USA, China and Russia in Race for Military Blockchain Implementation

  • US Department of Defense is looking to implement blockchain technology and IoT framework to keep track of military inventory
  • China and Russia examine blockchain’s potential to fight cyber attacks, store information and improve logistics

Military officials and institutions around the world are increasingly looking toward the blockchain as the next frontier of defense industry innovation and national security development.

Traditionally the ‘big three’ military powers - China, Russia and the USA - have always been on the lookout for technological innovation to give them an edge over each other. Blockchain technology may be providing a substantial amount of possibility for militaries, particularly in the field of immutable information storage and logistics.

USA and NATO Tap Blockchain as Military Supply Chain Solution

Alongside its traditional NATO allies across the Atlantic, the US is reportedly researching how blockchain technology can be incorporated into military logistics and procurement processes, particularly with regard to the possibility of integrating with IoT frameworks. The 2018 National Defense Authorization Act, Section 1646 specifically names blockchain technology as an area for continued research for military deployment use cases.

The US Naval Air Systems Command recently announced that it is partnering with Indiana-based company ITAMCO for the purpose of changing the Naval Aviation Enterprise from a manual-entry database system to a permissioned blockchain.

They said they were looking into blockchain to help keep tabs on aviation parts, which could help lower the costs of operating and maintaining military aircraft.

In the same vein, there have been indications that the Department of Defense (DOD) may be looking into blockchain implementation to help manage about $100 billion worth of inventory and supplies. According to a 2015 report by the Government Accountability Office, the current DOD system for tracking and delivering supplies has several points of weakness - leakages that could potentially be addressed using a blockchain, as has been done in a non-military setting in China recently.

In 2016, the DOD’s DARPA research unit revealed that it is examining how blockchain technology can be used to secure its weapon data which includes sensitive information like nuclear missile launch codes.

Chinese and Russian Military Blockchain Designs

The Russian military on its part, while not quite as far advanced in its blockchain research as the US is also very interested in blockchain implementation. In June, it was reported that a Russian military research lab was created for the express purpose of studying how blockchain technology can be used to detect and even counter future cyber attacks.

A few weeks later, TASS reported that the Russian Defense Ministry is likely to start implementing blockchain technology subject to its ability to bring Russian cryptographic algorithms into international blockchain standards.

China, has a widely recognised pro-blockchain, anti-crypto stance, with some of the world’s most anti-crypto laws coexisting alongside a burgeoning government-guided blockchain research and implementation ecosystem.

While there has not been any definitive news story linking the Chinese military with blockchain so far, a number of stories and editorials in China’s heavily censored media have admonished defense officials to look into the technology.

One such article appearing earlier this year in the People’s Liberation Army (PLA) Daily highlighted how blockchain technology will have a significant number of military applications in the “future of media war”, which is an allusion to the country’s long-running campaign of local and international opinion and information warfare.

IBM Follows Ripple and Joins $2T Cross Border Payment Game With Stellar-Powered ‘World Wire’

On Monday (March 18th), IBM announced the official launch of IBM Blockchain World Wire (which it quietly introduced in September 2018), and said that its blockchain-powered cross-border payments solution is "now in limited production and available in a growing number of countries."

What is IBM Block Chain World Wire?

Here are what IBM sees as the problems/limitations of traditional cross-border payment solutions:

  • "Separate clearing and settlement"
  • "Involves middlemen"
  • "Slow processing"
  • "Requires high fees"
  • "Fluctuating exchange rates"
  • "Error-prone and insecure"

IBM's solution is powered by the Stellar network. IBM Blockchain World Wire "provides shared distributed ledgers for atomic payment clearing and settlement in near real-time," and the network "uses digital assets — serving as the agreed-upon store of value exchanged between parties — to settle transactions while integrating payment instruction messages."

This diagram illustrates the role of the various actors involved in a cross-border payment:

IBM World Wire Screenshot 1 - 19 March 2019.png

IBM says that its solution brings major benefits in three areas:

  • Trust: "Increased transparency"; "Immutable transaction history";
  • Simplicity: "Decreased need for intermediaries"; "Shared distributed ledger system";
  • Efficiency: "Near real-time remittance"; "Easy consensus between stakeholders";

The process of making a cross-border payment using Blockchain World Wire (which uses the Stellar protocol) has the following steps:

  • "Two financial institutions transacting together agree to use a stable coin, central bank digital currency or other digital asset as the bridge asset between any two fiat currencies."
  • "The institutions use their existing payment systems – seamlessly connected to World Wire’s APIs – to convert the first fiat currency into the digital asset."
  • "World Wire then simultaneously converts the digital asset into the second fiat currency, completing the transaction." ("All transaction details are recorded onto an immutable blockchain for clearing.")

