A new report from the General Accountability Office (GAO) has found that although blockchain technologies offer some application benefits, it still faces challenges.
While best known for its use in cryptocurrency, blockchain has been found to have non-financial uses. Blockchain combines several technologies to provide trusted and tamper-resistant transaction records by multiple parties without a central authority. It can be used for financial transactions, the GAO said, and for non-financial applications like supply chain management, real estate, voting, digital IDs, and legal records.
However, its use may be limited or even problematic in some applications. For instance, in applications involving many participants who do not trust each other, blockchain technology can be useful, while it may be overly complex in situations where a few trusted users are involved, as in spreadsheets and databases. The technology may also present security and privacy challenges and can be energy intensive.
The GAO said that efforts to use blockchain technologies in non-financial applications are in pilot stages. Those uses face challenges, the agency said. For example, most blockchain networks are not designed to be interoperable and cannot communicate with other blockchains. Additionally, organizations that wish to use blockchain face legal and regulatory uncertainties and have found it hard to find the skilled workers needed to implement blockchain.
While the financial applications of blockchain have the potential to reduce costs and improve access to the financial system, they, too, face multiple challenges. The agency pointed to cryptocurrency as an example, noting that while they are a protected, digital representation of value, many are also volatile in their values. Additionally, an emerging blockchain area known as “decentralized finance offer services” such as blockchain-based lending and borrowing, can also face challenges in that it can facilitate illicit activity and may reduce consumer and investor protections compared to traditional finance, with sometimes unclear and complex rules.
The GAO recommended four policy options to enhance benefits and mitigate the challenges of blockchain technologies, including having policymakers collaborate to unify standards that focus on development, implementation, and use of blockchain technologies; having policymakers clarify existing oversight mechanisms or create new mechanisms to ensure oversight of blockchain applications; having policymakers support the development of educational materials to help users and regulators understand blockchain technologies beyond financial applications; and having policymakers support activities designed to determine whether blockchain is appropriate for specific missions and goals, or to mitigate specific challenges.