Technology September 4, 2019 6:00:36 am

State positions itself to be blockchain center

By Paula Aven Gladych

Misconceptions cloud the discussion when it comes to blockchain technology. Many believe that blockchain is strictly used in cryptocurrencies but, as the state of Colorado is finding out, the opportunities for blockchain are endless, from tracing student records at university to voting electronically or developing a token system for a video game.

So, what is blockchain? It is a way to track information in a decentralized way that ensures the security and transparency of the information.

“The idea is that the information is all verifiable and publicly accessible. You don’t need an intermediary. The system is maintained by all of its users,” said Jana Persky, Office of Economic Development and International Trade staff for Colorado’s Blockchain Council.

She likens blockchain to Google Docs in which multiple users can access a document and not only make changes to it but see what changes other users have put in place. The people who have been pushing cryptocurrencies for the past several years did so because they were tired of having to use intermediaries when it came to small financial transactions. They wanted to find a way that one person could deduct $50 from a bank account and deposit it in a friend’s bank account with no fuss and no delay.

Currently, if someone wants to implement that type of transaction, it “goes through several middlemen and we have to trust they are correct. We trust they will deduct $50 and send $50 to your account. But blockchain provides a way to do that,” she said. All transactions are recorded in one ledger. There is no way to take out $50 and give the recipient only $30.

Colorado is at the forefront of blockchain technology in part because it attracts entrepreneurs who are using blockchain technology to do creative things, Persky said.

“We have seen a lot of potential in Colorado, a really energetic group of blockchain enthusiasts and entrepreneurs,” she said.

In 2018, numerous bills were brought before the state legislature, many of them attempting to change the regulations regarding the use of blockchain. Ultimately, all of the bills failed but the state Office of Economic Development wanted to support this up-and-coming industry so it convened the Blockchain Council made up of attorneys, legislators, representatives of government agencies and industry representatives to consider the issues surrounding blockchain in a more thoughtful manner.

“In Colorado we are very open to supporting blockchain and want to make sure we are removing unnecessary barriers but we are being more conservative in our approach and taking more incremental steps,” Persky said. The goal was not to put things into law that would actually hurt the industry.

The first thing the council did was determine whether there were existing barriers to the use of blockchain in Colorado because “we don’t need to create laws where they are not needed. There can be unintended consequences,” said Hannah Parsons, CEO of Exponential Impact, an early stage technology accelerator in Colorado Springs that works with emerging technologies, including blockchain, and serves on the Blockchain Council.

The council found that there weren’t many laws on the books that would prohibit the development of blockchain in Colorado but clarification was needed from different agencies about how they would work with blockchain. For instance, a definition was needed for what is and isn’t considered money transmission.

“Getting an official opinion from these different agencies was enough to do an interpretation of those laws so blockchain companies can continue to grow,” Parsons said.

One law concerning blockchain did pass earlier this year. In March 2019, Gov. Jared Polis signed into law the Colorado Digital Token Act, which created an exemption for digital token offerings that are clearly not securities, while ensuring that consumers remain broadly protected from fraud and misconduct, according to the Blockchain Council. The act provided a registration exemption under the Colorado Securities Act for issuers of digital tokens that have a primarily consumptive purpose; for example, in exchange for goods, services or content.

Many different industries have proposed the use of blockchain technology. A Colorado beef producer wants to be able to prove his beef is grown locally. Blockchain would allow the beef to be tracked from farm to distribution. Another potential use is to track carbon offsets or to build gaming platforms that use tokens.

The National Cybersecurity Center partnered with Colorado to pilot blockchain technology that would make it easier and safer for active military and U.S. residents living overseas to cast a vote in municipal and statewide elections via their mobile phones.

This population typically votes via mail-in ballot or email. Voting by mail can take too much time, particularly when there is a runoff election, and voting by email poses security risks, said Forrest Senti, director of government affairs for National Cybersecurity Center. The ballots could be intercepted or manipulated.

“We were asked by stakeholders to come up with a better solution. Through our research and our exploration we found that blockchain would be a good app for solving this issue,” he said.

It used Voatz, a mobile elections platform backed by military-grade security and cutting-edge technology, including biometrics and blockchain-based infrastructure, to allow Denver residents living overseas to cast a ballot electronically. The system requires voters to send a 10-second video of themselves and a picture of their photo ID along with their completed electronic ballot. Because the Voatz platform uses blockchain technology, all voter identifiers and how they voted are stored across multiple private servers, making it easier for third parties to validate and audit the information for accuracy.

Because of the technology, Denver had more than 200 people cast votes from overseas in its May municipal election and the subsequent runoff election on June 4. That doubled voter turnout for that overseas audience “which was amazing. One hundred percent of people who used it said they wanted to keep using it,” Senti said.

The National Cybersecurity Center is piloting the program during Utah’s primaries this year and will use it again during their general election.

Paul Foley, CEO of Denver-based SmartCapital, an angel investment company, and co-lead of Colorado Blockchain, an online community where entrepreneurs and others interested in blockchain technology can organize meetups and conferences and put forth information, said that many people in the state have been really excited about blockchain technology since 2012 when Bitcoin came out. Starting in about 2017, the industry started seeing the emergence of blockchain platforms like Ethereum, Hypeledger Fabric, Multichain and Open Chain.

The bad news is that none of these platforms are easy to build on, Foley said. Until these platforms become more user-friendly and less clunky, blockchain will remain out of the mainstream.

“Right now they are not very usable,” he said. The struggle so far has been what is the platform and how should it be built? Once the platform is in place, other users and developers need to be able to make applications for the platform.

“I think one of the reasons we’ve heard so much about Ethereum is it is the most used by developers currently. With that said, it is not a great platform to build apps on. They still have a long way to go,” Foley said.

He likens blockchain technology to the inception of Amazon. That company had big dreams to develop an online retailer that would be able to deliver packages within a two-day time frame but that didn’t come to fruition for 20 years, he said. At the time Amazon got its start, dial-up Internet was prevalent. To make the Amazon dream a reality, it needed faster broadband service and laptops instead of desktop computers.

“It is hard to say when that is going to happen. It is happening faster than how the Internet grew, but it is not happening overnight,” he said.

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