For the first time, China’s five-year social and economic development plan envisages 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 give the People’s Liberation Army (PLA) a head start in terms of intelligence, weapon life cycle, human resource management, and information warfare. Larger investments by the Chinese government in a number of blockchain applications could position Beijing as a leader in this fundamental technology at the expense of US national security.
The PLA sees blockchain as a way to combat disinformation domestically. Because blockchain is based on an immutable ledger, it can also ensure data integrity across all military supply chains.
Chinese President Xi Jinping has announced his intention to use blockchain to gain “a new industrial advantage”. China now appears to outperform America in blockchain patents. Last year, the State Information Center of China and a consortium of private Chinese companies launched a blockchain-based service network (BSN) with the aim of building a global infrastructure network controlled by China. This infrastructure could give China the ability to monitor the activities of American citizens on the network as it expands into the US market.
China isn’t the only country seeking global dominance in blockchain development. Since 2018, a research laboratory of the Russian Ministry of Defense has been researching the military applications of blockchain technology, in particular the development of intelligent cyber defense systems. Although news reports about the lab only mentioned defense capabilities, states can also use blockchain to bolster offensive capabilities, for example by thwarting typical defenses against command and control attacks.
In 2018 a representative of the Russian secret service FSB declared: “The Internet belongs to the Americans – but the blockchain will belong to us.” Russia and China send overwhelming numbers of delegates to international forums working on blockchain, such as the International Standards Organization (ISO) and the International Telecommunications Union (ITU). By flooding these institutions with proposed standards and adopting blockchain faster than the US, Russia and China have the potential to institutionalize their cryptographic algorithms and install “the perfect Trojan,” said Emma Channing, co-founder of an American blockchain consultancy .
A 2020 report by the Value Technology Foundation, IBM, Amazon, and Deloitte concluded that America could lose its position as a leader in capital investment, internet development and technology if the US fails to conduct research and investment in this new technology amplify are becoming increasingly vulnerable to cyberattacks. While the US continues to lag behind the technical curve and remain vulnerable, Russia and China intend to use blockchain to strengthen their network defenses.
To reverse this trend, the US must take advantage of the inherent advantages of liberal societies in terms of innovation in general, and blockchain in particular. Authoritarian governments are wary of “public blockchains” – blockchains that face the Internet and that anyone can potentially deal with. Because they are difficult for the state to control, these governments tend to invest less in research and development on public blockchains. Currently, however, only public blockchains (e.g. Bitcoin, Ethereum, Litecoin) are the only ones gaining a foothold in a larger consumer market.
Washington should both fund research into public and private blockchains, as well as ensure that America does not allow the cryptocurrency caution to create an overly burdensome regulatory regime for all blockchain applications. Given the potential of the technology, the U.S. military, private cybersecurity companies, and security researchers should also explore applications of blockchain technology related to cybersecurity.
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The US Department of Commerce should commission a study of China’s BSN, including the security implications of a platform, operated in part by the Chinese State Information Center, that handles data on American citizens. While American allies like Australia and the UK are strategically considering the military, political, and economic implications of blockchain, the US should look to future collaborations with like-minded allies on research and standardization.
For the U.S. military, the distributed ledger of blockchain can make acquisition data more transparent and verifiable. The technology can also help combat individual sources of error in the entire digital infrastructure. For example, the Value Technology Foundation report found that using a blockchain application known as smart contracts in satellite control systems would make it difficult for a malicious actor to disrupt it.
For a technology billed as the next internet by enthusiasts, it is imperative that America act now to ensure that Russia’s prediction that “the blockchain will be ours” does not materialize. Of course, there is no guarantee that blockchain will achieve this level of influence. However, if there is the possibility 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 Foundation for Defense of Democracies’ Center on Cyber and Technology Innovation (CCTI) and contributes to the FDD’s China program. Theo Lebryk is a CCTI intern and master’s student in China at Peking University.