The United States Is Behind the Curve on Blockchain

The United States Is Behind the Curve on Blockchain

The price implosion of digital images of cartoon gorillas and the collapse of the cryptocurrency market led to head-scratching and finger-wagging. The headlines generated by these crashes belie the significance of their technological infrastructure — blockchain. (Blockchain is distinct from the popular Bitcoin cryptocurrency: Blockchain is the broad, foundational technology while Bitcoin is a single application of the technology.) Blockchain is an enhancer and accelerator of technologies like additive manufacturing, artificial intelligence, loyal wingman autonomous aircraft, or space architecture. Those who misunderstand blockchain risk putting themselves behind the competition in today’s internet and tomorrow’s information environment.

 

 

The U.S. government views blockchain as a “technology of tomorrow” while competitors aggressively pursue efforts today to integrate blockchain, data, and the information environment. China is well ahead of the United States in blockchain policy, innovation, and implementation across society. To compete across all elements of national power, the United States requires a coherent, coordinated blockchain strategy and supporting policy. The Department of Defense should explore blockchain technology with the same earnestness as other emerging technology research to jumpstart that discussion. Blockchain is not a weapon system by itself — it is a critical enabling technology of the information environment. The challenge is not only educating more people inside the U.S. government about blockchain technology but also mastering blockchain and its applications as a nation first. Miscomprehending blockchain undermines U.S. competitive efforts across all instruments of national power and allows China the ability to shape tomorrow’s information environment.

Blockchain Basics

Blockchain is, at its most basic level, a unique way to store data. It is a subset of proven distributed ledger technology and utilizes cryptography to maintain a chronologically ordered record of transactions. This data record, or ledger, is a digital database shared and synchronized (i.e., distributed) among multiple nodes in a computer network without a central arbitration authority. A traditional database typically structures data into tables. Data tables, even if shared across multiple nodes in the network, require a central software arbiter to validate changes and promulgate the updated data set across the network. In this way, traditional databases can be visualized as “hub and spoke.”

In contrast, blockchain data is stored in blocks on an ever-growing chain. When new data is added to the existing data set, a new block forms. This new data block connects cryptographically to the previous chain of data blocks via a digital signature or “hash value.” This cryptographic hash value depends on both the new data and the previous chain of data blocks. New data blocks are then broadcast to all nodes in the network for validation and addition to existing, distributed copies of the blockchain. From an overall network perspective, nodes, not a central arbitration authority, can validate and trust all new and previous blocks of data simply because of the cryptographic hash values.

Notably, blockchain technology is not a new technology but rather an innovative combination of existing technologies: asymmetric key encryption (e.g., HTTPS) for identity creation, cryptographic hash values for data integrity, the Merkle tree cryptographic concept for chaining blocks of data together, and peer-to-peer networking (as used on file-sharing sites, like LimeWire) for distributed operations. Together, these allow blockchain to provide efficient, secure, “trustless” transactions without intermediary authorities.

Generally, blockchain networks are categorized as public or private networks. In public blockchain networks, anyone can join or participate. This type of network is more transparent and tamper-resistant due to its size, but it is harder to scale or change its governance. The popular Bitcoin or Ethereum networks, which enable the eponymous cryptocurrencies, are both examples of public blockchains.

Conversely, a private blockchain network is constructed so that one organization controls users’ access and level of participation. Although this type of network is smaller and less redundant, it generates efficiencies in transacting data. At the intersection of public and private networks is a hybrid network known as a consortium blockchain, a semi-private network governed by several organizations. Consortium blockchain networks are likely the best structures for emerging government or military applications. In fact, Deloitte estimates that 74 percent of new organizational blockchains are consortium blockchains. As the United States and its allies and partners rethink information advantage in a global environment, blockchain technology, supported by solid strategy and policy, should play a key role.

China’s Blockchain Efforts

China views blockchain technology as significant as other emerging technologies for industrial and economic development. In October 2021, Xi Jinping spoke to a Politburo study session on the digital economy: “Innovation in the Internet, big data, cloud computing, artificial intelligence, blockchain, and other such technologies has quickened [… and] is becoming a critical force in reorganizing global factor resources, reshaping global economic structures, and changing global competition structures.” China’s volume of blockchain-related patents highlights its efforts to dominate that technology: From 2015 to 2021, China filed nearly 33,000 patents while the United States filed just over 10,000 patents. China is not only incubating blockchain technology — it is accelerating its application to gain an enduring, first-mover advantage.

