For the first time, China’s five-year plan for social and economic development calls for the use of blockchain applications in supply chain management, e-governance and fintech, as well as related research and development on smart contracts, asymmetric encryption and consensus algorithms. Chinese military publications have consistently proclaimed that blockchain technology will provide the People’s Liberation Army (PLA) with an edge in intelligence, weapons lifecycle, personnel management and information warfare. Greater investment by the Chinese government in a range of blockchain applications risks positioning Beijing as a leader in this foundational technology at the expense of the U.S. national security.
The PLA views blockchain as a way to combat disinformation domestically. Because blockchain is founded on an immutable ledger, it can also preserve data integrity throughout military supply chains.
Chinese President Xi Jinping has announced his intention to use blockchain to gain “a new industrial advantage.” China appears now to be outpacing America in blockchain patents. Last year, the State Information Center of China and a consortium of private Chinese firms launched a blockchain-based service network (BSN) with the goal of creating a global, Chinese-controlled infrastructure network. This infrastructure could provide China the ability to monitorAmerican citizens’ activity on the network as it expands into the U.S. market.
China is not the only country looking to secure global dominance in blockchain development. Since 2018, a Russian Ministry of Defence research lab has been conducting research on the military applications of blockchain technology, especially around developing intelligent cyber defense systems. Although news reports about the lab have mentioned only defensive capabilities, states can also use blockchain to strengthen offensive capabilities, such as by thwarting typical defenses against command-and-control attacks.
In 2018, a representative of Russia’s intelligence agency, the FSB, proclaimed, “the Internet belongs to the Americans — but blockchain will belong to us.” Russia and China are sending overwhelming numbers of delegates to international forums working on blockchain, such as the International Standards Organization (ISO) and International Telecommunications Union (ITU). By flooding these institutions with proposed standards and adopting blockchain faster than the U.S., Russia and China have the potential to institutionalize their cryptographic algorithms and install “the perfect Trojan,” as Emma Channing, cofounder of an American blockchain advisory company, stated.
A 2020 report from the Value Technology Foundation, IBM, Amazon and Deloitte concluded that if the U.S. does not ramp up its research and investment in this new technology, America could lose its position as a leader in capital investment, internet development and technology, and become increasingly more vulnerable to cyberattacks. Moreover, while the U.S. continues to fall behind the technical curve and is left vulnerable, Russia and China intend to leverage blockchain to harden their network defenses.
To reverse this trend, the U.S. must leverage the inherent advantages of liberal societies regarding innovation in general and regarding blockchain in particular. Authoritarian governments are wary of “public blockchains” — blockchains that face the internet and that anyone can potentially view and interact with. Because they are hard for the state to control, these governments tend to invest less in research and development on public blockchains. However, at present, public blockchains (e.g. Bitcoin, Ethereum, Litecoin) are the only ones gaining traction with a larger consumer market.
Washington should both fund research of public and private blockchains and ensure that America does not let wariness of cryptocurrencies create an overly burdensome regulatory regime for all blockchain applications. Given the technology’s potential, the U.S. military, private cybersecurity firms and security researchers should also explore cybersecurity-related applications of blockchain technology.
The U.S. Department of Commerce should commission a study on China’s BSN, including the security implications of a platform run in part by China’s State Information Center handling American citizen’s data. Meanwhile, as American allies such as Australia and the United Kingdom are thinking strategically about the military, political and economic implications of blockchain, the U.S. should look toward future collaboration with like-minded allies on research and standardization.
For the U.S. military, blockchain’s distributed ledger can make acquisitions data more transparent and auditable. The technology can also help combat single points of failures across the digital infrastructure. The Value Technology Foundation report noted for example that use of a blockchain application known as smart contracts in satellite control systems would make them harder to disrupt by a malicious actor.
For a technology that is billed by enthusiasts as the next internet, it is imperative that America act now to ensure that Russia’s prediction that “the blockchain will belong to us” does not come to fruition. To be sure, there is no guarantee blockchain will achieve this level of influence. However, if there is chance that blockchain is even a fraction as revolutionary as the internet, America cannot afford a wait-and-see approach.
Trevor Logan is a cyber research analyst at the Center on Cyber and Technology Innovation (CCTI) at the Foundation for Defense of Democracies and contributes to FDD’s China Program. Theo Lebryk is a CCTI intern and a master’s student in China studies at Peking University.