Defense Dept. Explores Crypto Use Cases With Blockchain Startup Constellation

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

The Defense Department, or DOD, has just finalized 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 keen focus on processing big data. Its infrastructure is pitched to support decentralized data marketplaces and maintain data provenance and integrity.

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

The US military eyed Constellation as a way to modernize the cybersecurity 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 explore whether the blockchain could provide “a secure way to effectively and efficiently transfer confidential data across our Defense Transportation System commercial airlift partners without sacrificing cost or speed,” Christopher Stuhldreher, UASF senior cyber operation analyst, said in a statement.

Phase III, meanwhile, will look at commercialization based on prior phases without any limits to contract duration or value. A Constellation statement said its prototype was “defense-approved”

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

Data is paramount to federal communications, he explained. Refining how that data is shared has big potential to impact 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 is as well as the ability to secure end-to-end data pipelines,” Diggles said.

Look to the stars

Constellation is the architect of what it calls the Hypergraph Transfer Protocol (HGTP). It’s a tool for Web3 developers to encrypt, authenticate and handle data across various digital platforms. 

The HGTP is to blockchain what the 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, mint tokens on its blockchain system, “Hypergraph.”

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

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

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

The Defense Department isn’t holding DAG or interacting with the token, either, but Constellation intends to allow external partners to use DAG on their own federal networks in the future.

More generally, Diggles said defense receptivity to crypto itself has been mixed: “Many folks within the US military see the clear promise while others only focus on the nefarious activities tied to crypto to date.”

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

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

US military warm and cold on crypto

As per Constellation’s value proposition: establishing methods of scalable data security, validation and attribution within data pipelines could open opportunities for crypto within those systems.

It’s a pitch that harks back to prominent projects in cycles past, particularly IOTA’s quest to grease machine-to-machine communications with blockchain tokens.

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

• Procurement: Payments and settlement layers in federal procurement workflows.
• Fractionalized licensing: Real-time micropayments for licensing microservices.
• Secure system access: Gated identity systems unlocked with NFTs, for example common 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 on the top, you have cryptocurrencies to securely optimize workflows.”

Constellation hopes to commercialize those first two layers by focusing on what it sees as the largest benefit of using blockchain networks: crypto as “true utilities.”

The startup isn’t the only blockchain unit working on enhancing military capabilities in the information tech race. 

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

Updated May 11, 2023 at 10:32 am ET: Added context about prototype.

---

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.