Written By: Jeremy Zerkle
Many readers can likely relate to the experience of making an earnest effort to properly record a transaction or file paperwork with a governmental agency, only to have the endeavor met with unseemly resistance or outright stagnation. One might be left wondering: Why do common tasks like title transfers or permit applications require so much commitment and patience? The answer to this question lies in the inherent attributes of complex organizations and the innate deficiencies of multi-actor processes. Despite the frustration that often results from procedural speed bumps or roadblocks, they are indisputably necessary to the secure and productive execution of cooperative action. Since they are indispensable features, the questions then become: Can they be innovated? And how? California’s DMV bet on blockchain.
Bureaucratic Delay
Bureaucracy is a multi-layered system utilized by private and public institutions, involving intermediaries and decision-makers designed to reduce risk and ensure fairness in process.[1] In a way, bureaucracy allows us to cooperate with the confidence that others also took a number—a noble cause but limited in scalability and afflicted by the ubiquitous principal-agent dilemma.
However, an undeniable limitation is the speed of data processing and the necessity of authentication.[2] Whether verifying an identity or that a certain condition was met, it all calls for paperwork. But it is not the paper doing the work, it is the people pushing the paper. People who are not immune to bias, fatigue, or error. And when errors do occur, there are undoubtedly process to the process of reprocessing. Inevitably, the more expansive the reach of a bureaucratic institution, the more pressurized the bottleneck and typically the slower the resolution.
Why Blockchain?
Although certain aspects seem at odds, the technology’s features can likely provide utility to almost any organization. It has the potential to support transparency, efficiency, and security—all vital to any effective bureaucratic system. Essentially, it provides functionality that can mitigate principal-agent conundrums.
What makes the technology novel is that it’s decentralized, immutable, trustless, permissionless, and transparent.[3] What is recorded on blockchains cannot be erased.[4] No individual can amend or modify the information.[5] Nor do they require an operator.[6] Depending on their purpose, data accessibility can be public or available to select participants.[7] Many blockchains also offer interoperability and self-executing contracts (smart contracts).[8]
California DMV’s Blockchain Implementation
California has decided to test the potential this technology has to increase government efficiency. California assembled the California Blockchain Working Group (CBWG) to investigate the technology’s capacity to address challenges identified by state agencies.[9] One area identified was DMV title transfers.[10] The California DMV partnered with Oxhead Alpha to launch a blockchain on the Avalanche network to expedite the title transfer process.[11] The implementation will include digitizing 42 million titles and allowing vehicle owners to manage their titles through a secure mobile wallet app.[12] Smart contracts are expected to streamline uploading data and authentication through automation.[13] The immutable characteristic of blockchain technology is anticipated to prevent bad actors from manipulating data or engaging in lien fraud.[14] The rollout of this initiative is expected to occur in early 2025.[15] California vehicle owners may no longer need to block several hours out of their busy days to wait in line at the DMV, only to be turned around for insufficient documentation.
Takeaways
Many are excited to see how California’s experimentation with blockchain technology plays out. The use of smart contracts and blockchains may play a pivotal role in public and private institutions. Considering that blockchains serve as a permanent record of transmitted data, which cannot be altered, property transactions seem a logical application. Permit issuance and development seem like other obvious areas where this technology could thrive. The prospect of removing redundancies and inefficiencies while improving transparency and security makes the technology attractive to many organizations weighed down by bureaucracy. Although California is blazing the trail, as regulatory certainty materializes, other public institutions may not be far behind.
[1] Caroline Banton, What Is a Bureaucracy and How It Works, With Examples, Investopedia (Aug. 14, 2024), https://www.investopedia.com/terms/b/bureaucracy.asp (last visited Nov. 24, 2024).
[2] Id.
[3] What is Blockchain Technology?, McKinsey & Co. (Jun. 6, 2024), https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-blockchain (last visited Nov. 24, 2024).
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Gov. Off. Bus. & Econ. Dev., et al., Towards Responsible Innovation: An Interagency Web3, Crypto Asset, and Blockchain Progress Report to the Governor of California 22 (Dec. 2022).
[10] Id.
[11] California DMV Makes History, Digitizes 42 Million Car Titles on Avalanche Blockchain, Avalanche, https://www.avax.network/blog/california-dmv-makes-history-digitizes-42-million-car-titles-on-avalanche-blockchain (last visited Nov. 22, 2024).
[12] Id.
[13] Id.
[14] William Gavin, California’s DMV is Using the Blockchain to Prevent Fraud, Business News, Quartz (Jul. 30, 2024), https://qz.com/california-dmv-blockchain-car-title-fraud-ava-labs-web3-1851609271 (last visited Nov. 24, 2024).
[15] Muhammad Zulhusni, California DMV Digitizes 42 Million Car Titles with Blockchain to Fight Fraud, The Block (Aug. 1, 2024), https://blockchaintechnology-news.com/news/california-pioneers-digital-vehicle-titles-on-blockchain/ (last visited Nov. 24, 2024).
