Blockchain: Novel Provenance Applications

CRS Report by Kristen E. Busch: “Blockchain, generally, is a database technology that records and stores information in blocks of data that are linked, or “chained,” together. Data stored on a blockchain are continually shared, replicated, and synchronized across the nodes in a network—individual computer systems or specialized hardware that communicate with each other and store and process information. This system enables tamper-resistant record keeping without a centralized authority or intermediary.

There are multiple types of blockchains, and, depending on the type, recorded data may be accessible to all users or only a designated subset. All blockchains share common characteristics, including decentralization (i.e., no centralized authority), immutability (i.e., the blockchain records are unalterable), and pseudonymity (i.e., how users’ real-world identities are handled). Certain blockchain types may offer greater levels of decentralization and pseudonymity than others. New blockchain applications, such as smart contracts, non-fungible tokens, and decentralization autonomous organizations, may automate processes or replace intermediaries in a variety of fields. Recent developments in blockchain governance protocols and consensus mechanisms have raised concerns about the environmental impact, oversight, and accountability of blockchain networks…

The United States is a hub for private-sector blockchain development, and many states and federal agencies are experimenting with novel blockchain provenance applications,including the Food and Drug Administration and Department of Treasury. Proponents claim that blockchain can increase transparency and efficiency in many fields by enabling auditable and immutable recordkeeping. However, there are equally significant concerns.

Blockchain technologies are maturing and fully developed use cases outside of the financial sector are relatively limited. In some applications, blockchain technologies can add unnecessary complexity compared with using conventional databases or other alternatives. The technology may also pose security and privacy risks if sensitive information is permanently recorded on a blockchain, encryption algorithms are broken, smart contracts malfunction, or digital wallets and other blockchain applications are hacked.

Some blockchains also use energy-intensive processes to validate transactions, which can consume as much energy as small nations. Individual states have passed legislation or established initiatives to develop, incentivize, and regulate blockchain technologies. Some states have taken vastly different approaches to blockchain technologies, so the state-level regulations that do exist vary widely. A handful of federal agencies have released guidance on blockchain technologies in specific sectors, such as finance, but there is little guidance for blockchain applications in other fields, such supply chain logistics, identity credentialing, or intellectual property and asset registration. In the meantime, China and the European Union have invested heavily in blockchain technologies and developed their own respective regulatory frameworks, so international regulations may also conflict with one another…(More)”.