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Sunday, February 25, 2024

The Governor of Colorado Is High on Blockchain

Crypto enthusiasts and government officials are not natural allies, at least outside Miami. And yet Colorado governor Jared Polis received a warm welcome when he appeared onstage at last week’s ETHDenver conference to present his vision for making Colorado the “first digital state.”

That’s because he came bearing good news for the crypto faithful. Polis, a libertarian-leaning Democrat who made a fortune as an internet entrepreneur in the 1990s, has high hopes for blockchain technology. “Most people don’t trust either big corporations or big government, and that’s what blockchain allows us to solve for,” he declared to the applause of the ETHDenver crowd. “We see it as a critical part of Colorado’s overall innovation ecosystem.” To that end, Polis announced, the state will soon become the first to let residents pay state income tax and other fees using cryptocurrency, although the money will be converted into good old US dollars before it lands in the treasury.

Polis also plugged Colorado’s co-op statutes, which, he said, make the state particularly hospitable to “decentralized autonomous organizations,” or DAOs, a form of blockchain-based co-op. And he discussed a project that aims to move the state’s cattle-brand system onto the blockchain.

Wait—blockchain? Cows? While Polis found purchase among the ETHDenver acolytes, his presentation raised more questions than it answered. This week, the governor spoke to WIRED about his plan to make Colorado, including its livestock, the most blockchain-friendly state in the union.

WIRED: How would you explain to someone who doesn't already know much about blockchain why you think this is an important technology?

Jared Polis: A secure, distributed ledger technology is very attractive compared to the legacy, centralized database systems for a number of reasons. One is privacy and distributed control over your own information. Another is security because when you have a centralized system, it can always be vulnerable, no matter how much protection you have, in ways that a distributed system inherently isn't. Third, it can be more egalitarian. And fourth, it can be more welcoming for disruption and startups. When you have legacy systems, whether they're corporate or government, they can have an anticompetitive impact.

What does any of this have to do with cattle brands?

Cattle brands are exactly what you think they are. They are a distinctive logo, which ranchers sometimes have passed down in their families, that’s put onto cattle raised in Colorado—and other states with cattle have similar systems—and it's added to a registry. You apply for your brand and there are tens of thousands of brands, many of which are no longer used, but you can't use one that somebody else uses. The current system for that in Colorado and other states is a centralized database, a centralized ledger.

I'm from New Jersey, so just to make sure I'm with you: The point is that if my cow wanders off, or gets stolen, we know who owns it.

Absolutely. They do wander off and they get stolen and then you know who it belongs to, indisputably; it's registered. It's also used to capture and prosecute cattle rustlers who steal cattle. So it's used to prevent both theft and loss of cattle, which is a multibillion-dollar industry in the state of Colorado.

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Currently, it's done through a centralized database. Until a few decades ago, it was literally a book, a ledger. Now, yes, it's stored on a computer hard drive. But nevertheless, it's centralized, and this is an example of a record-keeping application that lends itself to ledgerization with a distributed ledger with tracking info, with recording access and transactions. A distributed ledger method is one that can reduce transaction costs, improve security, and empower people with the information they need when they need it—including law enforcement, who would no longer have to check with somebody at the Colorado Department of Agriculture but would have access to what they needed when they needed it, and nothing more, nothing less.

But but what's wrong with the state being in control of this database of brands? Couldn't you just make that public?

Nothing’s wrong; the system works. It's just an opportunity to increase efficiency, reduce costs. Like, literally, if a sheriff in Moffat County is trying to track down a brand and it's Sunday, they probably will have a hard time getting ahold of somebody at the Colorado Department of Agriculture, and it literally involves somebody’s time on both ends. With the right kind of distributed ledger application, law enforcement would have access to what they need and nothing more than what they need—because you don't want to give a random deputy sheriff access to the entire database—but they would have access to what they needed when they needed it with more efficiency. So nothing is wrong*—*the cattle brand system fundamentally works, but it can work more efficiently and better for ranchers and law enforcement and the Colorado Department of Agriculture.

You said at the conference that Colorado would start accepting tax payments in crypto. Why do that? Doesn't that potentially just raise the state's costs?

First, let me say what it is and what it is not. We ourselves will not engage in transactions with cryptocurrencies. What we will do is add a transactional layer that, in real time, will convert cryptos into the form of payment we accept, which are dollars, and we'll put that layer into taxes. But also, we want to roll that out to other statewide transactional systems, like hunting and fishing licenses and driver's licenses and other things.

It's not an application of cryptocurrencies for state budgetary purposes. It's two things. One is, it's convenient for people. And the second is, it's symbolic in sending a message that, yes, this is a form of payment we accept that is validated by the state of Colorado, just as we accept credit card payments for many purposes.

Do you worry at all about the amount of money that's going into these new, very baroque forms of crypto investments and how that might impact ordinary investors?

Not particularly, other than that high volatility is damaging to the ecosystem. The higher valuation for the ecosystem encourages innovation, but high volatility discourages it. So I think stability is important. I think what I'm saying is, it's a mixed bag, and I like the fact that there's enough value in the ecosystem to encourage and reward innovation. But, obviously, volatility does cast a shadow on crypto.

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One of your lines is that you want Colorado to be for co-ops what Delaware is for corporations. What does a DAO, a crypto-based cooperative structure, allow or unlock that can't already be achieved under traditional cooperative structures?

Certainly, it can reduce transaction costs. It's relatively simple for a DAO to have thousands of members. Governance can also be distributed or centralized. It can be distributed in the sense where people vote on things all the time, if that's the way you want to do it. For a traditional co-op to have its member-owners voting several times a day on something, that just isn’t practical.

In practice, the co-ops that work—and we have many in Colorado, credit unions among them—are centralized. They have distributed ownership, but they have a traditional board of directors and CEO. And we love that model, to be clear. But what DAOs allow is a much more distributed model of governance, which can be innovative. It can be cumbersome, but it can also be empowering.

Are you a member of any DAOs?

Not yet, but I fully expect to be sometime in the near future.

I helped create one while I was at the ETHDenver conference, so I can have the people who understand the technology send you a token if you want to join.

What's the purpose?

Well, the purpose is mostly a journalistic stunt. But the actual purpose of the DAO is to win the New Yorker caption contest.

Oh, wow. Now, that's clever. I entered that a few times myself over the years and I'm still waiting on my winning certificates.

How much do you dabble in Web3 yourself? Do you own any crypto assets?

No. I probably would if I wasn't in the policymaking realm. But it's very important that I'm not seen as having any particular [financial] interest in this space. So while I've made purchases and played around with them, I don't keep any wallet active. I love playing with the technology, but no, no financial position in crypto.


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