Blockchain Working Group Annua.docx

Blockchain Working Group
Annual Report
December 2021
Ruth Day*
Chair
Commissioner, Chief Information Officer

Commonwealth Office of Technology
Working Group Membership
Jim Barnhart*
Deputy Commissioner
David Carter
Karen Wilson*
Public Service Commission
Robert Thorne*
Energy and Environment Cabinet
Josh Keats*
Kentucky Office of Homeland Security
Wesley Hamilton
Recycladata
Grace Simrall

Louisville Metro Government
James Meece
Louisville Metro Government
Senator Brandon Smith
Kentucky Senate, District 30
Anthony Ellis
Cabinet for Economic Development
Dr. Brian Houillion*
University of the Cumberlands
Christopher Poynter*
Owensboro Municipal Utilities
Designee, Kentucky Municipal Utilities Association
Chris Hayes*
Kentucky Electric Cooperatives
Designee, Kentucky Rural Electric Cooperatives
Adam Koehler

Reversed Out
Clark Snowden*
Louisville Gas and Electric
John Woeltz
Bluegrass Blockchain
Administrative Support
Alice Lawson
Legislative Research Commission
Karen Chrisman
* Members appointed or designated in compliance with KRS
42.747
Background

The Blockchain Working Group is a collaborative panel of
subject matter experts defined in Senate Bill 55, and
subsequently codified in Kentucky Revised Statute Chapter
42.747, with the mission to evaluate the feasibility
and efficacy of using blockchain technology to enhance the
security of and increase protection for the state's
critical infrastructure, including but not limited to the electric
utility grid, natural gas pipelines, drinking water
supply and delivery, wastewater, telecommunications, and
emergency services.
The membership of the working group is comprised of nine
members defined in KRS 42.747 as well as an array
of representatives from state and local government, public
utilities, and private sector business who were
chosen based on their knowledge and engagement with
blockchain technology to ensure a broad depth of
knowledge and insight. Through spanning these various
government and business sectors, the group can
explore and document those opportunities that place the
Commonwealth in the forefront in the support and
usage of blockchain technology as a tool to empower business
in the state.
The group convened for the first meeting on September 9, 2020
and has held regularly occurring meetings to
develop the contents within this report based on the mission as
defined within the Senate Bill and resulting
Kentucky Revised Statutes. The primary goals of the initial
report are to define blockchain in relation to mission
of the working group, provide short term tactical
recommendations, and highlight those areas of opportunity
where a more strategic analysis by the working group will be
conducted over the next reporting year.

Working Group Mission Statement
The mission of the Kentucky Blockchain Technology Working
Group is to evaluate the feasibility and efficacy of
using blockchain technology to enhance the Commonwealth by
identifying opportunities for the adoption,
utilization, and/or regulation of blockchain technology in
critical infrastructure, public utilities,
telecommunications, emergency services or other areas that
could benefit from the implementation of
blockchain technology. Through collaborative efforts, with
public and private entities, the Working Group will
determine through comprehensive research and reporting if
blockchain deployment is warranted to
demonstrate its value, applicability, and/or efficiency. Finally,
the Working Group will evaluate potential
economic development opportunities around the development
and implementation of blockchain occurring
within the Commonwealth, including identifying key
manufacturing and distribution opportunities around the
technology.
Report Abstract
Blockchain technology is a highly diverse and robust

technology that can empower business through the sharing,
movement and processing of data or transactions in a highly
efficient and secure manner. While the most
prevalent use of blockchain technology is digital currency such
as Bitcoin, there are significant ways that
blockchain technology that can enhance the integrity and
security of systems that support critical infrastructure
such as transportation, public utilities, healthcare, finances,
logistics and emergency services. Through the
establishment of the Blockchain Working Group, the
Commonwealth is approaching this technology in a
forward-thinking manner to identify those opportunities that can
draw to, or empower current business in, the
state.
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Report Summary
Blockchain technology is an innovative mechanism for

protecting the confidentiality, integrity, and availability of data.
Blockchain is commonly known as a foundation for digital
currency, but the technology is well suited for a multitude of
purposes where there is a need to share data or track transaction
in a highly secure and efficient manner.
Recognizing the potential of this technology to contribute to the
protection of the state’s critical infrastructure and
empower business in the Commonwealth, the Kentucky State
Legislature passed legislation to convene a working group
of subject matter experts to explore this technology and the
various ways that it could be used within the Commonwealth.
Kentucky Revised Statute 42.747 defined a core group and a
clear mission to help move the Commonwealth to the
forefront in the exploration of this exciting technology.
In response to this legislation, the Commonwealth Office of
Technology, in collaboration with Senator Brandon Smith,
established the Blockchain Working Group. Using the
legislation to guide the establishment of the initial membership
and
expanding it to include a range of subject matter experts
spanning state and local government, public utilities, private
sector business, and academia. Throughout the time that the
working group has been in existence additional advisory
members have been added bringing a broad spectrum of
expertise and experience together to achieve the spirit and
intent of this forward-thinking legislation.
Throughout this reporting year, the focus of the group has been
to gather information from those in the state and/or
nation that are researching or implementing blockchain
technology. The group has held special meetings that brought
entities in to present their unique perspectives, insights, and
challenges to help further define the recommendations put
forward by the working group. This report is the result of these

efforts.
Finance
Blockchain technology has its foundations in the financial
sector, in the realm of digital currency such as the popular
Bitcoin
in particular. While cryptocurrency is a core use case, the
transactional and sensitive nature of personal, state, national,
and global finances make it an ideal candidate to see the
benefits of implementing blockchain. Ranging from inter and
intra institution transactions to personal finance, there are a
number of use cases that can be explored in greater depth.
Records Management
The security and integrity aspects of blockchain technology are
well suited for various areas of records management. From
the execution of legal contracts and agreement to professional
and occupational licensing, the ability to protect, track,
and validate these documents with tremendous levels of auditing
and accountability through the use of blockchain
technology makes this sector another ideal candidate.
Public Utilities
Public utilities such as water and power are the backbone of
modern society and represent a sector that is at the very
heart of critical infrastructure. The model for the delivery of
these services continues to grow in complexity and relies
increasingly on geographically diverse and disparate
technology. Through the efficiency and security gains available
with
the integration of blockchain technologies, the delivery and
protection of these critical services can be greatly enhanced.

Logistics and Supply Chain Management
The Commonwealth is well positioned centrally to serve as a
logistics center for the eastern united states making this a
highly intriguing use case is the state and a potential draw for
businesses within this sector. Modern logistics requires the
close collaboration of suppliers, shippers, and receivers
makings effective cross communication a vital need to ensure
success. Through blockchain technology, these workflows and
communications paths can be streamlined with enhanced
integrity to ensure smooth operations.
Healthcare
The Commonwealth is already home to some of the most
progressive and leading healthcare providers and research
entities on the country. The need to share data among facilities
and providers is key to facilitate effective and responsive
treatment. In addition, as the nation works through the impacts
of a global pandemic, the need to actively share data on
a large scale for trending and research is more apparent than
ever. Blockchain can serve as a empowering foundation for
these use cases.
In the report, the working group expanded on the use cases that
align to these five areas of focus, with the full knowledge
that they represent the tip of the proverbial iceberg of what can
be achieved through the creative use of blockchain
technology. As the technology matures and adoption increases,
it is expected that the use cases will evolve and grow
exponentially. While these areas of focus are most prevalent
today, the working group will continue to maintain monitor

the larger picture and explore new avenues that arise.
As part of the larger perspective, also included in the report is a
summary of the state of blockchain today that covers
initiatives and legislation, pertaining to blockchain technology,
at a national level. Combining the use cases in the report
with the knowledge of the benefits and pitfalls experienced by
others, the Commonwealth can be well prepared to step
to the forefront and help participate in the business revolution
that could be spurred by this technology.
Lastly, while there are tremendous benefits to blockchain, the
benefits do not come without risk. The working group has
put thought into identifying those risks. While difficult to
quantify, the risk can be considered at a conceptual level while
looking at the efficacy of the technology.
In closing, the initial working group report should be viewed as
one of vision and direction. Blockchain technology, while
in existence in some form beginning in 1982, remains a
technology in its infancy. Over the coming year, the
Blockchain
Working Group will continue the research needed to identify the
more tactical and immediate opportunities for the
Commonwealth while maintaining a longer-term search for more
strategic opportunities on the horizon. There are
recommendations included throughout the detail report, most of
which are exploratory in nature, but one overarching
recommendation is that the Commonwealth should continue this
investment and exploration of blockchain technology
to provide real benefit to Commonwealth citizens and to the
potential to drive business growth in the state.

