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Cyber Battlespace Pt 3 – Digital Currency

Waging war, in any form, is expensive. Weapons, ammunition, logistics and pay all contribute to the massive cost of conflict. It’s hardly surprising, therefore, that operations targetting valuables from Spanish doubloons to Nazi gold have always been a feature of warfare. In cyber battlespace, there are new opportunities to wage financial warfare.

The obvious first strike is already common enough and that is attacks on online financial transactions. Annoying though it may be for someone to have their credit card stolen or to lose money due to a phishing attack, these events are not going to generate the sort of cash needed to fund war although they might go some way toward facilitating a terror attack. Far more lucrative targets are the servers of the big banks but, by and large, these are ‘hard targets.’ However, reputational risk to the conventional banking system serves to undermine people’s confidence in it and this might well be the ultimate goal of such attacks.

The rapidly evolving area of digital currency makes a great potential source of funds as well as the ability to step around the controls of nation states. It also offers the ability to disrupt and destabilise existing physical currencies through tax avoidance, rate manipulation and much more. In the absence of a gold standard, the default base currency tends to be the US Dollar. An attack on its stability and reliability, such as was outlined in the excellent fictional work by Andrew Watts, provides a platform for pushing people and institutions toward digital currency. If, as Watts described, that coincided with the ability to tap non-invasively into the undersea cables that carry the transaction data, the potential exists to manipulate the value of the currencies.

There are hundreds of different digital currencies in existence although most will be familiar only with leading ones such as Bitcoin (the world’s first cryptocurrency) and Ethereum. The latest joiner is Facebook which has announced its own currency. There’s a few common links in these currencies. First, a user has to install a ‘wallet’ – essentially the software that enables you to buy, hold and sell your currency. Some are ‘heavy’ i.e. a large application is loaded on to your computer. ‘Light’ wallets rely more on the cloud for functionality. Exchanges exist in cyberspace to convert cash to digital currency and vice versa.

A term that baffles many is Blockchain. This is the technology underpinning Bitcoin that provides security and transparency to transactions. Instead of using a trusted middle-man like a bank, customers and suppliers can connect with confidence using Blockchain. It has huge potential use beyond Bitcoin. Its integrity is therefore paramount and this makes it a potential cyber warfare target.

Since the investigation into drug trafficking on ‘Silk Road’ (the website not the Chinese economic strategy), digital currency has become connected in the public’s mind with crime. It is fair to say that international criminals do use digital currencies as a way of doing their business and for its assumed anonymity. However, based on advice from Bitcoin, it is only truly anonymous if a user opens a new account for every transaction. Other currencies have focussed more heavily on this side of their coding.

One report suggests that transactions on the dark web will reach $1.5b this year. Given that this is estimated to represent only 1% of all digital currency transactions the scale is clearly huge. Crime still accounts for much digital currency activity with illegal drugs leading the way, but it is declining overall and legitimate transactions are on the rise. It’s possible to buy coffee in some cafés with these currencies! Based on these and other trends it seems likely that digital currencies will become normal and that is when the real potential for economic and financial cyber warfare arises. An inter-governmental organisation called the Financial Action Task Force has been mandating strict conditions about ‘know your customer’ amongst other measures.

Many countries are already working on the military potential of crypto/digital currency while, in New Zealand, the focus has remained firmly on cyber security. It’s pleasing to see the latest announcements about strategy and better resourcing but I believe that this element of our national security strategy probably needs to be a public-private partnership. The sort of people that are attracted, for instance, to join the NZ Defence Force full-time are not the core of what is needed in a cyber warfare force and using the Reserve Force will probably garner more interest. An interesting example of how civilian tech companies can be harnessed is provided in the US through the company In-Q-Tel. It seed-funds interesting start-ups that have defence potential using money from several government agencies such as the CIA. Australia has recently announced its intention to establish a cyber warfare research centre.

There is much to do and relatively little time to prepare for warfare based around crypto-currency. Takes me to the song “Can you spare a dollar for a hero?” from the movie “Special Correspondents.”

PREVIOUS: Cyber Battlespace Pt 2 – Undersea Cables

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