About the OODA Loop Series on Global Crypto and Digital Currency Initiatives
We continue with our survey of crypto and digital currency initiatives from around the globe, all of which are officially sanctioned to enhance national competitive advantage (in the event crypto overtakes the US dollar as the global reserve currency). It is the cumulative adoption rate of state-sanctioned crypto and digital currency legalization and regulation that will propel this innovative system for value storage and exchange as a global currency standard.
In previous posts, we provided an analysis of crypto and digital currency initiatives in Pakistan, Vietnam, Colombia, China, El Salvador, Panama, Ukraine, India, Argentina, and Russia. Our most recent post in the series was an overview of U.S. Crypto, Digital Assets, and National Security Policy.
We now turn to the “Deep Tech” and the defense innovation community in the United States to evaluate the approach the Defense Advanced Research Projects Agency (DARPA) is taking on research into the crypto implications of national security.
DARPA Research Mapping the Impact of Digital Financial Assets
The Defense Advanced Research Projects Agency (DARPA) has contracted digital asset data and analytics provider Inca Digital to research national security risks posed by cryptocurrency.
The Project, entitled “Mapping the Impact of Digital Financial Assets”, was awarded to Inca Digital as part of a Phase II Small Business Innovation Research (SBIR) to conduct research on:
- An analysis of activity related to financial applications of distributed ledgers.
- A crypto ecosystem mapping tool to analyze crypto financial data and risk.
- How best to understand how crypto may be linked to money laundering, terrorist financing, and sanction evading; and
- identifying how cryptocurrency may affect traditional financial systems and vice versa.
“Given the increasing prevalence of digital assets, the Department of Defense and other federal agencies need to have better tools to understand how digital assets operate and how to leverage their jurisdictional authority over digital asset markets globally,” Adam Zarazinski, CEO of Inca, said. (1)
First-of-its-kind Cryptocurrency Ecosystem Mapping Tool for Analyzing Cross-market Crypto-financial Data and Risk
The data analytics from Inca Digital Federal will also allow both the United States government and commercial companies to:
- Perform cross-market, crypto-financial mapping and analysis
- Understand relationships between digital asset firms and non-digital asset entities
- Provide insight into the use of blockchain-based technologies linked to money laundering, terrorist financing, and sanctions evasions across systems (e.g., fiat-to-exchange, exchange-to-blockchain, and cross-blockchain transactions)
- Better understand money flows in and out of blockchain systems
- Identify where recipients of cryptocurrency can exchange it for local fiat currency, or goods and services, globally; and
- Understand how cryptocurrencies are used in different U.S. government/Department of Defense areas of responsibility (2)
“Earlier in September, the White House [has] set out to establish guidelines for crypto policy development, consolidating reports from agencies such as the departments of the Treasury, Commerce and Justice. Some steps outlined in the framework include enforcement against illegal practices by the Securities and Exchange Commission and the Commodity Futures Trading Commission. The Department of Energy was tasked with investigating how crypto mining affects the environment.” (3)
Released on September 16th, the “First-Ever Comprehensive Framework for Responsible Development of Digital Assets“, the White House Executive Order outlined the first whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology. Over the past six months, agencies across the government have worked together to develop frameworks and policy recommendations that advance the six key priorities identified in the EO: consumer and investor protection; promoting financial stability; countering illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.
- We will continue to follow the “Mapping the Impact of Digital Financial Assets” project – and provide coverage of the tools and research made public by DARPA and Inca Digital Federal as Inca delivers on the SBIR contract.
- OODA CEO Matt Devost outlined his concerns for the overregulation of crypto stifling innovation and voiced other national security concerns and risks, arguments which are also included in the Inca Digital CEO Adam Zarazinski’s analysis in a recent opinion on the Coindesk website: National Security at Stake With Biden’s Crypto Executive Order.
- Will anonymity, the central design element of blockchain technologies, survive the regulatory climate globally? This question remains central to our current research. See: Will Know Your Customer (KYC) Verification Regulations Stifle Crypto Innovation? And the Future of Money?: While massive, global cyber theft and data breaches may capture the headlines, there are many other issues surrounding the future of cryptocurrency. Fraud and cybersecurity activity is necessary for creative destruction in the cryptocurrency marketplace. OODA CEO Matt Devost captured the current climate in the crypto market noting that: “We needed to wash all the fluff out of the system. And every week we are seeing some sort of mass destruction of a major player in that space.” Governmental regulation now looms large over the entire innovation ecosystem. Many governments – and the U.S. will follow the lead – will not allow the transfer of bitcoin or digital currencies unless the identity of the recipient wallet is known. This policy has come to be known as Know Your Customer (KVC) verification on anonymous crypto transactions and has the potential to break the anonymity-based model for much of the ecosystem.
- The Future of the Internet and Artificial Intelligence: Non-fungible Tokens (NFTs) and AI-Generated Art: The current non-fungible tokens (NFTs) environment serves as a prelude to digitally tracked assets of the future. It is an early exploration of how property rights and ownership will work in digital economies and the metaverse with a layer of irrational enthusiasm, speculative gambling, and desire to be part of a community applied on top of the current iteration. There is something real here that has yet to be fully realized and a lot of abstraction distraction today. Some technologists have included NFTs (and generative art which makes use of machine learning and blockchain-native randomness to produce striking, unpredictable art) in their vision for a third age of the internet—the securitized internet.
- And, of course, we continue to integrate the tactical insights, and strategic implications, including the follow-up research questions that emerged from OODAcon 2022 – The Future of Exponential Innovation & Disruption – and The Future of Money panel which explored the fact that ten years ago, resilient cryptocurrencies did not exist, yet today the infrastructure to create them is available to anyone. The blockchain is often described as having the potential to be more disruptive than the Internet itself and the rules of finance are being rewritten every day. The session took us through the good, bad, and ugly of cryptocurrency and blockchain and highlights issues that will drive the next five years of blockchain. Are we in a period of Creative Destruction and what will emerge in the future?
It should go without saying that tracking threats are critical to inform your actions. This includes reading our OODA Daily Pulse, which will give you insights into the nature of the threat and risks to business operations.
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