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Municipal Crypto Spreading Around the World, From California to Dubai

Everything you need to know about municipal cryptocurrencies and where in the world they are being implemented.

States, provinces and municipalities could use cryptocurrencies to fund projects and programs. Municipal cryptocurrencies — that is, cryptocurrencies launched by cities — could offer citizens a new way to invest in a certain location and even buy goods while helping governments to fund projects. Campbell Harvey from Duke University told Cointelegraph that municipal cryptocurrencies could provide a mechanism to fund certain projects. According to Harvey:

“I think of it as, say, we need to build a new soccer field, given that we now have more boys and girls teams and the old field just can’t handle it. So, we need to build a new soccer complex. Maybe it’s got six fields. Could we issue like a crypto bond or currency where average people could actually buy into that?”

The minimum bond investment is $1,000, although they are usually sold in batches of $5,000. People who want to invest less simply cannot do it. Cryptocurrencies and tokens could be used for assets under $5 million and enable investments under $5,000. Harvey sees the main mechanism for municipal cryptocurrency as the securitization of assets, such as the aforementioned soccer complex or, say, for a health clinic. Harvey told Cointelegraph: 

“Things that you can engage the community to actually contribute to things they get something for. So, they’ve got that kind of token, and potentially the token can be traded. You get some token for the soccer field, a soccer stadium or just some token, but it’s also the case that you can say use that token to pay for 10% of your meal at the restaurant. This is something we’ve not had before.”

If a municipality needs a new sports field, naturally it is going to cost money, which usually comes from taxes. “They got the land, but it’s going to cost some money for maintenance and stuff like that,” Harvey said. “So, you basically tokenize that and essentially sell the tokens to the community so you get the money.” Harvey believes it’s easy for a municipality to launch such a token and that the issued token by the municipality could be useful. In the end, the community benefits from a multiplier effect, whereby, indirectly, several businesses may be linked through promotional and discount schemes connected through a municipal token. 

Cointelegraph took a look at some of the municipal cryptocurrencies out there and their various stages of ideation and development from all around the world. 

Most prominent municipal/local cryptocurrency initiatives

Berkeley’s initial community offering

Status: Proposed

Release date: N/A

The city of Berkeley, California, proposed in 2017 an “initial community offering” to raise money to fund affordable housing, rebuild transit systems and support social services. The initial community offering would essentially be an easier way for citizens to buy municipal bonds.

Proposed by Mayor Jesse Arreguin and Councilman Ben Bartlett, the project was intended to raise money similar to a bond but be priced low enough to allow everyday consumers the chance to invest. The token would be backed by a city bond. The initiative has yet to launch — and it’s unclear if it ever will — but the attempt by city council members goes to show a growing interest in raising municipal funds through creative means. The population of Berkeley is 112,000. Liam DiGregorio, working in business development at the University of California-Berkeley’s Blockchain at Berkeley, an organization dedicated to becoming the blockchain hub of the East Bay, told Cointelegraph: 

“This presents an opportunity for the city to engage with its constituents to test this proposed use-case with a lower associated cost. Given the inspiration for this proposal was to fix the housing crisis in Berkeley which largely affects students, it presents an opportunity for the community to fix itself. Being located in the Bay where many blockchain companies call home, also doesn’t hurt.”

Dubai — emCash

Status: Proposed

Release date: 2020

The city of Dubai stands to make the most impact in using a municipal stablecoin. Nestled in the United Arab Emirates, Dubai has transformed itself over the last 20 years to become a technology hub in the Middle East. 

Related: Middle East Blockchain Development Primed to Lead the Global Industry

The city planned to release its city-issued cryptocurrency in 2018, but no news has been released for the past year. The plan is to put all official documents on the blockchain by the end of 2020 by using smart contracts. A recent meeting of Ethereum developers with Persian Gulf representatives hinted at a possible integration with Ethereum. Dubai’s GDP is $102.67 billion,  and its population is more than 5.5 million

Busan, South Korea — Unknown

Status: Proposed

Release date: N/A

The second-largest city in South Korea, Busan, is exploring the creation of its own stablecoin, as reported by Cointelegraph. The stablecoin would be backed by the national banks and accepted anywhere in the city. The city is apparently working with Hyundai Pay to facilitate implementation. Like with other stablecoins, Busan’s goal is to boost the local economy. Busan’s GDP is $75.8 billion, with a population of 3.5 million.

