California’s Department of Motor Vehicles (DMV) has digitized 42 million car titles on a blockchain, according to the developer Oxhead Alpha and Ava Labs. The digitization is not on a permissionless blockchain. Instead, it is on a DMV-run blockchain, which we assume is an Avalanche subnet.
Avalanche subnets are permissioned blockchains which have separate validators from the layer 1 permissionless blockchain. The rationale is a subnet can support financial applications where all participants have to be regulated. For an institution like the DMV, it means they keep control and they can fix things should something go wrong.
However, if the DMV still has control, why do you need a blockchain? Arguably, blockchain is not essential for the current step. However, it could be powerful for future use cases, which we’ll come back to once we’ve explored the current functionality.
DMV verifiable credentials
Californian vehicle owners can soon claim their digital titles using the DMV mobile wallet app. However, this is not a real world asset tokenization play. Not yet anyway. Instead, the solution uses verifiable credentials which help the owner prove that the car is theirs. The DMV already has the owner’s identity details. We’re guessing that to claim the credential in the wallet, they may need to do a face scan or something similar. That way the DMV can match it to the driving license picture.
The announcement is quite thin on details, but the solution appears to serve two purposes. One is it provides an escrow like smart contract for title transfers, cutting down on the need to visit the DMV.
We’re speculating here, but this could work as follows. You agree to buy a car. The current owner transfers the title to you, subject to payment. Hence, the reference to escrow. This immediately proves there was a deal between you. Once you make the payment, in theory the escrow is released. However, you may have to prove you made the payment and it’s unclear how that will work with conventional payments. Alternatively, you’re relying on the seller acknowledging you paid. If they don’t, it’s pretty easy for you to prove.
The second purpose according to the statement, is an “early warning system for lien fraud with its core function as an immutable ledger that bad actors cannot manipulate.” There are various kinds of lien fraud, but the most common is where the vehicle seller claims a lien has been released when they still owe money. If the car is leased, the buyer could lose the car. Using an app should flag that the vehicle still has a loan or other claim outstanding. But that doesn’t really need blockchain.
Here the ‘immutable ledger’ aspect is only likely to guard against a DMV hacker. And if they hacked the DMV, it is likely to feed through your credential. Speculating again, say someone fraudulently puts a lien on your car, although it’s not clear if that’s a thing. If they did, the upside is you might know about it quickly through an app notification. And you can prove that it wasn’t there last week.
Verifiable credentials don’t require blockchain
Verifiable credentials can use blockchain, but they don’t have to. In fact, the most privacy preserving credentials are minimalist blockchain users, mainly to log deleted credential identities. However, many verifiable credential apps use blockchain.
The really interesting use cases are the ones that could come in the future. With on-chain payments, one could do end-to-end instant title transfers. Plus, someone who owns a car outright could get instant financing. For the lender, the loans and liens could be tokenized and packaged into an asset backed security.
But that’s not in the current system.
“We believe that ultimately, value transfer will be embedded within the system itself proving the technology works at scale and enables other jurisdictions to implement similar approaches,” said Andrew Smith, President of Oxhead Alpha, the developer.
Oxhead has been working on the solution for a while. Last year it issued an announcement abouot its progress. However, at that stage it was using the Tezos blockchain.