Annual Report – December 2021
Table of Contents
Introduction to Blockchain
...............................................................................................
.......................................... 1
Potential Use Cases
...............................................................................................
..................................................... 3
General
...............................................................................................
................................................................... 3
Recommendation 1.0
...............................................................................................
........................................ 3
Finance
...............................................................................................
................................................................... 3
Cryptocurrency
...............................................................................................
................................................................. 3
Recommendation 1.1
...............................................................................................
........................................ 3
Banking
...............................................................................................

............................................................................. 4
Recommendation 1.2
...............................................................................................
........................................ 4
Payment Systems
...............................................................................................
.............................................................. 4
Recommendation 1.3
...............................................................................................
........................................ 5
Public Finance
...............................................................................................
................................................................... 5
Recommendation 1.4
...............................................................................................
........................................ 6
Decentralized Finance
...............................................................................................
........................................... 6
Recommendation 1.5
...............................................................................................
........................................ 6
Case Study: Wave Financial Kentucky Whiskey 2020
Digital Fund
.................................................................................. 6
Recommendation 1.6
...............................................................................................
........................................ 7
Kentucky Early Adoption of UCC Emerging Tech
Amendments
..................................................................................... 7
Recommendation 1.7
...............................................................................................
........................................ 8
Records Management
...............................................................................................

.............................................. 8
Contracts
...............................................................................................
........................................................................... 8
Accounting/Auditing
...............................................................................................
......................................................... 8
Recommendation 1.8
...............................................................................................
........................................ 9
Legal Records and Documents
...............................................................................................
.......................................... 9
Recommendation 1.9
...............................................................................................
........................................ 9
Recommendation 1.10
...............................................................................................
.................................... 10
Recommendation 1.11
...............................................................................................
.................................... 10
Licensing
...............................................................................................
......................................................................... 10
Recommendation 1.12
...............................................................................................
.................................... 11
Public Utilities
...............................................................................................
....................................................... 11
Logistics and Supply Chain Management
...............................................................................................
................ 12
Healthcare
...............................................................................................

............................................................. 12
Data Analytics
...............................................................................................
................................................................. 13
Recommendation 1.13
...............................................................................................
.................................... 13
Medical Research
...............................................................................................
............................................................ 13
Controlled Substances
...............................................................................................
.................................................... 14
Recommendation 1.14
...............................................................................................
.................................... 14
Blockchain Risks
...............................................................................................
........................................................ 15
Cost
...............................................................................................
....................................................................... 15
Lack of Standardization
.............................................................................................. .
.......................................... 15
Lack of Centralization
...............................................................................................

................................................ 15
Regulation
...............................................................................................
............................................................. 15
Garbage In, Garbage Out
...............................................................................................
....................................... 16
Over Exuberance
...............................................................................................
................................................... 16
Recommendation 2.0
...............................................................................................
...................................... 16
Environmental Impacts
...............................................................................................
.......................................... 17
Increased Cyber Threats
...............................................................................................
......................................... 17
Legislative Analysis 2021
...............................................................................................
........................................... 18
Legislative Summary
...............................................................................................
.............................................. 18
Recommendation 3.0
...............................................................................................
...................................... 18
Appendix A - Case Study: IoT, Autonomous Agents, & Smart
Contracts ..................................................................... 25

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Introduction to Blockchain
Blockchain is a highly diverse and secure technology with far
reaching potential to enhance and empower business and
government. For the purposes of this report, the Blockchain
Working Group has adopted the following core definition of
blockchain:
‘Blockchain is an encrypted, secure distributed ledger
(decentralized database) system that maintains a digital
record of transactions. Individual records, called blocks, are
linked together in a single list, called a
chain. Blockchain is a scalable technology used for recording
transactions made with cryptocurrencies, such as
Bitcoin, and it has many other applications such as supply chain
and logistics monitoring, data sharing, digital
voting, real estate and auto title transfer tracking, equities and
energy trading, and much more.’
Blockchain technology is purposely built to protect the integrity
and confidentiality of data used in transactional systems.
In addition to the security benefits inherent in the technology,
there are efficiency and trust gains that help foster data
sharing as well as improve the effectiveness and speed of
business. Some of these key features are:

By design, blockchain does not rely on a single central ledger
for the documentation and validation of transactions.
That role is shared among the participants in the blockchain
enabled system. This allows the system to be highly
secure, redundant, and robust. Without a single point of failure
and with common knowledge of the transactions
across the participants in the blockchain, business continuity
and trust in the integrity of transactions can be
assured.
Industry standard encryption is inherent to blockchain
technology and ensures that data in the system is highly
protected from exposure or alteration while in transit
throughout the system and among the participants in the
blockchain.
The design of blockchain imparts an inherent trust between the
participants and helps ensure the integrity of the
transactions by preventing the interception, alteration, or
injection of transactions in the blockchain that cannot
be validated by the decentralized ledger. Any alteration of any
block of the chain will invalidate the entire
blockchain.
Without the requirement that an intermediary server or authority
validate the transactions, and with the ability
of participants to communicate directly with each other, the
flow of data is greatly improved. This simplifies the

data flow and removes additional steps in the data path while
maintaining the integrity and trust of transactions.
Public blockchains do not rely on a central authority to grant
permission to participate in the blockchain to read,
write, or proof transactions in the blockchain. One of the most
common uses of public blockchain is digital
currency such as Bitcoin but can be ideal for any public use
system where broad public participation is needed.
Private blockchains are restricted networks that require a
central authority to grant permission to participants to
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read and write transactions in the blockchain. This would be
most applicable to use cases such as critical
infrastructure where the security and efficiency of blockchain is
needed but requires high levels of control over
who can participate in the blockchain.

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Blockchain Potential Use Cases
The efficiency and applicability of blockchain can be realized
across any number of business and government sectors.
Many public and private sector entities are exploring the
efficacy of blockchain. The Commonwealth has taken the bold
first step in establishing the Blockchain Working Group setting
a path to explore the opportunities that this technology
may offer. Some of these possible opportunities are:
GENERAL
While the legislation currently enacted in the Commonwealth is
progressive and sets a strong foundation for further
research around the opportunities for blockchain technology,
the work of the Blockchain Working Group has found that
the potential opportunities span beyond the scope of the original
legislation. Expanding the scope of the working group
to encompass business and economic development opportunities
will allow for more actionable recommendations from
the working group.
Recommendation 1.0: Review the legislation to expand the role
and mission of the Blockchain Working Group to
encompass a broader field of view.
FINANCE

The world of finance is entirely transaction driven. This is the
ideal environment for blockchain to have a positive impact.
Highly transactional based systems have the highest level of
benefit from blockchain and align with the core design and
principles of blockchain. This enhances conducting
transactions across or in financial institutions, and other sectors
involved in commerce, with the highest level of security.
Cryptocurrency
The most prevalent use of blockchain in the financial sector is
the use of digital currency, also referred to as
cryptocurrency such as the popular Bitcoin. Digital currency
could empower business and trade through the ease
and efficiency of financial transactions in a highly secure and
attestable manner. Delays and complexities such as
currency conversion and transaction clearing houses can be
removed which will greatly enhance the speed and
efficiency of business. Nations such as China and Canada have
already pursued digital currency implementation
and the foundations for the development of a “digital dollar”
have been discussed by the U.S Congress. The current
Comptroller of the Currency, Brian Brooks, served as Chief
Legal Officer for Coinbase, one of the largest digital
currency platforms in the world.
Though cryptocurrency may not fully replace traditional
currency, for quite a while if ever, it is becoming a viable
option as it continues to be adopted by younger, tech-centric
generations.
Recommendation 1.1: The Commonwealth of Kentucky should
explore the benefits of creating a new
cryptocurrency to support a closed blockchain system.
Rationale: This report has identified risks and opportunities of

adopting blockchain. The ideal
implementation would be a closed blockchain system where
members are able to participate in the block
processing for the cryptocurrency. By owning and opting in to
the blockchain processing, the
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Commonwealth and other member institutions would have a
vested interest in mitigating some of the
inherent risks, while amplifying the potential benefits. The
closed blockchain system would remove some
of the cyber security threats inherent to open systems where
processing takes place all over the world,
by making the blockchain membership by invite only.
Malicious actors attempting to impact or corrupt
the blockchain would not have access to the blockchain at the
same level as an open blockchain
system. Additionally, by owning a cryptocurrency,
Commonwealth would be able to extend financial
processing capabilities into the digital realm. Finally, financial
transactions related to Commonwealth of
Kentucky and other member institution business would be
processed on a system the members own and
protect, which promotes a more secure financial ecosystem.
Banking
The state of Wyoming, in anticipation of potential banking