Related: Regulatory Overview of Crypto Mining in Different Countries

South Korea has the third-most blockchain patents, trailing behind only the United States and China. South Korea’s Ministry of Small and Medium Businesses (SMEs) and Startups stated that the government plans to provide “extensive support if Busan develops its own blockchain-based currency structure or token economy.”

Malacca, Malaysia — Melaka Straits City

Status: Proposed

Release date: Unknown

Malacca is looking to build the Melaka Straits City, a “tourist blockchain-destination of the future.” Launched by China Wuyi, an engineering and construction company based in China, the future city will issue its own cryptocurrency, DMIcoin, which will be used to pay for public services. Cash will be banned. KK Lim, the CEO of Melaka Straits City, told the Express at the time:

“Tourists in the city will have to exchange their money for digital currencies, which they can use to pay for services using their mobile phones or computers. The DMI web application will be available on the PC, and the mobile applications will run on Android and iOS devices to provide flexibility regardless of user preferences.”

Proposed city of Liberstad, Norway — Liberstad City Coin

Status: In development

Release date: N/A

There are some other, more politicized attempts to create a crypto city. Take the proposed city of Liberstad, for instance. This private, anarcho-capitalist city in Norway wants to create a smart city platform with a native cryptocurrency as the city’s official medium of exchange.

Related: CBDCs of the World: The Benefits and Drawbacks of National Cryptos, According to Different Jurisdictions

The idea for Liberstad was initially developed in 2015. As Cointelegraph reported, city plots were initially sold in 2017 for Bitcoin or the Norwegian krone. The city adopted City Coin (CITY), which will be the only medium of exchange in Liberstad, where national currencies are not allowed. CITY and Liberstad’s smart city platform, City Chain, are interoperable. City Coin is based on a proof-of-stake consensus algorithm with block validators chosen based on the number of tokens staked in their wallet. 

Belfast — BelfastCoin

Status: In development

Release date: 2019

BelfastCoin is designed to help bolster the local economy as well as to reward citizens for shopping locally and taking part in community volunteering. The municipal currency is not built on blockchain technology. Rather, Israeli payment firm Colu will be creating the technology and payment application. Each token will be worth 1 British pound, and the plan is to release it later this year. The population of Belfast is around 333,000. Grainia Long, Belfast’s commissioner for resilience, said: 

“Being selected to be part of the global city currency challenge means an important opportunity for Belfast, and I’m delighted that this has been made possible through our partnership with 100 Resilient Cities, and working with Colu. Belfast Coin will be introduced later this year and it’s our hope that it will initially give an economic boost to local businesses, as well as helping Council achieve other long-term goals, including environmental improvements.“

The commissioner added, “This challenge gives us the opportunity to explore how a city currency can bring residents, businesses and city partners together to support inclusive growth — a key priority within our Belfast Agenda.”

Catalonia, Spain

Status: Proposed

Release date: N/A

When the Catalonia region of Spain declared its independence in late 2017, the Catalonian director of its digital office, called SmartCatalonia, visited Estonia to learn about its digital residency plans. The regional leadership also explored cryptocurrency as an alternative to the traditional central bank system. Additionally, there were reports at the time that the region is considering adopting a blockchain voting system by 2020. Ethereum co-founder Vitalik Buterin offered his advice to the local government: 

“This young Canadian of Russian origin advised them to create an ICO for the virtual residents platform, with an initial offer of currency that would correspond with the financing of a business project for the virtual residents program. In an ICO, a new cryptocurrency…can be financed within the e-Residency ecosystem, something that would help create an economic community that is absolutely independent and outside the regulatory eye of a central bank.”

Giving more financial authority to municipalities?

Cryptocurrencies could comprise a key part of smart cities in the future. For instance, a division of e-commerce giant established the Smart City Research Institute, which is meant to accelerate the creation of smart cities using blockchain technologies, as reported by Cointelegraph.

Overarching population trends could create a world more conducive to city-backed cryptocurrencies. More human beings are living in urban areas today than in rural ones. There are 40 mega-cities that are home to 25% of global GDP. Municipalities might one day produce their own money that they then can sell to others, effectively becoming their own central banks.

