How Blockchain Technology Can Improve America’s Infrastructure

This piece first appeared in Forbes.

America’s infrastructure is often described as crumbling, broken-down, and out-of-date by politicians from both sides. While the reality isn’t so dire, there are obvious infrastructure issues throughout the country, such as New York’s subway, D.C.’s metro, and almost any road in Michigan.

So even though the country’s infrastructure is not as bad as some suggest, we should still be on the lookout for better ways to provide it. And help may come from an unlikely place: the blockchain technology underlying cryptocurrencies.

Quality infrastructure is important for economic growth. The innovations in transportation technology over the last century—trucks, highways, planes, shipping containers—drastically reduced transportation costs for physical goods and people which increased productivity and well-being. The advent of the internet and broadband technology did the same thing for information and ideas. Continued economic growth means routinely reallocating resources to their highest-valued use as new opportunities arise, and this process is hindered when roads, bridges, airports, subways, and broadband are in poor shape.

While many complain that U.S. infrastructure funding is inadequate, when adjusted for inflation, spending on transportation and water infrastructure has actually been fairly constant since 2000 after rising in the 1980s and 90s. The figure below from the Congressional Budget Office shows this.


Additionally, infrastructure spending by the federal government as a percentage of all federal spending was 2.5% in 2017, which is about what it was in the mid-1980s. It’s true that over the last 15 years a larger portion of spending has gone to operation and maintenance rather than capital outlays, but that’s not surprising in a mature economy like the United States. In general, and as the next figure shows, there hasn’t been a big drop in inflation-adjusted infrastructure spending by government.


But even without a big drop in spending, problems can arise. Just because money is spent doesn’t mean we get something useful for it. Spending is useful when it’s allocated to the most beneficial projects and when it’s closely monitored to limit waste. There’s plenty of evidence that infrastructure costs are significantly higher in America than other places and that these higher costs are due to outdated government regulations, the bidding process, and poor oversight.

While using current spending more efficiently is important, that doesn’t preclude putting additional money to good use, especially if it’s raised properly. Congestion taxes and charging for parking, for example, can raise money for infrastructure while also reducing traffic and the economic losses it causes, which have been estimated at $160 billion per year.

Another potential funding source is crowdfunding facilitated by blockchain technology.  Blockchain is essentially a publicly distributed ledger that keeps track of transactions and ownership of assets, which could be digital currencies, patents, or physical objects like rare art or buildings. Blockchain technology also allows ownership of physical assets to be broken up into small parts and makes it easy to keep track of all the owners.

Blockchain technology has the potential to open up all sorts of investments to the average person. For example, a new toll bridge could be funded completely or in part by individuals who then get a portion of the tolls commensurate with their investment. Today, these types of public-private partnerships, or PPPs, are not available to the average person. Highways, convention centers, stadiums, parking garages, rail projects, and other infrastructure with a potential revenue stream could be funded similarly.

Importantly, more local funders mean more people with a stake in the progress of the project, and this means more accountability for those in charge. Additionally, local governments and construction companies could use blockchain technology to keep track of materials, permits, and contracts . Andrew Lindsey, a market strategist for the Alpha Corporation, says that today it’s hard to know exactly who holds what and when on large infrastructure projects. He believes blockchain technology can fix this:

One of the easiest ways for a claim to come up is over who held what when and who handed what over when. When you have a very clear snapshot of all of that information, you can see what would happen to claims… Right now, it’s done off a spreadsheet that says “X is going to arrive here within this timeframe with this level of error.” But if you have an immediate, encrypted, and immutable ledger of the flow of items, you can identify exactly what is going to be where, when and you can reflect that in schedules, cost estimates, and, more broadly, phase engineering.”

And since the ledger would be available for all to see, the companies and officials responsible for the project wouldn’t be able to kick the blame for delays and cost-overruns back and forth while the public struggles to sort fact from fiction. Instead, those responsible for problems could be identified and held accountable.

Infrastructure is important for economic growth, but America’s process for funding and building it is subpar. Blockchain won’t solve all the problems, but it has the potential to make a big difference.

Adam Millsap

Dr. Adam Millsap is the Assistant Director of the L. Charles Hilton Jr. Center for the Study of Economic Prosperity and Individual Opportunity at Florida State University and a Senior Affiliated Scholar at the Mercatus Center at George Mason University.

The feature image is from Wired.

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