needs in the cryptocurrency realm, adopted House Bill
74 in 2019 which authorized the chartering of special purpose
depository institutions (SPDI). According to the
Wyoming Banking Division these “institutions are banks that
receive deposits and conduct other incidental
activities, including fiduciary asset management, custody and
related activities”. Applications for charters began
in October 2019 and the first charter was issued to Kraken
Bitcoin Exchange in October of 2020 making it the first
digital asset company to secure a bank charter in the United
States. There are more charters in the pipeline that
will be awarded over the next six months to a year.
Recommendation 1.2: The General Assembly should pursue
legislation creating charters for special
purpose depository institutions during the 2021 legislative
session.
Rationale: Though Wyoming was the first state to develop this
type of charter for digital asset
management other states are predicted to soon follow.
Kentucky, with its geographic location and
amenities, could have a competitive advantage over other states
including Wyoming. As mentioned in
other portions of this report, Kentucky sits at the figurative if
not literal “crossroads of the Eastern and
Central United States”.
Kentucky residency requirements for officers of the SPDI would
provide Kentucky an added advantage as
Kentucky provides significant benefits to relocating executives
and employees such as access to low cost
of living, major airports, arts and entertainment, major sporting
events, metropolitan areas, rural
attractions, low energy costs and all the other elements that

make Kentucky a great place to live and work.
Payment Systems
Harvard Business Review identified two elements to the modern
currency system, the “what” and the “how” of
transactions. Prior to development of modern financial systems,
the “what” was money (paper or coin), gold or
some other commodity of value and the “how” was to hand over
the commodity for the desired good or service.
This process would develop with the development of checks and
credit cards and into even more complex systems
with further development of technology. As mentioned in a
previous section, though cryptocurrency may never
supersede traditional currencies the “how” process could be
significantly impacted by the implementation of
blockchain technologies. Currently, most non-cash transactions,
whether in person or online, utilize
intermediaries that take a percentage of the transaction amount
to complete the transaction between two
entities. This increases the cost of business and commerce as
each intermediary will take their “cut”. Blockchain
technology eliminates the need for any trusted intermediaries
and therefore can lead to efficiencies in the system
as well as lower the overall cost of transactions.
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The Treasurer of the State of Ohio created a system in Fall of

2018 to allow Ohio citizens and organizations to pay
up to twenty-three (23) different taxes via Bitcoin and the
OhioCrypto.com website created by his office. However,
about a year later, the Ohio Attorney General determined that
these payments violated state law as BitPay, the
platform utilized for the transactions, charged a fee and
therefore made this a financial transaction device and
subject to the Ohio Board of Deposit approval.
Recommendation 1.3: The Blockchain Technology Working
Group should continue to monitor this
ongoing development of alternative currency while also
advising the Kentucky State Treasurer’s Office of
developments in this area and investigating potential
opportunities the Treasurer’s Office can pursue
future blockchain technology adoption.
Rationale: The adoption and implementation of new payment
systems and processes are coming it is just
a matter of “how soon”. The state and the Treasurer’s Office
should be adequately prepared to adopt to
this technology and its uses before it arrives and the state is
“playing catch up”.
Public Finance
The development of websites such as Kickstarter and
GoFundMe have promoted terms such as “crowdfunding”
and “crowdsourcing” into the common lexicon. These terms
represent a process that individuals or companies
can use to source financial backing from a large number of
persons through Internet mechanisms. The rapidly
growing Braxton Brewery in Covington, KY was launched from
the founder’s garage into a brewery with multiple

taprooms in the Northern Kentucky area through a Kickstart
campaign in 2015. This crowdfunding process is
beginning to gain traction in the world of public finance.
The traditional instrument for municipal financing is the
General Obligation (GO) Bond or the Industrial Revenue
Bond (IRB). These tax-free instruments were widely available
to investors up until the late 1980’s. There are stories
of grandparents purchasing municipal bonds for grandchildren
as birthday and Christmas gifts.
However, after the late 80’s until today these instruments have
become cost prohibitive to most small investors.
A single share of a municipal bond can be $5,000 or higher.
Small investors are no longer able to take advantage
of the tax-free yields of 3% or higher (almost 30 times the yield
of a saving account). This has significantly
hampered the building of wealth in low- and middle-income
homes. Municipal bonds are now usually purchased
in whole by large investment firms and inserted into their
mutual fund portfolios.
The ability of blockchain to fractionalize (break into an almost
infinite number of smaller pieces) would allow
municipal bonding to be more affordable to those lower income
investors looking for opportunities outside of
their 401k. This would also allow the financial benefits to
remain on “Main Street” versus disappearing to “Wall
Street”. Citizens of a city or county could now invest in their
own communities and see yield benefits from the
taxes they may pay for the bonds. In 2019, the city of Berkeley,
CA utilized blockchain “minibonds” to finance the
purchase of a new fire truck. A hypothetical grandparent could
have potentially bought part of an actual fire truck
for their grandchild for their birthday.

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investigate the use of blockchain based
municipal bonds to fund future projects while at the same time
increasing the opportunity for building
wealth in its communities.
Rationale: The utilization of blockchain technology could not
only aid in the financing of municipal and
public infrastructure projects in the state but could lead to
wealth development in the state. Eastern
Kentucky faces the significant issue of the region’s water and
sewer systems needing to be replacement
and modernization in the near future. Barring significant state
grants and loans, this financing will need
to be completed through issuing municipal bonds. The citizens
in these areas could purchase small
portions of the issued bonds and take advantage of the
associated tax-free yields by using blockchain
technology.
Decentralized Finance (DeFi)
Decentralized Finance is a rapidly growing application of
blockchain technology toward critical financial sectors.
DeFi protocols currently account for >$100B in total value

locked by replicating traditional systems of finance
that enable lending, borrowing, swapping and other financial
applications.
DeFi protocols can increase the transparency, auditability and
reliability of these traditional financial tools while
making them more accessible to the average person. Traditional
centralized parties are not required for the
bookkeeping and enforcement of health factors and interest
rates as these are regulated by the software
protocols. Collateral can be trustless and digital in the form of
cryptocurrency. Additionally, DeFi enables micro-
loans and flash-loans which leverage properties of blockchain
technology to become more efficient with lower
costs than traditional centralized finance options, opening up
areas of finance that were previously too
inefficient to be viable. The Commonwealth can potentially
benefit from an understanding of these new
financial technologies to facilitate competitive economic
development.
While the barrier to entry is reduced and markets can become
more efficient, there are new kinds of risks
introduced to systems of finance with DeFi protocols. These
new risks are related to the security of the protocol
specifications themselves, the implementation codebases,
permissioned access, cascading risks of failure of
interconnected protocols and risks of the underlying blockchain
networks on which they are deployed and
secured through their consensus mechanisms and core protocol
logic.
Recommendation 1.5: The Blockchain Technology Working

Group should continue to define the risks
and opportunities of DeFi for Kentucky in collaboration with
the Department of Financial Institutions
[[and/or other departments?]] to cultivate a healthy
understanding of these emerging technologies that
provide these financial opportunities and risks.
Rationale: Decentralized Finance is continuing to drive down
the costs of offering traditional financial
products by removing intermediaries. The barrier of entry is
being reduced while the financial
opportunities and accessible tools are increasing. This is
creating an environment that can become
challenging for the Commonwealth to capture opportunities in
while safely navigating the risks without
a deep understanding of these technologies and their
applications.
Current Use Case: Wave Financial Kentucky Whiskey 2020
Digital Fund
On October 27, 2021 the Kentucky Blockchain Technology
Working Group met to participate in a presentation
provided by Wave Financial of Los Angeles, CA, an investment
adviser registered with the US Securities &
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Exchange Commission. Wave Financial presenters were Ben
Tsai, President & Co-founder, and Sam Eisner,
Analyst for Kentucky Whiskey 2020 Digital Fund.
Wave Financial launched the Kentucky Whiskey 2020 Digital
Fund to capitalize on interest in whiskey as a
collectible asset. It acquired the output of 2,700 barrels of
whiskey being produced by Danville, Kentucky-based
Wilderness Trail. Wave’s “Real Asset” fund is providing the
capital to help Wilderness produce and then age the
barrels of whiskey for an expected six (6) years. The fund will
be tokenized to a create a secondary market to
allow liquidity of investment to initial fund participants.
Wave Financial provides both asset management and wealth
advisory services, marrying traditional investment
classes with an expertise in modern digital currencies and non-
fungible tokens (NFTs). The firm was founded in
2018 and already manages more than $1 billion in crypto-based
assets.
Reference: Sterman, D (2021). Two Boozy Platforms Helping
Wealth Managers Invest in the Most Liquid of Alts.
RIAIntel
(https://www.riaintel.com/article/b1v9vg0ty08yq1/two-boozy-
platforms-helping-wealth-managers-
invest-in-the-most-liquid-of-alts). November 4.
Recommendation 1.6: Digital Assets and, by extension, digital
securities have become common place in
the US financial marketplace. Current legislation and
administrative regulations do not anticipate nor
recognize these financial instruments. A comprehensive
investigation of the legislative amendments
needed to fully recognize and account for digital assets,

