US GAO Report Presents Policy Options for Blockchain Technology
The U.S. Government Accountability Office (GAO) published a report that outlines potential benefits, challenges, and policy options for oversight and standard-setting of blockchain technology.
To conduct its analysis, GAO assessed blockchain applications developed for or used in finance, government, supply chain management, and organization management; interviewed a range of stakeholder groups; convened a meeting of experts in collaboration with the National Academies of Sciences, Engineering, and Medicine; and reviewed key reports and scientific literature. GAO found that blockchain combines several technologies to provide a trusted, tamper-resistant record of transactions by multiple parties without a central authority such as a bank. Blockchain can be used for a variety of financial and non-financial applications, including cryptocurrency, supply chain management, and legal records. GAO found that blockchain is useful for some applications but limited or even problematic for others. For example, because of its tamper resistance, it may be useful for applications involving many participants who do not necessarily trust each other. However, it may be overly complex for a few trusted users, where traditional spreadsheets and databases may be more helpful. Blockchain may also present security and privacy challenges and can be energy-intensive.
Financial applications of blockchain have the potential to reduce costs and improve access to the financial system, but they also face multiple challenges. Cryptocurrencies, likely the most widely known application, are a digital representation of value protected through cryptographic mechanisms, which facilitates payments. Some are known for volatility (that is, frequent or rapid changes in value), but a type known as stablecoins may help reduce this risk. Similarly, an emerging area known as decentralized finance offers services such as blockchain-based lending and borrowing, which also face several challenges. GAO developed four policy options that could help enhance benefits or mitigate challenges of blockchain technologies; these options cover possible actions from policymakers, which may include Congress, federal agencies, state and local governments, academic and research institutions, and industry:
- Standards— Policymakers could collaborate to unify standards that focus on the development, implementation, and use of blockchain technologies. This policy option could help address challenges around interoperability and data security.
- Oversight— Policymakers could clarify existing oversight mechanisms, including regulations, or create new mechanisms to ensure appropriate oversight of blockchain applications. This policy option could help address challenges with legal and regulatory uncertainty and regulatory arbitrage.
- Educational materials— Policymakers could support the development of educational materials to help users and regulators better understand blockchain technologies beyond existing financial applications. This policy option could help address challenges around limited understanding and undefined benefits and costs.
- Appropriate uses— Policymakers could support activities designed to determine whether blockchain is appropriate for achieving specific missions and goals or to mitigate specific challenges. This policy option could help address challenges around risks to the financial systems and undefined benefits and costs.
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Keywords: Americas, US, Banking, Lending, Blockchain, Cryptocurrencies, Stablecoins, Decentralized Finance, Regtech, Suptech, DeFi, GAO
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