Welcome to One Civil Affairs Podcast. I'm Lieutenant Colonel Brian Hancock, and I will be your host for this session. Today we have with us Lee Bratcher to discuss the importance of blockchain
technology and cryptocurrency. For those of you who don't know Lee Bratcher, he's the president and founder of the Texas Blockchain Council, an industrial association with more than 100 member companies and hundreds of individuals that seek to make Texas the jurisdiction of choice for Bitcoin and blockchain innovation. Formerly, Lee was a political science professor teaching the international relations with a research emphasis on property
rights. Lee also served as an ROTC instructor and civil affairs officer during his time in the US Army Reserves. Mr. Bratcher, welcome to the show. Thanks for having me, Brian. Looking forward to the conversation.
Quick disclaimer, a reminder to the audience that our remarks are solely those of the presenters and do not necessarily represent the views of the United States Army or the Department of Defense. Now, Lee, I want to thank our mutual frame, Major Giancarlo Newsome, for introducing us. He is a very interesting individual. I've gotten to work with him on a couple projects. Have you been able to work with Major Newsome on anything recently? I sure have.
Several years ago, he encouraged me to join the 75th Innovation Command, which is an Army Reserve unit supporting Army Futures Command. And so I got to serve on his team as innovation officers in in Austin. Now, what was this? One of the defense innovation units? I know we have one in Silicon Valley. Was this a branch that was out there? You know, we're building kind of an equivalent of Silicon Valley, I think in Austin. That's what I'm seeing unfold. It was that one of these defense
innovation units. I think not directly affiliated, but certainly in the same line of effort. OK, super. Well, we're here to talk about another important future of the world, which also has military implications, and that's blockchain technology. Now, how does 1 become an expert in blockchain technology? There are no degree plans necessary that there's no major in cryptocurrency. It is interdisciplinary by its very nature. So there's a bit of economics in
blockchain and Bitcoin crypto. There's certainly computer science and cryptography, and there's a little bit of philosophy in there as well. So you're going from the humanities, from business and from computer science, which makes it so interesting, makes it very difficult for anyone to be an expert in all facets of the technology. I would say I'm more attuned to the policy side, to the Economics and Business side. I'd understand.
And the way technology and programming languages move, I'm not sure anyone is an expert to for long Now when we think of blockchain technology, we have words like Merkel trees and things like that popping up. It's all kind of mysterious to me. So I'm going to read on the air a basic definition of blockchain technology for the audience. A blockchain is a distributed Ledger with growing lists of records that are securely linked together via cryptographic
hashes. Now I'll be honest, after reading this definition I have no idea what blockchain is. In your own words, can you simplify this and explain it to the audience? What is a blockchain and why do blockchains matter? Yeah, that's a great question. It's a decentralized distributed Ledger, as the definition said. But the way that I look at it, it's the next iteration of
double entry accounting. And we've had double entry accounting for 500 years, developed by Luca Pacioli Renaissance, so that the Medicis could trade across time and space and with actors that they didn't necessarily trust. And that served us really well as a society for many centuries. Block chains are the next iteration of that. They are triple entry counting, if you will, and they're really triple entry counting. There are nodes running the Ledger of value transfer all over.
So the Bitcoin block chain, there are thousands of nodes across the world. They're decentralized. There's no central authority or honeypot of data. The transactions all live updated every 10 minutes on the Bitcoin blockchain. And there's other blockchains, there's the Etherium blockchain. But the most important thing to know is that any blockchain is securing a Ledger of who owns what and the what is dependent on what the chain is.
So in the Bitcoin blockchain, it's Bitcoin, you're securing the Ledger of who owns what Bitcoin. And there's other ledgers that are, there's people that are tokenizing real estate and they may do that on the Etherium blockchain or on other blockchains.