tokenization of assets, and digital securities
needs to be initiated to ensure Kentucky continues to compete
in the age of emerging technology.
Kentucky Early Adoption of UCC Emerging Tech Amendments
The Uniform Law Commission (ULC) has drafted proposed
changes to the Uniform Commercial Code (UCC) to
adopt standards for emerging technologies, specifically digital
assets/blockchain technology. The proposed
amendments would address digital asset custody and
transactions in relation to aspects of the Uniform
Commercial Code. These proposed amendments were discussed
by the ULC during their recent July 2021 annual
conference. The ULC did not take any action on the proposed
amendments and will officially vote on adoption at
their July 2022 Annual Meeting. The anticipated uniform
adoption date has been posited as July 1, 2024 as some
state legislatures do not meet in 2023.
The states of Wyoming, Nebraska and Texas have already
enacted changes to their UCC laws to address
emerging technologies and digital assets. Other states,
specifically South Carolina, are pursuing amendments
this coming year as well. Kentucky 2021 Senate Bill 177 was
drafted to reflect the verbiage of the Wyoming
legislation to ensure some uniformity among states. This bill
did not pass out of the Committee on Committees
and has been pre-filed for the 2022 session. However, since the
UCC amendments reflect expected future
uniform changes to the UCC it would be in Kentucky’s best
interest to adopt early the proposed language
provided by the ULC and to amend as needed during future
sessions.
Early adoption by Kentucky during the 2022 General Assembly

session for incorporation into law in July 2022
would provide Kentucky with the ability to move forward with
the implementation of statutes and associated
administrative regulation creation. Any amendments that may be
made when the ULC officially adopts the
changes in July of 2022 can be made during the 2023 General
Assembly session. This allows the state to move
forward in anticipation of these recommended changes.
Any delay in UCC amendment related to digital assets would
mean putting the state significantly behind other
states in relation to digital asset custody and transactions.
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Options for the Legislature
1. Do nothing at this time. Wait until the ULC adopts the
amendments in July 2022 and delay actual
adoption until July 2024.
2. Take a hybrid approach similar to 2021 SB 177 where some
aspects are passed now but bulk of digital
asset custody/transactions wait until ULC adoption in July
2022.
3. Pass the current UCC amendments as drafted to ensure
Kentucky does not lag behind other states in
the blockchain sector and then amend as needed after July 2022
ULC adoption.

Recommendation 1.7: To avoid any delay that would hamper
Kentucky’s ability to compete in the digital
asset space, the Working Group would recommend that the
General Assembly adopt the ULC drafted
proposal changes early with the anticipation that this is the path
that most states will follow in the
future.
RECORDS MANAGEMENT
Contracts
Advancement in electronic technology lead to the ability to
execute contracts without needing to be present.
Previously, the execution of a contract required the signatories
of a contract be present and physically sign the
contract document. This changed over the last decade with
online services such as DocuSign and Adobe Acrobat.
These electronic systems allow parties to a contract to sign
documents without being physically present.
Though these platforms allowed the execution of contracts to
become more efficient there are some basic
weaknesses in these systems. The primary weakness is the
guarantee of authenticity or validity of the signature.
The common process is for the contract documents to be
electronically forwarded or supplied to the parties. This
is completed through a link provided in an email. The recipient
follows the link to the documents that are hosted
on a central server. The recipient reviews the documents and
then when prepared to sign acknowledges their
agreement to the electronic signature process and then attach an
electronic signature. The issues in this process
are that there is no guarantee the signatory is the actual party
intended for the agreement, as the link is usually

emailed through unencrypted email. The second issue is that all
the signed documents are maintained in a central
database that is vulnerable to cyber-attack.
A system that enables blockchain as part of the signature
process allows the documents to be maintained in a
decentralized system reducing the probability of cyber-attack.
Additionally, blockchain will validate the identity of
the signer. Blockchain provides a key that is unique to the
individual allowing assurance that the signatory to the
contract is the party intended.
Accounting/Auditing
Blockchain is widely considered to be one of the most
significant innovations to accounting since the invention of
the double-entry ledger system. The double-entry ledger has
been the basis for accounting practices for roughly
500 years. The basic nature of double-entry accounting is that
all credits and debits are recorded in a single ledger.
Though this system may work effectively for the parties
involved in a specific transaction it provides no
transparency to other interested parties such as investors,
auditors, taxing authorities, financial institutions, or
other similar entities. The maintenance of a single ledger by the
individual or corporation leads to many issues
including criminal fraud. The idiom “cook the books” long ago
entered into common slang. Recent financial crimes
in large corporations and even government entities provide
testimony to the potential for manipulation.

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The nature of blockchain creates a transparent and immutable
transaction trail that has been identified as “triple-
entry accounting”. This creates an incorruptible link between
the transactions recorded in a double entry ensuring
the integrity of the transaction record. The only solution to
identifying manual errors or fraud in the double-entry
system was through costly and time-consuming audits. Even
with full, comprehensive audits, intentional
malfeasance has gone undiscovered. The implementation of
blockchain in the accounting system of corporations,
individuals and governments provides a transparent record of
transactions that are nearly impermeable to fraud.
This reduces the necessity for intensive audits leading to
efficiencies and cost-savings in the systems, especially
for budget restricted governments.
Recommendation 1.8: The Kentucky Auditor’s Office should
explore the benefits of implementing
blockchain technology in their auditing processes, especially
those that occur annually.
Rationale: The immutable audit trail would allow the Auditor’s
office to better automate and
accommodate the auditing process for the government agencies
it is required to audit every year. From
the budgeting process through the audit process, a single system
built on blockchain could provide
significant cost and time savings in completing these regular

audits allowing for concentration to be
focused on special audits.
Legal Records and Documents
State and local governments are a vast depository of legal
records and documents. These governments or
associated agencies maintain numerous records including but
not limited to state issued IDs, property records and
land deeds, motor vehicle registrations, driving records, voter
registrations, voting records, occupational and
business tax records, corporate and non-profit entity
registrations, criminal records, professional and occupational
licensing records, alcoholic beverage licenses, gaming licenses,
and a myriad of other records and documents.
These records, when maintained electronically, are usually
located on a local server at the county clerk’s office,
or a city hall, county courthouse or the state government
servers. This central repository is vulnerable to a
concentrated cyber-attack. Also, the electronic records may be
susceptible to loss of information or data through
the potential shut down or corruption of the central server.
Sharing of these records and documents should be
completed through either providing access directly to the
database or providing a copy forwarded through an
electronic means such as email.
Blockchain provides the opportunity to manage, transfer and
store these legal and governmental documents
within a distributed ledger addressing the risks of centralized
storage as well as maintaining the custody of the
records and ensuring the integrity and accuracy of the electronic
documents. As a case study, the nation of
Dubai, through the Department of Economic Development,
initiates all business registrations, business licenses,
and other business-related documents entirely by blockchain.

Recommendation 1.9: Legislation should be amended to include
a member of the Blockchain
Technology Working Group on the Task Force on Electronic
Recording of Official Documents by County
Clerks.
Rationale: In 2019, the Kentucky General Assembly created the
Task Force on Electronic Recording of
Official Documents by County Clerks (2019 SB 114) to study
and implement the filing of documents with
County Clerks in electronic form. This included identifying
methods needed to provide electronic
notarization of the official documents. This is an on-going task
force with regular meetings. The task
force includes representatives from companies that already
operate in the e-filing and e-notary services.
The inclusion of a member of the Blockchain Technology
Working Group on this task force would
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provide the opportunity for blockchain to be researched and
potentially implemented in the shift to
electronic filing.
Recommendation 1.10: The Kentucky Secretary of State, as
custodian of both elections and business
filings, should research the benefits of blockchain in the

issuance and/or management of these records
to ensure the integrity and accuracy of these crucial records.
Rationale: The shift to alternate methods of voting during the
Covid-19 pandemic has demonstrated
that methods other than in-person voting can be provided.
Utilization of blockchain, while not the
panacea to cure potential voting issues, could be a large step
forward in ensuring that election fraud is
impossible. Business registrations and licenses could also be
maintained securely and efficiently.
continue to research opportunities that
may benefit from blockchain technology in records and
document management systems in the state
government. To ensure interoperability blockchain will need to
be implemented in an organized,
centralized and efficient manner.
Licensing
From 2017-2019 the Occupational Licensing Policy Learning
Consortium was facilitated by the National Council
for State Legislatures, the Council for State Governments and
the National Governor’s Association through a series
of grants, in excess of $3.5 million, from the US Department of
Labor. The Commonwealth of Kentucky was one
of eleven (11) primary states that participated in this
Consortium. The Kentucky team consisted of members from
the Governor’s Office, the State House and Senate, the Public
Protection Cabinet and the Department for Local
Government.
The two main objectives of this Consortium were to study the
barriers to entry in the state licensing systems as
well as to identify opportunities for license portability between

