GAO Looks at Opportunities and Challenges of Blockchain Use in the Federal Government

Blockchain uses a tamper-resistant distributed ledger to track transactions and does not require a central authority to monitor transactions. Blockchain may be best known for its use with cryptocurrencies, but it has also been used in a variety of federal programs such as the HHS Accelerate acquisition portal and the Treasury’s Bureau of the Fiscal Service pilot to tokenize grant payments.

GAO investigated potential federal use of blockchain beyond financial applications such as managing supply chains, creating less hierarchical organizations, and documenting real estate title transfers. According to GAO, blockchain may be useful for applications involving many distributed participants or transactional workflow, but may not be suitable for systems or workflows with only a few users who trust each other.

GAO presents a flowchart developed by DHS to help determine if blockchain may be useful for a particular workflow or process. GAO also highlights other important considerations when entertaining the idea of using blockchain such as privacy, data reliability, long-term data security and quantum computing, and energy consumption.

In the report, GAO highlights the use of blockchain for non-financial applications in a series of eight “vignettes”:

• Coffee supply chain
• Real estate
• Organizational structure
• Carbon credits
• Federal government operations
• Pharmaceutical supply chain
• Voting
• Digital IDs

GAO identified a number of challenges and risks that could hinder the adoption of blockchain across non-financial applications:

• Lack of interoperability and common standards
• Legal and regulatory uncertainty
• Limited understanding
• Undefined benefits and costs

GAO also highlighted the use of blockchain in financial applications such as cryptocurrencies and a new entrant into the global financial system, stablecoins, which may offer a reduction in volatility risk. According to GAO, “Financial applications of blockchain have the potential to reduce costs and improve access to the financial system, but they also face multiple challenges.”  

Challenges identified in the financial application of blockchain include:

• Fewer consumer protections
• Risks to the financial system
• Law enforcement challenges such as illicit activities, lack of regulatory oversight, and regulatory arbitrage

GAO developed four policy recommendations along with possible actions for Congress, federal agencies, state and local government, research and academic institutions, and industry. Each policy action could help enhance the benefits or mitigate the challenges of blockchain technologies. For each policy option presented, GAO also specifies related opportunities and considerations. 

As federal agencies investigate and pilot the use of blockchain for both financial and non-financial applications, contractors may find opportunities to assist government clients with education, identifying use cases, developing a proof of concept, building and testing, and operations and maintenance.