And it's really tokenizing the ownership of an asset like real estate and allowing that to trade in a liquid fashion rather than sort of a syndicated fashion like a private equity, general partner, limited partner structure like most real estate is consumed and traded today. So it's just a more efficient version of value transfer, and it uses the rails of the Internet, and it avoids expensive intermediaries. One of the things that immediately strikes me is that
it's less inflationary. Since governments can't just turn on the printing presses and make a whole bunch more of these tokenized assets. I would imagine they hold their value a little bit better. Well, not all crypto is created equal. There are some meme coins out there that are just kind of crazy and founder can just mint
more of them. And the reason why they don't have as much value as Bitcoin or Ethereum or some of the more prominent ones is because the very reason the founder can mint more and generate inflation causes them to be nearly worthless. So I'd say 90% of crypto assets, digital assets or cryptocurrencies will trim towards 0 and 5% of them will trend towards massive market caps in the many trillions of dollars. So very much a divergent that's going to happen there.
OK, that makes sense. Let's go back to your statement earlier that blockchain technology for securing finance is like triple entry books as opposed to double entry accounting. Now, in double entry accounting, you separate intentionally your payables from your receivables to prevent collusion and conflict of interest. That can lead to cooking the books.
Right now, in triple entry accounting through a blockchain, what happens if, say, a group of hackers get together and they're able to suborn roughly 51% of the chain for an asset? Right. So if they're able to take control of 51% of the network and order the mining compute that is forming the next blocks, they can create false transactions or what I'll call fraudulent transactions in that they can devil splint. You have a physical asset. You can't devil spin it because it's physical.
If you give it to someone in a broader system, you can also give it to someone else because it's physical. They don't have it right. Conservation of masks. Got it. In digital assets, you can replicate things that are digital. Napster showed that pretty quickly. The thing against that is you're not allowed to devil spin. So I'll have one Bitcoin in my wallet and I try to send you one Bitcoin, but simultaneously I also try to send that Bitcoin to
someone else. But first transaction will go through, the second one will be cancelled. The nodes will not verify the second transaction because I don't have enough unspent transaction output to make 2 transactions of one Bitcoin each because I just had one Bitcoin. That is fantastic. I think we saw an example of some hacking groups in South America actually take control of 51% of the entries for one type of crypto coin. And the coins didn't get spent multiple times, but they changed
the ownership registry. So an enormous number of them were no longer owned by their owners, they were owned by these hacking groups. How do we protect against something like that? Yeah. So the smaller the blockchain recommendation is to just kind of avoid the long tail of smaller assets. You're not yet mature. And there's a lot of education to be done on self custody as well.
Because when we hear about like the Lazarus Group, which is the North Korean hacking group stealing a billion dollars of Etherium from buy bits, if I remember correctly, that happened just a few months ago. That was not the Etherium blockchain getting hacked. Those hackers didn't change the Ethereum Ledger. They were able to fishing and social engineering, get into the exchange and change the address to their own. That was moving a billion dollars worth of Ethereum internally.
It's incredibly impressive what those hackers did. Obviously tragic as well. They were able to steal that much. So very, very important to educate folks on the importance of custody and key management and things of that nature. Yeah, but the same is true of our electronic front systems today, right? So hishing and hacking to get folks access and verification information can be used to drain accounts.
So it sounds to me the Bitcoin isn't more susceptible to any of those types of human engineering ploys and the actual validation of the asset is actually more secure. So I think that might address one set of fears that some folks have that somehow these blockchain based assets are more susceptible to electronic theft. That does not seem to be the case. That's accurate. I mean, there's a lot of wire fraud out there and ACH fraud and and other kinds of fraud. It's really tragic.
What I will say though, is irreversible. Once you send crypto to a wallet, that transaction is on the blockchain and I'll be reversed, which is kind of part of the beauty of it. It's not censorable. I think that's important for the CA world to know is you guys operate internationally and sending transactions across borders seamlessly and with no fees. Pretty interesting, except, and we understand it so that we can use it to the strategic advantage of the West and also
be able to stymie bad actors. Firms like Chain Analysis and TRM and some of these other really, really adept digital forensics firms. Their biggest customers are the DODIRS and the Justice Department and FBI doing digital forensics for the US government all the time. And I think we got to lean into that level of knowledge the same way we leaned into the era of sanctions where the United States was able to kind of control global monetary policy in that way. Yeah, and many things are are
changing. It seems to me that digital currencies are inevitable. Printing hard currencies is kind of like dropping leaflets for SIOP. Great. At one point in time still has some applications, but the future's moved on. And I think most transactions today already digital, whether it's through a credit card, through a bank, through an EFT, a Zell, whatever. I suspect that people have become more and more comfortable with digital transactions.