states. Blockchain technology can significantly
advance the portability of professional and occupational
licenses. The current standard for professional and
occupational licensing is the establishment of oversight through
state control either by individual licensing boards
(such as currently utilized in Kentucky) or by central licensing
agencies attached directly to a state office (Ohio and
Tennessee are examples). Licensees that acquire their license in
one state but desire to work in another must
subsequently secure their license through the second state. For
example, a licensed respiratory therapist may live
in Jeffersonville, IN and possess an Indiana license. However,
they may secure employment with one of the
hospital systems in Louisville, KY. In order for them to be able
to work in Kentucky they will have to go through
the entire licensing process to secure a second license in the
Commonwealth of Kentucky. This may cost the
respiratory therapist a great deal of time and money completing
the process just be able to practice their
profession. They will then be required to maintain all
requirements and fees for two licenses. A system which
supports portability of licenses would remedy this situation and
remove barriers to work.
A current solution utilized to promote portability of licenses is
achieved through Interstate Compacts. These
compacts are agreements between states and recognize licenses
from other states. The portability only applies
to the states that are signatories to the charter. The
establishment and maintenance of charters are both costly
and legislatively complex. In addition, the information for the
licensees is either maintained by the individual
states or in some cases may be maintained in a central location
managed by an entity that oversees the operations

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of the compact. In either case, this provides the opportunity for
conflicting data, in the case of individual state-
maintained data, or vulnerability to hacking if managed in a
central database.
A blockchain system removes the centralized database and
replaces it with a distributed ledger system which
would allow all the states to have access to the same
information on licensees and would significantly reduce the
risk of corruption or theft of data. The licensee would have
responsibility for the maintenance of their license and
would allow access to the desired states in which they wish to
practice. With a distributed ledger, the states would
have access to all licensees that may wish to practice in their
states and would be able to immediately share
information with other states if there is a change in the
licensees status due to an events such as failure to
complete continuing education, disciplinary actions,
investigations, escrow or any other event that could impact
public protection and the licensees ability to practice.
Recommendation 1.12: The Department for Professional
Licensing, the Public Protection Cabinet (PPC)
and the Commonwealth Office of Technology (COT) should
research the opportunity provided by

incorporating blockchain technology into Kentucky’s licensing
systems.
Rationale: Kentucky is already a signatory on several interstate
compacts and new compacts are
developing that will enter the legislative pipeline in the near
future. During the Consortium process, the
Kentucky team secured a 2018 US Department of Labor grant
for $400,000. The initial grant $100,000
earmarked for COT to improve the state’s licensing software.
The grant went dormant April of 2019 and
continued to be dormant through December of 2020. The grant
was transferred from the Department for
Local Government to the Public Protection Cabinet. At this
point less than $40,000 has been expended.
From March 2020 through current, the grant has been reviewed
and may have been re-activated by PPC,
but the extent of any progress is unknown. The grant is due to
expire June 30, 2021. This provides a seven
(7) month opportunity to examine blockchain use in the
Kentucky licensing system.
PUBLIC UTILITIES
Modern public utility infrastructure is highly complex,
automated, and distributed across wide areas. Ensuring the
integrity
of communications across this infrastructure is paramount to
maintaining critical utility services for citizens and businesses
of the Commonwealth.
While it is difficult to predict the impact of Blockchain
technology on utilities at this early stage there are some
potential
implications for financial transactions, energy generation and
distribution, renewable energy, infrastructure management,

enhanced customer service, and service delivery. It’s important
to note that energy generation and distribution is heavily
regulated by the Federal Energy Regulatory Commission
(FERC), the North American Electric Reliability Corporation
(NERC), and regional organizations such as the Southeastern
Electric Reliability Corporation, therefore any integration of
Blockchain technology in this process will need to be endorsed
by these and other local regulatory organizations.
Financial transactions could utilize secure, innovative solutions
that are automatically triggered by specific requirements
being met between buyers and sellers at all levels of the supply
chain. Retail consumers could benefit from timely and
secure payment transactions. Utilities could also utilize similar
transactions to simplify financial exchanges for mutual aid
and shared resources. Energy generation and distribution could
be improved by incorporating Smart Grid functionality.
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Tokens referred to as “Renewable Energy Credits” or RECs are
a method of monetizing renewable energy. Currently these
tokens are thoroughly audited to ensure the token is only used
once. Blockchain enabled RECs would be more efficient
and eliminate the need for audits. As carbon emission tracking
becomes more common, Blockchain could usher in an
acceptable mechanism to track these emissions. The tracking

system could be a unified platform offering a single solution
for calculations.
Infrastructure management could benefit from far more detailed
tracking and easier access to component information
such as manufacturer, date and time manufactured, shipping
details, time of installation, service life, load capabilities,
and so much more. When coupled with augmented reality the
real-time benefits of this information almost inconceivable.
Blockchain technology could be incorporated into Automated
Metering Infrastructure (AMI) processes that allow
customers to access real-time usage data, flexible billing
options, automatic disconnection/reconnection functionality,
and reliable service transactions.
LOGISTICS AND SUPPLY CHAIN MANAGEMENT
The Commonwealth is geographically positioned well to serve
as a central point for logistics through the eastern United
States. The Commonwealth is recognized as the #1 Location in
the U.S. for population served in one day’s drive (Source:
Claritas), GRADE A in Logistics Industry Health (Source:
Manufacturing Scorecard 2019, Ball State Center for Business
#1
and Economic Research) and we are is in 600 miles of 54% of
the US population, 56% of US manufacturing and 27 Major
Metro markets. The Cincinnati/Northern Kentucky International
Airport (CVG) is the 8th largest cargo airport in North
America and home to the Amazon Air hub and DHL's North
American super-hub. Two Class I railroads (CSX and Norfolk
Southern) cross our region and the Port of Cincinnati and
Northern Kentucky is the busiest inland river port in the United
States (US Army Corps. of Engineers Navigation Data Center,
2016). With the addition of blockchain technology the area
could present an even more appealing case to potential
businesses looking to expand.

Modern logistics goes well beyond transferring goods from
point A to point B and requires the coordination of multiple
supply points of origin and a disparate spectrum of destination
points ranging from individual consumers to large scale
industry. This creates complex communication flows, often
between untrusted parties, that not only have to be secure
and validated but also timely to meet the speed of business.
Blockchain is a much needed and obvious technological
upgrade, particularly when paired with big data, IoT, smart
contracts, and artificial intelligence. It can greatly reduce costly
errors, decrease delivery time, and lower the overall costs that
plague most large, centralized logistics platforms. As with
many other blockchain use-cases, it can ensure greater
transparency and access to information between the parties
involved.
HEALTHCARE
The Commonwealth is home to some of the most progressive
and nationally leading healthcare providers and institutions
in the country. Anyone seeking treatment in the Kentucky
healthcare system, beyond routine health concerns, will
experiences the disparate nature of a service delivery that
includes general practitioners, specialists, hospitals, and more.
The effective and efficient flow of critical treatment data among
these providers, typically in disparate institutions, could
greatly improve the quality of service and the speed the critical
health concerns can be treated. This data is extremely
sensitive, profoundly critical to human safety, and heavily
regulated by standards such as the Health Insurance Portability
and Accountability Act (HIPAA). Blockchain has the potential
to rapidly share this critical data with the highest level of
protection, while also ensuring patient privacy and compliance
with regulatory standards.

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The working group met with University of Kentucky Healthcare
this reporting period to discuss their insights and efforts
that include, or may benefit from, the use blockchain
technology. As one of the progressive teaching hospitals in the
nation, they are abreast of movement in the Healthcare space
that may be leaning towards taking advantage of Blockchain
technology. While there is interest in Blockchain technology in
the Healthcare sector, there are challenges and concerns
that give pause to progress.
speed and
consistency of service delivery is critical to human safety,
healthcare institutions cannot experience downtime or
degradation of services that may be the result of deploying
cutting edge technologies such as blockchain. Additional
standardization and maturation of the technology is
needed to instill the confidence needed to ease these concerns.
-engineer is high. Healthcare institutions leverage
high cost and complex technology solutions. Due to
the complexity involved with building on Blockchain
technology, the transition to such system would require the
redesign of the existing architecture and considerable
development costs.

