Musk’s government-efficiency blockchain: What could go wrong and what could go right?
Opinion by: James Strudwick, executive director, Starknet Foundation
The outlook surrounding the use of new technologies has shifted in Washington. Tesla CEO and presidential adviser Elon Musk’s proposition to incorporate blockchain technology into the US Treasury has placed blockchain and its use for state finances at the forefront of the global debate. According to Musk, much of this drive is rooted in the concern over the unsustainability of current government spending. With its immutable ledgers and transparent audit trails, blockchain is waiting in the wind, offering a potential solution to managing vast public finances.
Musk advocates for a unified information system that can track real-time payments, credentials and government resources, spurring a debate within the fintech community about the pros and cons of introducing such a tool at the government level. The idea is compelling, as the description on the blockchain tin effectively promises accountability, traceability and streamlined operations. The shift here, namely to a blockchain-powered government infrastructure, presents several challenges that may prove to be beyond what the new administration has expected thus far.
Blockchain as state appendage
A concern for stakeholders orbiting the blockchain world revolves around the sheer scale of government operations. Every day, the US government handles thousands of transactions across various departments. The feasibility of Musk’s vision is put into question simply as a result of its own complexity. The provable security that blockchain technology must offer while handling millions of daily transactions without buckling under the load to succeed at this scale is enormous.
A proposed solution by Musk is a hybrid model that uses “Validium” zero-knowledge rollups. The speed and efficiency of modern ZK-rollups, which can handle hundreds of millions of transactions daily, have the potential to make sure each citizen’s share of government transactions is intact and verifiable. The technology’s rapidly evolving nature, scaling to handle even higher transaction volumes in the coming years, indicates that this could be achievable.
Unfortunately, this in itself comes with its own hurdles, particularly when integrating public services, which tend to operate in silos.
The human question
The great irony here is that Musk’s declarations of government inefficiency as a reason for the ongoing shakeups could be one of the biggest reasons not to go ahead with the plan. The real obstacle here is not so much technological as it is deeply, irrevocably human. The transition from archaic legacy systems to the more modern infrastructure of blockchain requires not just software updates but an entire reprogramming of the workforce. Government employees embedded in bureaucracy are used to outdated systems, and retraining them will be no small task.
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Moreover, current government databases are a labyrinth of poorly documented, indecipherable data. Extracting and migrating this data to a blockchain infrastructure is itself a task that may require serious investment. For all its elegance, blockchain wasn’t built to contend with such inefficiency. Despite its potential for handling complex, distributed environments, the difficulties present in the system itself could make the transition more complicated than the hassle is worth.
Balancing transparency and confidentiality
Transparency of federal spending is also a factor worth highlighting. The innate strength of blockchain and its much-lauded appeal is its strength. It permits citizens to track how public funds are allocated and spent. Musk’s premise could foster a so-far unseen level of accountability, which makes transactions, every delegation of power and every resource distribution visible to the public in real-time.
The problem is that sensitive government data, classified information or personal identification could be dangerously exposed on a public blockchain. Musk’s response is to try to tether sensitive data to private channels in the blockchain and ensure that only individuals with the appropriate authorization or from specific departments can access confidential information. Theoretically, this addresses the security concern while allowing blockchain’s public verifiability.
Musk’s offer could lead to a more efficient, accountable system. The social drive behind this is the longstanding criticism of wasted spending and resource misallocation. There is also a possibility of strengthening democratic processes by holding public officials more accountable. A decentralized authority has the broader impact of empowering citizens through real-time access.
There is a forward-thinking aspect to the vision. It raises a profound question. Technology could address human governance challenges, but we run the risk of a fundamental shift in how we understand privacy and accountable authority. As we question the nature of governance, it warrants careful consideration of the role of blockchain and what it could ultimately mean for the future of society as a whole.
Opinion by: James Strudwick, executive director, Starknet Foundation.
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.
The legislation to establish crypto market structure is one of three bills the US House of Representatives is expected to consider starting next week.
The idea of a wealth tax has raised its head – yet again – as the government attempts to balance its books.
Downing Street refused to rule out a wealth tax after former Labour leader Lord Kinnock told Sky News he thinks the government should introduce one.
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Lord Kinnock calls for ‘wealth tax’
Sir Keir Starmer’s spokesman said: “The prime minister has repeatedly said those with the broadest shoulders should carry the largest burden.”
While there has never been a wealth tax in the UK, the notion was raised under Rishi Sunak after the COVID years – and rejected – and both Harold Wilson’s and James Callaghan’s Labour governments in the 1970s seriously considered implementing one.
Sky News looks at what a wealth tax is, how it could work in the UK, and which countries already have one.
Will Chancellor Rachel Reeves and Prime Minister Sir Keir Starmer impose a wealth tax? Pic: PA
What is a wealth tax?
A wealth tax is aimed at reducing economic inequality to redistribute wealth and to raise revenue.
It is a direct levy on all, or most of, an individual’s, household’s or business’s total net wealth, rather than their income.
The tax typically includes the total market value of assets, including savings, investments, property and other forms of wealth – minus a person’s debts.
Unlike capital gains tax, which is paid when an asset is sold at a profit, a wealth tax is normally an annual charge based on the value of assets owned, even if they are not sold.
