Blockchain Technology Use and Investment in the Federal Government

Despite being a highly-specialized area of expertise, the use of and investment in blockchain technology is gaining traction across multiple federal agencies. Part of the attention being devoted to the technology concerns tracking it. This is motivated by government concern about cryptocurrency fraud and tax evasion. Agencies with law enforcement and financial regulation responsibilities are therefore investing in analytics to examine blockchains forensically and identify transactions that might raise red flags. Much of the other blockchain-related activity is in the field of R&D, as agencies explore using blockchain solutions for tasks ranging from asset management and cybersecurity to “digital” maintenance.

Today’s post takes a brief look at some of the trends popping up these days.

Blockchain Spending

Beginning with investment in blockchain-related work, federal spending rose by 140% from FY 2020 to 2022.

In general, the civilian sector spends three times more per year on blockchain technology than does the Department of Defense (DOD), so industry partners seeking opportunities should keep this in mind. When DOD components spend on blockchain technology it typically falls under research and development.

For example, as the chart below shows, only the Air Force, the DOD Inspector General, and the Defense Threat Reduction Agency (DTRA) have spent on blockchain over the last three years, and it is all related to R&D. The uses of the technology they have explored include asset/supply chain tracking and secure data sharing. Because it is a distributed ledger, blockchain technology also faces a threat from rapidly-developing quantum computing. This is why DTRA’s R&D has focused on making blockchains quantum resistant.

Civilian agencies, such as the Federal Bureau of Investigation, Treasury, and Securities and Exchange Commission, meanwhile, are investing in advanced analytics designed to examine and track cryptocurrency transactions. Two of the most popular solutions contracted for these purposes are Chainalysis and Elementus.

Contract Vehicles

The last trend to be examined is contracting. Growing demand for expertise in blockchain technology is starting to appear in solicitations being competed for multiple-award contracts. For example, Homeland Security included it as a requirement for the Enterprise Small Business indefinite delivery/indefinite quantity contract. Similarly, GSA added it to the new Polaris Government-Wide Acquisition Contract (GWAC). The recently-awarded STARS III GWAC also included a blockchain requirement.

Summing up, the total amount invested in blockchain by federal agencies remains small compared to the better known categories of information technology investment. Spending is nevertheless growing year-over-year, which is an encouraging sign. Small businesses seeking to fill a niche market need might therefore want to identify a stable of engineers familiar with the technology in order to meet the growing demand.