Staying Ahead of the Chinese Blockchain Strategic Initiative

The current war Russia is waging in Ukraine is a powerful reminder that democracy and sovereignty are not to be taken for granted, especially in today’s political climate. Furthermore, as has been clearly shown, technology matters when it comes to the performance of a country’s military. If the US is to maintain its democracy and liberty, it must continue to lead on the frontier of new technologies.

Over the last several decades, the US technology sector has vastly outperformed the rest of the world. These technological advancements have created differential quality outcomes on the virtual and physical battlefield. Military and security performance has been enhanced by advanced weapons, communications infrastructure, cyber security and other tools.

Yet despite this obvious connection between technology and military performance, the US has been lax in several key technological areas that could lead to growing future weakness. In the case of 5G, for example, the US ceded the lead to China and has been struggling to keep up. Another key area that the Chinese government is pushing to control is blockchain technology. If the US does not move quickly, we risk repeating the prior 5G outcome.

Blockchain, or “Web 3” as it’s sometimes called, is distributed ledger technology that, due to its decentralized and distributed architecture, is smarter, safer, more ubiquitous, more accessible, more trustworthy and verifiable, and less mediated than earlier versions of the Web. It is particularly useful to solve problems where shared provenance of data that can be verified and kept secure across multiple actors is necessary. Consider where issues such as information verification, asset management, supply chain track and trace, identification validity and other thorny “trust” challenges exist and how solving these might enhance our national security. One arm of the US military is applying blockchain to an especially interesting use case to digitalize all expenditures, ensuring budgets are used appropriately to deliver what they were allocated for.

We’ve already seen how leading in technologies gives the US an advantage over our adversaries. We invented Web 1 and Web 2. These inventions created trillions of dollars of value, restructured the world economy, and improved the breadth of information exchange and commerce. But now, the Chinese may be leading the way on Web 3.

At the 2018 Meeting of the Chinese Academy of Science and Engineering, Xi Jinping noted a “new generation of industrial revolution is substantially reshaping the global economic structure.” At the core of this change, according to Xi, are AI, IoT, and blockchain. China is moving quickly to become a leader in creating and adopting blockchain technology. They were the first to dive headlong into creating a digital version of the Yuan. They are also undertaking numerous infrastructure initiatives. In 2019, Xi doubled down on blockchain saying China needs to “seize the opportunities” presented by blockchain. and called for the development of a global “Blockchain+” infrastructure developed and led by China.

As a result of this challenge, China has created the Blockchain-based Service Network (BSN), which was designed to create the infrastructure on which businesses can build their blockchain applications. Just as with other initiatives, if successful, this infrastructure could give the Chinese government insight into all of the data being implemented on this platform. The BSN platform has deployed 128 public city nodes around the world, including in Asia, Europe, North America, South America, Africa, and Oceania. The ultimate goal of the BSN is to “become the Internet of Blockchains.”

If successful, BSN could cause strategic headaches for the US by challenging the dominance of pro-Western financial transaction systems (think SWIFT); lead the next generation of FinTech and monetary technology (including digital currencies); create the dominant payment and value transfer platform for more than 65% of the world’s population; manage and control the data services for the next billion people coming on-line; and, perhaps most importantly, create the next generation of blockchain-based military and national security technologies.

What can the US do in the face of this challenge? The best answer is “what we did for the Internet.” That is, create an environment where US companies can explore and implement new solutions using blockchain technology at the same rate and sophistication we have for AI and IoT. Some steps might include:

1. Provide funding and legislative support to Federal agencies to explore the use of blockchain for civilian, military and national security initiatives.
2. Encourage Federal regulatory agencies to reduce regulatory ambiguity, support the development of blockchain, and develop standards.
3. Provide incentives to bring blockchain nodes (vital to verifying blockchain transactions) back to the U.S. from China and create environmentally sustainable validation systems.
4. Support private and public sector training, education, and research for blockchain and other Fourth Industrial Revolution Technologies technologies.

Advanced technologies and their security applications are proving to be the difference in key conflicts around the world. The ability to maintain our security and liberty as a nation and with our allies depends on our ability to stay in front of these transformational waves. The steps we take now will determine whether we continue to lead, as we’ve done with the Internet and AI, or follow, as we did with 5G. The Chinese government has shown its willingness to use new technologies and the data created in the private sector for their ends. Leading the blockchain revolution will ensure the US maintains its technological advantage.