I suspect, you know, probably over 90% of all of our transactions are digital today. So it seems inevitable that at some point before the Star Trek era, we're going to have digital currency. What needs to happen for us to effectively replace cash with digital currency? And what are the implications when that happens? Right. I would not be in favor of eliminating cash altogether, but I think what we will see is most transactions will move to stable coins.
And stable coins, we haven't really talked about yet, but those are just U.S. dollars that run on blockchain rails. So it's an asset that represents $1.00. And that dollar is held in a bank like Bank of New York now and holds a lot of the stable coin dollars, and it's always redeemable for a dollar. So a dollar's worth of stable coin is always redeemable for U.S. dollar. It doesn't change in value. It's always worth $1.00.
Just out of curiosity, are there cryptocurrencies like stable dollar that if you wanted to buy a basket of currencies crypto format, are there investments like that? Not that I'm aware of. 99% of stable coins are denominated in U.S. dollars, which is actually really good for U.S. dollar dominance and the dollar remaining the world reserve currency because you know, that's the asset that backs most of these is like short term T Bros.
There are a few like gold backed stable coins and make a very, very small percentage of euro backed stable coins, but I'm not really aware of one that's like a basket currencies. But what I would say is Paul Ryan, the former speaker of the House ruble good op-ed in the Wall Street Journal about a year ago about how dollars backed stable coins are being used all around the world. And it's a very good thing for AUS dollar dominance, the dollar and the world reserve currency.
There's about 200 Durham dollars worth of stable coins that are currently circulating globally. Why don't we hear about that? I'll admit, I feel like I'm a reasonably educated person, but this is the first time I'm hearing about that. That is a lot of money we're talking about right there. No, it would, but it's not in terms of like the amount of M2 money supply. It's not huge. I think there's a lot of room to grow.
I think 200 billion sounds like a lot, but I think stable coins will eventually be a trillion, multiple trillions. And most of the stable coin activity is actually demand from everyone outside the US who wants dollars. In most developing nations, there are more stable coin volume than there is like credit card volume. And even including the United States, stablecoins cleared value last month than Visa actually then then Visa and
MasterCard combined. And so if they're really quickly, but you know, a lot of Americans don't hear about it because we don't necessarily need it because we had the luxury of using the US dollar and having really sophisticated payment rails already. And so I don't necessarily use stablecoins, groceries or buy a a meal in a restaurant, but people all around the world are and that's because of the US
dollar. They won dollar back stablecoins and it's the best way to get it. And that makes sense. We've heard politically the current administration discussing potentially backing some of the US dollar with digital assets along this futuristic view that we've been describing. What I just heard you say, though, is that, well, that kind of has already happened, at least to the tune of $200 billion. So maybe this isn't such a radical departure from what's already happening in the economy.
Yeah, I think that's right. The stable coin piece is very important because stable coins were the 7th largest buyer of U.S. Treasuries last year if it was a sovereign. So they bought more Treasuries in Saudi Arabia and more Treasuries in France. There's only a few countries in the world that bought more U.S. Treasuries than stable coin issuers. And stable coin issuers are private companies, by the way. So as that grows, essentially that's going to be financing our
debt. And then the debt is of course in U.S. dollars. So it directly addresses that. Now you recently co-authored a book, I believe the title was National Security in the Digital Age. And in this book you advance a thesis that Bitcoin is in fact or should be a tool for modern statecraft. Can you walk us through your thesis there and what the evidence is to present that as a viable way forward for modern statecraft? Absolutely. So I would never submit that it would be the primary tool of
modern statecraft. I just that it would be 1 of many kind of a basket of tools, most of which we already possessed, which is economic might leading to technological might leading the military might. The whole of Dime is driven. Around energy as well. And so Bitcoin is interesting because it touches on two of those things. It touches on economic might and
energy. Bitcoin mining is the energy intensive process as everyone has heard about in the news and essentially allows you to create value with this computational process with these data centers. And a lot of these data centers also house AIGPUS as well. And so see that when someone says what is Bitcoin maxed by, I usually say it's backed by two
things. One, it's backed by energy and thankfully 4% of Bitcoin mining and the energy used to consume it is in the US. The second thing that bitcoins backed by is scarcity. That's principles like we talked about earlier in Austrian economics. And so as a tool for modern statecraft, you have two things. You have the energy component where AI and Bitcoin mining and having those resources and those data centers. You know, data is the new oil certainly.
