Blockchain may be central to national security in the future. After the crypto crash, we must not overreact and over-regulate the still new and potentially revolutionary technology
Cryptocurrencies have had a bad few months. As Bitcoin’s price fell below the significant psychological threshold of $20,000, shares of one of the largest crypto exchanges, Coinbase, plunged more than 81% in the first six months of 2022. A variety of currencies with enigmatic names and dubious traders have been exposed as completely worthless. In total, more than $2 trillion has been wiped out of the crypto market in just 6 months.
The supervisory authorities took note of this with some delay. While few governments have been as optimistic as El Salvador, which legalized bitcoin as legal tender, a bet that doesn’t seem to be paying off as well as expected, most were content to let the good times roll. Now that prices are plummeting and pockets are starting to hurt, a decidedly more hawkish tone has emerged. On Thursday, the Treasury Department announced that the US and its allies must work together to create common standards for cryptocurrency regulation. The Bank of England and the Fed have both repeated this wish.
There is no doubt that there have been significant attempts at fraud in the crypto market. Crucially, however, the classic pattern of initial under-regulation and then eager over-regulation does not repeat itself. There is a real danger that the phenomenal, game-changing, and – above all – inherently useful technology of blockchain will be overshadowed by its association with the cryptocurrency fad.
Blockchain is the underlying technology behind Bitcoin, but cryptocurrency is perhaps the least impressive application of its potential. It works by storing chunks of information as “blocks” that are added to a transactional “chain”. Crucially, this information is not stored in a central location, but is distributed across a network of computer nodes for verification. The information can only be added to the chain after it has been verified by all other nodes in the network. A detailed record of the transaction is also saved when added to the chain. This property makes the blockchain incredibly secure – data stored in this way is difficult to forge and alter, while being easy to trace. These qualities have led to blockchain being dubbed the most important invention since the internet.
The intelligent use of blockchain could have enormous positive effects, especially for national security. Warfare is changing rapidly, with both information control and cybersecurity challenges becoming increasingly important. On Thursday, James Bowder, head of British Army Futures, set out how a future war in Europe will be won or lost through the ability to communicate securely. Without this, soldiers either become easy prey for enemy artillery or are unable to identify enemy positions themselves. This is particularly relevant when you consider that the one adversary who takes the most pleasure in spreading false orders and information during war is the most likely enemy in any European conflict. During the recent Russian invasion of Ukraine and in the initial stages of the invasion, fake news was circulated claiming that President Zelenskyy had surrendered, intended from the outset to demoralize Ukrainians fighting for their country’s freedom.
Across the Atlantic, cybersecurity is rightly considered critical to protecting national security assets. It’s startling how often critical defense equipment is exposed to cyberattacks. In 2018, the Department of Defense found gaping cyber vulnerabilities in 86 weapon systems under development. In 2010, the US Air Force shockingly lost contact with a silo of 50 Minuteman III ICBMs in Wyoming for an hour. Without urgent improvements, the question is when and if a rogue will succeed in breaching national cybersecurity. Again, this is a tactic that the US’s most pressing threat at the moment – Russia – has used before. Forbes has cataloged a 20-year campaign of systematically escalating cyber attacks against the US. It’s not hard to see it coming.
In these two key areas – trustworthiness of information and cybersecurity – blockchain has the potential to change the game. Blockchain information is inherently validated by all other nodes on the network — a soldier receiving an order or information on the blockchain knows he can be trusted and acted upon. Overwhelming the network is almost impossible, as has been shown even during the crypto crisis when millions of concerned investors making transactions failed to crash the exchange. For the same reasons, blockchain technology is very difficult to hack.
The potential of blockchain not only lies in enhancing our defenses against known threats, but also offers tremendous potential for cutting-edge offensive technology that seems almost straight out of a sci-fi novel. Blockchain has been cited as a possible way to control semi-autonomous “swarms” of armed drones, for example, with each drone serving as a node in the chain.
The western defense community is aware of the potential. The Department of Homeland Security has funded programs to begin research into the possibilities of blockchain. With all due respect to government contractors, however, the value that nimble and smaller outfits bring to the table should not be discounted. The strength of the private sector and its ability to innovate has always been the West’s secret weapon, allowing it to maintain a technological edge over its competitors.
Such is the danger of over-regulating the blockchain space — that overzealous regulators, spurred on by growing public dislike of bitcoin and cryptocurrencies, begin to suppress blockchain entirely outside the walled garden of government procurement. To tie its hand behind its back during this protracted period of looming technological competition in national security would be a long-term disaster for the West. Therefore, smart and intelligent regulation is needed that allows small private companies to innovate and take risks with blockchain.
Sam M. Hadi is a graduate of Trisakti University in Jakarta, where he studied management. He now works as a freelance columnist, North Africa foreign policy analyst and crypto investor based in Jakarta.
This article was submitted by an outside contributor and may not represent the views and opinions of Benzinga.