A one-off wealth tax, often used after major crises, could also be an option to raise a substantial amount of revenue in one go.
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Wealth tax would be a ‘mistake’
How could it work in the UK?
Advocates of a UK wealth tax, including Lord Kinnock, have proposed an annual 2% tax on wealth above £10m.
Wealth tax campaign group Tax Justice UK has calculated this would affect about 20,000 people – fewer than 0.04% of the population – and raise £24bn a year.
Because of how few people would pay it, Tax Justice says that would make it easy for HMRC to collect the tax.
The group proposes people self-declare asset values, backed up by a compliance team at HMRC who could have a register of assets.
Which countries have or have had a wealth tax?
In 1990, 12 OECD (Organisation for Economic Co-operation and Development) countries had a net wealth tax, but just four have one now: Colombia, Norway, Spain and Switzerland.
France and Italy levy wealth taxes on selected assets.
Colombia
Since 2023, residents in the South American country are subject to tax on their worldwide wealth, but can exclude the value of their household up to 509m pesos (£92,500).
The tax is progressive, ranging from a 0.5% rate to 1.5% for the most wealthy until next year, then 1% for the wealthiest from 2027.
Bogota in Colombia, which has a wealth tax
Norway
There is a 0.525% municipal wealth tax for individuals with net wealth exceeding 1.7m kroner (about £125,000) or 3.52m kroner (£256,000) for spouses.
Norway also has a state wealth tax of 0.475% based on assets exceeding a net capital tax basis of 1.7m kroner (£125,000) or 3.52m kroner (£256,000) for spouses, and 0.575% for net wealth in excess of 20.7m kroner (£1.5m).
Norway has both a municipal and state wealth tax. Pic: Reuters
The maximum combined wealth tax rate is 1.1%.
The Norwegian Labour coalition government also increased dividend tax to 20% in 2023, and with the wealth tax, it prompted about 80 affluent business owners, with an estimated net worth of £40bn, to leave Norway.
Spain
Residents in Spain have to pay a progressive wealth tax on worldwide assets, with a €700,000 (£600,000) tax free allowance per person in most areas and homes up to €300,000 (£250,000) tax exempt.
Madrid in Spain. More than 12,000 multimillionaires have left the country since a wealth tax was increased in 2022. Pic: Reuters
The progressive rate goes from 0.2% for taxable income for assets of €167,129 (£144,000) up to 3.5% for taxable income of €10.6m (£9.146m) and above.
It has been reported that more than 12,000 multimillionaires have left Spain since the government introduced the higher levy at the end of 2022.
Switzerland
All of the country’s cantons (districts) have a net wealth tax based on a person’s taxable net worth – different to total net worth.
Zurich is Switzerland’s wealthiest city, and has its own wealth tax, as do other Swiss cantons. Pic: Reuters
It takes into account the balance of an individual’s worldwide gross assets, including bank account balances, bonds, shares, life insurances, cars, boats, properties, paintings, jewellery – minus debts.
Switzerland also works on a progressive rate, ranging from 0.3% to 0.5%, with a relatively low starting point at which people are taxed on their wealth, such as 50,000 CHF (£46,200) in several cantons.
The Chinese owner of British Steel has held fresh talks with government officials in a bid to break the impasse over ministers’ determination not to compensate it for seizing control of the company.
Sky News has learnt that executives from Jingye Group met senior civil servants from the Department for Business and Trade (DBT) late last week to discuss ways to resolve the standoff.
Whitehall sources said the talks had been cordial, but that no meaningful progress had been made towards a resolution.
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Jingye wants the government to agree to pay it hundreds of millions of pounds for taking control of British Steel in April – a move triggered by the Chinese group’s preparations for the permanent closure of its blast furnaces in Scunthorpe.
Such a move would have cost thousands of jobs and ended Britain’s centuries-old ability to produce virgin steel.
Jingye had been in talks for months to seek £1bn in state aid to facilitate the Scunthorpe plant’s transition to greener steelmaking, but was offered just half that sum by ministers.
British Steel has not yet been formally nationalised, although that remains a probable outcome.
Jonathan Reynolds, the business secretary, has previously dismissed the idea of compensating Jingye, saying British Steel’s equity was essentially worthless.
Last month, he met his Chinese counterpart, where the issue of British Steel was discussed between the two governments in person for the first time.
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Inside the UK’s last blast furnaces
Jingye has hired the leading City law firm Linklaters to explore the recovery of hundreds of millions of pounds it invested in the Scunthorpe-based company before the government seized control of it.
News of last week’s meeting comes as British steelmakers face an anxious wait to learn whether their exports to the US face swingeing tariffs as part of US President Donald Trump’s trade war.
Sky News’s economics and data editor, Ed Conway, revealed this week that the UK would miss a White House-imposed deadline to agree a trade deal on steel and aluminium this week.
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Jingye declined to comment, while a spokesman for the Department for Business and Trade said: “We acted quickly to ensure the continued operations of the blast furnaces but recognise that securing British Steel’s long-term future requires private sector investment.
“We have not nationalised British Steel and are working closely with Jingye on options for the future, and we will continue work on determining the best long-term sustainable future for the site.”
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