Blockchain technology and tokenization are being utilized in processing federal grant payments by the US Treasury Department, according to a report by Federal Computer Week. The Treasury Department is completing tests on a new tracking system executed on a blockchain network to tokenize electronic federal letters of credit to grant recipients, which would facilitate the management and improve the security of this process.
Craig Fischer, an innovation program manager from the agency, presented the potential of this new blockchain system in this aspect at a conference focused on the digitization of federal financial systems. Through the mechanism of tokenization, a typical cash transaction from the agency to recipients would be replaced by the exchange of a token which represents the transaction. This token would also encapsulate the necessary data required in the transaction, for example, the identity of the grantee, the represented transaction amount and more.
However, Fischer also explained that in order to receive these tokenized letters, grantees will need to own a digital wallet which is tied to their bank accounts.
“If you look at this from a government-wide perspective, data standardization is critical. So what we’ve learned is ‘can it improve this?’ Tes, but not right now because there would need to be a massive standardization effort that would have to take place across the government for blockchain to be an effective tool for managing and tracking software licenses,” Fisher said, when asked on the progress of their testing.
This project began in September 2019, and the testing phase is expected to finish at the end of this month. This research is being carried out with assistance from the San Diego State University, Duke University, and the National Science Foundation.
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