The Pentagon is spearheading a new program in order to deeply look into different types of cryptocurrencies and find out what kind of risks they could pose to national security and law enforcement, a Friday report published by The Washington Post disclosed.

The Defense Advanced Research Projects Agency, the research and development arm of the United States Department of Defense, intends to examine distributed ledger financial applications.

As part of the program, the Pentagon and DARPA have enlisted the services of Inca Digital, a provider of digital asset data and analytics, for a one-year collaboration to investigate national security risks posed by cryptocurrencies using sophisticated tools to provide a more critical appraisal of crypto markets.

A cryptocurrency is a digital asset used as a medium of exchange, where the ownership information is held in a register in the form of a securely encoded digital repository that saves transaction records, regulates the creation of new currencies, and validates the transfer of ownership of that currency.

Inca Digital and the Pentagon will embark on a project titled “Mapping the Impact of Digital Financial Assets” that aims to develop a “cryptocurrency ecosystem mapping software” for the U.S. government and commercial enterprises.

Adam Zarazinski, the chief executive officer of Inca Digital, stated that his company will assist the government in better comprehending how blockchains operate. The initiative is also intended to make it simpler to identify bitcoin frauds and illicit trading activity.

DARPA will collaborate with Inca Digital on the development of a “first-of-its-kind” crypto mapping system under a Phase II Small Business Innovation Research (SBIR) contract, according to a Pentagon statement.

Zarazinski stated that, given the growing prominence of crypto assets, the Pentagon and other government agencies “require better tools to comprehend how digital assets function and how to use their jurisdictional power over virtual currency markets around the world.”

DARPA has examined blockchain technology for a number of years, both for its potential ramifications and as a practical method for its own goals. It teamed with Trail of Bits in June this year to assess the degree to which blockchains are decentralized and to detect their weaknesses.

Meanwhile, there are already more than 12,000 cryptocurrencies, and the growth rate is simply astounding. From 2021 to 2022, the number of cryptocurrencies more than doubled. At the end of 2021, around 1,000 new cryptocurrencies were added to the market each month.

Joseph V. Micallef, a best-selling military history and world affairs author, identifies three ways in which crypto currencies could affect U.S. national security, in a Military.com article.

First, Bitcoin and other cryptocurrencies are easier to “launder” than cash, or convert into other assets.

Second, the introduction of digital currencies signifies an immense wealth shift.

The third and most significant threat to U.S. national security is the effects of digital currencies on the U.S. dollar’s standing as a reserve currency.

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