And so compute is also kind of the new oil and that's at the intersection of turning hydrocarbons in the energy and electricity or renewable sources into electricity. I don't really care. Move a little grade 2, right, All the above. We just need more energy and and that's one piece of national security. The other is to do kind of the lowest bet in the woods world. It would be nice if the wet in the woods era lasted for another century. But that's not going to.
Happen. It's unlikely you and I both agree. So in that post Bretton Woods world, we want the dollar to be the reserve currency for several more decades. We've already talked about that quite a bit. Bitcoin is going to overtake gold by market cap. The nation that has the most Bitcoin on their balance sheet will be that central bank.
The other central banks will want to hold that currency and it will prove to be as influential for us as the Petro dollar has been in the last 50-60 years is to say massively influential on the global stage. Talking about civil affairs, even though you're in the IRR, you're still in our branch, so you're still a civil affairs officer and we have a very important mission both at home and abroad.
You've mentioned throughout the show a couple of examples where blockchain could be used for civil affairs application. What other use cases, particularly perhaps novel or exotic use cases, can you think of where our civil affairs professionals could utilize blockchain technologies to to
make the world a better place? Yeah, I'll shout out my 75th Innovation Command colleagues because there was recently a press release from the 75th Innovation Command related to blockchain based tracking for sensitive items and foreign military sales. And this is all public information out of the live pilot sounds like. I mean, a couple years ago when I was working with them, they were really doing good work on the foreign military sales front
and excited. They're tracking sensitive items, tracking things from through the logistics process, through the handover process to foreign militaries. That is a really, really cool use case and you can't do it with like every piece of munition, but you can prioritize certain items that are quite sensitive. Yeah, absolutely. Or a certain price point. I think about some of the concerns as we deliver munitions to struggling countries, using Ukraine as an example.
Where there's concerns, well, maybe they're not always being handled in the way that we intend as as the giver. But with these zero knowledge capabilities you're describing, it seems like we could have some extra low cost checks on the system that will inspire confidence for everyone involved. I agree. And and just to shout out, Major Gaudiat of the 75th was the one who really spearheaded that program.
And you can look at the press release, the headline of 75th Usurrex Serger develops a blockchain solution to revolutionize the military supply chain. So. Wow, brilliant. Pretty cool stuff. That is very cool. Let me ask you one final question. We've talked about a couple of hypothetical future scenarios kind of led that process. I'm going to turn it over to you. What do you, as an expert in this field see as the future of blockchain technology?
Where do we go from here? I think it's so broad that there's different categories, if you will, buckets that I put this in. You've got Bitcoin, which we talked about quite a bit on the show, which is the most important of stable coins, which is another extremely important bucket from the national security perspective with maintaining dollar dominance. And then you've got business
applications for blockchain. You've got people building decentralized applications and all sorts of innovative financial services products, tokenizing money market funds and real estate and all kinds of business operations. And then you have kind of what I'll call like the enterprise blockchain side where you're tracking sensitive supply chain items or proving the provenance of different maybe carbon
credits or something like that. There's four buckets just in that alone where I could see each one of them taking out a life of their own and really transforming the world. That's that's really exciting. I'm going to have to think about this quite a bit and probably listen to our own podcast a few times to absorb it all. I really appreciate you coming on the show, Lee. This was fantastic and I know the listeners are going to appreciate it as well.
Any final parting thoughts? Just so I appreciate your service Brian and and all of those who are are listening and just hoping and praying that they're are safe. And yeah, just wanted to make sure that they can know happy to for them to reach out to me. I can be connected to them to answer any questions about blockchain that they have them. Thank you, Lee. I really appreciate your time.
Thanks for listening. If you get a chance, please like and subscribe and rate the show on your favorite podcast platform. Also, if you're interested in coming on the show or hosting an episode, e-mail us at ca.podcasting@gmail.com. I'll have the e-mail and CA Association website in the show notes. And now, most importantly, to those currently out in the field, working with a partner nation's people or leadership to forward US relations. Thank you all for what you're
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