a model for verifying educational credentials across borders.
As with many blockchain projects, the vision is vast but there aren’t that many big achievements to note as yet. Eventually, it could allow for driver’s licenses and other documents to be recognized across the EU, and could support projects like a digital EURO, said Mathieu Michel, Belgian minister for digitization in late 2023 (at the same time as he was proposing a “reboot” of EBSI).
In early February, the EC and EBSI announced a “milestone” with the “onboarding 15 validator nodes, ensuring the security, resilience and reliability of the blockchain for its go-live.”
According to Beck, the system is fully developed but on standby. “Ultimately nobody wants to act, to pull the trigger to activate it.”
But Beck sees momentum emerging in the United States with regard to blockchain technology.
He points to comments made in early February by Christopher Waller, a governor of the Federal Reserve Board. Waller said that he supported the adoption of regulated stablecoins, which are typically denominated in US dollars. He believes the greater use of stablecoins would strengthen the dollar as the world’s reserve currency.
Such words from a Fed governor would have been unthinkable five years ago, Beck says.
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Is Musk the Man?
Is Elon Musk, the world’s richest person, the right person to see things through? “He is the right person to install the technology,” Beck answers.
The excitement generated by Musk’s reported plans is reminiscent of blockchain’s early days, comments Powell, when decentralized systems like Bitcoin and Ethereum were first emerging. There was a “libertarian ethos that underpinned the early generation of blockchains” with an emphasis on anonymity and permissionless systems.
While blockchain isn’t a cure for all that ails the US government, its application could drive significant improvements — “provided one navigates the technical, political and educational challenges carefully,” says Di Iorio.
“Ultimately we talk about which kind of norms and values are embedded in those systems,” says Beck. The EC’s ethical guidelines for blockchain systems, which he co-authored, address key issues like fairness, privacy, and societal responsibility, among others. That has to be part of the conversation in the design of any “USA chain,” too.
Meanwhile, the stakes are high. People need to gain control over their own data because the history of digitalization so far “almost always means handing over control,” declares Beck.
People in Europe used to ask, “Why should we use blockchain and not a data bank,” he continues. “One big database in Brussels would do the trick. But it’s not about running the data. It’s about protecting sovereignty. A blockchain is a sovereignty technology where you can stay in control of your digital traces — as long as you design it that way.”
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Andrew Singer
Andrew has been a professional writer and editor for more than 30 years. He received an M.A. in statistics from Columbia University in 2017 and has since been working as a freelance writer with a specialty in machine learning, artificial intelligence, blockchain technology and big data. He likes to swim, play tennis and hike in the Hudson Highlands.
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