Here's Why the Federal Government Ought to Embrace the Blockchain

The House recently passed a defense appropriations bill that slashes funding for support staff in order to free up money for new weapons systems. The legislation would eliminate one large civilian agency entirely.

Investing in our military needn't come at the expense of critical support services. There's a better way for the government to save money and improve operations: Embrace the blockchain.

Right now, the vast majority of the defense apparatus relies on slow, antiquated technologies to process and store data. The Defense Department, for example, uses a five-decade-old system on an outdated Windows server to track whether critical Army equipment should be replaced or trashed. 

These old systems struggle to process the vast amounts of data officials currently generate. The Pentagon recently announced it had lost track of $100 million in computer system funds and $800 million in construction funds. Precious taxpayers dollars are simply disappearing into the black box of government budgeting.

In the private sector, such accounting lapses would destroy a company and potentially lead to lawsuits. But in government, business just continues as usual.

Of course, this technological primitivism is not confined to the military. The Treasury Department relies on a 50-year-old programming language to track key taxpayer data.  

The federal government could generate massive savings without cutting anyone's budget by replacing its old accounting technologies with blockchain-based ones.

Most people associate blockchain with Bitcoin, Ether, and other cryptocurrencies. But the technology can be used to securely track and store virtually any information, not just records of who owns digital money. 

Think of blockchain as a giant Excel spreadsheet stored across thousands of computers. Any person in the network can securely record information in a new "block"—similar to entering numbers in a cell of the Excel sheet. But once a block is locked, it can never be edited. It permanently preserves a record of who entered the information and when. 

Since each computer in the network has this record, the blockchain is essentially impervious to tampering. Hackers would have to gain access to thousands of different computers to alter any data. And because the encrypted information is stored on computers all over the globe, blockchain users don't have to worry about maintaining old servers. 

Right now, the Defense Department handles $2.2 trillion in assets. Adopting blockchain-based systems could root out billions of dollars in waste and fraud.

Some countries have already adopted these technologies. Estonia conducts virtually all government operations online with the help of blockchain. Nearly every citizen has an ID card that with a personal code that he can use to vote, submit applications, or fill prescriptions. Officials report that their online government services boost GDP by 2 percent each year and eliminate huge loads of paperwork. 

The United States should follow this example. This new round of defense appropriations is needlessly painful. The cure for mounting defense costs isn't cuts, its proactive technological advancement. The federal government's current accounting systems ought to be replaced with what's arguably the most important technological breakthrough of the 21st century.

T. Richard Stroupe Jr. is the co-founder and chief executive officer of Sequoia Holdings Inc.