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Digital Tech Is Driving Growth in Transportation Management Systems

Market research by Grand View Research suggests that digital tech, including blockchain, is driving the growth of global transportation management systems.

A recent market report by Grand View Research suggests that blockchain is one of the digital technologies driving market growth in the global transportation management systems (TMS) sector, according to a press release on July 11.

According to Grand View Research, a market research company based in San Francisco, the TMS market is expected to reach $198.82 billion by 2025 with a compound annual growth rate of 16.2%.

A number of digital technologies are credited as driving forces for current and projected TMS market growth alongside blockchain, including Artificial Intelligence (AI), cloud transportation management systems, the so-dubbed Internet of Things (IoT), and predictive analytics.

Blockchain tech and AI reportedly contribute significantly to streamlining TMS. According to the report, these technologies have led to a rise in competition among module developers as they scramble to invest in the best streamlining tech.

There is also said to be an increasing need for automation and technology in supply chains and logistics, which apparently motivates companies to use TMS. Additionally, there is a demand for visibility, scalability, and flexibility for supply chains. 

The supply chain industry is also increasing its use of blockchain technology to provide transparency and efficiency. 

The World Bee Project is using blockchain tech to track honey along its journey from hive to store, and gather data on bee population decline; international shipments are being tracked and coordinated on the blockchain; a company in Canada is even using blockchain tech to track marijuana on the supply chain, in a purported effort to improve its image as a legitimate medicine and gather strain-specific data.

As previously reported by Cointelegraph, Turkey has put blockchain adoption in the transportation sector on its 2019-2023 economic roadmap.

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Avoid State Taxes on Crypto With US Supreme Court’s Recent Trust Decision?

It might be possible to have your trust pay the lower corporate tax rate of 21% rather than your individual crypto tax rate.

Robert W. Wood is a tax lawyer representing clients worldwide from the offices at Wood LLP in San Francisco. He is the author of numerous tax books and writes frequently about taxes for Forbes, Tax Notes and other publications.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. This discussion should not be regarded as legal advice.

The United States Internal Revenue Service (IRS) treats Bitcoin and other cryptos as property. That means each property transfer can trigger taxes, with a tax hit to both the recipient and the transferor. A key question is the market value at the time of the transfer. Some crypto investors put crypto in legal entities such as corporations, LLCs or partnerships. Another avenue is a trust that holds crypto assets. 

In North Carolina Dept. of Revenue v. Kimberley Rice Kaestner 1992 Family Trust, the U.S. Supreme Court unanimously said that a state could not tax out-of-state residents on trust income without minimum contacts. We’ll come back to that case, but should note that trusts can be taxed in several different ways, depending on their type. There are living trusts that people usually use for estate planning, but living trusts are not separately taxed. 

Crypto and living trusts 

So, if you transfer Bitcoin to your living trust, it usually isn’t a taxable transfer, since your living trust isn’t really a separate taxpayer. It is still you, so you still report the gain or loss on a later sale on your personal tax return. There are also nongrantor trusts, in which the transferor is not taxed on them. These are separately taxed, and a separate trust tax return must be filed. 

Trust tax rules can be complex, but that means the trust itself pays the taxes. There can be another tax on the distribution to beneficiaries. But leaving distribution issues aside, where does the trust pay taxes? That depends. Some trusts are foreign, meaning that they are set up outside the U.S. Those rules are complex, but if you are a U.S. person, you should not assume that you can avoid U.S. taxes with a foreign trust. 

Still, it might be possible to have your trust pay the lower corporate tax rate of 21% rather than your individual tax rate. 

What about state taxes? 

This is where things get more interesting. Some trusts are set up with an eye on reducing or avoiding state taxes — say, if you are in California and don’t want to move to Nevada before you sell your Bitcoin.  You want to cut the sting of California’s high 13.3% state tax, but you aren’t willing to move — at least, not yet. You could consider setting up a new type of trust in Nevada or Delaware. 

A “NING” is a Nevada Incomplete Gift Non-Grantor Trust. A “DING” is its Delaware sibling. There is even a “WING” in Wyoming. The usual grantor trust for estate planning doesn’t help, since the grantor must include the trust income on his/her own tax return. With a Nevada or Delaware Incomplete Gift Non-Grantor Trust, the donor makes an incomplete gift to the trust, and the trust has an independent trustee. 

