The Potential for Growth in Agency Use of Blockchain Technology

For years after its introduction in 2009 the blockchain technology underpinning Bitcoin languished in the shadows. Since the beginning of 2016, however, and especially after the meteoric rise of Bitcoin’s price in 2017, the discussion of blockchain technology has become so common that even federal agencies are giving it a look. Barely a week goes by now without an article appearing in the trade press or in the DC media touting the benefits and potential uses of the blockchain for contracting, logistics, inventory maintenance, book keeping, etc. Just recently, for example, news came out that the Treasury’s Bureau of the Fiscal Service is conducting a blockchain pilot for managing the laptops and phones issued to government personnel. Interest in the technology is definitely growing, but setting aside the hype, what are the real prospects for growth in agency spending on blockchain technology?

Deltek’s Federal Market Analysis group set out last summer to identify where agencies truly stand when it comes to the adoption and use of blockchain technology and, after several weeks of searching, we uncovered just over 20 studies, public comments, and pilot efforts. A handful of additional pilots have been unearthed since, but in general very few honest-to-goodness procurements have been identified.

Several agencies are interested in the potential application of blockchain technology, especially the GSA, DOD, and Intelligence Community, but it is also true that very, very few individuals among the hundreds of thousands of federal employees actually have any idea what those applications might be or how to turn using them into a reality. Blockchain technology requires a whole new understanding of how to structure data so that it can be used for what are called “smart contracts.” A smart contract, to paraphrase Vitalik Buterin, the creator of Ethereum, the protocol on which smart contracts are built, involves the transfer of an asset or currency into a program that runs code, automatically validates the conditions of the contract, and then automatically determines to whom an asset should go and in what amount. Based on this description, one can see the reason why smart contracts would be of interest to feds executing contract actions and other types of record keeping.

There are additional hurdles to agency blockchain adoption that I will not go into here. They are commented upon regularly by the DC Technorati. What I would like to mention is that current talk around blockchain tech and the halting efforts of feds to understand it remind me of where big data technology was 5 years ago. Pools of early adopters in the sciences and defense establishment, as well as educators in academia and industry, gradually popularized the use of advanced analytics to the point where agency personnel understood it enough to begin buying it and using it.

Several years later, though, agency use of advanced analytics remains rudimentary compared to where it should be. I suspect the same outcome with blockchain technology. A few early adopters will pioneer efforts at the DOD, in the IC, and probably in agencies primarily concerned with financial transactions like Treasury and maybe even the Social Security Administration. We also know that GSA will push the envelope on behalf of all of government, bringing some new adopters into the fold. These efforts will probably remain isolated and limited for several years, however, before agencies begin spending significant amounts on blockchain. So, the best advice for the time being is to keep educating Feds on the technology’s uses while keeping an eye on the market. Widespread adoption is probably 3, but more likely 5 years down the line.