Government Continues Cautious Approach to Blockchain Technology

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The potential security benefits of blockchain technology have received a great deal of media attention. The federal government has initiated several exploratory programs to study the application of blockchain to its procurement functions.

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". The notion is that cyber incursions into the blockchain are very difficult because the blocks are chained together and distributed across a wide network.

The federal government is interested in blockchain technology because of its potential to improve the security of supply chains or energy distribution, and to enable "smart" documents that can be self-administered or audited. However, the federal government has not adopted blockchain wholeheartedly, but is instead embarking on a series of pilot programs and studies. For example, the 2018 National Defense Authorization Act (NDAA) required the Secretary of Defense to prepare a report to Congress on the potential offensive and defensive cyber capabilities of blockchain technology. Other examples of the government's cautious approach include the Department of Homeland Security's Small Business Innovation Research project to study the use of blockchain in connection with monitoring border security, and a General Services Administration (GSA) small business set-aside project to develop a proof of concept for incorporating the use of blockchain technology in the Multiple Award Schedule proposal review process.

The latest example of the government's foray into application of the blockchain to its functions comes from the Department of Veterans Affairs (VA). The VA recently published a Sources Sought Notice, with a response date of July 31, 2018, seeking information from industry leaders and experts describing how blockchain technology can be utilized to assist the government in performing its functions. The broadness of the Sources Sought Notice can itself be seen as evidence of how early we are in the process of adoption of the blockchain by the government. Holland & Knight will therefore continue to monitor its adoption and progress and keep our clients updated.

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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