While concerns do exist, there still are areas of opportunity as
follows:
Data Analytics
The Centers for Disease Control is currently exploring the
opportunities for using blockchain technology to monitor
diseases at a national level. As seem throughout the global
COVID-19 pandemic, the ability to track outbreaks
across geographically diverse locations can aid in the rapid
identification of outbreak hot spots, speed response
times that can assist in containment and provide critical data
analysis for tracking community spread of disease.
While the benefits at a national level are obvious, the
collaborative nature of blockchain enabled information
sharing networks will allow for states to leverage the trending
data to help drive informed policy decisions.
Currently the Centers for Disease Control are advancing the
research into the sharing of information through
systems empowered by blockchain technology. While the
primary focus is on predictive analytics attempting to
pinpoint future spread, it has been identified that another key
aspect is the management of response resources.
Through rapid and secure sharing of information that can
identify ‘hot spots’ in real time, federal resources can
be mobilized more quickly to address threats and works towards
more rapid containment. The Commonwealth
should prepare to take part in these initiatives when the
opportunity arises.
explore blockchain related grant and/or
partnership opportunities with federal entities such as the
Centers for Disease Control.

Rationale: The nature of these efforts at a national level cannot
be addressed, nor funded, solely by the
states. The efforts around preparing the nation and the states
for current and future events such as the
global COVID-19 pandemic will require concerted efforts and
participation at both a state and national
level.
Medical Research
The Commonwealth of Kentucky is home to some of the leading
research and teaching hospitals in the country.
With key healthcare leaders, such as University of Kentucky
Healthcare, University of Louisville Health, Baptist
Health, Norton Healthcare, and Jewish Hospital to name a few,
there is a significant capacity already in place in
the state. Finding those opportunities to enhance the existing
capabilities in the state with technology
advancements such as blockchain can position Kentucky to draw
additional healthcare business to the state and
help move the Commonwealth to the forefront of the healthcare
industry.
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Controlled Substances
Tracking use of controlled substances such as Opioids, that

have a profound impact on the lives of citizens in the
state, is critical in helping combat the misuse of these
substances. The Commonwealth has made substantial
investment in the current eKasper program to help gather and
track this information to assist in addressing the
national crisis. Blockchain technology could enhance this
program by adding efficiency and security to the data
flow and open opportunity for effective data sharing at a
national level.
Based on the recommendation of the 2020 Blockchain Working
Group Report, the working group discussed with
the Kentucky Cabinet for Health and Family Services the
potential of exploring the use of blockchain technology
to facilitate the sharing of opioid and controlled substance
information across states at a regional or national level.
The feedback received was that there currently no plans to do
this at this time. Due to lack of standardization and
complexity involved in such endeavors, initiatives such as this
would need to be driven at a federal level.
Recommendation 1.14: The Commonwealth should poll
neighboring states to determine if sufficient
appetite exists to work towards efforts that use the security and
efficiency of Blockchain technology to
enhance, or implement new, mechanisms to share controlled
substance information to contribute to the
national fight against substance abuse.
Rationale: Sharing information across multiple entities requires
agreement, a unified approach, and
standardization. Any attempts to be successful will require a
collaborative effort and buy in. The
Commonwealth can open the door for this opportunity by
initiating the conversation but ultimately it will
depend on the ability to execute by all participants.

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Blockchain Risks
This report describes a highly capable and valuable technology,
but the technology also has risk. Blockchain is still
developing a maturity level needed for a viable solution in some
use cases. The technology is in an exploratory state in
many industries. While each use case may have specific risks,
there are risks that span across most, if not all, lines of
business.
COST
Blockchain technology is rarely capable of being layered on top
of existing technology. Many times, existing
infrastructure and systems require redesign to accommodate the
use of blockchain. This represents a high
deployment cost in existing complex scenarios.
In addition to the programmatic implementation costs,
blockchain technology may impart increased technology
overhead requiring increased computing resources. It is likely
that additional costs will be incurred to add
processing power in systems that leverage blockchain.

LACK OF STANDARDIZATION
While blockchain at a conceptual level is well defined, there are
multiple methodologies and mechanisms needed
to deploy it. Without standardization and defined common
operational standards there exists interoperability
concerns.
In addition, there are databases and other software
programs/platforms that are being marketed as being
blockchain-based but, in reality, are not.
LACK OF CENTRALIZATION
The development of the internet over the last half century has
conditioned users to certain expectations with
their online experiences. Whether it is email, banking, e-
commerce, social media, streaming services or any other
of the myriad of platforms developed for the internet, users rely
on some central authority to serve as
intermediary. For example, Amazon serves this function with
online sales transactions, whether through the
services they offer, or through the storefronts that they provide
other companies and individuals.
Blockchain is a decentralized system of record where
individuals or nodes are the responsible entity. A banking
customer, in the current system, could potentially lose their log
in information to gain access to their account.
Because the bank serves as the central authority, the customer
follows a process to re-establish their identity and
re-gain access to their account. However, in the decentralized
system of blockchain, there is no central authority,
clearinghouse or repository for this information. A lost key for
cryptocurrency could result in that cryptocurrency
being lost in the electronic void. This situation has already

occurred with lost keys for Bitcoin. As a result, Bitcoin
owners lost millions of dollars because they are unable to
access their accounts.
REGULATION
Over regulation of a growing technology can be very restrictive
to the technology reaching maximum potential.
By restricting use, or applying standards that are too narrow,
through constricting regulations government,
officials can impede the innovation and adoption of the
technology and delay or prevent the realization of the
benefits of some use cases. However, lack of regulations could
have the opposite effect leading to the potential
for chaos and uncertainty in the development of a complex
technology such as blockchain.
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GARBAGE IN, GARBAGE OUT
Blockchain is designed and utilized as a system of record. Its
immutable nature allows it to provide a strong,
transparent and auditable record of transactions. However, when
logging physical assets on the blockchain, there
exists the potential for error or manipulation. For example, in
supply chain management, a seller may log a
valuable bottle of bourbon on the blockchain ensuring that
collectors purchasing the bottle have an adequate

record of where the bottle’s location and any changing of
ownership. The blockchain ledger securely records these
transactions, however it cannot verify that the bottle originally
placed on the blockchain was Pappy Van Winkle
and not Kentucky Tavern.
OVER EXUBERANCE
Blockchain is heralded as the next greatest technological
development since TCPIP was developed leading to the
creation of the Internet. While possible, it is still much too
early to predict the technology’s scope and influence
on everyday lives of individuals. The Internet, through TCPIP,
was created in 1972, yet the consumer and public
aspects of the Internet where not realized until the mid-1990s
when the Dot Com explosion ignited. The Internet
initially developed more in isolation through research, academic
and military applications. This provided ample
time to experiment and create a more usable and unified
architecture.
Blockchain is developing in an entrepreneurial manner with
corporations and individuals scrambling to be the first
to market. Investment, or potentially what is better termed
prospecting, is leading to huge influxes of capital into
projects that may or may not come to fruition. Where the
Internet did not see a bubble/burst cycle until a couple
decades into development, blockchain may be seeing it more at
its infancy. This may lead to a lack of
standardization, as mentioned previously, as well as the risk of
failure which may negatively impact future
development and investment.
Another facet of over exuberance in the developing technology
is that blockchain may be applied in situations
where it is not necessarily needed. Blockchain has, or is

becoming, a buzzword that attracts attention as something
that “you must have”. This could be analogous to when
Echinacea was identified as having some health benefits
and suddenly every herbal remedy, cough drop, nutraceutical or
OTC medication began to add it into their blend
and market it to capitalize on its perception and gaining
popularity.
Recommendation 2.0: Kentucky should explore the benefits of
creating a state blockchain leadership
position (officer, liaison, coordinator, etc.) to aid in the
research and management of potential
implementation of blockchain in the state government. This
officer would consult with all branches of
government, cabinets, agencies and even other local
governments to manage the adoption and
implementation of blockchain in a smart, methodical and
unified manner. In the interim, the work group
should identify an intake process for blockchain related
inquiries.
Rationale: This report has identified many opportunities for
adopting and implementing blockchain to
create efficiencies in the systems of the Commonwealth of
Kentucky. This report has also identified that
there are many risks and potential “landmines” that exist in
pursing blockchain adoption. The state
blockchain officer can identify opportunities in the state
government where blockchain could be
beneficial, but likewise rule out cases where it would be either
unnecessary or even redundant. The officer
could serve as the point of contact for blockchain inquiries,
market the state to potential blockchain
companies and investment, serve as liaison to blockchain
organizations, aid or coordinate the operations

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of the Kentucky Blockchain Technology Working Group and
provide general direction and advice for all
things “blockchain”. Additionally, with the creation of this
position it will send a clear message nationally
and globally that Kentucky is in the vanguard of innovation
with blockchain technology.
ENVIRONMENTAL IMPACTS
The implementation of blockchain in support of some use cases
can require large computational and support
resources, such as cooling, that consumes large quantities of
power. This increased power demand could result
in increased carbon emissions and overall carbon footprint.
INCREASED CYBERSECURITY THREATS
As blockchain technology becomes more prevalent, it will likely
be seen as an increased area of focus for bad
actors in the realm of cybersecurity. As blockchain sees more
widespread use in critical infrastructure, bad actors
will tailor attacks focused on the blockchain as a means to
interrupt, corrupt, or infiltrate these services. These
threats can be more pronounced in smaller scale blockchain
deployments.

