Defense Department Investigates Crypto Use Cases With Blockchain Startup Constellation

Biden’s White House may be waging war on crypto, but that hasn’t stopped the US Department of Defense from pushing blockchain limits.

The Department of Defense, or DOD, just closed a contract with a six-year-old blockchain startup — a significant step for the industry.

Established in 2017, Constellation is a privately backed, founder-led blockchain ecosystem with a strong focus on processing big data. The infrastructure is designed to support decentralized data marketplaces and maintain data provenance and integrity.

The San Francisco-based firm said Thursday that the completion of its “Phase II” DOD contract led to a “well-defined deliverable prototype.” The United States Air Force (UASF) began contracting Constellation through a DOD partnership in 2019.

The US military saw Constellation as a way to modernize the cyber security of its backend systems. The Phase II contract continued research and development to evaluate the commercial potential of the platform, including deal sizes up to $1 million.

The idea was to investigate whether blockchain could provide “a secure way to efficiently transfer confidential data across our commercial airlift partners in the Defense Transportation System without sacrificing cost or speed,” Christopher Stuhldreher, UASF senior cyber operations analyst, said in a statement.

Phase III, meanwhile, will see commercialization based on previous phases without any limits on contract duration or value. A statement from Constellation said the prototype was “defense approved”

“This contract proves the core promise of what distributed ledger technology can and will continue to deliver,” Benjamin Diggles, chief strategy officer and co-founder of Constellation, told Blockworks.

Data is critical to federal communications, he explained. Delineating how this data is shared has great potential to affect how information warfare is fought in the modern age.

“Knowing that the closer we can get to the source of data, the cleaner the attribution, as well as the ability to secure end-to-end data pipelines,” said Diggles.

Look to the stars

Constellation is the architect behind what it calls the Hypergraph Transfer Protocol (HGTP). It is a tool for Web3 developers to encrypt, authenticate and manage data across different digital platforms.

HGTP is to blockchain what its founders say HTTP is to the Internet – the primary channel for efficient data communication between servers and clients.

The firm also released its own software development kit, Euclid, aimed at helping Web3 developers launch blockchain-powered projects and eventually coin tokens on the blockchain system, “Hypergraph.”

Constellation’s native token DAG helps provide incentives for actors to join the network as data validators. DAG is currently down by approx. 10% year-to-date and more than 90% below the all-time high recorded in August 2021, during the heat of the last bull run.

The firm told Blockworks that the prototype it delivered to the DOD is a private network running with HGTP functionality.

“Along with this, we have deployed a multi-author smart contract application within the commercial partner approval environment. This is a Civil Reserve Air Fleet partner that we cannot name,” a spokesperson said.

The Department of Defense also does not hold DAG or interact with the token, but Constellation intends to allow external partners to use DAG on their own federal networks in the future.

More broadly, Diggles said the defense’s receptivity to crypto itself has been mixed: “Many people in the U.S. military see the clear promise while others focus only on the nefarious activities associated with crypto to date.”

Changing that mindset requires education about the potential benefits of leveraging crypto for federal efforts, he added.

“While DOD has a higher priority around features like security and notarization, we have promoted the importance of cryptocurrencies being tied to data validation as much as possible.”

US military hot and cold on crypto

According to Constellation’s value proposition: establishing methods for scalable data security, validation and attribution within data pipelines can open opportunities for crypto in these systems.

It’s a pitch that harkens back to prominent projects in previous cycles, most notably IOTA’s quest to lubricate machine-to-machine communications with blockchain tokens.

In any case, Constellation said it has explored a number of crypto use cases with the DOD:

• Purchasing: Payments and Settlement Layers in Federal Procurement Workflows.
• Fractional Licensing: Real-time micropayments for licensing microservices.
• Secure system access: Gated identity systems unlocked with NFTs, such as regular access cards.

For now, it’s “one step at a time,” as the military isn’t going to entertain crypto until assurances in the technology’s base layer network are guaranteed, Diggles said.

“Those involved in Web3 solutions within federal know it’s a layer cake,” he said. “At the bottom you have security, in the middle you have automation of decentralized applications, and at the top you have cryptocurrencies to securely optimize workflows.”

Constellation hopes to commercialize the first two layers by focusing on what it sees as the biggest advantage of using blockchain networks: crypto as “real tools.”

The startup is not the only blockchain entity working to improve military capabilities in the information technology race.

Earlier this year, the US Air Force also poured $30 million into blockchain-as-a-service provider SIMBA Chain to further develop a supply chain quality and management system.

Updated 11 May 2023 at 10:32 a.m. ET: Added context about prototype.

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