Blockchain: Rising Know-how Features Added benefits for Some Applications but Faces Challenges

What GAO Uncovered

Blockchain combines numerous systems to provide a dependable, tamper-resistant document of transactions by various functions with no a central authority these types of as a lender. Blockchain can be utilized for a wide range of financial and non-monetary programs, including cryptocurrency, offer chain management, and legal documents. GAO identified that blockchain is useful for some applications but limited or even problematic for some others. For case in point, because of its tamper resistance, it could be helpful for applications involving lots of participants who do not essentially trust each other. But it might be extremely intricate for a few trusted users, where classic spreadsheets and databases may well be additional useful. Blockchain might also present security and privacy issues and can be electricity-intense.

Blockchain has a large range of opportunity non-economical works by using (see figure).

Blockchain has quite a few prospective non-financial purposes

For case in point, it could be employed to arrange provide chains, make a lot less hierarchical organizations, and doc title registries for true estate. Having said that, most this sort of attempts are not nevertheless over and above the pilot stage and encounter troubles. For example, most blockchain networks are not developed to be interoperable and are unable to converse with other blockchains. Companies that want to use blockchain also confront legal and regulatory uncertainties, and have uncovered it tricky to find competent staff to carry out blockchain.

Financial applications of blockchain have the potential to cut down charges and enhance accessibility to the money method, but they also experience various worries. Cryptocurrencies, very likely the most commonly identified software, are a electronic illustration of benefit safeguarded via cryptographic mechanisms, which facilitates payments. Some are recognised for volatility (i.e., frequent or rapid alterations in benefit), but a kind recognized as stablecoins may aid cut down this possibility. Likewise, an rising place recognised as decentralized finance delivers services such as blockchain-primarily based lending and borrowing, which also facial area quite a few difficulties. For example, blockchain-centered monetary apps can aid illicit activity, may well reduce purchaser and trader protections in contrast to common finance, and, in some conditions, are subject matter to unclear and advanced regulations.

GAO formulated four plan possibilities that could support greatly enhance positive aspects or mitigate difficulties of blockchain systems. The coverage alternatives recognize achievable actions by policymakers, which may perhaps contain Congress, federal organizations, condition and nearby governments, tutorial and study institutions, and business. In addition, policymakers could choose to keep the standing quo, whereby they would not get additional motion beyond any recent initiatives. See below for specifics of the plan selections and suitable possibilities and concerns.

Policy Alternatives That Could Enable Enrich Advantages or Mitigate Problems of Blockchain Technologies

  Prospects Considerations

Expectations (report p. 38)

Policymakers could collaborate to unify requirements that concentration on the development, implementation, and use of blockchain systems.

  • Could simplify fragmented criteria and help establish gaps and lower overlap in regular-setting initiatives.
  • Could determine the parts in which standards would be most advantageous across distinct sectors of the economy or purposes of blockchain.
  • Could support address problems all over interoperability and information protection.
  • Could call for consensus from lots of general public- and private-sector stakeholders, which can be time- and source-intense.
  • Could not be very clear which entities need to acquire the guide in setting up internationally acknowledged requirements for distinct technologies and software locations.
  • May have to have new funding or reallocation of existing methods to support new initiatives.

Oversight (report p. 39)

Policymakers could clarify current oversight mechanisms, including laws, or build new mechanisms to make sure acceptable oversight of blockchain apps.

  • Crystal clear, business-distinct U.S. oversight frameworks could offer you the clarity required for people and firms to extra correctly have interaction in blockchain-relevant commerce in the U.S.
  • Policymakers, which includes regulatory entities and builders, could use instruments to develop oversight mechanisms in addition to tests innovative goods and services.
  • Could supply coordinated and well timed clarity to advertise protection and soundness, client protection, and compliance with relevant laws and restrictions to beat illicit action in blockchain-related commerce.
  • Policymakers will need to have to decide the suitable amount of oversight. Aggressive oversight could hamper innovation and competitiveness as the engineering matures, while way too small oversight could depart shoppers and firms unprotected.
  • Soliciting enter across a range of stakeholders in numerous sectors could be time consuming and challenging.
  • May well require new funding or reallocation of existing assets.

Educational materials (report p. 40)

Policymakers could support the improvement of academic resources to support buyers and regulators superior comprehend blockchain systems outside of present economic programs.

  • Could help instructors to teach a workforce proficient in acquiring, implementing, and making use of blockchain-dependent products and solutions.
  • Could increase shopper literacy and help cut down adverse public perceptions of blockchain.
  • Could promote essential thinking and innovation, as very well as prompt modern study and progress.
  • Could assist get ready policymakers to superior use and control the newest technologies.
  • Instructional products will most likely will need to be tailored to satisfy a broad range of studying wants across many concentrate on audiences.
  • May well be tricky to identify who could most effectively produce instructional resources for any particular focus on audience.
  • May well call for new funding or reallocation of existing sources, specifically to address the need to have for instruction regarding revolutionary uses of blockchain beyond current financial apps.

Appropriate takes advantage of (report p. 41)

Policymakers could assist routines made to ascertain irrespective of whether blockchain is suitable for attaining particular missions and ambitions or to mitigate unique worries.

  • Actively investigating exactly where and when blockchain would be the most useful could enable entities to seize the complete advantages the technologies may well offer.
  • Supporting blockchain use, where by suitable, could improve transparency and accountability of current systems and services.
  • Authorized or regulatory uncertainty may perhaps hinder some possible buyers from benefitting from blockchain.
  • Could be complicated to revert to a non-blockchain know-how once an entity has invested a significant volume of time and assets.
  • May possibly involve new funding or reallocation of current means.

Resource: GAO. | GAO-22-104625

Why GAO Did This Review

Economies depend on central authorities and reliable intermediaries to facilitate small business transactions. Blockchain is a technology that could minimize the want for these kinds of entities though developing a process of verification. It may consequently increase a wide range of financial and non-money apps. Having said that, the use of blockchain technologies raises a range of ethical, lawful, economic, and social concerns.

GAO was requested to perform a technologies evaluation on the use of blockchain, with an emphasis on foresight and policy implications. This report discusses (1) non-monetary apps of blockchain, like probable rewards and problems, (2) fiscal applications of blockchain, like likely benefits and worries, and (3) plan options that could assistance improve positive aspects or mitigate challenges of blockchain systems.

GAO assessed blockchain apps created for or utilized in finance, govt, offer chain administration, and corporation management interviewed a assortment of stakeholder teams including governing administration, sector, academia, and a enterprise capital agency convened a assembly of gurus in collaboration with the Countrywide Academies of Sciences, Engineering, and Medicine and reviewed critical reports and scientific literature. GAO is pinpointing plan options in this report.

For extra info, get in touch with Karen L. Howard at (202) 512-6888 or [email protected]