Congress Is Pushing a Blockchain Bill. Does It Defeat the Point of Decentralized Tech?

April 9, 2019, 8:55 PM UTC
The Capitol Building, Capitol Hill, Washington, D.C., United States of America, North America
John Woodworth / robertharding Getty Images/Robert Harding Worl

What happens when a central authority like the U.S. government tries to shape a decentralized technology? We’ll soon find out as a proposed law, called the “Blockchain Promotion Act,” picks up momentum in Congress.

The bill, introduced for the second time in February, has bipartisan sponsors in both the Senate and House of Representatives. It calls for the Department of Commerce to come up with a standard definition of “blockchain,” a technology that underpins bitcoin, and which can be loosely described as a tamper proof ledger run across multiple computers.

“As businesses continue to explore and adopt distributed ledger technologies, a critical aspect of achieving real scale will be a common understanding of blockchain,” Rep. Doris Matsui (D-Ca) told Fortune by email.

Matsui is sponsoring the bill in the House along with Rep. Brett Guthrie (R-Ky), while Senators Ed Markey (D-Ma) and Todd Young (R-Id) introduced an identical companion version in the Senate.

According to people familiar with the bill, who spoke on condition of anonymity, lawmakers have spoken with companies like IBM and Intel, which are investing in blockchain technology and services. One of the goals, they said, is to pre-empt a patchwork series of blockchain definitions from state governments.

Another reported goal is to explore ways to address the issue of “scalability.” This refers to ongoing struggles of popular blockchains like Bitcoin and Ethereum to handle a high volume of transactions, which could inhibit their adoption in the business world.

Corporate Influence and conflicts of interest

While the bill shows how blockchain is becoming mainstream, some may bristle at the federal government trying to exert influence over a technology first designed as a means to money and information without a central authority. The role of major companies—which have a vested interest in promoting their own versions of blockchain—may also create a potential conflict of interest.

IBM, which is backing an open source version of blockchain known as Hyperledger, downplayed the company’s role in the legislative process.

“Given our deep expertise in blockchain, IBM regularly engages with members of Congress to explore policy that would harness the technology to drive economic development and competitiveness. We do this independently as well as through industry and trade associations, and we have not yet endorsed any specific bill,” said an IBM spokesperson.

Intel did not immediately comment on the process, but pointed to a company tweet supporting the Blockchain Promotion Act:

The dangers of legislating innovation

The blockchain bill is hardly the first time members of Congress have sought to boost a new technology. According to Harold Feld, a lawyer at the non-profit policy group Public Knowledge, the arrival of the World Wide Web in the early 1990s brought a flurry of legislation aimed at helping its spread. These included laws to facilitate electronic signatures as well as a prohibition on states taxing Internet service.

“It’s not uncommon once a technology has been around for a couple years for Congress to come in and say ‘this is in use and so we’re going to make it easier to use in commerce, and give it a stamp of approval’,” said Feld. “There’s plenty of precedent and this is the right time [for blockchain] to see tech-minded members step in.”

There’s also a risk of unintended consequences, however, when the government tries to shape the direction of a new technology. Feld points to the example of laws promoting fax machines, which are largely obsolete today, but which must nonetheless be maintained in thousands of government offices across the country.

Feld added that early efforts by Congress to support the Internet could provide a useful model for blockchain. Specifically, he credits the government for providing a legal framework to help the technology flourish, but also for backing away and letting the private sector step in once it had gained traction.

In the case of blockchain, there’s also a question of which government agencies should be involved in encouraging its adoption. According to a person familiar with the draft bill, the process may involve the General Services Administration, the Departments of Defense and Commerce and the U.S. Postal Service.

The bill’s fate is also unclear. The proposed law, as currently drafted, enjoys bipartisan and bicameral support, and sources say they expect Congress to hold hearings on it this fall or early next year. Meanwhile, another blockchain-related bill was introduced on Tuesday. Titled the Token Taxonomy Act, the bill would place certain cryptocurrency activities outside the jurisdiction of the Securities and Exchange Commission.

According to Josh Mendelsohn, a venture capitalists and a board member of the trade group Blockchain Association, the bills are unlikely to pass on stand-alone votes during the current Congress, but could become law if the sponsors can attach them to broader pending legislation.