The idea is to keep the grantor involved but not as the owner. The state of New York changed its law to make the grantor taxable no matter what, but the jury is still out on these trusts in California and other states. Some marketers of NING and DING trusts offer them as alternatives or adjuncts to a physical move. 

The idea is for the income and gain in the NING or DING trust not to be taxed until distributed, when the distributees will hopefully no longer be in the high tax state. The trustee must not be a resident of the high tax state. Parents frequently fund irrevocable trusts for children and may not want the trust to make distributions for years, removing future appreciation from the parents’ estates. Tax-deferred compounding can yield impressive results, even if only state tax is being sidestepped.

For tax purposes, most trusts are considered taxable where the trustee is situated. For NING and DING trusts, a common answer is an institutional trust company. Trust investment and distribution committees should also not be residents. The facts, documents and details matter, and states like California may well push back. However, doesn’t the Supreme Court’s recent North Carolina case help?  

North Carolina case

The court ruled that North Carolina’s tax statute asserting jurisdiction on a foreign trust based solely on the residence of a beneficiary was too broad. But it is still constitutional for a state to tax based on the residence of the trustee or the site of the trust’s administration. Who forms the trust matters, too. In the North Carolina case, the trust was formed by the taxpayer’s father, and he was a resident of New York. 

The taxpayer in the case was the daughter, and she was not the trustee and had no control over the trust. She didn’t even receive any distributions from the trust in the years involved in the case. That made it a pretty compelling case for the Supreme Court to tell North Carolina it couldn’t tax her.

California case

In contrast, many NING/DING trusts are formed by the person in the high tax state trying to avoid state tax — a person in California, for example. And then there’s the distribution question, as some NING/DING trusts do anticipate that the settlor might receive distributions. The administration can be touchy too, as some NING/DING trusts include the settlor/beneficiary as a member of a distribution committee that exercises control over trust distributions. 

Depending on the facts of the NING/DING trust, therefore, the Supreme Court’s ruling seems pretty limited. In fact, the case is limited to the handful of states that use beneficiary residence as the sole factor for determining the state’s taxing jurisdiction. The court said its ruling should not impact states that consider beneficiary residence as only one of several factors for determining their jurisdiction to tax. Interestingly, California is one of five states identified in the case that establishes jurisdiction based entirely on the beneficiary’s residence. 

Even here, though, the opinion carves out California’s tax statute as an issue to resolve at a later date. California law only allows the state to assert jurisdiction based solely on the beneficiary residence when the beneficiary’s interest is not contingent (such as not subject to the discretion of a trustee). The North Carolina case involved a trustee who had discretion to control distributions, or to not make distributions at all. 

So, will your NING/DING trust work to shield you and your beneficiaries from state tax? Creative trusts can be worth trying, depending on the right facts, but you need to be careful. You don’t want to be low-hanging fruit for the high tax state to attack.

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North America’s Largest Solar Bitcoin Mining Farm Coming to California

The Western Mojave plant will run 330 days a year and generate 10-13 megawatts of power.

California-based mining company Plouton Mining will build North America’s largest solar-powered bitcoin mining farm, the company confirmed in a press release on June 25.

Plouton, which is a subsidiary of Plouton Group Holding, says the site in Western Mojave will feature around 49 acres of solar panels generating 10-13 megawatts of electricity daily. 

The location was chosen due to its high annual quota of sunlight, which averages 70%, with the company planning to enter agreements with local utilities providers to secure low-cost power for the remaining time. 

“The preeminent combination of nature and technology will usher in the next stage of bitcoin mining evolution, fulfilling the promise of Bitcoin as a sustainable, decentralized network of transactions,” Ramak J. Sedigh, the operation’s CEO, commented in the press release. 

“We are very pleased to offer people the opportunity to participate in the growing Bitcoin blockchain economy without having to purchase the mining equipment themselves.”

As Cointelegraph reported, the uptick in bitcoin (BTC) price has led to a resurgence in both mining profitability and decentralization as smaller participants gain easier access to the market.

