Chilean government takes the blockchain plunge - is crypto next?

9 January, 2019

If you pay taxes or fees in Chile, get ready for a new blockchain system being implemented by that country's General Treasury of the Republic (TGR). Multiple sources are reporting that the Chilean TGR has just launched a blockchain pilot for public payments and collections, a pilot that was first discussed in October 2018.

As will be explained in more detail in this post, it appears as though the Chilean government has taken the blockchain plunge. They have come to realize the benefits of blockchain technology for processing payments quickly, efficiently, and securely. The launch of their pilot program begs the question of whether cryptocurrency adoption will be next.

That's not such a far-fetched question when you consider some of the other developments we've seen in the last 12 months. For example, Venezuela announced in autumn 2018 that it was launching a government-backed cryptocurrency based on the country's oil production. We also learned that the U.S., Canada, and the UK have been working on stablecoin platforms they hope will eventually replace hard currency.

There is plenty to debate regarding whether governments should be involved in cryptocurrency or not. But the debate does not change reality. Blockchain and cryptocurrencies are getting the attention of government officials. As that attention grows, things are starting to change.

Blockchain payments in Chile

A December 2018 press release issued by the TGR says that the Chilean government has officially launched its blockchain pilot. All government agencies and public institutions that process payments will now be using the system for the foreseeable future. This includes processing tax payments, patent fees, license fees, etc.

Like the blockchain that powers Bitcoin or Litecoin, TGR's blockchain involves multiple distributed ledgers located on a variety of computer nodes scattered throughout Chile's public sector. Each node in the system will have to decrypt and verify transactions before such transactions are considered valid and permanent.

If a transaction is approved by every node in the system, it becomes official. If just one node fails to approve it, the transaction is considered to have never taken place. As such, it is not entered into the ledger or finalized.

Increased accuracy and security

For their part, the Chilean government says the main impetus behind their new system is to improve the accuracy of payment data while also beefing up security. The way the blockchain has been designed eliminates the multiple databases previously used by government agencies, thereby reducing the likelihood of errors. They also believe their blockchain will eliminate data discrepancies between agencies that previously did not share information.

As for security, we all know what blockchain is capable of. Blockchain ledgers are made inherently secure through a combination of encryption and proof-of-work. They are considered far more secure than traditional accounting systems.

Assuming the pilot program goes well, the Chilean government has an eye on expanding blockchain to other areas. Leaders envision employing blockchain technology in the energy and financial sectors next. They are actively engaged in developing a national blockchain based on Ethereum, a blockchain that could theoretically be rolled out to accommodate the energy sector within just a few months' time.

A step away from crypto

The Chilean TGR is not the only government entity to embrace blockchain for payment processing. In the U.S., the state of Ohio has done the same thing with an added twist: they are also accepting cryptocurrency for certain kinds of payments. The implications here should be obvious.

Ohio officials already trust both blockchain and cryptocurrency enough to allow citizens to make tax payments with crypto. It is likely that the Chilean government will eventually reach the same conclusion. Converting the country's current payment system to blockchain technology means they are now just one step away from accepting cryptocurrency payments.

The real question is not 'if' the TGR will begin accepting crypto payments; it is 'when'. It could be that government leaders will hold off on cryptocurrency payments until the financial sector is fully on board with blockchain. On the other hand, they might start accepting crypto payments within a couple of months. If such payments facilitate faster and more efficient tax collections, sooner would seem more attractive than later.

Alt coins, stablecoins, and online gambling

Being that's main emphasis is online gambling, we always want to look at these sorts of developments in light of how they might affect online gamblers and operators. This particular development is no different. Let's start by looking at the gambling environment in Chile.

Casino gambling in Chile is quite popular. Believe it or not, casino gambling in that country dates to the mid-19th century. Today there are about two dozen brick-and-mortar casinos in the Latin American country, all regulated by the Federal Gambling Commission.

Interestingly enough, online gambling in Chile is still forbidden. The licenses granted to casino operators specifically state that said operators may not offer any games of chance online. Will that change should Chile embrace cryptocurrency? That remains to be seen.

Embracing cryptocurrency does not necessarily mean Chilean leaders would change their minds about online gambling. Then again, it might. Imagine if the Chilean government transitioned the country's fiat currency to a government-backed stablecoin. If that stablecoin could be promoted for gambling purposes, imagine the revenue that might be realized from allowing online gambling.

Money laundering concerns

If you look around at jurisdictions that either heavily restrict or outright ban online gambling, you will find a common concern among them all: the fear that online operations will be used to launder the proceeds of illicit activity. Governments the world over feel it is better just to not allow online gambling than have to try to do something about money laundering.

Interestingly enough, many of the money laundering concerns go away with the right kind of cryptocurrency and blockchain ledger. That leads us back to government-issued stablecoins. A government-issued stablecoin is a cryptocurrency backed by the good faith and credit of the government that issues it. It is no different than fiat currency.

Assuming Chilean leaders do not change their stance toward online gambling, you can bet that online gamblers in that country will continue using workarounds like cryptocurrency deposits and overseas gambling sites. The fact is that people are going to gamble online whether their government leaders like it or not.

Knowing this might be enough to convince some governments to create a stablecoin that would accommodate the desire of online gamblers to do what they do, generate revenues for government coffers, and make it more difficult for criminals to launder money through online casino operations.

The possibility of gambling coins

All of this is pure speculation, of course. No one really knows what Chile will do about cryptocurrency down the road. And yet, all our speculation seems reasonable given what we know about both blockchain and alt coins. It is even reasonable to think about the possibility of either government or the online gambling industry coming up with a specific gambling coin.

Past efforts at creating a gambling-specific coin have failed due to lack of investment interest. But what if the industry had the backing of government-issued stablecoins behind them? That kind of stability would make it easier for gambling operators to get on board with an industry coin.

The benefit of stablecoins is that they are not subject to nearly as much volatility as standard alt coins. And make no mistake about it, cryptocurrency instability is one of the biggest inhibitors to the widespread adoption of Bitcoin, Litecoin, Ethereum, etc. among big-name online casino operations.

An industry-specific gambling coin backed by a reliable stablecoin could be the answer to everyone's problem. Such a coin would allow gambling operators to accept cryptocurrency deposits without having to worry about losing their shirts. It would allow governments to construct their blockchains in such a way as to better combat money laundering. It would give online gamblers the opportunity to play their favorite games while still avoiding bank transactions.

Realizing the potential of blockchain

Regardless of where the Chilean TGR goes from here, the launch of their pilot program underscores the fact that we are now just beginning to realize the full potential of blockchain technology. Where Bitcoin was developed to be a cryptocurrency only, Ethereum was developed as a platform for developing blockchain applications. It is proving to be everything it was advertised to be.

Blockchain is going to make it easier for the Chilean government to collect tax payments. It is going to make it easier for Chilean citizens and businesses to pay all sorts of fees. Everyone involved will benefit from a system that is more secure, more accurate, and exponentially faster.

You can bet that other governments will be watching Chile. Those that are currently developing similar blockchain systems will be encouraged to continue if the Chilean pilot goes well. Their success will spur other world governments to do the same. Eventually, blockchain could become the worldwide default for payment processing in the public sector. When that happens, government-backed cryptocurrencies will be knocking on the doorstep.