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Legislative Analysis 2021
Disclaimer: This legislative analysis is intended to be used as a
general reference guide to recent or current legislation
only and will be developed more comprehensively over time as
the Blockchain Technology Working Group continues to
perform its duties under 2020 Senate Bill 55 and KRS 42.747.
Recommendation 3.0: Kentucky should review the legislation
adopted or enacted in other states.
Rationale: Blockchain is a highly diverse technology that is still
somewhat in its infancy. Because of this, effective
legislation can help foster adoption of the technology and its
success within the state. By leveraging the
experience of other states that have already taken some of the
preliminary step, the Commonwealth can craft
legislation that defines blockchain effectively and avoid the
constrains that can be placed on an emerging
technology that can stem from over, or under, regulation.
The following represents current legislative initiatives observed
other states:
Arizona

HB 2544
Passed House 2/23/21
Establishes the blockchain and cryptocurrency study committee.
California
SB 638
Existing law, the General Corporation Law, authorizes the
formation of a corporation by executing and submitting
articles of incorporation to the secretary of state for filing,
according to specified procedures. Existing law, the Social
Purpose Corporations Act, authorizes the formation of a social
purpose corporation by executing and submitting articles
of incorporation to the secretary of state for filing, as specified.
Existing law authorizes, until Jan. 1, 2022, a corporation
or a social purpose corporation that does not have outstanding
securities listed on specified securities exchanges to
adopt provisions within its articles of incorporation authorizing
records administered by or on behalf of the corporation
in which the names of all of the corporation’s stockholders of
record, the address and number of shares registered in the
name of each of those stockholders, and all issuances and
transfers of stock of the corporation to be recorded and kept
on or by means of blockchain technology, as specified. Existing
law defines “blockchain technology” for these purposes
to mean a mathematically secured, chronological, and
decentralized consensus ledger or database. This bill makes
these
provisions operative indefinitely. The bill also revises the
definition of “blockchain technology” to mean a decentralized
data system, in which the data stored is mathematically
verifiable, that uses distributed ledgers or databases to store
specialized data in the permanent order of transactions
recorded.
California
SB 689

Existing law requires the state registrar, local registrar, or
county recorder, upon request and payment of the required
fee, to supply to an applicant a certified copy of the record of a
birth, fetal death, death, marriage, or marriage
dissolution registered with the official. Existing law requires
the certificate to contain certain information and to be
printed on chemically sensitized security paper, as specified.
This bill authorizes a certified copy of a birth, death, or
marriage record issued pursuant to those provisions to be
issued, in addition to the required method described above,
by means of blockchain technology, as defined. Existing law
requires the secretary of the Government Operations
Agency to appoint a blockchain working group and requires that
group to submit a report containing specified
information related to blockchain technology to the Legislature
on or before July 1, 2020. This bill revises and recasts the
definition of blockchain for purposes of those provisions.
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Connecticut
SB 1039
Requires (1) the Department of Administrative Services to issue
a request for information for the incorporation of
blockchain technology to make a state administrative function
more efficient or cost effective, and (2) the Department
of Economic and Community Development to develop a plan to
promote existing remote work workspaces and

incentivize the creation of new remote work workspaces.
Florida
HB 4119
Provides an appropriation for the Food Equity & Racial
Disparities in Food Supply Chain Blockchain Pilot: St.
Petersburg.
Hawaii
HB 622
Requires the Hawaii technology development corporation to
establish a blockchain working group to recommend a
definition for blockchain technology and make
recommendations for individuals, businesses, and state agencies
to use
blockchain technology and report to the legislature.
Appropriates funds.
Hawaii
SCR 93
Requests the office of enterprise technology services to conduct
a study on the potential benefits and value of
blockchain technology to state government administration and
affairs.
Hawaii
SR 72
Requests the office of enterprise technology services to conduct
a study on the potential benefits and value of
blockchain technology to state government administration and
affairs.
Idaho
HB 327
Relates to financial technology; amends title 26, Idaho Code, by
the addition of a new chapter 38, title 26, Idaho Code, to

provide a short title, to define terms, to provide for utility
tokens, to provide for powers and duties of the director, and
to provide remedies for violations; and amends title 26, Idaho
Code, by the addition of a new chapter 39, title 26, Idaho
Code, to provide a short title, to define terms, to provide for a
financial technology sandbox and a certain waiver, to
provide for a financial technology sandbox application, to
provide for the operation of the financial technology sandbox,
to provide for revocation or suspension of the financial
technology sandbox authorization, to provide for extension of
the sandbox period, and to provide for rules and orders, bonds,
restitution and applicability of the administrative
procedure act.
Iowa
HF 799
Code chapter 554D, the uniform electronic transactions Act,
facilitates the use of electronic transactions in commerce by
giving legal recognition to electronic records, signatures, and
contracts. This bill modifies the Code chapter by permitting
the use of distributed ledger technology and smart contracts in
electronic transactions. The bill defines “distributed
ledger technology” as an electronic record of transactions or
other data that is uniformly ordered, redundantly
maintained or processed by one or more computers or machines
to guarantee the consistency or nonrepudiation of the
recorded transactions or other data and is validated by the use
of cryptography. The bill defines “smart contract” as an
event-driven program or computerized transaction protocol that
runs on a distributed, decentralized, shared, and

20 | P a g e
replicated ledger that executes the terms of a contract by taking
custody over and instructing transfer of assets on the
ledger. The bill adds contracts secured through distributed
ledger technology and smart contracts to the definition of
“contract.” The bill adds the concept of security through
distributed ledger technology to the definitions of “electronic
record” and “electronic signature.” The bill provides that a
person who, in engaging in or affecting interstate or foreign
commerce, uses distributed ledger technology to secure
information that the person owns or has the right to use retains
the same rights of ownership or use with respect to such
information as before the person secured the information
using distributed ledger technology, unless in connection with a
transaction with terms that expressly provide for the
transfer of rights of ownership or use with respect to such
information. The bill provides that a contract shall not be
denied legal effect or enforceability solely because the contract
is a smart contract or contains a smart contract
provision.
Iowa
SF 303

provision.
Iowa
SF 541

21 | P a g e
provision.

Nevada
AB 163
Relating to elections; requires, with certain exceptions, proof of
identity for voting in person; requires the Department
of Motor Vehicles, under certain circumstances, to issue voter
identification cards at no cost; authorizes, under certain
circumstances, a county or city clerk to use a voting system
with blockchain technology; revises the deadlines for
returning and counting absent ballots; prohibits, with certain
exceptions, a person from returning an absent ballot or
mailing ballot on behalf of a voter; requires a county or city
clerk to allow any member of the public to observe the
counting of ballots; revises the deadline for the completion of
the canvass of an election by a board of county
commissioners; eliminates the authority for a person to register
to vote after the close of registration; requires the
secretary of state to enter into a cooperative agreement with the
state registrar of vital statistics to obtain certain
information relating to the statewide voter registration list;
repeals provisions relating to voting by mail ballot and
conducting certain elections affected by a disaster or
emergency; and provides other matters properly relating thereto.
Nevada
SB 110
Creates the Emerging Technologies Task Force within the
Department of Business and Industry; prescribes the
membership, powers and duties of the Task Force; authorizes
the director of the Department to create an Opportunity
Center for Emerging Technology Businesses as part of the
Office of Business Finance and Planning of the Department;
and provides other matters properly relating thereto.
New Jersey
AB 320
This bill requires the state of New Jersey to review and approve

a viable blockchain-based, digital payment platform to
provide payment services to legal and licensed businesses in
this state that do not have access to traditional financial
services and are forced to operate in cash-only or cash-heavy
environments. The purpose of the payment platform is to
provide a safe, secure, and compliant system that does not
exclude these businesses from participating in digital
commerce. The bill requires the payment platform to provide
businesses with access to cashless transactions and to
secure revenue on a one-to-one basis of virtual currency to U.S.
dollars. A business shall only have access to the
payment platform with approval from the state. The payment
platform shall provide the ability to manage and process
all business expenditures and allow all transactions to be
recorded on an immutable blockchain ledger. The payment
platform shall facilitate regulatory compliance, provide for
audits by the state, and allow for payment of sales tax to local
municipalities.
New Jersey
AB 1178
Passed Assembly 10/29/20
SB 898
Permits corporations to use blockchain technology for certain
recordkeeping requirements.
New Jersey
AB 2891
SB 3132
Creates the Digital Asset and Blockchain Technology Act.

