The world of cryptocurrency and blockchain has taken countries like China by storm.
The People's Bank of China, the country's central bank, will soon test its new and highly anticipated digital currency in several of its cities. And it makes sense, because the distributed ledger technology that blockchain is based on could be the underlying platform behind the next big wave of new startups.
But despite the craze over bitcoin and other cryptocurrencies, the U.S. has actually done very little in the advancement of blockchain technology, and unlike China, the U.S. government has no overall strategic vision for blockchain.
Still, there are a handful of states that have seen the advantages of the technology and are examining different ways it could be implemented.
"We are the only state in the country — and maybe the only government in the world — to put out an RFP to allow for blockchain technology like this."
Rhode Island is one of those states and has arguably done more than any other to create a blockchain strategy. The Ocean State sees the distributed ledger as an avenue to make government run smoother and to recruit a whole new community of businesses and startups.
In May, the state issued an RFP for a limited proof-of-concept implementation of the use of blockchain technology to further its goal of becoming more efficient, transparent, accurate, secure and business-friendly.
The RFP outlines 12 industries where blockchain could help Rhode Island accomplish these goals. They include anti-fraud, contracts, medical marijuana, investigations, records, notarization, registration and licensing, shareholder or policyholder voting and crowdsourcing.
“This is some of the most exciting work I’ve done in state government to see what is possible with distributed ledger technology,” Liz Tanner, director of Rhode Island’s Department of Business Regulation, told Rhode Island Inno. “We are the only state in the country — and maybe the only government in the world — to put out an RFP to allow for blockchain technology like this. No one else has done it as broadly as we have.”
Tanner, a former attorney, started to get interested in blockchain when she came to work for Rhode Island’s Commerce Department several years ago. She had been tasked with making it easier to do business in the state.
After some extensive research, Tanner came across the small Baltic country of Estonia, which had implemented an extremely fascinating e-residency system, which is a government-issued digital identity and status that provides entrepreneurs with access to Estonia’s digital business environment.
“I became enamored with that,” said Tanner, who actually became an Estonian e-resident. “As an e-member, I now have a credit card with a chip in it that sticks into a thumb drive. When you put the drive into a computer it knows it’s Liz Tanner and I can complete certain functions such as applying to college, getting a permit, getting my prescriptions filled and lots of other services if I was in Estonia. As a foreigner, I can open a business and complete electronic signatures and electronic notifications.”
Later, it was revealed that this e-system was being powered by blockchain technology.
Following this revelation, Tanner began a 6-month process of speaking to more than 100 different people experienced in cryptocurrency and blockchain to understand more about what this community needed.
She found the community was looking for four different things: Clarity behind laws and regulations; more blockchain coders; some kind of incubator to house blockchain innovation and opportunities to showcase their technology.
Since then, Tanner has been working to solve some of these issues.
She discovered that Rhode Island’s laws are actually broad enough to allow for the exchange of cryptocurrency. However, the licensing system in place required two different licenses. To streamline the process, Tanner worked with legislators to combine those two licenses into one.
The state legislature passed a bill in June, combining both separate licenses — one to be an electronic money transmitter and one for the sale of check — into a combined currency transmission license. The new license will be available starting in 2020.
As for the RFP, Tanner said the state has received submissions from 30 vendors with more than 60 ideas for blockchain technology implementation. At the end of January, the state will announce which vendors it will move forward with, and it will probably be more than one.
The state is likely many years away from doing anything close to what Estonia has put in place, but the goal, according to Tanner, is to set a solid base.
"You have an opportunity to convert the area into maybe the blockchain capital of the country.”
A Necessity
While the idea of a blockchain-powered e-residency system might seem outlandish or far off, thinking about technology like blockchain is absolutely critical, says Andrew Parrish, president and CEO of the North Smithfield-based accounting firm Diligentiam, which, among other services, deals with cryptocurrency tax accounting.
“What Liz [Tanner] and Gov. Raimondo are doing is fantastic and very forward thinking and I know this is going to be advantageous to the state,” said Parrish, who is also president of the Rhode Island Government Blockchain Association, which holds quarterly meetings and events to discuss similar issues. “Because when you look at it, it’s coming. It’s no longer a speculative; it’s coming. The RFP is comprehensive to where it will benefit every one of us and I don’t believe it’s that difficult to get up and running.”
Like many others, Parrish is worried the U.S. is falling behind when it comes to blockchain, and at the worst time.
According to Parrish, utility patents in the U.S. are down and the average age of a small business owner is over 50, an age where people are likely looking to exit their companies opposed to developing new technology.
“We aren’t having a lot of innovation, and a lot of innovation is being sucked up by companies like Google and Facebook,” he said. “They are buying up so many companies and all the high tech grads are joining them. So, we are not really going through a creative time and therefore are not really in a position to compete with other countries.”
The Local Economy
On more of a micro level, cryptocurrency and blockchain could potentially turn into a niche business community in the Ocean State.
Noah Rafalko, the CEO of a Boston-based blockchain startup called Midori Interactive, said he is considering moving his company to Pawtucket.
His company deploys a cloud-based messaging platform called Text Protect that prevents scammers from texting or calling businesses without authorization, among a range of other functions for increased customer engagement and satisfaction.
Rafalko said he is more interested in Pawtucket because the city is now an opportunity zone with a new commuter rail train station under construction. Opportunity zones are economically distressed communities where new investments, under certain conditions, may be eligible for preferential tax treatment.
But Rafalko also knows about the RFP and has taken notice of the state’s efforts in regard to blockchain and cryptocurrency.
“When you think about startups, you need investment capital. If you can make that money last longer by going into an opportunity zone where they are opening a train station, and if you tie that to new technology like blockchain, you have an opportunity to convert the area into maybe the blockchain capital of the country,” he said.
