July’s news that the California Department of Motor Vehicles would move vehicle titles to an Avalanche (AVAX) subnet has all the hallmarks of innovation theater, the kind that is counterproductive to crypto adoption.
The value of using blockchain for this kind of application is debatable. Years ago, I too was a fan of using blockchain tech for provenance. But after watching countless valiant efforts (like TradeLens) flounder and being forced to contemplate why, I’ve come to believe any blockchain that’s controlled by a single entity or a handful of legally bound affiliates is just a bad database.
The standard argument in favor of this type of solution states that moving data on-chain improves traceability and transparency. But you can get those benefits from vanilla digitization and services like Carfax have been around for years. Ironically, this particular implementation is on a private subnet.
Related: Ethereum gas fees: Too low or too high? No one can decide
Permissionless networks like Bitcoin (BTC) and Ethereum (ETH) are more than fancy databases. They are self-contained systems with embedded property rights that even the most powerful participants cannot interfere with. A government or consortium run permissioned chain does not, and cannot, offer such a feature.
This is why the most successful blockchain applications revolve around fungible native assets: everything we need to determine who owns a Bitcoin exists within the system. Blockchain has also proved useful for expanding access and functionality for fungible reference assets like stablecoins. Circle doesn’t care who owns USD Coin (USDC), except in the most extreme cases. We tolerate the rare act of censorship because of benefits like use in smart contracts and inclusion in decentralized finance (DeFi).
Vehicle titles are different. They are both non-fungible and registered — each car must belong to a person. There is no possible future where vehicle ownership is handed over to smart contracts. First, this would be illegal. Second, car ownership is also impacted by external factors like traffic violations or unpaid debt. Five years ago I would have argued such data could be fed to a smart contract by an oracle. Now, I realize that doing so would be pointless because the DMV would reserve the right to intervene. It would reverse transfers it didn’t like, which is a good thing, lest hackers realize they can now steal cars legally.
Related: Gary Gensler is hurting the little guys for Wall Street
Crypto nerds like me often talk about desirable system features like censorship resistance, liveness, and safety. What these mean for lay people is that a good network is one that doesn’t discriminate, is always on, and never changes its mind — those actions are bugs in payments and atomic swaps. But they are features for a government agency, we want the DMV to control vehicle transfers. Writing the trailing result on a slow database with a lot of cryptographic bloat it doesn’t use adds little.
That’s not to say the DMV shouldn’t digitize, speed up title transfers, and offer greater transparency. It also doesn’t mean consortiums of different states and their affiliated entities can’t build shared infrastructure for provenance of all sorts of driving-related data, including VINs, proof of insurance, and driver’s licenses. The financial services industry has been building this kind of thing for centuries. It just means using a blockchain to do either is a waste of time and distraction from true innovation.
What might that look like? How about allowing vehicle owners to get zero-knowledge proof of ownership on a public chain, to be used in a self-sovereign reputation system that integrates with DeFi? Much harder to build than dumping a bunch of VINs on a private subnet, but that’s what makes it worthwhile.
Omid Malekan is a guest columnist for Cointelegraph, an adjunct professor at Columbia Business School and the author of Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.