22 | P a g e
New Mexico
HB 296
Passed House 3/12/21
Provides that the unexpended balance of the appropriation to the
higher education department in Subsection 2 of
Section 39 of Chapter 81 of Laws 2020 to plan, design and
construct a blockchain center at Central New Mexico
Community College in Albuquerque in Bernalillo county shall
not be expended for the original purpose but is changed to
conduct feasibility studies, to design, develop, acquire, build,
improve, furnish and equip information technology and to
install a distributed ledger technology system at Central New
Mexico Community College.
New York
AB 3099
SB 5643
Establishes the office of financial resilience to develop and
implement new programs and initiatives for the purpose of
supporting local economies and promoting resilient financial
models.
New York
AB 3587
Establishes the test, trust, and certify act to establish a protocol
for COVID-19 testing, contact tracing, and immunity
certification and to protect individuals' right to privacy; grants
individuals the right to control their self-sovereign
identification data; provides for the anonymization of biometric
data for protection from law enforcement. "Tracking" or
"contact tracing" shall mean the protocol through which the

infectious spread of the novel SARS-CoV-2 coronavirus and
corresponding propagation of COVID-19 is monitored in
individuals. Such protocol may be implemented through, but
not limited to, the use of smart phone applications, an
anonymized or pseudonymous digital tracing identifier, and
blockchain, GPS, or Bluetooth technology.
New York
AB 3760
SB 1801
Passed Senate 2/10/21
Allows signatures, records and contracts secured through
blockchain technology to be considered in an electronic form
and to be an electronic record and signature; allows smart
contracts to exist in commerce.
New York
AB 3813
SB 1800
Passed Senate 2/22/21
Relates to the development and creation of distributed ledger
technology, which is a mathematically secured,
chronological, and decentralized consensus ledger or database,
whether maintained via internet interaction, peer-to-
peer network, or otherwise used to authenticate, record, share
and synchronize transactions in their respective
electronic ledgers or databases, and business entities that
develop distributed ledger technology.
New York
AB 3862
SB 4195
Establishes a task force to study and report on the potential
implementation of blockchain technology in state record
keeping, information storage, and service delivery.

23 | P a g e
New York
AB 4332
Directs the state board of elections to study and evaluate the use
of blockchain technology to protect voter records and
election results.
Ohio
HB 177
Enacts §9.16 of the Revised Code to allow a governmental
entity to utilize distributed ledger technology, including
blockchain technology.
Rhode Island
HB 5425
This bill establishes an economic growth blockchain act, sets
regulations for the sale of hemp, regulates virtual and
digital assets and establishes depository banks for these
purposes.
Rhode Island
SB 345
This bill establishes an economic growth blockchain act, sets
regulations for the sale of hemp, regulates virtual and
digital assets and establishes depository banks for these
purposes.

South Carolina
HB 3493
Creates the South Carolina blockchain voting verification study
committee to address utilizing blockchain technology to
allow South Carolina voters to verify their votes.
South Carolina
HB 3495
Enacts the "South Carolina Blockchain Industry Empowerment
Act of 2021" in order to establish this state as an
incubator for tech industries seeking to develop innovation by
using blockchain technology; adds s§33-6-245 so as to
further provide for the construction of terms relating to stock
and certificate tokens; amends §33-6-250, relating to the
form and content of corporate stock certificates, so as to
authorize corporations to issue certificate tokens in lieu of
stock certificates; adds chapter 47 to title 34 to provide that a
person who develops, sells, or facilitates the exchange of
an open blockchain token is not subject to specified securities
and money transmission laws, and provides specified
verification authority to the attorney general and banking
commissioner; adds chapter 51 to title 34 so as to specify that
digital assets are property within the uniform commercial code,
authorizes security interests in digital assets, establishes
an opt-in framework for banks to provide custodial services for
digital asset property as custodians, specifies standards
and procedures for custodial services, clarifies the jurisdiction
of South Carolina courts relating to digital assets,
authorizes a supervision fee, and provides for other related
provisions to digital assets; amends §35-11-105, relating to
definitions under the South Carolina anti-money laundering act,
so as to define the term "virtual currency"; and amends
§35-11-110, relating to matters and transactions to which the
anti-money laundering act does not apply, so as to
provide that the act does not apply to buying, selling, issuing,

or taking custody of payment instruments or stored value
in the form of virtual currency or receiving virtual currency for
transmission to a location within or outside the United
States by any means.
24 | P a g e
Texas
HB 1576
SB 1076
Relates to the creation of a work group on blockchain matters
concerning this state.
Texas
HB 2199
SB 1077
Relates to the establishment of the digital identity work group.
Texas
SB 344
Relates to the use of electronic signatures that employ
blockchain or distributed ledger technology in certain business
or
governmental transactions.

Wyoming
HB 142
Relates to corporations, partnerships and associations;
authorizes the secretary of state to develop and implement a
blockchain or other distributed ledger filing system; provides
requirements for the filing system; provides definitions;
authorizes the supreme court to develop a similar filing system
for the chancery court; authorizes the promulgation of
rules; repeals the previous enabling legislation; creates an
account; provides appropriations for the updating of filing
systems by the secretary of state and the chancery court and for
advertising; and provides for retention of a consultant
and a report.
Wyoming
SF 38
Relates to corporations; provides for the formation and
management of decentralized autonomous organizations and
provides definition.
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Appendix A – Case Study: IoT, Autonomous Agents, & Smart
Contracts

How Blockchain Technology Can Reinvent The Power Grid
BY DON TAPSCOTT AND ALEX TAPSCOTT
May 15, 2016 10:34 AM EDT
https://fortune.com/2016/05/15/blockchain-reinvents-power-
grid/
A power pole collapses at 8 p.m. on a hot night in the remote
outback of Australia. This is a problem for William
and Olivia Munroe, who raise sheep and cattle 100 miles
outside an old gold mining town on the edge of the
Great Victoria Desert. In the summer, the temperature
frequently soars close to 120 degrees Fahrenheit. Their
children attend school via satellite link, the family’s only means
of accessing health services in case of illness or
emergency. Although the Munroe’s’ have a backup generator, it
can’t power the water pumps, communications,
and air-conditioning for long. In short, their lives depend
entirely upon reliable energy.
Nine hours later, the power utility sends out a team to find and
fix the downed pole. Customer complaints give
the company an idea of where the break occurred, but the team
takes more than a day to identify, reach, and fix
the pole. Meanwhile, the Munroe’s and nearby residents,
businesses, and institutions go without power and
connectivity at considerable inconvenience, economic impact,
and physical risk. In the outback, blackouts are
not just paralyzing; they’re dangerous. To minimize these
hazards, at great expense the company deploys teams
of inspectors to check the network regularly.
Imagine how much safer, easier, and cheaper it would be if each
power pole were a smart thing. It could report
its own status and trigger actions for replacement or repair. If a
pole caught fire or began to tip or fall, it would
generate an incident report in real time and notify a repair crew

to come with the appropriate equipment to the
precise location. Meanwhile, the pole could potentially reassign
its responsibilities to the nearest working pole.
After all, they’re all on the grid. The utility could restore power
to the community more quickly without the huge
ongoing costs of field inspection.
Using emerging software and technologies associated with the
Internet of Things, we can instill intelligence into
existing infrastructure such as a power grid by adding smart
devices that can communicate with one another.
Imagine creating a new flexible and secure network quickly and
relatively inexpensively that enables more
opportunities for new services, more participants, and greater
economic value.
This configuration is known as a mesh network, that is, a
network that connects computers and other devices
directly to one another. They can automatically reconfigure
themselves depending upon availability of
bandwidth, storage, or other capacity and therefore resist
breakage or other interruption. Communities can use
mesh networks for basic connectivity where they lack access or
affordable service. Mesh networks are
alternatives to traditional top-down models of organization,
regulation, and control; they can provide greater
privacy and security because traffic doesn’t route through a
central organization.
Organizations are already combining mesh networks with
blockchain technology to solve complex infrastructure
problems. Filament, an American company, is experimenting
with what it calls “taps” on power poles in the
Australian outback. These devices can talk directly to each
other at distances of up to 10 miles. Because the
power poles are approximately 200 feet apart, a motion detector

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