Monday, May 4, 2015

Exclusive: Secretary of Defense Enlists Bitcoin Technology To Overhaul DOD Business Operations


During Secretary of Defense Ashton Carter’s visit to Silicon Valley on April 23, he reportedly met with principals of bitcoin technology firms to enlist their expertise in modernizing business operations at DOD. Secretary Carter had been planning the outreach in advance and is aiming to finalize an internal instruction that will direct the department to adopt bitcoin technology to provide the foundation for a long-term overhaul and replacement of DOD’s seemingly endless--and disjointed--array of information systems, as well as its transactional interfaces with major contractors, including primes such as Boeing, Lockheed Martin, and Northrup Grumman. The Carter initiative, if implemented, would constitute a radical transformation of the $600 billion department and the sprawling military-industrial complex.


According to sources close to the secretary, who spoke on the condition of anonymity, Carter will direct department executives to draft an implementation plan whereby bitcoin’s underlying blockchain software will incrementally replace the department’s approximately 2,200 business systems. Such a plan would initially focus on administrative matters within the Pentagon headquarters (e.g. payroll) and interfaces with local and national service providers below a certain dollar threshold. After a time period to be defined, DOD would evaluate progress and then direct one (or more) of the four military services to similarly begin migrating its systems to bitcoin technology as well as raising the dollar threshold on transactions to be covered.


Carter reportedly began considering the radical step during his latest break between DOD appointments. The respite apparently provided him with the opportunity to see more clearly how social media and transactional technologies have exploded outside the confines of bureaucratic regulations. Upon returning to DOD, Carter brought with him his observations as to how such innovative approaches could help him surmount the enduring challenge of getting DOD to operate efficiently, one that has only been made more difficult by declining budgets and sequestration.


In particular, DOD’s inability to be certified as fully auditable has concerned Carter. Congress has mandated DOD be fully auditable by September 2017 and perennial lapses has led many congressional leaders to call for significant penalties, such as restrictions on moving appropriation funds. If Congress proceeds, an already encumbered DOD will face even greater headwinds in its bid to keep pace with a rapidly changing international environment.


Carter is also reportedly eager to establish a bitcoin interface in the acquisition realm, his last area of responsibility before becoming deputy secretary, and then secretary. Carter served as Under Secretary of Defense for Acquisition, Technology and Logistics when Congress passed and President Barack Obama signed the Weapon Systems Acquisition Reform Act of 2009 and had to oversee its implementation. Carter was and remains a major proponent of achieving improved acquisition outcomes, of which the Better Buying Power initiative is integral.


Ensuring auditability and achieving better buying power in any organization, much less the Department of Defense, is no simple task, but bitcoin has unleashed almost revolutionary fervor in its proponents that the two goals -- and more -- are readily attainable.


Bitcoin is digital currency and decentralized online payment system invented in October 2008. Established and coded by an individual (or individuals) by who has chosen to remain anonymous, the open-source software has spread rapidly and has galvanized technologists and libertarians around the globe.


At its core, bitcoin establishes the basis for instantaneous, cost-less transactions between strangers. While seemingly akin to the exchange of dollars for goods and services via PayPal, bitcoin’s decentralized blockchain ledger software means every dollar, good, and service is permanently recorded and, to extend the dollar-PayPal analogy, every dollar’s serial number and owner in real-time as well. Anonymity is preserved while complete transparency is achieved too.


Lower costs and greater transparency are attributes in dire need at DOD.


While bitcoin has steadily gained acceptance, it represents only the most infinitesimal sliver of the overall global economy. High-profile setbacks, such as the collapse of a prominent exchange, have tested its supporters, but multi-million dollar investments continue to flow into bitcoin ventures and innovators have promised transformational breakthroughs


Carter’s initiative, if implemented, has the promise to be a catalyst in bringing bitcoin into the mainstream -- an odd outcome given the mysterious and anti-establishment origins of the cryptocurrency.


The timing may be fortuitous all around.


On April 29, Circle a online consumer finance company, introduced a feature to its online bitcoin “wallet” allowing its customers to hold, send, and receive dollars. According to the company, If customers choose to hold dollars instead of bitcoin balances, they can still pay any person or merchant who accepts payment in bitcoin, without ever holding bitcoin themselves. Conversely, customers can accept bitcoin and be assured it is converted instantly into dollars in their accounts. Circle will handle instant conversion from dollars into bitcoin at the time of the payment.


If the Circle app (or the equivalent) truly facilitates the average consumer’s understanding of bitcoin -- and the enormous population of Americans that work with the military are convinced it’s as easy to use as advertised -- then bitcoin may finally be on the cusp of a breakthrough.


According to the anonymous sources, Carter is cognizant of the fact that he is President Obama’s fourth secretary of defense, a turnover that is unusual is such a critical position and, in the wake of Chuck Hagel’s turbulent term, achieving a modicum of stability before the administration’s term ends in two years would be an achievement in and of itself.


A former physicist and protege of former Secretary William Perry, Carter is one with the advanced technology community and has prided himself on his very public outreach to Silicon Valley and the need for a renewed partnership with innovators. By embracing this cutting edge technology, the source speculated Carter will not only enact concrete change at the infamously cumbersome and change-resistant department, but cement his legacy.


Perhaps Carter recognizes had he not undertaken a career in national security, he too would be championing this bold technological endeavor.


***


The above is complete fiction, but such speculation is only possible when considering the astonishing potential that is bitcoin and blockchain technology.


From the wellspring of Satoshi Nakamoto’s white paper has emerged compelling visions of comprehensive economic change.


The costless, instantaneous exchange of bitcoin-based payments between any two parties around the globe promises to deliver lower prices, expanded commercial opportunities, and deeper interpersonal linkages.


More broadly, the incontrovertible and decentralized ledger afforded by blockchain software promises transformative change not seen since perhaps the age of exploration and the advent of the Westphalian state.


As expertly detailed in the The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order, the blockchain ledger presents a solution to the shortcomings of sovereign fiat currencies, to the dearth of services unavailable to world’s “unbanked,” to the ossified governance structures that have inefficiently consumed capital, both economic and human, throughout the private and public sector.


Daniel Larimer, of Invictus Innovations, has speculated on the prospect of “decentralized autonomous corporations (DACs),” commercial entities that capitalize on the blockchain ledger protocols to flourish in the “trustless” space where only brick-and-mortar bureaucracies have been able to endure.


DOD is far from being an efficient centralized bureaucracy, much less a decentralized autonomous corporation, but every transformation begins somewhere.


David Johnston, of MasterCoin, has taken the decentralized online entity one step further, hypothesizing on the potential for Decentralized Applications (DAPPs) in which an application "must be completely open-source, must operate autonomously, and its data and records of operation must be cryptographically stored." And just as in a DAC, it would be devoid of executive control -- no entity would possess a majority stake or vulnerable to the concentration of power. A DAPP would be massively scalable and completely responsive to user and market shifts on the basis of consensus.


More pointedly, Johnston has declared, “Everything that can be decentralized, will be decentralized.”


Beyond overhauling a stolid federal bureaucracy, this axiom points to a stark and welcome turn from the ever-grasping reach of the progressive blue model.  


Ultimately, blockchain technology eviscerates the justification for centralizing any authority over the lives and livelihoods of anyone.