In December 2021, China’s Central Commission for Cybersecurity and Informatization issued its 14th Five-Year Plan, which highlighted blockchain’s importance across multiple fields, such as distributed identification, data exploitation, cloud-networking, and domestic digital innovation. To date, China has demonstrated concentrated blockchain efforts in six areas: First, China developed the digital yuan, a blockchain-based central bank digital currency. After two years of experimentation, China showcased the digital yuan at the 2022 Winter Olympics as a more secure (and traceable) payment method. Second, blockchain enables Shanghai’s smart infrastructure. Since 2019, the smart city program has facilitated road network management, public health efforts, energy generation, and pollution reduction via blockchain networks. Third, Chinese police integrate blockchain into investigations. Blockchain’s traceability and immutability help preserve electronic and physical evidence for criminal prosecutions. Fourth, China uses blockchain platforms to broadcast verifiable public-health information about COVID-19 to its citizens and reduce the possibility of misinformation. Fifth, the People’s Liberation Army is testing blockchain to manage personnel and pay records, reduce corruption, and “boost performance.” Finally, China uses blockchain technology to help monitor and control its population.

Most recently, Chinese authorities may have altered users’ COVID-19 status to false positives via a smartphone tracking app to prevent protests by forcing citizens into quarantine. This underlying blockchain technology assists police in gathering evidence of online dissidents and secures the Chinese social credit system. Yet China’s blockchain efforts look beyond domestic applications — China intends to build a global Chinese-controlled blockchain internet.

China’s Belt and Road initiative extends to blockchain. Intending to influence the world’s blockchain ecosystem, China launched its Blockchain-based Service Network in April 2020. The network serves as a low-cost, back-end infrastructure system for software developers to build blockchain applications. Similar to the popular Ethereum blockchain network, the Blockchain-based Service Network is intended to become “the blockchain internet” via a “cross-cloud, cross-portal, cross-framework, global infrastructure network” and serve as a platform on which to create new software applications. Indeed, the accompanying white paper emphasizes that “once the [Blockchain-based Service Network] is deployed globally, it will become the only global infrastructure network autonomously innovated by Chinese entities and for which network access is Chinese-controlled.” This network, coupled with the massive number of blockchain patents, supports “China Standards 2035,” China’s long-term attempt to set international standards in favor of Chinese interests. Congressional testimony from the Center for a New American Security underscores this danger: “Blockchain developers [in democratic countries] should realize that if they help build the [Blockchain-based Service Network], they are constructing the Chinese Communist Party’s new internet ecosystem.” Absent leadership from the United States and its allies or partners, China is poised to achieve the critical mass required to shape tomorrow’s internet along Chinese Communist Party standards. A Chinese version of tomorrow’s internet is unlikely to support a free and open flow of information.

Implications

Lacking a firm understanding of blockchain, the United States risks competing in an information environment dominated by China. There are serious implications for miscomprehending blockchain and its role in developing tomorrow’s internet. Currently, the internet is evolving from centralized data anchored by a handful of large, influential technology firms like Meta (formerly Facebook) and Google in what is known as Web 2.0. The next iteration, “web3,” features decentralized blockchain networks and disaggregated data. (To be clear, instances of web3 are in use today alongside Web 2.0 and Web 1.0 but are less widespread or obvious to end users.) Unsurprisingly, applications of future technology are difficult to predict. For instance, few predicted the asymmetric effects of social media influencers or envisioned the easy spread of misinformation at Web 2.0’s genesis. What misapplications, opportunities, or risks are not forecasted about web3? What are the unknown unknowns of a new blockchain internet and an unfamiliar information environment?

Blockchain is an enabling technology, not a panacea for competition in the information environment. For example, several nations (including the United States) are investigating blockchain technology to implement digital fiat currency or central bank digital currency, as China has already done with the digital yuan. On the positive side, creating a digital currency could streamline tax filing or the delivery of targeted stimulus programs. On the other hand, if a non-U.S. central bank digital currency or cryptocurrency quickly gains widespread adoption, could U.S. economic sanctions be rendered moot? North Korea’s 2018 theft of $250 million worth of cryptocurrency was an evasion of international economic sanctions. What does integrated deterrence look like with minimized financial sanctions? How is diplomatic or military power affected if America’s economic instrument of power is weakened?

Blockchain technology extends beyond financial applications, however. It occupies a critical space in the information technology and data landscapes. Blockchain enhances both cybersecurity and zero-trust architecture, a new model for designing networks. For example, the effects of a ransomware attack are blunted if data is distributed across multiple nodes in a blockchain. Additionally, blockchain can efficiently inventory software across an information-technology enterprise — an entire company or governmental department, for instance — so administrators can rapidly patch targeted machines when required. Moreover, as the U.S. government shifts to a zero-trust architecture, blockchain has shown promise in creating data stacks resistant to tampering, decentralizing public key infrastructure, and utilizing intrusion detection systems. Blockchained data combined with artificial intelligence could even validate data like GPS signals to counter adversaries’ spoofing attempts.

