The Importance Of Legally Defining A Public Blockchain

Written by: Matthew Digesti, VP, Government Affairs & Strategic Initiatives

March 7, 2019

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Incentivizing the growth of emerging technology companies is a tricky proposition. A lot of ingredients go into creating an ecosystem that can support the growth of these companies, and what works in one place does not necessarily work in another. Nevada has found one successful ingredient – light-touch state legislation, which signals to the blockchain ecosystem that we understand and embrace blockchain technology.

Nevada began its blockchain journey in the summer of 2017 when Senator Kieckhefer sponsored and shepherded SB 398 to passage. This foundational legislation accomplished three important things: It made Nevada the first state in the country to prohibit local governments from licensing or taxing blockchain technology; it ensured legal disputes would not be dismissed from Nevada courts just because blockchain technology was involved; and it defined “blockchain” broadly so that both public and permissioned blockchains fit within the legislation. As a result, the legislature successfully provided certainty to both entrepreneurs and investors that Nevada was a safe place for blockchain companies to operate.

But like the constant evolution of emerging technologies, legislative frameworks for blockchain technology must evolve as well. In response to blockchain’s evolution, Senator Kieckhefer sponsored four blockchain-related bills for the 2019 legislative session that Nevada Governor Sisolak recently signed into law.

One specific bill, SB 162, amends Nevada Revised Statutes (NRS) Chapter 719 to keep the existing definition of “blockchain” intact while adding a separate and distinct definition for “public blockchain.”

“Public blockchain” means an electronic record of transactions or other data which:

1. Is uniformly ordered;

2. Is processed using a decentralized method by which two or more unaffiliated computers or machines verify the recorded transactions or other data;

3. Is redundantly maintained by two or more unaffiliated computers or machines to guarantee the consistency or nonrepudiation of the recorded transactions or other data;

4. Is validated by the use of cryptography; and

5. Does not restrict the ability of any computer or machine to:

(a) View the network on which the record is maintained; or

(b) Maintain or validate the state of the public blockchain.

“State of the public blockchain” means the cumulative record of data on a public blockchain, consisting of the first block of the public blockchain, all finalized transactions on the public blockchain and all block rewards recorded on the public blockchain.

“Unaffiliated computers or machines” means computers or machines that are not under common ownership or control.

There are several reasons why differentiating between public and permissioned blockchains in NRS is important.

First, SB 162 builds upon SB 398’s signal to the blockchain ecosystem that Nevada understands and embraces blockchain technology in its different forms. Being the first state in the country to demonstrate to public blockchain developers that Nevada understands their technology is a powerful driver of economic development because public blockchain companies and investors now know that Nevada is the only state that specifically recognizes public blockchain technology. SB 398 showed that thoughtful legislation will spur economic development and we anticipate that having this level of clarity in SB 162 will result in similar public blockchain investment and growth.

Additionally, public and permissioned blockchains are architecturally different. Public chains allow any person to participate in the network, while permissioned chains limit who can participate. As both architectures evolve and more people interact with blockchain technology, the public policy and consumer protection topics related to each will begin to diverge. As such, differentiating between the two types of chains with thoughtful legislation will allow public policymakers and regulators to narrowly address the unique needs of each architecture individually rather than collectively.

Lastly, and most importantly, the potential for public blockchain technology to revolutionize many of our digital interactions in ways that truly return power to the individual is almost unlimited. While permissioned blockchains have the potential to incrementally improve existing systems, public blockchains have the potential to shift paradigms in digital identity, voting, medical record management, and financial services, to name a few possibilities. Having a statutory definition for public blockchain technology in Nevada will help set the foundation for this new way of life and move Nevada one step closer to becoming the public blockchain capital of the world.