Financial services provider Moody’s Corporation recently highlighted how blockchain technology adoption in municipalities can help in improving operational efficiency. It also addressed the potential risks, including cybercrime, regulatory uncertainty, and over-reliance on mining revenue.
Blockchain Tech Offers Efficiency for Local Governments
Blockchain tech has been touted as a potential solution for the administrative inefficiencies of local governments. Moody’s report states that municipalities can cut up to 35% of administrative costs over the life cycle of a bond by using blockchain-based platforms for bond issuance and government operations. While the adoption of blockchain in municipalities has the potential to bring several benefits, it also comes with potential risks that require attention.
One of the significant advantages of blockchain technology is the transparency and auditability it provides. Blockchain is an immutable ledger, meaning once a record is entered, it cannot be altered, making it an excellent tool for government services. For example, mobile voting could be made possible by using blockchain technology, enabling citizens to vote from the comfort of their homes while also enhancing the transparency and auditability of the electoral process.
The report also highlights that several municipal debt sales have been recorded on the blockchain, representing an initial small step towards incorporating blockchain in the municipal bond issuance process. The benefits of using blockchain for bond issuance are many, including streamlining the bond issuance process to make it more efficient, ultimately reducing administrative costs.
While there are numerous benefits of blockchain adoption, there are also potential risks that need to be considered. Cybercrime is one such risk. The report warns that blockchain-based platforms are not immune to cyber-attacks and that government agencies must take appropriate measures to secure their systems.
The other risk associated with blockchain adoption in municipalities is regulatory uncertainty. Digital assets and blockchain technology are still in their early stages, and regulatory frameworks are yet to be fully developed. As a result, government agencies must be mindful of legal and regulatory risks and work closely with regulatory bodies to ensure compliance.
In recent years, local governments have benefited from additional revenue from Bitcoin mining companies setting up shop in North America, particularly in Texas. The report cites Argo Blockchain’s site in Dickens County, which accounted for $17 million, or 6% of the county’s $283 million property tax base at the end of 2022.
However, relying too much on revenue from mining companies is risky, considering the volatility associated with the industry and the potential environmental impacts. The mining industry was hit hard last year as bitcoin prices declined, and power costs shot up, leading to thinning margins for mining companies. Some companies, such as Core Scientific, filed for bankruptcy, leaving their municipal partners in a financial lurch.
The adoption of blockchain technology in municipalities presents an opportunity to streamline government operations, increase transparency, and reduce administrative costs. However, government agencies must also be mindful of the risks, such as cybercrime and regulatory uncertainty as explained by Moody’s. Additionally, revenue from mining companies is not always a reliable source of income and may pose risks to local economies. Overall, the report highlights the potential of blockchain adoption in municipalities while underscoring the need for caution and risk management.
Giancarlo is an economist and researcher by profession. Prior to his addition to Blockzeit’s dynamic team, he was handling several crypto projects for both the government and private sectors as a Project Manager of a consultancy firm.