IBM's press release says that IBM Blockchain World Wire, so far, has "has enabled payment locations in 72 countries, with 47 currencies and 44 banking endpoints," and that as it gains regulatory approval around the world, it will expand its global payments network, which "already supports settlement using Stellar Lumens and a U.S. dollar stable coin through IBM's previously-announced collaboration with Stronghold."

Although no banks have actually signed up yet to use World Wire, six international banks, including Banco Bradesco, Bank Busan, and Rizal Commercial Banking Corporation (RCBC), have "signed letters of intent to issue their own stable coins on World Wire, adding Euro, Indonesian Rupiah, Philippine Peso, Korean Won and Brazilian Real stable coins to the network." As IBM has said previously, it plans to "continue to expand the ecosystem of settlement assets based on client demand."

Marie Wieck, General Manager, at IBM Blockchain, says:

"We've created a new type of payment network designed to accelerate remittances and transform cross-border payments to facilitate the movement of money in countries that need it most. By creating a network where financial institutions support multiple digital assets, we expect to spur innovation and improve financial inclusion worldwide."

Luiz Carlos Brandao Cavalcanti Junior, Innovation and Digital Channels Executive Director, at Banco Bradesco, says:

"Bradesco continuously adopts innovation that enhances customer experience and improves efficiency. The World Wire Network addresses both of these aspects, and therefore presents a valuable opportunity for Bradesco and its customers in Brazil."

Meanwhile, Manny T. Narcisco, First Senior Vice-President, at Rizal Commercial Banking Corporation, says:

"RCBC is pleased to be an early innovator with plans to issue our own Peso stable coin on World Wire, pending final approval from our regulators. We're focused on innovation that adds value for our customers, and World Wire presents a tremendous opportunity to transform and enhance our payment infrastructure."

IBM's World Wire vs Ripple's xRapid

So, should Ripple be worried?

This is what Jesse Lund, IBM's Vice President of Blockchain and Digital Currencies, said about Ripple in an interview last month: 

"Credit Ripple for the vision of using a digital asset in order to enact immediate settlement with finality. I think their implementation followed one path. Our implementation is a little bit different. We are not the issuer of an asset. In fact, what we believe is that there should be an ecosystem of a variety of digital assets that provide the settlement instruments that enable these cross-border payments. The participants on the network should be able to choose and negotiate their choices in real-time and the pricing might be different depending on the settlement instrument you use. So, I think with Ripple, they're looking at XRP as the primary digital asset for settlement, and for us, it could be lumens, it could be Ripple, it could be XRP even, it could be Bitcoin, but it would also probably include other instruments like stablecoins and even eventually, hopefully soon, central bank issued digital currencies."

Although both World Wire and xRapid are competing solutions in an industry that IBM expects will be worth approximately $2 trillion by 2020, World Wire only went live in production yesterday and it does not have any actual customers, while xRapid went into production in October 2018, and already has multiple customers who are using it for actual cross-border payments. For example, most recently (on March 5th), we heard from UK-based cross-border payments specialist Mercury FX, which announced that it had just completed its first live commercial payment to the Philippines via xRapid.

Although some might see this as a zero-sum game, it is very possible that IBM's entry will only serve to legitimize blockchain-powered cross-border payments, and that both companies can be very successful. Furthermore, we should not forget that World Wire is agnostic about which digital asset is used as the bridge currency, and as IBM's Lund expressed last month, that currency could be XRP.

Also, both companies should keep in mind that rather than fight each other, they should focus on their real competition, SWIFT, with its "gpi" product, which does address some pain points, but fails to "enable settlement at the time of payment," as Ripple CTO David Schwartz pointed out on March 14th during an interview at the SXSW 2019 conference.

Featured Image Credit: Photo by "xresch" via Pixabay.com; Diagram Courtesy of IBM