Economic Cypherwar is about to get HOT

Posted on March 5, 2013


If you weren’t watching, Bitcoin just went through the ceiling, if not the roof. More specifically, it hit a $40 ceiling (at time of writing), rising 35% in 10 days:

Chart of last 10 days Bitcoin MtGox vs GBP

What goes up

If you believe this forum post, one single party just bought up $1m worth of currency, which has been pushing the price for such a trend recently. What’s amazing is not whether that’s true or not, but firstly that it’s believable, and secondly that it is, in all likelihood, not a rarity but the start of a repeatable wave.

Big players are starting to get interested. Recent news articles have noted how Bitcoin could be used by Iranian people (with caveats) to skirt around imposed currency and trade sanctions (in the same way that governments are starting to swap and physically re-horde their gold).

Bitcoin is the new “economic protocol” of interest, and its inherent value – ie. its P2P pseudo-anonymity – is what big investors will be interested in. The smart folk understand that getting money isn’t as important as controlling the factors which influence it.

My initial theory on the rise of value was slightly different – I imagined the sustained interest coming from a country or state level. But the reasons would be the same, as would the effects: a dramatic change in attitude towards the future of Bitcoin. Whatever the cause (likely bank or state), somebody is starting to take the currency as seriously as GBP, USD, EUR and the rest.

All this means that states and large organisations are about to get Very Serious Indeed – and state approaches to monetary control can and will be rapidly dragged into this century. Cryptographic software is often classified as “munitions” for a reason, and the tying of strong crypto to economic policy means one thing – the Bitcoin network needs to be strong enough to host a war.

In the build-up, here’s what each state will bring to the table:

1. Hardware: Supercomputers capable of mining, sure – although really only reaching 51% of the network resources makes a “direct” attack credible.

More likely states will need to vie for computing power to prevent someone else colluding and taking over. Additionally, states will be very interested in network-analysis-techniques/infrastructure to see what transactions are going on, and whether any “interesting” activity is happening elsewhere, or over time.

(See this forum thread for a recent, temporary spike in power coming from China.)

2. Software engineering: Improving the performance of a Bitcoin client for your own hardware doesn’t have
to be an open effort just because the official “Satoshi” client is. When algorithms become a form of influence, you can bet that states will be interested in developing their own, private “upper hand” behind the scenes.

(Combined with the heavy hardware above, you have to wonder where this leaves individuals with GPUs or ASICs…)

3. Hardcore Anti-Sec: Realistically, it’s prudent to assume that “public” crypto (i.e. anything available to download or buy) is crackable by a determined state. PKI existed years in secret before it was discovered openly. (Fascinating interview with the GCHQ guys here.)

The clincher, though, is that a state can’t reveal it can crack something without people knowing that they can do so – it has to be tied into correlating (or faking) other evidence that “masks” this ability. There’s always a kind of “bubble” of cryptography then, in which we never rely solely on a single crypto device, but accept it as useful for 99% of our activities.

On an individual level, anyway. But at the higher, state-involved, cypherwar level, being able to crack or “influence” network traffic becomes a useful tool. Often, being able to take down or know everything about a “public” system like Bitcoin is pointless – far better to pick up on a certain percentage of traffic while remaining untraced, or a small minority of high-priority, targeted traffic, like pressure points in the body.

In short, states probably have – or can have – the resources and motivation to comprehend not just how to attack the Bitcoin network, but to use and influence it to their (wider) purposes.

For me, what so fascinating about Bitcoin is its fundamentally “two-faced” nature, split between the “private” (the pseudonymity, routability, etc) and the “open” (network activity, protocol, etc). Its genius is that the individual can be protected, while at the same time the system, as a whole, can be audited. For Bitcoin, it is the Network which must survive, more than any single entity within it.

In cypherwar terms, this is the ultimate in a transparent battle. Where physical war “embeds” news reporters and shuns Wikileaks, virtual war in the Bitcoin world can largely be monitored by everyone in real-time – from network hashing rate to transaction activity and more – all without propaganda.

Time to buy more popcorn.

Posted in: Finance, Opinion