High Implementation Cost And Regulatory Concerns Have Hindered Many Local Governments From Entering The Blockchain Space

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Blockchain technology has many applications. This fact can’t be disputed. It makes life easier in so many ways. This is why many governments and institutions have started showing interest in the integration of blockchain technology. However, during the National League of Cities event on Thursday, some policy experts said that many local governments that may have interest in blockchain technology have not been willing to implement it because of the regulatory unclarity and high cost of implementation.

Local Governments Aren’t In A Hurry To Integrate Blockchain Technology

It’s true that cryptocurrency isn’t blockchain technology but is simply one of its applications. However, many local governments have been concerned about the increasing reports of cryptocurrency scams and 51% attacks on public blockchains. This is why they are more interested in private, permissioned blockchains like Hyperledger. While these blockchains are more difficult to hack than public blockchains, they lack the protection that comes from the public consensus. This is discouraging to local governments according to a Harris Bricken Attorney, Julie Hamill.

Early instances of blockchain technology in the local government level can be traced to the use of smart contracts in Cook County, Illinois. The County worked with a private contractor to upload information on a blockchain for three months. The system allowed lenders and buyers to get access to certified digital files that represent the paper deed. This was efficient in combating deed fraud.

The pilot, while efficient, was not cheap. According to Russell Truell, the CFO of Franklin. In his words:

“You need to have to have something that would be shared among many agencies if it’s going to be large enough to be cost effective. Without a ubiquitous application that can scale and bring down the cost of implementing blockchain technology, most organizations are not willing to implement it.”

Truell said that the only way blockchain technology will be cost effective is if it completely takes over the existing cloud computing system that is used for data storage by most cities. There are many ledgers in the market at the moment making it difficult for buyers to make such a large financial commitment. This is especially so because many haven’t seen any reason to abandon the existing infrastructure which is still effective for an emerging technology which hasn’t gained enough ground. Truell continued:

“I don’t believe these local governments are willing to spend millions on emerging technology. This is a smart move because we are yet to see the final product of blockchain technology yet. Two years from now, I believe there will be different iterations.”

Apart from the cost of implementation, there is also the issue of energy consumption. Completing a single transaction on the blockchain requires as much energy as the average household in a single day. There is also a lack of data standardization, regulatory unclarity, and information about the subject.

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Any local government that intends to venture into the blockchain space needs to devote time to learning about the technology first according to Xavier Hughes, the chief executive officer of the International City/County Management Association. There are more pressing issues that need to be handled at the moment. So, even if a large scale implementation of blockchain technology has long-term potentials, local governments aren’t willing to make that gamble yet.

Do you believe more local governments will integrate blockchain technology before the end of the year?


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