Crypto and National Security
Coinbase Institute: Insights Series
Crypto and blockchain technology are not just financial innovations—they are fundamental to the future of economic security and geopolitical stability. As these technologies reshape global commerce and digital infrastructure, it is essential that the United States lead in crafting clear, sensible regulations. The current bold steps being taken by U.S. policymakers and regulators to advance a regulatory approach that balances security with growth will help ensure that crypto innovation remains aligned with democratic values and our national interests.
Technology and National Security
Technology and national security have long been intertwined, with America’s technological dominance playing a crucial role in its global strength. As with advances in digital computing during World War II, the U.S. has continually leveraged innovation for economic growth and national security. But rather than picking winners and losers, the government’s most effective role has been fostering an innovation-friendly culture. The success of automobiles, telecom, and the internet in the U.S., for example, was due largely to a supportive entrepreneurial environment: in the 1990s, the Clinton administration took a pragmatic approach to regulating the digital infrastructure that now underlies e-commerce, recognizing that “the private sector must lead” for the technology to thrive.
The Significance of Crypto and Blockchain
Crypto and blockchain present an opportunity to strengthen U.S. leadership and security across many dimensions:
Finance: U.S. dollar-denominated stablecoins can help reinforce dollar dominance in global finance by making the U.S. dollar more accessible in digital transactions, cross-border payments, and decentralized markets. As other nations explore alternatives to the dollar, well-regulated stablecoins can help maintain the U.S.'s financial influence while ensuring that digital assets operate within a secure and transparent framework. Further, the growth of decentralized finance (DeFi) can reduce reliance on traditional intermediaries, mitigating systemic risk and promoting a more resilient financial system.
Global Payments and Remittances: Crypto and blockchain can enable faster, cheaper remittance payments, allowing those in developing nations to receive funds without relying on expensive intermediaries or unstable local banking systems. Pseudonymous crypto contributions can support humanitarian aid and grassroots initiatives in regions where financial access is restricted, ensuring that resources reach those in need even in politically or economically unstable environments. By promoting financial inclusion and resilience, blockchain-based systems can help stabilize communities, reduce reliance on cash economies, and offer secure alternatives for the underbanked.
Defense Supply Chains: Incorporating blockchain technology into defense supply chains can mitigate risks and vulnerabilities. For example, the U.S. government prohibits U.S. contractors from using certain suppliers to prevent counterfeit components from entering the chain. Blockchain technology could enable these companies, and the U.S. government, to track and verify the path of contractor components and assemblies, reducing the risk of counterfeits.
Threat Detection: Crypto and blockchain technology can be used to detect and disrupt fraud and other illicit activity. Blockchain’s traceability, particularly when paired with AI and machine learning, can help law enforcement recognize and investigate anomalous activity. Blockchain can also help combat public corruption by using immutable records and smart contracts to enhance transparency in areas like procurement and land registries.
Data Management: Communication and data-sharing remain a challenge across many industries and parts of government. Health departments, for example, often receive crucial data by phone, email, physical mail, and fax. Integration of blockchain technology can enable more seamless and secure data sharing, which is particularly valuable in industries that handle large amounts of sensitive data.
Conclusion
Recent steps toward crypto regulation in the U.S., including the development of sensible rules for stablecoins and tokenized equities, as well as a growing recognition of the transformative potential of decentralized finance (DeFi), position the U.S. to safeguard its national security interests while maintaining global leadership in financial innovation. By establishing clear regulatory frameworks, policymakers can ensure that digital assets operate within a secure and transparent system, reducing illicit activity while fostering responsible innovation. These proactive measures signal that the U.S. is committed to leading in the digital asset space, rather than ceding ground to other nations that are rapidly advancing their own regulatory frameworks.
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