Introduction
The U.S. Government is actively seeking to utilize the power of
the blockchain (or, as it is more formally known, distributed
ledger technology or DLT) to enhance government systems across
various platforms and agencies. This does not mean that the federal
government wants to buy your NBA top shot package of LeBron James
dunking in the 2020 NBA Finals. Instead, the federal government
wants to leverage the distinct and unique technological
capabilities of the blockchain and DLT. Overall, the
government’s foray into the world of blockchain is still very
much in its nascent stages. As such, there is a world of
opportunity in the coming years for contractors looking to do
business with the federal government.
The Senate removed language from the 2021 National
Defense Authorization Act (NDAA) that would have required the Undersecretary of Defense for
Research and Engineering (USD R&E) to brief the congressional
committees about the potential uses of distributed ledger
technologies for defense purposes. However, although the
language was removed from the final bill, the Congressional conference report surrounding
the NDAA still directed the USD R&E to “provide, not later
than 30 days after the date of the enactment of this Act, to the
congressional defense committees the briefing required on the
potential use of distributed ledger technology for defense purposes
as directed in the conference report.” All signs point to increased government spending on
blockchain solutions and technology in the next few years.
Meanwhile, major federal defense contractors, who were reticent to enter the blockchain/DLT
arena back when Bitcoin first dominated the headlines in 2017-18,
have now set up entire divisions dedicated to blockchain and
distributed ledger technology. IT focused contractors such as
Microsoft have homed in on the possibilities of blockchain for the
government since at least 2017, with the addition of blockchain
services to Azure Government.
But the beauty of blockchain is that it is not only for major
businesses. Knowledgeable tech savvy organizations can and often do
disrupt the status quo in the world of blockchain and
cryptocurrencies. For instance, a recent Phase II Small Business Innovation Research
(SBIR) award from the U.S. Navy to SIMBA Chain highlights the government’s
interest in working with government contractors big and small to
solve its blockchain problems. Similarly, Constellation ($DAG
), a publicly traded cryptocurrency, was recently granted a Phase I SBIR award to streamline the Air
Force’s use and management of data.
This series of articles will hopefully serve as a primer to any
government contractor looking to do business with the federal
government or expand its business into the blockchain world, as
well as a primer for government agencies and businesses looking to
enter the world of blockchain and DLT.
The Digital Gold Rush
Over the past 12 years, the headlines on blockchain technology
and distributed ledger technology have centered on two primary
subjects: Bitcoin ($BTC) and the myriad of alternative
cryptocurrencies that followed in Bitcoin’s wake. The basic
concept of Bitcoin and other cryptocurrencies is this: the creation
of an immutable digital asset that can be electronically
transferred from person to person with the trust and assurance that
nothing was added or subtracted in the transaction, thus avoiding
the double-spend problem. In other words, Bitcoin acts as digital
cash, with the primary difference being there are a limited and
specific set amount of Bitcoin in existence (the max supply of
Bitcoin is 21 million, 18,649,312 of which have already been
mined).
The implications of this technology are most readily applicable
to financial transactions, in particular large financial
transactions. Currently, most transfers of large amounts of money
are conducted on the dated and ponderous Society for Worldwide
Interbank Financial Telecommunications (SWIFT) network. While the
SWIFT network is undoubtedly slow, its security vulnerabilities
have also been recently exposed. And while cryptocurrencies
do come with their own unique security concerns, there are a myriad of safeguards available to protect
one’s cryptocurrency. The transaction speed as compared to
SWIFT, however, is exponentially faster and cheaper than your
typical large wire transfer, and while ACH payments might be
slightly cheaper than Bitcoin, they too suffer from a 3-5 day lag
period. It is important to note that cryptocurrencies have not taken over
the payment realm from SWIFT (as many thought would occur back in
2017). Even SWIFT recognizes it needs to change the way it operates
and does business. But the basic premise remains the same- cut the
banks out of the system by allowing for verifiable and
decentralized transactions, quickly and cheaply. Cryptocurrencies
achieve that goal.
But cryptocurrencies as currency is just the tip of what DLT and
the blockchain can accomplish. Take for instance the Ethereum ($ETH) blockchain, which at the time of this
article was the second largest utilized cryptocurrency in the
world. Founded in 2013, the Ethereum blockchain introduced the
concept of “smart contracts” to the world of
cryptocurrency. A smart contract is essentially a preprogrammed and
automated set of promises that are captured in digital form and in
which form the parties perform on their promises. So, for example,
a particular cryptocurrency could be programmed to automatically
release funds from buyer to seller upon receipt of goods. Or an
RFID chip is imbedded in a product, and when scanned immediately
generates immutable data showing that product’s location and
status in the supply chain. Ethereum in particular made programming
and utilizing the Ethereum network easy and accessible, and as a
result many cryptocurrencies exist as “Decentralized
Applications” or “dapps” that are built on top of
Ethereum compatible tokens (most commonly known as ERC-20s). The
rush to build dapps and cryptocurrencies like Ethereum has led to
numerous other Ethereum-like (or “Platform”) projects on
which a sprawling network of dapps is being built.
Potential Blockchain and DLT Uses
The following is a small sampling of what industries will and
have been affected by blockchain and DLT technologies:
Banking & Finance
“Decentralized Finance” or “DeFi”
refers to a variety of blockchain products wherein users borrow and
lend against their cryptocurrencies as collateral. DeFi products became the rage in the Summer of 2020. The
underlying concept behind many DeFi products is to take the bank
out of the financial market, thus lowering transaction costs and
fees and making funding more available. Mark Cuban has recently
become a strong advocate of DeFi products, as seen in this interview.
