Opportunities for Blockchains and Digital Assets to Support and Enhance U.S. National Security

In the United States, our advantage in national security has been fostered by our proficiency in adopting and creating innovative technologies. We’ve partnered with the Blockchain Innovation Project to disseminate our insights on how national security could potentially profit from specific applications of blockchain technology. Since blockchain technology is relatively new and rapidly evolving, decision-makers and the general public frequently encounter misleading information about it. This misinformation often stems from a lack of understanding of the technology itself or deliberate attempts to spread a biased narrative with inadequate facts or incorrect analysis.

At its core, a blockchain represents a type of technology that employs cryptographic techniques. Just like any other technology, its purpose isn’t predetermined; it can be applied in various ways. While currencies, whether physical (fiat) or digital, are utilized to finance both legal and illegal activities, the technology itself remains neutral regarding such applications.

To effectively safeguard America’s strategic national security, it is crucial to concentrate our policy efforts on the organization of markets. However, numerous policies concerning markets and the impact of blockchains within them are overly broad, attempting to tackle several problems at once such as upholding market integrity or reducing systemic risk. The difficulties with these extensive approaches are amplified by a persistent lack of knowledge about blockchain technology, digital currencies, and economic systems based on tokens (tokenomics).

Our conviction lies in the fact that by taking a forward-thinking approach to establish conducive onshore environments for this technology to grow, decision-makers will soon realize that blockchain and digital assets can be utilized as potent instruments of power and democratization, rather than being solely associated with criminal activities or misuse by unscrupulous global actors, which is a common perception.

As a crypto investor, I can’t help but notice the significant impact the strength of the U.S. dollar holds in global affairs. Creating a regulatory environment that enables access to US dollar-backed stablecoins issued by private entities could be more than just an economic growth opportunity – it could also funnel a substantial portion of the worldwide economy into our nation’s regulatory system. This would not only boost our financial resources but also expand the monetary and regulatory tools at our disposal, providing us with even greater control over global finance.

As an analyst, I cannot overlook the fact that the global scene is rapidly embracing digital assets within their financial infrastructures. Some nations are aggressively propelling this change, while a significant number of U.S. banks still operate on software systems dating back to the 1980s, which originally used code from the 1950s.

According to the CFTC Technology Advisory Committee, this could potentially lessen our country’s standing as a major issuer of the global reserve and trading currency, making it harder to fight illegal financial transactions.

It’s highly anticipated that digital assets and blockchain technology will significantly expand in terms of national security benefits. These advantages encompass enhancing our existing efforts to combat hostile forces, improving surveillance of international trade regulations, and implementing sanctions effectively. Particularly noteworthy is the increased transparency provided by blockchain technology and tokenization processes within supply chains, which helps protect our essential resources from harmful influences. This aspect is crucial not only for economic security but also for shielding technological and defense capabilities from potential foreign manipulation.

Cryptocurrency transactions are permanently logged on a shared, public record called a ledger. This unique characteristic provides investigators and intelligence agencies with the ability to track down and identify suspicious activities that aren’t typically possible in traditional financial transactions. This expanded visibility extends beyond just the individuals transferring assets, enabling authorities to target the entire criminal network. This includes various entities such as supply chains, money mules, accomplices, service providers for infrastructure, money launderers, points of entry and exit to fiat currency, among others.

A common misconception is that blockchain inherently guarantees anonymity. While transactions can be pseudonymous, they are not entirely anonymous. Transactions are recorded on a public ledger, which can be analyzed to reveal patterns and links to individuals or entities. Fortunately, blockchain’s transparent nature provides law enforcement with tracking and tracing capabilities to identify the flow of illicit transactions that were previously unavailable in traditional financial crimes Unlike cash transactions, which leave little trace, blockchain transactions allow for tracking of assets across networks. By analyzing transaction patterns and employing forensic blockchain analysis, authorities can trace illicit activities in ways that are not possible with traditional, cash-based methods. This capability is starting to transform approaches to combating financial crime and holding bad actors accountable.

To conclude, digital assets such as cryptocurrencies come with extra benefits compared to traditional cash in terms of control and regulation. In fact, over a billion dollars’ worth of these digital assets linked to crimes like thefts, hacks, and money laundering have been halted or frozen recently, all through the proper legal channels. Notably, numerous issuers of cryptocurrencies cooperate with law enforcement and regulatory bodies, such as the U.S. Department of Justice, U.S. Secret Service, and FBI, to aid in these efforts.

It’s crucial for the United States to stay at the forefront of technological innovation and maintain robust national security. By working together to establish a well-defined market system and regulatory guidelines for blockchain technology and digital assets, our leaders can drive progress that will safeguard American citizens and our economy, both domestically and internationally, for many years ahead.

Disclaimer: The opinions expressed within this article belong to the writer and may not align with the perspectives of CoinDesk Inc., its management, or its associated entities.