Weaponized interdependence and the promise of cryptocurrency

A networked world makes for new, networked forms of power. Messages and memes jump physical borders and shift perceptions. Businesses as well as political movements can come together at great distances over a shared interest. A credit card can be accepted by a smart phone, as long as it has a connection.

But the interdependent world we live hides a shared vulnerability.

The convenience of instantaneous communication and commerce creates reliance on the underlying system. In turn, that gives power to the organizations that operate the systems, and the governments that influence those organizations.

This dawning reality of interdependence can be exploited by a nation to achieve political power. Interdependence can, like so many things today, be weaponized, and turned against another nation.

Weaponized interdependence explains a lot about democracies’ anxiety around Huawei today. If we accept this network into our nation, we accept China’s ability to peer into Australia’s communications, or, in a crisis, China’s ability to cut off Australia’s communication.

The term for the former is the “panopticon effect”, the term of the latter is “chokepoint effect” according to political scientist Henry Farrell and professor of government Abraham Newman, who have written a paper about weaponized interdependence.

A Panopticon prison in Cuba – Photo: I, Friman/CC

A panopticon is a type of institutional building that gives an authority a view outward into all the rooms of a housed population, like in a jail or factory. In turn, this gives centralized power to the watcher that the others lack.

The “panopticon” is the view that the US signals intelligence has had through cooperation by US telecom companies. Likewise, it’s the view the CCP would have of users of WeChat and associated social media/payment systems.

The internet, and the Society for Worldwide Interbank Financial Telecommunication international financial communication system are examples of networks that offer a panopticon view.

SWIFT has become an effective tool for peering into the world’s financial affairs, imposing and enforcing sanctions, and blocking terror funding. To date, SWIFT has a monopoly on reporting financial transactions. To be kicked out of it, as some Iranian and Russian banks have been, is to be cut off from the rest of the financial world.

That’s an example of “chokepoint” effect, and it’s how the US imposes sanctions on Iranian or Russian companies.

Contrary to belief that globalization naturally decentralizes power, Farrell and Newman conclude: “Complex interdependence, like many other complex systems, may generate enduring power asymmetries.”

Hence, concerns today about Huawei’s building communication network infrastructure in democracies today. The fear is that we one day wake up in a world where Beijing has a structural and insurmountable homefield advantage, even within democracies.

Likewise, for years, complex interdependence has created anxiety in China and Russia on the issue of US oversight of the internet.

This explains why so much of China’s Belt and Road plan is about pushing Chinese technological standards abroad. Eventually, those standard can get accepted into the deepest levels of a nation’s infrastructure, giving lasting advantage and power to Beijing.

“Asymmetric network structures create the potential for ‘weaponized interdependence,’ in which some states are able to leverage interdependent relations to coerce others,” the report’s authors write.

“Specifically, states with political authority over the central nodes in the international networked structures through which money, goods and information travel are uniquely positioned to impose costs on others.”

For Western nations, seeking to head off the danger of a CCP-controlled Huawei, they might also want to cast an eye at another form of disruption being embedded into their economies and political societies — cryptocurrency.

In an era of digital change, it’s somewhat inevitable that digital currencies would be invented.

But when you ask what the practical purpose of a truly decentralized digital currency could be, among the most obvious answers is: it lets users avoid using a payment systems like SWIFT.

A decentralized digital currency (with no regulatory reporting) would essentially allow users to transact outside any system’s panopticon.

In fact, Farrell and Newman write that Russian frustration with US sanctions “may help explain Russia’s apparent reported interest in creating a blockchain based payment system for the Eurasian Economic Union and other states interested in signing up…a blockchain ledger for financial transactions could mute chokepoint strategies.”

Director of analysis for the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance Yaya J. Fanusie has already acknowledged the Russian and Iranian interest in creating a parallel payment system to get around sanctions.

For such a currency to live up to its global potential, it would need users everywhere. Cryptocurrency needs uptake – even in the wealthier West. To get that, you need a motive for using a type of currency that runs outside the panopticon network. Bitcoin’s reason d’etre is seemingly inscribed in the code: it’s anti-state, anti-government and anti-bank.

As Professor David Golumbia puts it, Bitcoin itself is software “as right-wing extremism.”

Just look around today at who champions and uses cryptocurrency.

As I wrote in The Age: “Cryptocurrency is the coin used by Russian hackers…Non-state anti-establishment group WikiLeaks helped publicise cryptocurrency. Organisations formed in support of the Russia-based ex-National Security Agency contractor Edward Snowden accept cryptocurrency as well.”

These are just the early-adopters.

A recent US media article highlighted the ability for people to donate to starving Venezuelans via a currency untethered to the nation’s existing payment networks.

On a network, information goes in both directions. A crowd-sourced crypto donation to Venezuela can easily be reverse engineered to be a crowd-sourced theft by, say, creating a fake cause and selling it to a sympathetic crowd. In this context, using false information to raise funds off real people is a novel application.

Using cryptocurrency to shift it around would seem to be a no-brainer.

Whether the adoption of decentralized cryptocurrency matures into a permanent alternative to mainstream banking is another question. It’s already called an “alt-currency” by some.

If it becomes entrenched, this “alt-currency” can form the lasting basis of extra-legal economy and payment system, functioning like a parasite on the side of our existing one.

My hunch is that people somewhere are already working on this possibility. The goal would be to create the basis for payments – and in fact, an alt-economy – that is free from the peering eyes of Western (read: law-based) regulators.