California Blockchain Working Group Meeting

Written by CodeX Associate, Reuben Youngblom 

On January 1, 2018, CA Government Code 11546.9 went into effect. The legislation created the California Blockchain Working Group for the purpose of taking a closer look at the risks, benefits, and implications of blockchain use in California, as well as to examine best practices. The Group’s most recent meeting was held on December 5, 2019 at the University of California, Berkeley. Topics ranged from a discussion of potential use cases to ethical considerations to cybersecurity.

The Working Group’s meetings are open to the public and many of the documents, including slides, are available online. That said, much can be learned by attending in person. Over the course of this particular meeting, the discussion offered the opportunity to reflect on foundational assumptions about blockchain. Perhaps most interesting, from both the regulatory and tech perspectives, was the Group’s proposed definition of blockchain. For context, the definition is intended for internal, educational purposes, not as a true legislative definition. However, it does give some insight into how the Group is thinking about blockchain:

“Our Proposed Definition: Blockchain technology is used to build decentralized systems that increase the verifiability of data shared amongst a group of participants, which brings increased trust to the overall system. This definition includes specialized datastores, sometimes called ‘distributed ledgers,’ that provide a verifiable ordering of transactions on the datastore. This definition also includes ‘smart contracts,’ which allow participants to automate pre-agreed business processes, which are implemented by the system as a whole through transactions on the datastore.”

When the floor was opened to the public, composed largely of passionate members of the industry, a number of things became clear. First, there was some concern about the fact that the Group’s proposed definition, as written, seems less definitional and more descriptive—it focuses on what blockchain technology is used to do, rather than what it is. Whether or not this is a problem, it generated significant discussion. To some extent, a descriptive definition is to be expected in this context. The legislative recommendation is that the Group “focus on the function” of blockchain rather than on the implementation, in which case a delineation of the metes and bounds of the technology (including how it’s to be used) is a worthwhile endeavor. Whatever the intent of the recommendation, however, the discussion generated by the very act of defining something like blockchain, be it function- or implementation-focused, can be incredibly valuable. Different stakeholders think about blockchain differently and in discussions amongst them, different facets of the technology are brought to light.

As we move forward, it will not be enough to simply arrive at an agreed-upon definition, especially if the goal is to put the pieces in place to someday draft workable legislative language. We need to return to the basics and ask foundational (but deceptively difficult) questions. What is a blockchain? I can spin up a single-node chain in the cloud—does that count? How should we think about the delegated byzantine fault tolerance or delegated proof of stake system employed by EOS, NEO, or others? What is it that we’re trying to cover with legislation? Questions like these get at the heart of it. There are members of the blockchain community who limit their definition to decentralized, minable, open-source, proof-of-work projects, and there are others who hold a much more expansive taxonomy. Determining core characteristics is important, even if, knowing the ingenuity of the blockchain community, any kind of definition immediately becomes a concrete challenge to design around.

Another point of interest arising from the discussion was the display of our collective blind spots. As a baseline, the Working Group is doing a great job, but they are experiencing the same sources of friction that plague all groups: finite boundaries. The legislation that created the Working Group also made stipulations about membership (interestingly, there were no requirements that any of the participants be at all familiar with blockchain) to ensure a diversity of stakeholders would have a seat at the table. Of course, it’s impossible to be fully representative; there will always be outsiders with different perspectives. This reality is inescapable, but it gets interesting when those outside voices are well-informed and, in some cases, chorusing in unison. Ultimately, what matters is how willing a group is to listen and consider (but not necessarily accept) external viewpoints. 

Early on in the public comment period, an individual stood up to share their experience as a member of the blockchain industry. They worked for a sizable blockchain marketing firm (by their own self-description), and thus collaborated with a wide cross-section of companies. In their view, according to several of their clients, California is not currently the blockchain-neutral jurisdiction that the Working Group is trying to build. In fact, according to this individual, California is seen by the larger blockchain industry as actively blockchain-hostile. To its credit, the Working Group took the individual’s comments in stride. It was, however, a strong illustration of the varied perspectives that are both distinctive and a strength of blockchain development. Some fields have a strict hierarchy; there’s some merit to the idea that an MD is better equipped to treat most illnesses than a self-educated healer. This is not the case in blockchain. Without detracting from the accomplishments of the blockchain “MDs,” our community is such that being self-taught is not equivalent to being a quack. Blockchain is, in some sense, about the redistribution of power, including knowledge. 

The Working Group experience, and especially the Group’s observable willingness to interface so respectfully with the public, offers tremendous hope for the future of blockchain technology in California. Whether or not we are currently blockchain-hostile, the ultimate goal is to put the infrastructure in place such that innovation can continue, balanced by the interests of the public. 

For those interested in attending meetings, viewing past documents, or finding out more about the Working Group, information is available online at: https://www.govops.ca.gov/blockchain/.