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Blockchain: Background and Policy Issues (CRS Report for Congress)

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Release Date Revised Feb. 28, 2018
Report Number R45116
Report Type Report
Authors Jaikaran, Chris
Source Agency Congressional Research Service
Older Revisions
  • Premium   Feb. 8, 2018 (14 pages, $24.95) add
Summary:

The rise of cryptocurrencies like Bitcoin and the use of Initial Coin Offerings to raise capital has drawn increased attention from both the public and private sector concerning the use of digital ledgers to conduct business (called blockchain technology) and its potential. Yet many remain unclear on what the technology actually is, what it does, and the tradeoffs for its use. A blockchain is a digital ledger that allows parties to transact without the use of a central authority as a trusted intermediary. In this ledger, transactions are grouped together in blocks, which are cryptographically chained t ogether in a way that is tamper - proof and creates a mathematically indisputable history . Blockchain is not a new technology; rather it is an innovative way o f using existing technologies. The technologies underpinning blockchain are asymmetric key encryption, hash values, Merkle trees, and peer - to - peer networks. Blockchain allows parties who may not trust each other to agree on the current distribution of asse ts and who has those assets, so that they may conduct new business. But, while there has been a great deal of hype concerning blockchain ’s benefits , it also has certain pitfalls that may inhibit its utility. With blockchain, as transactions are added, the identities of the parties conducting those transactions are verified, and the transactions themselves are verifiable by other users . The strong relationship between identities, transactions, and the ledger enables parties that may not trust each other or an individual computing platform to agree on the state of resources as logged in the ledger. With that agreement, they may conduct a new transaction with a common understanding of who has which resource and their ability to trade that resource . Blockchain is not a panacea technology. A blockchain records events as transactions when they happen, in the order they happen, and in an add - on only manner. Previous data on the blockchain cannot be altered, and users of the blockchain have access to the data on th e blockchain in order to validate the distribution of resources. Though there are benefits to blockchain, there are also pitfalls and unsolved conditions which may inhibit blockchain use. Some of those concerns are data portability, ill - defined requirement s, key security, user collusion, and user safety . As with adopting any technology, users must examine the business, legal, and technical aspects of that technology. Blockchain is currently being tested by industry, but at this time does not appear to be a complete replacement for existing systems. Although the adoption of blockchain is in its early stages, Congress may have a role to play in several areas, including the oversight of federal agencies seeking to use blockchain for government business, and ex ploration of whether regulations are necessary to govern blockchain’s use in the private sector . Some federal agencies are seeking to better manage identities, assets, data, and contracts through the adoption of blockchain technology. In addition, some fed eral agencies are issuing guidance on industry use of blockchain, and whether or not the current legal framework governs blockchain use.