Without concerted U.S. developmental efforts, what are the consequences when national-security information systems utilize Chinese or a public blockchain infrastructure? The nascent Chinese Blockchain-based Service Network is an obvious blockchain infrastructure developers should avoid. However, commercially available public blockchains like the Ethereum network are more challenging to understand. Like the Blockchain-based Service Network, the Ethereum network is designed for developers to easily build applications on top of the software infrastructure. It is not likely that the Ethereum network is constructed maliciously. Also, less is known about whether the network has significant cyber vulnerabilities for U.S. government applications. Regardless, the network is experimenting with new code to position itself for mass commercial user adoption without considering U.S. national security standards. What happens if future government networks or commercial-acquired applications compute on a public blockchain network like Ethereum because no ready alternative exists?

By far, blockchain technology’s most considerable implications center around data. China views data as critical for competing in finance, industry, or even warfare. In 2013, Xi commented: “[B]ig data is the free resource of the industrial society. Whoever has a hold of the data has the initiative.” As the internet of things expands and data availability grows, blockchain offers a new framework to gather, disseminate, and exploit data. Instead of traditionally transmitting data back and forth between nodes for validation, trusted data could be broadcast to a network. This new network structure avoids the need for a central arbitration authority and generates overall network efficiencies. As an illustration, new cars could communicate directly with one another to avoid accidents or reduce traffic congestion. Those cars could also share their standardized and trusted data with a broad data ecosystem via blockchain, industries like food delivery, car insurance, civil engineering, and others. Blockchain is a new data-infrastructure paradigm, enabling other technologies like artificial intelligence and machine learning, and can support U.S. efforts to seize the initiative in data competition.

So, what happens when China leapfrogs the United States in the big data and blockchain sectors?

There is not yet a blockchain application that triggers immediate, widespread adoption of the technology or ushers in web3 at scale. China acknowledges this fact yet continues to prioritize blockchain development and promulgate the Blockchain-based Service Network in the country’s quest to exploit data and maintain the first-mover advantage. As one expert portends, web3 “would enable an internet of things where all digital things can communicate and transact with each other, enabling a new era of digital innovation and economic possibilities. But it would be an internet where China owns the underlying infrastructure.” Xi’s comments underscore that point: “The amount of information controlled has become an important indicator of a nation’s soft power and competitiveness.” Harnessing information has substantial implications for current U.S. economic and military advantages. China is looking “50 to 100 years in the future” by developing technologies today that support a vision of Chinese data dominance in the information environment. Getting blockchain right first is a national imperative.

Suggested Way Ahead

Blockchain and web3 development require a whole-of-nation approach. The commercial industry, rather than a government agency, will most likely deliver a use case or application that achieves critical mass for widespread blockchain adoption. However, competition with China necessitates clear governmental policy to secure freedom of movement in a web3 environment for the United States and its allies and partners.

A critical first step in negating Chinese influence in web3 is developing blockchain standards for commercial and government use. What protocol governs decentralized blockchain applications, and what ethics govern smart contract execution? Should a standard blockchain ecosystem be available to government and industry developers as an alternative to China’s sponsored Blockchain-based Service Network or the public Ethereum networks? The Department of Defense’s sponsorship of TCP/IP as a standard protocol for data delivery in 1982 serves as an example of effective policy for new technology with international implications. And in the near term, the United States should blunt efforts to shape blockchain standards to China’s advantage in international technology standards developing organizations. While several questions about blockchain’s tactical applicability for the military services remain, broader strategic policy questions must be settled in this burgeoning technology landscape, especially as blockchain will be a technology underlying future U.S. competitive efforts.

To research those questions, U.S. national security players like the Defense Department, the National Institute of Science and Technology, or the National Security Agency could establish an interagency cross-functional team to explore the blockchain space and inform long-term blockchain policy. In addition, this team should most certainly include industry and academia experts. After a sprint, the team’s white paper or report should outline internal and external equities and detail blockchain courses of action tied to national security priorities.

Finally, in the near term, Department of Defense leaders should raise awareness among those evaluating and acquiring technology and communicate blockchain’s opportunities, risks, and vulnerabilities. Bolstered by improved blockchain and data literacy, Defense Department acquisitions professionals, technologists, and servicemembers can continue to innovate utilizing both current and emerging technologies. However, without a comprehensive understanding of blockchain technology, the United States risks contending in an information environment shaped by competitors and on an internet owned by the Chinese Communist Party. The United States should investigate blockchain technology and craft strategic policy today to compete successfully in tomorrow’s information environment.

 

 

Maj. Mike Knapp is a U.S. Air Force pilot stationed in the Washington, D.C. area. These opinions are the author’s own and do not represent those of the Department of the Air Force or the Department of Defense.

Photo: OECD/Hervé Cortinat

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