Digital currencies work through ablockchain, which serves as a distributed public ledger that records all transactions.
The reason state governments might be interested in this type of thing, according to theBrookings Institution, is the chance to develop central bank digital currencies (CBDCs) — or government-issued currencies — as a means of adapting to an increasingly digital financial system.
Currently, 37 states have pending legislation related to cryptocurrency, digital or virtual currencies and other digital assets in the 2022 legislative session, according to a National Conference of State Legislatures report.
Two examples includeCalifornia Assembly Bill 2689 andHawaii House Bill 2108.
In California’s case, the legislation looks to authorize a private or public entity in the state to accept virtual currency as a payment method for any good or service. Hawaii’s bill, meanwhile, looks to establish a program for licensure, regulation and oversight of digital currency companies.
Other states, like North Dakota and Colorado, are also starting to incorporate digital currencies.
For example, in Colorado, a spokesperson from Gov. Jared Polis’ office explained via email that “the state plans to allow payment oftaxes using cryptocurrencies by September 2022 and then expand to additional state services and fees for processing transactions by residents using cryptocurrency.”
An intermediary would convert these digital payments into dollars, the spokesperson said, to reduce the risks associated with value fluctuation.
As for North Dakota, Gov. Doug Burgum announced in January that construction would begin on one of the “largest data centers in the world” near Williston to act as a hub for high-performance computing and cryptocurrency mining.
According to a press release from the governor’s office, the center is part of a $1.9 billion multiyear project that will require more than 100 workers during the two-year construction period and create more than 30 permanent jobs.
Part of the data center is already operational and one of several data centers used within the state to mine crypto or for blockchain services, according to state Department of Commerce Commissioner James Leiman.
The state currently has a GDP of $60 billion, Leiman said. A large portion of those funds are being used for clean energy projects, which is where crypto comes into play.
“From a clean energy and agriculture perspective, we are working on a tremendous amount of next-gen energy production,” he explained. “Within that realm, crypto is a unique component of that portfolio.”
The two intersect through the state’s oil production process. Natural gas has long been a byproduct created during oil processing. When that gas is not captured, companies will flare — or burn off — any excess to remove dangerous gasses from the environment.
North Dakota is looking to turn this flared gas into a power source for advanced computing systems capable of mining cryptocurrency.
At the end of the day, Gov. Burgum supports carbon-neutrality and becoming carbon neutral by 2030, Leiman said. This process is one way of doing that.
Outside of these examples, state governments can also potentially use blockchain to secure public record information, store data and facilitatesmart contracts, according toGovPilot. However, using these currencies comes with its own challenges, such as having no regulatory framework to protect assets.
To put this into perspective, there are “18,142 cryptocurrencies, 460 crypto-exchanges and the market cap of cryptocurrencies amounts to $1.7 trillion,” according to the World Economic Forum. “Every 24 hours, $91 billion worth of cryptos are traded, most of them Bitcoin or Ethereum.”
To address this issue, the Biden administration signed anexecutive order March 9 to evaluate the risks associated with digital assets and their underlying technology.
More specifically, the order will establish “a national policy for digital assets across six key priorities: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.”
The idea associated with this effort is to create a more coordinated approach for regulating digital currency assets, protecting consumers and preventing the abuse of cryptocurrencies for illegal activities at the federal level.
As for how this will impact state governments, only time will tell.