At the same time, the period since last November has seen major upheaval among the industry’s traditional heavyweights such as Bitmain, which have variously enacted staff cuts and closures to stem financial losses.

Canada’s Hut 8, one of the world’s largest publicly-traded cryptocurrency mining companies, in May reported 2018 losses of $140 million.  

Long subject to claims it is environmentally damaging, bitcoin mining has meanwhile received better publicity in recent times after a study revealed more than 70% of activity already utilizes renewable energy.

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Ex-Employee Sues Zcash Operator in $2 Million Lawsuit Over Unpaid Stocks

Simon Liu variously alleges nonpayment and the lack of legal clearance for Zerocoin to offer common stocks.

The company behind cryptocurrency zcash (ZEC) is facing a $2 million legal challenge over unpaid shares, documents originally filed on May 29 confirm.

According to the complaint, which appeared at the Superior Court of California for the County of San Francisco, an ex-employee brought the charges after he did not receive $15,000 of stock in 2016.

Simon Liu worked for Zerocoin, now known as the Electric Coin Company, and additionally claims the company was not legally permitted to offer the equity.

“Plaintiff is informed and believes, and thereon alleges, that Zerocoin did not have the authorization to issue common stock to employees in 2016, and that Defendants, and each of them, were aware that Zerocoin did not have such an authorization,” the document reads.

Requests to view company documents were also denied, Liu says.

Neither Zerocoin nor CEO Zooko Wilcox had issued a public statement about the debacle as of press time.

The name change from Zerocoin to the Electric Coin Company had occurred in February, the impetus being to avoid confusion between Zcash and the nonprofit Zcash Foundation.

Zcash currently trades around $79 and has an overall market cap of just under $600 million. Its all-time high in January 2018 saw a single coin change hands at closer to $900.

A dedicated ASIC mining device for Zcash and other Equishash coins, developed by cryptocurrency mining giant Bitmain, appeared in March this year.

In April in a separate case, a former employee of crypto exchange Kraken has also sued the exchange for $900,000, claiming a failure to receive a reportedly promised commission and stock options.

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US Blockchain Investor Terpin Awarded Over $75 Million in SIM Swapping Case

United States-Based investor Michael Terpin won $75.8 million in a civil case against 21-year-old Nicholas Truglia, who allegedly defrauded him of crypto assets.

United States blockchain and crypto investor Michael Terpin has won $75.8 million in a civil case against 21-year-old Nicholas Truglia, who reportedly defrauded him of crypto assets. Reuters reported the news on May 10.

Per the report, the California Superior Court last week ordered Manhattan resident Truglia to pay the amount above in compensatory and punitive damages. The amount is reportedly one of the largest court judgments awarded to an individual in the crypto space thus far, Reuters notes.

As previously reported, Terpin filed the complaint against Truglia in particular in late December, after first filing a lawsuit against AT&T last August. Terpin accused the firm of negligence that allegedly allowed the suspect to gain control over Terpin’s phone number and steal almost $24 million worth of crypto.

Truglia and other participants allegedly took control over Terpin’s tokens by transferring his phone number under their control, resetting passwords and accessing his online accounts. Truglia was reportedly arrested in November for stealing $1 million in crypto also via SIM swapping.

As Cointelegraph reported yesterday, the U.S. Department of Justice released a fifteen-count indictment on May 9 that charges a hacking group labeled “The Community” with SIM swapping in order to steal cryptocurrencies.

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Lucid Sight Raises $6 Million to Bring Its DLT-Powered Games to Traditional Platforms

DLT-powered games developer Lucid Sight will use a total of $11 million in funding to launch Scarcity Engine later this year.

Blockchain games developer Lucid Sight has raised $6 million to expand its digital scarcity-powered games to traditional game platforms, tech news website VentureBeat reports April 2.

Los Angeles-based Lucid Sight now has $11 million in funding to expand offerings of its digital ownership games company by bridging the gap between blockchain and traditional gaming.

Leading investment bank and wealth management firm Salem Partners participated in the new funding round, as well as crypto and blockchain venture capital funds such as Digital Currency Group and the Galaxy EOS VC Fund.

According to the report, the company will use the investment to launch Scarcity Engine, a software developer tool that is designed to introduce Lucid Sight’s blockchain-powered games on gaming platforms such as consoles, PCs and mobile devices. The tool is scheduled to be launched later in 2019, the report notes.

