2018 NDAA Analysis: Signals Towards the Federal Government’s Growing Interest in Blockchain Technology

by Holland & Knight LLP
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This is the seventh blog post in a series analyzing the current draft of the 2018 National Defense Authorization Act (NDAA) as signed into law on December 12, 2017. Stay tuned for more blog posts covering additional topics in the near future from Holland & Knight’s Government Contracts Team.

The term “blockchain” remains a mystery to many, but its potential is extremely intriguing, particularly as applied to the government contracting industry.  As reflected in the 2018 NDAA (H.R. 2810), the federal government is cautiously entering the blockchain waters.  This blog post will first attempt to explain what blockchain is, and then will review some of the government’s efforts to understand how blockchain can improve its business processes.

Holland & Knight attorneys Shawn Amuial, Josias Dewey, and Jeffrey Seul recently authored The Blockchain: A Guide for Legal and Business Professionals.  The book explains the blockchain concept in a readily understandable manner: Blockchain is a distributed ledger existing across many computers that can record transactions or other data. The transactions are mined into blocks and each block is given a unique hashtag that is copied onto a subsequent block, which form a chain (hence, the term blockchain).  Changes to the blockchain are very difficult because the blocks are chained together and distributed across a wide network.

This technology – distribution of data over multiple computers that is linked together and has a unique identifier – is of particular interest to the government contracts industry.  For example, blockchain technology potentially may produce “smart contracts,” which would be virtually self-executing and self-administered.  It may also be useful in tracking supply chains or distributing energy.  The Government accordingly is studying blockchain technology, especially whether it is resistant to cyber-attacks.

The 2018 NDAA encapsulates the Government’s approach to the blockchain.  Section 1630C instructs the Secretary of Defense, within 180 days of the NDAA’s enactment, to report back to Congress on the potential offensive and defensive cyber capabilities of blockchain technology and other distributed database technologies.  The report must examine blockchain technology’s cybersecurity capabilities.  Specifically, DoD is to assess the use or planned use of blockchain technologies by the United States Government or critical infrastructure networks, and the vulnerabilities of such networks to cyber-attacks.

Congress’ determination that any risks posed by blockchain technology must be studied before broad government adoption of the technology is reflected in other agencies’ establishment of pilot programs to test the utility and security of this distributed ledger technology.  For example, in June 2017, the General Services Administration (GSA) issued a small business set-aside Request for Quotations (RFQ) aimed at obtaining contractor support to develop a proof of concept for DLT (Distributed Ledger Technology), automated machine learning technology, and/or artificial intelligence based exchange implementation into GSA's Multiple Award Schedule (MAS) FAStlane new offer proposal review processes.1  The RFQ gives interested contractors three months to present a fully functional proof of concept.

The Department of Treasury’s Office of Financial Innovation and Transformation is running a pilot program to determine whether blockchain technology is capable of monitoring and tracking the agency’s physical assets as they are transferred from person to person.  This particular program will provide insight into blockchain’s abilities to track and manage supply chains.  The Department of Homeland Security is awarding Small Business Innovation Research grants to develop a use case for blockchain technology’s role in border security.

Each of these examples confirms the Government’s interest in blockchain technology as well as the myriad of uses to which the technology applies.  Because it is still emerging, the potential range of the uses of blockchain technology are not yet known. We will, however, continue to explore potential uses and blog about how it could impact the government contracts industry in the months and years ahead.

Bitcoin is one of the most visible uses of blockchain technology. In the midst of a historic price run-up, one unlucky bitcoin owner realized he had thrown away the hard drive that contained the keys that would have unlocked his bitcoin (which is now worth a reported $80 million). According to news reports, the former owner of the hard drive is dumpster diving (on a large scale) in an effort to recover the bitcoin keys.

Beyond bitcoin, blockchain is promising technology. Just beware, however, that there are  limitations. Just ask a couple in London searching a dump for $20 million in bitcoin.

Notes

1 At a recent Professional Services Council event, a GSA representative described how the agency had already incorporated blockchain technology to speed up the application process for prospective GSA offerors.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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