Blockchain Could Save Federal Agencies Billions
By T. Richard Stroupe, Jr.
It's hard to misplace $800 million. Yet the Pentagon recently did. The Defense Logistics Agency, which manages military construction projects, lost track of enough money to fill two tractor trailers with $20 bills, according to an internal audit leaked in February.
The DLA is hardly the only federal organization to face bookkeeping challenges. A recent audit of USASpending.gov—a federal website created to make government spending more transparent—found 302 federal programs failed to report $619 billion in expenditures.
Blockchain could solve these accounting problems and bring an unprecedented level of accuracy, security, and speed to federal record-keeping. By adopting it, the government could eliminate supply chain inefficiencies and save billions of dollars.
The federal government has 2 million civilian workers across more than 430 agencies, sub-agencies, and departments, and conducts business with thousands of commercial vendors.
Even within a single agency, data is often siloed in different databases and formats. It's impossible for officials to gain a comprehensive view of their spending and activities.
This haphazard data storage makes the government vulnerable to security breaches. In 2015, hackers stole sensitive information about 4 million current, former, and prospective employees from the Office of Personnel Management.
Blockchain would enable the government to securely collect, store, process, and utilize the massive amounts of information it collects—boosting cost effectiveness and transparency.
Blockchain is best known as the technology underlying cryptocurrencies like Bitcoin. But its applications go far beyond that. Blockchain is a tool for recording transactions—whether payments, contracts, orders, or votes—and storing that information securely on thousands of computers, via a shared ledger.
Think of it as a giant Excel spreadsheet—visible on thousands of computers at once. People can document transactions in a cell, or "block," of the spreadsheet. After a set amount of time, that block will be locked, and a new block—the next one in the "chain"—will be opened for editing.
Since the locked blocks are viewable on thousands of computers, it'd be nearly impossible to hack the blockchain. Altering a block on a few computers wouldn't affect the others, which retain an accurate record of the transactions.
Blockchain ledgers also enable the creation of "smart contracts," which can automatically process transactions from Party A to Party B. Blockchain would preserve a transparent record of every aspect of such transactions.
This combination of security, speed, and low operational overhead makes blockchain well-suited to address the public sector's information-management challenges. Governments around the world are already embracing blockchain solutions.
Sweden's government is experimenting with blockchain to record land transactions. The Estonian government uses a blockchain technology to protect sensitive public-sector data from tampering.
In the United States, agencies could use smart contracts to automate supply chain transactions with vendors—while creating an instant, secure, and auditable record of those exchanges. They can employ these contracts to develop and deploy new software.
Federal organizations ranging from the Centers for Disease Control to the Department of Homeland Security to the U.S. Postal Service are evaluating applications for the technology. In February, the House held hearings about how blockchain could improve federal operations.
The government's current data processing, storage and security systems need help. If the government is serious about nixing inefficiencies and reducing our national deficit, it'll embrace blockchain.
T. Richard Stroupe, Jr. is the CEO and co-founder of Sequoia Holdings, Inc. This op-ed first appeared on CNBC.com.
