Ohio and Implications of Blockchains at the State Level
Since spring of this year, the Ohio state government has been advertising their state as a place for blockchain businesses. In an effort to attempt to attract entrepreneurs to Ohio, various pieces of legislation have been passed to make it a more friendly place for blockchainers and crypto-entrepreneurs.
In the most talked about piece of legislation, Ohio passed a bill last week to allow businesses in the state to pay certain state taxes in Bitcoin via a partnership with Bitpay. They have indicated that they would like to extend the ability to use Bitcoin as a form of tax payment to individual citizens in the future. Arizona, Georgia, and Illinois legislatures have all discussed this possibility, but those conversations have not yet progressed to action.
Accepting Bitcoin as a form of payment is not an easy task. There has yet to be a processor that has refined the art of accepting crypto like we expect from traditional fiat payments. Stripe, which experimented with accepting Bitcoin as a form of payment in 2014, just ended support for this service at the beginning of this year. In their blog post on the topic, they make the argument that Bitcoin’s development has lent itself to be closer to an asset rather than a means of value transfer but committed to monitoring developments in the environment.
I worked at a company in 2017 where one vendor accepted payment in Bitcoin. To pay that bill I needed to contact an individual at a third-party payment processor and wait for them to issue specific payment instructions. Then a twenty minute timer would start for me to make the transfer. If block confirmations were slow, I would need to start the process over again.
While there has been some streamlining of this process in the past year, the same problems exist. Volatile price, high transaction fees, lack of forgiveness for errors, and complicated user experience make Bitcoin still a difficult way to transact. Projects like Lightening and OmiseGo might make this better, but they haven’t yet. Processors like Bitpay take custodial approach which can be dangerous; Bitpay for example has experienced a number of critical security breaches, the most recent of which was three days ago.
There is also the bizarre issue that exists now where if a company where to make a tax payment in Bitcoin to Ohio, it would in itself be a taxable event. There is not yet federal precedent for using property to pay taxes, and would cause a bit of extra (and unnervingly creative bookkeeping) in order for a company that wants to take advantage of this possibility to stay compliant.
Ohio has made other moves to make their state an attractive one for businesses. In May, Governor Kasich signed a piece of legislation that essentially recognizes digital signatures with the same legal status as other kinds of e-signatures. A small Ohio municipality is also experimenting with the notion of digital identity as a means for voting.
Ohio and other states that are vying to become blockchain innovation hubs have a lot of information to wade through to understand and theorize about incentive structures for entrepreneurs. Well-intentioned initiatives sometimes lead to unintended consequences. The tax example just leads to some unclear accounting implications. Blockchain-based voting has come under massive scrutiny from researchers for its security concerns. While the technology is progressing at a rapid pace and has many implications for governance structures and processes, states that are open to experimentation must be prepared for possible negative consequences.