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.

Like a magnetic field the China-US split spreads

Although the timing behind the decision remains unclear, a top US intelligence adviser has had to step down because of his association with China’s telecommunication giant Huawei.

Theodore Moran has resigned as an adviser to US Director of National Intelligence, after pressure from Republican congressman Frank Wolf – the man behind the restriction on NASA’s bilateral contact with China’s space agencies.

“It is inconceivable how someone serving on Huawei’s board would also be allowed to advise the intelligence community on foreign investments in the US,” Wolf wrote to US Director Of National Intelligence James Clapper.

Moran claims he has been transparent and the information was known for some time. It may be that the ground has shifted beneath his feet. The view of Huawei as another telecommunication company has been eclipsed by the view of Huawei as the long arm of the People’s Liberation Army. And this pivot of views on matters Chinese has traveled to other areas as well: space technology, East Asian diplomacy.

In the case of Huawei, the chorus of US voices singling it out as a national security threat have been growing, even as the US has refused to provide details. One snippet in the Australian Financial Review gives a clue:

“The Australian Secret Intelligence Service allegedly had an asset who was working with Huawei executives in Yemen in or around 2011. He reported consistent ‘irregularities’ in the behavior of its Chinese engineers. Following discussions with the CIA about the matter, the agency informed ASIS that one of the Chinese engineers was actually an active PLA officer.”

But the broader trend between China and US is in place. On issues like trade and business, the goods and services keep flowing. But increasingly issues at the margins like Hauwei, or like cyber-security, or the East China Sea, or media freedom in China, the two powers have grown more negative.

For a long time, the US had every reason to trade with China. Now the US needs to lift its wages and so the mantra of cheap goods doesn’t even have the same luster. Further, if China’s military is on an aggressive footing with the US, what incentive does the US have to make China richer through trade? The only thing missing is a way for the US to slip out from economic dependence on China.

But for now, it’s like the polarity of a magnetic field reversing – the force is invisible and yet its effect is clear and measurable and felt everywhere at once.

Huawei’s push for influence in Australia

The Chinese telco was barred from participating in Australia’s National Broadband Network in 2011 on national security grounds. Since then, Huawei has mounted a robust campaign to improve its Australian public image, hiring a number of household names from the political and defense world including an ex-foreign minister, an ex-state premier and a former admiral.

Australia is part of the Five Eyes intelligence sharing group, made up also of the Canada, New Zealand, the UK and the US. On the surface, Huawei’s deeper involvement in Australia’s sensitive telecommunications infrastructure could potentially pose a problem, weakening a link in the Five Eyes members.

According to the article, Huawei has been spending particularly on courting the opposition Liberal party in the hope of getting a second chance, if and when, they came back into power in Canberra.

The impact of Ed Snowden’s bombshell disclosures

I’m not sure what impact Snowden’s leaks/whistleblowing will have on reforming US domestic surveillance. However, the Snowden leaks have revealed US intelligence operations in Hong Kong, Germany, UK and Brazil. These bombshells will continue to be drip-fed to the global public, creating a sort of touchtone of irritation between the US and many other countries.  The information will highlight the perceived hegemony of the US in the new online sphere, irritating activists, governments and opposition governments.

At the same time, back home in the US, the Electronic Frontier Foundation, has struggled to spark a national debate about a surveillance state. At last count, a petition demanding that Congress take the NSA to task for the lack of oversight on these programs garnered only 500,000 signatures – and it’s not clear how many of those were American. That’s 500,000 out of a nation of 310 million. Director of National Intelligence James Clapper has also apologized for lying to Congress. 

But at this point, the bigger impact so far is clearly to US relations abroad. Already there have been calls in China to ditch US-based Cisco as a provider of internet infrastructure. These threats to the overseas business of Cisco come after the US barred Federal agencies from using Huawei infrastructure and routers, in the months before Snowden began leaking to the media. Australia has done the same thing.

But why? The implication at the time was that Huawei would build spyware into the equipment that could be used against foreign governments. However, a better, more nuanced explanation can be found in the book, The New Digital Age:

In the future, superpower supplier nations will look to create their spheres of online influence around specific protocols and products, so that their technologies form the backbone of a particular society and their client states come to rely on certain critical infrastructure that the superpower alone builds, services and controls.

If Huawei is the provider of underlying internet backbone technology in a given country, Huawei will have more influence over what kind of products flourish there.

The book goes on:

There are currently four main manufacturers of telecommunications equipment: Sweden’s Ericsson, China’s Huawei, France’s Alcatel-Lucent and Cisco in the United States. China would certainly benefit from large portions of the world using its hardware and software, because the Chinese government has dominating influences over what its companies do.

In a political crisis, this has great implications, with a Chinese company having few qualms about aiding a local government in suppressing the communications and organization of a rebel movement, for example.

The irony of course, is that without further reform in the US, American companies have dominating influence over what the US government does. In fact, The New Digital Age is essentially written by Google (the chief executive Eric Schmidt and ex-State Department guy, now Google Ideas head, Jared Cohen.) But as has been noted elsewhere, we are at a stage where the nature of the technology has the US government following the lead of private industry (VF).

The passage continues: “Where Huawei gains market share, the influence and reach of China grow as well.”

Employing some Googlesque wording, the book notes:

Technology companies export their values along with their products, so it is absolutely vital who lays the foundation of connectivity infrastructure…If, for example, a Chinese client state uses its purchased technology to persecute internal minority groups, the United States would have very limited leverage: Legal recourse would be useless. This is a commercial battle with profound security implications.

The New Digital Age gives the example of China building cyber influence in Africa.

China has been remarkably successful in extending its footprint into Africa, trading technical assistance and large infrastructure projects for access to resources and consumer markets, in no small part due to China’s non-interference policy and low bids. Who, then, will those countries likely turn to when they decide start building their cyber arsenal?

In fact, the books points to an ongoing, low-grade cyber war emerging between states, with countries grouped together by both their political allegiances and the source of their technology, which sometimes clash but often go hand-in-hand.

In the wake of Ed Snowden’s leaks to media, which The Guardian can, at their leisure, distribute to the world, there will be more impetus than ever for countries outside the US to build and search out alternatives to US dominated internet infrastructure.

If anything, global backlash from Snowden’s disclosures may accelerate the demand for more US-free alternatives in internet infrastructure, applications and even social media. But for the countries that continue to rely on US services and technology, there will be the tacit acceptance of the US sphere of technological influence.

In time, we will see if this is another sign of the balkanization of the internet and the eventual balkanization of internet technology.