FALL 2017 VOL. 66, NO. 3

Protecting

Governments’

Data
Eye on the Future

The Blockchain Buzz

By: Craig D. Fischer, MPA, PMP

If you attended AGA’s 2017 Professional 

Development Training (PDT) you 

probably came to a similar conclusion 

as I did: these are exciting times 

for financial management. Over the 

course of four days, we learned of new 

challenges our community will face, as 

well as novel approaches and solutions 

we can use to solve some of our most 

pressing problems. 

One of the technologies that caused a 

buzz during PDT was blockchain. There 

has been a lot of attention and interest 

in blockchain technology because of 

its ability to eliminate the “middle man” 

and reduce the amount of time and 

money it takes to process electronic 

transactions. The magic primarily 

resides in the technology’s innovative 

way of validating transactions and 

achieving network consensus. Through 

a combination of sophisticated math 

and the collaborative work of the 

participants in the network (called 

nodes), it is now possible for two 

people to transfer digital tokens of value 

without trusted intermediaries having to 

clear and settle the transaction. What 

used to take days in some cases can 

now occur in minutes, or even seconds. 

Most people are probably familiar 

with blockchain as the technology 

that underpins Bitcoin and other forms 

of digital cash broadly referred to as 

cryptocurrencies. But this technology 

is more versatile than what immediately 

meets the eye. In addition to its ability 

to improve efficiency, blockchain — or, 

more broadly, distributed ledger 

technology (DLT) — offers additional 

benefits that our community should 

consider, such as security, network 

resiliency, transparency and 

automation. In other words, our pursuit 

of improving efficiency may result in 

being better overall stewards of our 

data and information. 

By isolating some of the main features 

of DLT, you begin to see where some 

of the potential value resides. 

n Public key cryptography: Transactions are made using key pairs — one 

that is public and one that is private. 

Network participants can reasonably assume transactions are valid 

because the digital signature — 

which serves as a kind of password 

and can only be seen by the signatory — is mathematically linked to 

the public signature. One of the main 

benefits of public key cryptography 

is security. Through the use of digital 

signatures and encryption, network 

participants can be reasonably 

confident in the authenticity and 

confidentiality of transactions. 

n Shared/replicated ledger: Transactions made within a distributed, 

peer-to-peer network are updated 

on a ledger automatically as changes 

occur; network participants can view 

and download a copy. Benefits of 

this feature include transparency at 

a granular level as well as network 

resiliency: the ledger is replicated 

NEW TO BLOCKCHAIN?

Blockchain, a type of distributed 

ledger technology (DLT), was 

originally created in 2008 to solve 

the “double spend” problem when 

transferring assets electronically, 

without relying on third parties. 

DLT is defined as a “distributed 

database maintained over a 

network of computers connected 

on a peer-to-peer basis, such 

that network participants can 

share and retain identical, 

cryptographically secured 

records in a decentralized 

manner.”1 The technology has 

since received a great deal of 

attention in its ability to increase 

speed and transparency; reduce 

fraud and error; and enhance 

security when making electronic 

transactions. Mainstream 

adoption of the technology, 

however, remains a challenge. 

An unclear regulatory framework, 

lack of standards, interoperability 

and the overall unproven nature 

of the technology remain 

impediments to adoption.

62 JOURNAL OF GOVERNMENT FINANCIAL MANAGEMENT FALL 2017
and synchronized many times over, 

making it impossible for the network 

to have a single point of failure. 

n Programmable: Transactions can 

be programmed to self-execute 

based on logic or criteria known as 

“smart contracts.” Through smart 

contracts, the network can be 

automated reducing the need for 

human intervention. Rules could 

be created at the transaction level 

to further enhance efficiency and 

security of the network. 

As the financial management 

community begins to peel back 

the layers of this technology and 

understand its applicability and uses, 

we have an opportunity to tackle 

some of our most pressing challenges. 

Although we cannot yet pinpoint how 

blockchain technology will be used, 

there are strong indications that it 

“could drastically enhance, optimize 

and improve financial reporting and 

auditing.”2

In addition, we should seek to understand how DLT could be used to: 

n reduce fraud and documentation errors 

that contribute to improper payments;

n provide for a more robust and real-time 

audit trail;

n combat cyber crime;

n better manage and track both physical 

and digital assets, such as equipment 

and software licenses;

n address the challenges faced related 

to intragovernmental differences; and 

n safeguard digital identities to better 

serve the public.

Conclusion

Whether this nascent technology will 

live up to its hype remains to be seen. 

Regardless, financial management 

community should note the promise this 

technology holds for improving efficiency 

and transparency, while making us 

better stewards of federal data and 

information. To fully understand how DLT 

will impact our community, we must start 

developing relevant use cases, proofs 

of concepts and pilot projects. But 

testing is only the start of the solution. 

Creating venues — such as the AGA 

Blockchain Working Group — to share 

concepts, use cases and results will 

prevent us from duplicating work, and 

keep us abreast of successes and 

failures. 

Endnotes

1. GAO. Financial Technology — 

Information on Subsectors and Regulatory 

Oversight (GAO-17-361) April 2017, 

p40; and Financial Industry Regulatory 

Authority, Distributed Ledger Technology: 

Implications of Blockchain for the Securities 

Industry, January 2017. 

2. Blockchain For Audit To Be Tested 

By US Congress-Supported Nonprofit,” 

The CoinTelegraph, May 12, 2017.

Craig D. Fischer, 

MPA, PMP is a 

program manager 

in the Office 

of Financial 

Innovation and 

Transformation 

(FIT) within the 

Bureau of the Fiscal 

Service. Fischer leads FIT’s innovation 

portfolio, where he and his team identify 

and pursue emerging trends and 

technologies that may have applicability 

to the financial management community. 

Prior to FIT, he held positions with 

Deloitte, the Chief Financial Officer’s 

Council, House Committee on Oversight 

and Government Reform, and the 

Government Accountability Office. 

DLT FEATURE POTENTIAL BENEFITS FOR FINANCIAL MANAGEMENT

Network consensus Efficiency

Public key cryptography Security

Transparent/replicated ledger Transparency

System resiliency/system availability

Programmable Automatable

FALL 2017 JOURNAL OF GOVERNMENT FINANCIAL MANAGEMENT 63