Specifically, Lucid Sight intends to bring Major League Baseball (MLB) and Crypto Space Commander (CSC) blockchain games to traditional gaming platforms, while also maintaining the benefits of digital scarcity provided by blockchain tech, the firm’s CEO Randy Saaf said in the statement.

MLB Champions is a digital collecting game released during the 2018 MLB season where players can buy collectibles that earn rewards as real life baseball games are played. The new season of the game is planned for the 2019 MLB season.

Recently, blockchain startup Animoca Brands announced it had signed a global licensing agreement with Formula 1® to publish a blockchain game based on the racing series.

South Korean blockchain identity startup Metadium previously announced the release of its Software Development Kit on leading game engine Unity’s Asset Store.

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Facebook Announces New Blockchain Jobs at Its California HQ

Facebook HQ in Menlo Park announces five new positions for its blockchain team, including technical ones.

Facebook’s HQ in Menlo Park, California, has opened five new positions in its blockchain department, according to listings posted today, March 29.

The new jobs were posted in the company’s LinkedIn account. According to the announcements, the company is now seeking a growth product manager, product manager, data scientist, software engineer and business operations manager to join its blockchain team.

The description of the positions also hints at the possible areas in which the firm may implement the technology:

“The blockchain team is a startup within Facebook and we’re exploring lots of areas of interest across all facets of blockchain technology. Our ultimate goal is to help billions of people with access to things they don’t have now – that could be things like healthcare, equitable financial services, or new ways to save or share information.”

Recently, the company opened a position for a senior lawyer with experience in both blockchain and payments. The person will be responsible for drafting and negotiating a wide variety of contracts related to its blockchain initiatives, along with advising clients on the various legal risks related to the tech.

Facebook is also reportedly seeking a product manager and mixed methods UX researcher to work in its office in Tel Aviv, Israel. The number of recently opened positions for blockchain department therefore surpasses 20.

As Cointelegraph reported in a dedicated analysis, Facebook’s stance on cryptocurrency has undergone a significant metamorphosis over the course of 2018. The company that previously banned crypto ads is reportedly considering launching a stablecoin for users of the messaging service WhatsApp, which it owns.

The formation of the tech giant’s blockchain team was first announced in May 2018. Back then David Marcus, the head of Facebook’s messaging app Messenger, announced that the social media site is exploring possible applications for the decentralized technology.

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Thirsty California May Be Wary of Blockchain Water Rights

Blockchain water rights may upset California’s status quo.

Last week, Colorado lawmakers filed a bill exploring how blockchain technology could be applied to water rights management.

Now, California is also studying blockchain for use in water rights management, as reported by Cointelegraph. But coming off a severe drought, which saw water restrictions throughout the state, they are facing a far different set of circumstances than Colorado, as water rights in California have always been a highly political issue.

The film “Water & Power: A California Heist” examined how a handful of corporate landowners took advantage of a state-engineered system and gained control of its water, leaving local homeowners with dry wells. Hollywood also has examined the issue with a bit more drama in “Chinatown,” where the California’s water wars and dirty dealing was dealt with by Jack Nicholson and Faye Dunaway.

In a state where agricultural and corporate interests consume much of the available water while restaurants won’t serve a glass for free and residents’ lawns turn brown, blockchain adoption may be looked at warily by special interests and government, all with a vested interest in maintaining a veil over water usage while blaming the little guys for waste.  

Here’s a closer look at how the blockchain might be implemented in California to manage water.

IBM, The Freshwater Trust and SweetSense

In California, researcher the Pacific Institute has a nonprofit called The Freshwater Trust. It has already spearheaded a collaboration on water management with IBM and SweetSense. The project amounts to a blockchain-based system that implements Internet of Things (IoT) sensors across water pumps in a major river.

The state has been plagued by severe water shortages since 2006, and suffered drought in nine of these past thirteen years. That’s actually keeping within historical norms, as in the 20th century, the state had five periods of drought, with one lasting nine years and another eight years.

California receives most of its water from systems called atmospheric rivers. These storms drop most of the water the region receives on a yearly basis. On average, between 30 and 50 percent of annual precipitation in West Coast states happens in about three atmospheric rivers.

