As Austin embraces blockchain, the tech won’t see wide municipal use yet

You might be hearing tech buzzwords such as blockchain, Web3 or cryptocurrency more often around Austin these days, as the region continues to grow as a technology hub.

The city of Austin itself has been trying to embrace the emerging technologies. In March, city officials and local business leaders announced several initiatives aimed at making Central Texas a leader in blockchain, Web3 or cryptocurrency. At the time, officials raised the idea of exploring allowing residents to pay property taxes or service fees using cryptocurrencies.

However, you probably won’t be making a crypto wallet to pay your utility bills any time soon.

A new city-commissioned report on blockchain technology and its potential applications in municipal government is, at least for now, advising city departments to move cautiously when using the new technology.

The report, led by the city’s innovation office, provides city departments guidelines to consider if they are considering using blockchain. In simple terms, blockchain is a form of distributed database that stores data in chronological groups, known as blocks. While blockchains can be added to, their individual blocks can’t be edited or removed. One of blockchain’s best-known uses is its role in making cryptocurrency possible.

More:City, business leaders aim to make Austin a hub for cryptocurrency, Web3, blockchain

‘Uncertainty will persist’

While the report encourages city departments to increase understanding of the emerging technologies, it also recommended departments still typically use other, more proven technologies with the same level of utility and outcomes, in most cases. It also pointed to alternative technologies that could work for the city, such as centralized databases, ledgers and decentralized databases.

“There are municipal use cases which could benefit from blockchain solutions. These primarily involvevalidating, tracking and improving transparency for certain types of records and transactions,” the report said. “However, many blockchain-based solutions and their providers are still being proven, and there areenvironmental, equity and ethical concerns with the space in general.”

The report said city staffers have been working to create an environment in Austin that “supports the creation and development of new blockchain technologies.”

“We would suggest it’s in part due to favorable business and regulatory environments, and the amount of energy production that occurs in Texas,” Daniel Culotta, the city’s interim chief innovation officer, told theAmerican-Statesman.

Austin, and Texas overall, is growing as a center for blockchain-related technologies. Bitcoin miners have flocked to Texas, a move Gov. Greg Abbott has encouraged. A number of blockchain companies also have set up shop in Austin, including bitcoin company Blockcap. Meanwhile, Consensus, a convention for blockchain-related technologies, recently moved to Austin.

The city’s report examined potential advantages for the technology, including that blockchain cannot be changed or edited, that it is transparent and that it is accessible due to its decentralized nature. However, the report also outlined some risks, including a lack of regulation, governance and security, along with slow transaction speeds, equity issues and varying costs associated with the technology. It also pointed out that blockchain is still in its early stages.

“The early-stage development of the blockchain and Web 3.0 ecosystem is a liability,” the report said. “Blockchain use cases are still being tested, and cryptocurrency markets are subject to extreme volatility (e.g., crypto markets fell approximately 70% in spring 2022, and such swings are not uncommon). In addition, many companies in the space are still in the startup stage. Uncertainty will persist until applications of these technologies are proven and markets stabilize.”

While some tech leaders consider blockchain technologies the future of the internet, others are holding off for now. Cryptocurrency, one of the best-known uses of the technology, has been seeing a particularly turbulent market in recent months, and some cryptocurrency-related services have been hacked this year.

Culotta said blockchain is probably not the best technology for city departments to be using on most projects.

“We would first start with defining the problem they’re trying to solve. What are they really trying to accomplish? From there, we could help define a tech stack that achieves those goals. But it always starts with defining the challenge,” Culotta said.

The report outlined a checklist of questions for departments to consider before tackling blockchain technology. Still, Culotta said, the technology could be used more by the city as it matures.

“I anticipate that as the Web 3.0 technology ecosystem matures and the regulatory environment solidifies, we will see more viable solutions in this space,” he said.

The city of Austin has already been using blockchain technology in some instances. In 2019 and 2020, the city’s Office of Innovation completed a project using LifeFiles, which explored the potential for blockchain and other types of technologies to be used to help store, secure and share vital documents for people experiencing homelessness.

More:What is an NFT, anyway? Your guide to SXSW’s high-tech jargon

‘Staying ahead of the trend’

Dan Ives, a technology analyst with Wedbush Securities, said the technologies are still in their early stages, but it makes sense for Austin, as a prominent tech hub, to embrace new technology.

“I think municipalities and cities around the globe are in the exploratory phase when it comes to crypto and blockchain,” Ives said. “I do think that Austin, given that it has become Silicon Valley 2.0, is heading down this path. So much of the innovation is coming into the city, and, I think ultimately this could invite more blockchain investment into the Austin ecosystem.”

Ives said the adoption of such technologies is still early. Some companies are starting to embrace them, but much uncertainty remains.

“This is something where it’s just, it’s more questions than answers in terms of broader adoption of crypto, especially when it comes to goods and services,” Ives said. “I think Austin’s staying ahead of the trend. But I do think other cities are watching what Austin’s doing, as a case study, to see its potential successes and failures.”

Ives said there’s also still a big adoption curve for most people, and it’s unclear still how widespread blockchain will be adopted, especially as related technology such as crypto still has a lot of risks.

“It’s still a foreign concept to many,” Ives said. “Outside of Miami, Austin and some other cities where crypto is become entrenched in the city, I think there’s still skepticism.”

Read More: As Austin embraces blockchain, the tech won’t see wide municipal use yet

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