Securities Trading
Tokenizing stocks and other securities by “wrapping”
traditional securities and assets on to the blockchain, allowing
for easier trading and liquidity. FTX is a crypto platform that has taken the lead
in this type of technology.
Accounting/Audit
Blockchain allows for data and transactions to become immutable
and more easily auditable.
Supply Chain
One of the most promising use cases for blockchain technology is
in improving inadequacies in the supply chain. For instance RFID
sensors can be placed on items to track movement, temperatures, and
integrity of a product as it moves through a given supply chain.
SIMBA Chain is making a name for itself by tracking items in the
Aerospace and Defense sectors.
Pharmaceuticals
Similar to supply chain use case, RFID and the blockchain can ensure that
certain medicines, for instance the more temperature-sensitive of
the COVID-19 vaccines, are kept at correct temperatures throughout
the entire supply chain.
Government and Public Records
Blockchain can be used to create immutable government records
that are kept on the public blockchain. The National Archives and
Records Administration drafted a report on the use of blockchain in the realm
of public records that was generally hopeful about blockchain’s
prospects for the government in the future. I think back to my Navy
career and the hassle of transferring from one duty station to
another and making sure all adjoining paperwork made the trip with
me and was in the format that each PSD wanted. With the blockchain,
these records could be digitized and tied to individual personnel
members, easily transferrable from one duty station to the
next.
Voting
Votes can be registered and kept on the blockchain and captured
in real time, digitizing elections and helping to ease fears of
election corruption. There is currently debate about the actual
capabilities of blockchain elections, but the idea is being experimented on a small
scale with one Utah county utilizing the technology in the 2020
presidential election.
Cloud Computing and Storage
One of the problems with cloud computing is that is still
reliant on a few points of failure because it relies on server
farms of some sort of variety. Decentralized cloud computing on the
blockchain allows for data to be stored in a decentralized manner rather than a central
network or server.
This is just a small sampling of what blockchain and DLT can and
is doing for various industries.
Bringing Blockchain to the Government
Blockchain and DLT technologies exist and are not going away.
Ward & Berry is establishing this Crypto Contracting Initiative
to keep its clients and friends abreast of the rapid developments
in this field. While there are a myriad of stumbling blocks that
stand in the way of the government adapting to this new technology,
all signs point toward government adoption and adaptation. At the
same time, there is a giant gap in knowledge between those in the
blockchain and DLT industry and government agencies looking for
answers to their blockchain questions and needs. There is a
tremendous opportunity for growth and dialogue that Ward &
Berry hopes to broker between industry leaders and the federal
government.
The following topics are just some of the areas the Ward &
Berry Crypto Contracting Initiative looks to explore:
SBIR/STTR Awards– Everyone in the blockchain
and DLT world was rightfully excited when Constellation ($DAG) was
awarded a SBIR Phase I award in the Fall of 2019. It was momentous
because the Air Force recognized the need for a truly decentralized
blockchain project. However, most observers mistakenly called the
Constellation SBIR a government contract. The SBIR/STTR program
functions more as a government grant rather than a contract. And
while an SBIR/STTR award can often lead to a future government
contract, there is no guarantee of future performance. Ward &
Berry has experience guiding small businesses through
the SBIR/STTR process.
AFWERX– The Air Force established its AFWERX
program to help rapidly expand the Air Force’s technological
capabilities in conjunction with private industry. The AFWERX
program is very similar to the federal government’s SBIR/STTR
program. Again, Ward & Berry has three former military JAG
Corps officers who understand the military’s needs and how
private industry can help our forces effectively complete the
mission.
Bid Protests and Procurements– For a business
that does not have a lot of experience working with the federal
government, the world of bid protests and procurements can be a
challenge to navigate. Ward & Berry is a boutique firm
specializing in helping businesses do business with the federal
government, especially when it comes to bid protests and
procurement actions.
Compliance– Unfortunately, sometimes blockchain
and DLT projects and businesses have less than pleasant interaction
with the federal government. This is most recently seen by the
SEC’s enforcement action against Ripple, where the
SEC sued Ripple and two of its executives for selling the Ripple
XRP Token ($XRP) as an unregistered security. The case is ongoing
and will be important in setting a precedence for how the SEC views
blockchain and DLT projects in the future. But SEC compliance is
only the tip of the iceberg. Contractors doing business with the
federal government must abide by numerous rules and regulations
that vary from agency to agency. Again, Ward & Berry has seasoned compliance specialists that can help
your business continue a positive relationship with the federal
government.
Centralized vs. Decentralized Projects– Not all
blockchains are created equal. The Ward & Berry Crypto
Contracting Initiative will explore types of blockchains and what
they mean for doing business with the federal government.
Current Blockchain Initiatives– Ward &
Berry will attempt to keep everyone in the know as to what’s
happening in the government contracting world of blockchain and
DLT. We’ll highlight projects and opportunities for businesses
looking to get into the business of government blockchain.
Resources– If you have ever
done research on government blockchain projects, you know that
there’s a score of different resources and information out
there. The Ward & Berry will attempt to centralize (a dirty
word, yes) and keep up to date resources and information that will
benefit the industry and help bring more blockchain to the federal
government.
Originally published March 18, 2021
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.