When too few happen, California is in a drought.

Scientists and engineers will use blockchain and IoT sensors to track groundwater usage in real-time across the Sacramento San Joaquin River Delta. Their aim is to manage the water supply and ease pressures on the water table.

Covering 1,100 square miles, the northern California delta is one of the largest aquifers considered by many to be at a high risk for ecological destruction. It sources water for the southern and coastal areas of the state and supports dozens of endangered species, including around 75 percent of all salmon found in California. Three quarters of the delta is further used for agriculture, and this is responsible for much of the high water demand.

“California is huge for American agriculture, but it’s heavily groundwater dependent,” said Alex Johnson, fund director for The Freshwater Trust, while speaking to Digital Trends. “There are some basins in the central valley that have been so depleted over the last couple decades that they are 20 feet lower in elevation.”

Aquifers in California have suffered from intensive farming and business use. The water table is not just being lowered, making water more scarce, but rain has not replenished the aquifers fast enough. One, or even two, rainy years are not enough; the ground is already sinking in a phenomenon called subsidence, the sudden sinking or gradual downward settling of the ground’s surface with little or no horizontal motion.

A market for water

IoT sensors track levels of groundwater pulled up from individual pumps before uploading data via satellite to IBM’s blockchain — with no need for internet connectivity — and then water credits can be granted according to usage. A credit grants its owner the right to extract a set amount of groundwater, but if their need is less, they can sell it as a digital asset.

Conversely, those in need of additional water credits are able to buy from others. This is great if, for example, a farmer chooses to rest their land for a season at the same time a winery realizes it needs extra groundwater during a particularly dry spell. A blockchain system coupled with AI could theoretically recognize opportunities for businesses to trade credits for water and notify administrators and businesses. There is no direct negative effect on the aquifer, if the additional water shares can be bought from the farmer.

Such an open market gives an incentive for businesses and farmers to manage their water use due to the fact that using less means they can sell their credits for a profit. Managing the water supply in this way could prove efficient in a region where already too much groundwater has been drawn.

Using blockchain brings transparency to the system because all records and subsequent amendments can be seen by anyone. Being able to observe the amount of groundwater used by various entities is vital: There is no incentive for an individual to regulate water usage if competitors pay no heed to regulations. If the pilot project is successful, blockchain will be set to play an instrumental role in helping prevent a state-wide ecological disaster looming large for California.

So, how can blockchain help more efficiently manage these artificial rivers and the water they bring?  

Beyond water rights database management, water markets and general administration, a blockchain system could make the management of water more efficient while interfacing with automation and AI. For instance, after numerous recent artificial rivers, less than 1 percent of the state is still considered in drought (one year ago, the United States Drought Monitor classified 48 percent of California as being in a drought). Surprisingly, this region is on the Oregon border.

Using trustworthy oracles, an AI-blockchain could theoretically identify changes in conditions ahead of time, suggest contingency plans, and find buyers (in the drought-stricken region) and sellers (in the regions with ample rainfall) for water before the atmospheric storms even arrive. A blockchain logistics system could be implemented as part of a blockchain-based water management system.

The Hyperledger blockchain

IBM, SweetSense and The Freshwater Trust will likely use the Hyperledger blockchain — which is hosted by the Linux Foundation, Ripple, Stellar and Ethereum — for any experiments pertaining to water management. Local and city governments could also partner with R3 on such a critical part of the infrastructure.

There are several reasons why state officials prefer to partner with a blockchain organization focused on enterprise. For instance, Hyperledger, R3 and Ripple have received money from investors and clients, and can afford research and discovery.

Blockchain water banks

Colorado’s Bill 184 says the Pacific Institute should look into water rights database management, the establishment of water “banks” or markets, and general administration with blockchain once it acquires funds.

The experiment is underway in California. And there, the improved management of approximately three to four atmospheric rivers per year is critical — from collection all the way to allocation.

“We will never capture it all, but we need to do a better job of capturing what we can,” Peter Gleick of the Pacific Institute told Fox News.  

“The challenge is: How do we capture more of that water to use it so we can use it during dry parts of the year? And cities in California have not historically done a good job of capturing what we call stormwater,” Mr Gleick added.