HOW MUCH BITCOIN FOR A TRUCE?

HOW MUCH BITCOIN FOR A TRUCE?

By Agata Chmiel

On December 3rd 2017,Venezuelan President Nicolas Maduro declared a financial“world war [1] against the countries imposing economic sanctions on Venezuela. For this purpose, he is launching a new cryptocurrency [2] called ‘petro’, which is to “advance in issues of [Venezuelan] monetary sovereignty” [3]combat “Washington-backed conspiracy to sabotage his government [4]”, and to “overcome the financial blockade [5]”. Should Maduro’s plan work out, then we’ll have a first example of cryptocurrency’s usage in international diplomacy.

Wait, what? Let’s start from the beginning.

While, cryptocurrency is not an entirely new term, some of us may have woken up on January 1st with a sense of epiphany – “must buy bitcoin”. Ever since early December 2017 [6] ‘bitcoin’ suddenly became a headliner [7] and possibly the subject of many Christmas dinner conversations. And there’s a good reason for it. Bitcoin is the first decentralized digital currency, whose price evolved from 39 cents to over $18,000 in eight years. That brought much joy to those who invested in it years ago, and an interest to those, who dream of good fortune. What is even more important, is that ‘bitcoin’ is only a tip of the cryptocurrency’s ice berg. Currently, there are 1384 cryptocurrencies operating in the blockchain industry [8]. What do those numbers give us? Concern. From socio-ethical to legal areas, the emergence of cryptocurrencies has begun to raise questions, even in international politics and security. It is thus important to address some concerns now, before the issue implodes.

One concern is that the lack of any central authority makes cryptocurrencies resilient to formal regulation (though, China and South Korea may be changing that in the future [9]), censorship or inflation. Therefore, they are attracting a continuously wider interest. This includes those who enjoy that this currency is particularly difficult to trace back to a physical person, think drug or weapon dealers [10]. As Maduro’s innovative plan is showing, cryptocurrencies may even become a trading card in politics. Just imagine that in a world of embargos and trading sanctions that aims to keep ‘ill-behaved’ political leaders in check, there is an effective way for those leaders to move assets as freely as they please online. North Korea is the prime example here. Last year, the Cyber Warfare Research Center in South Korea reported that North Korea “may be targeting the virtual currency in response to heavier economic sanctions”[11]. Apparently, the State is an origin of many cyber-attacks that have targeted bitcoin exchange platforms in Asia.

In addition to cybersecurity, Gleason and Costigan from the Diplomatic Courier are warning about cryptocurrency becoming one of the means of (deliberate) disruption of international or regional economy [12]. It could be a process complicating or hindering transactions among multiple states and parties. Going back to the North Korean example, it is worth to use the prediction of Andy Norton, a threat intelligence expert quoted by Newsweek [13]. He says that “[bitcoin] is like a black hole attracting bad actors and dirty money from all around the world. If North Korea [is] using it to avoid sanctions, it could lead to a coordinated response by various governments to shut down access to those funds locked in bitcoin”[14].

In a research done already in 2014, International Journal of Computer Applications published an interesting article, warning about the ‘amazing blur of security’ that cryptocurrency (there: bitcoin) seems to provide. The authors come to a conclusion that if a cyberattack on bitcoin’s or another digital currency, network is successful, then “the chaos created in network (…) is difficult to handle and some changes done by the attacker might become permanent”[15]. Should we look (not too far, I believe) into the future, then we might see a double – sided threat to security that this regime could bring. On the one side, a successfully working cryptocurrency with large investments may be significantly disrupted by a cyber-attack[16]. On the other hand, the cryptocurrency itself may be used as a well-orchestrated means to trade illicit items, including weapons, without the possibility of tracing it back to governments or individuals.

So, where do we go from here? The predictions on overall future of cryptocurrencies are still ambiguous, from very good to very bad. This is rather unfortunate for international security because every ambiguity tends to slow down possible prevention processes. However, it cannot be said that this entire space is without any scrutiny. First, the Wired calms down cryptocurrencies’ users about potential cyber-attacks by arguing that, with some basic online precaution, our investments should be secure [17]. Second, the MIT Technology Review suggests that governmental and banking sectors will not to allow cryptocurrencies to steal their monopoly on power [18]. Further, the Review claims that “it is very hard to come up with a technology that will completely hide transactions from governments”[19].

At this moment, it is difficult to judge whether those arguments are convincing in light of the rising concerns. Surely, cryptocurrencies, as any innovation for that matter, is a matter of two sides. They can either be considered as an ‘opportunity’ or a ‘threat’. In perspective of international security, it will be up to legislators and diplomatic strategists to determine which of those two aspects prevails.

Sources:

[1] https://www.washingtonpost.com/news/worldviews/wp/2017/12/04/venezuela-says-its-in-a-financial-world-war-and-wants-to-fight-back-with-its-own-digital-currency/?utm_term=.6535f14a058a

[2] whether it’s an actual cryptocurrency or not is a whole different issue, I recommend: https://www.forbes.com/sites/francescoppola/2018/01/08/venezuelas-cryptocurrency-isnt-really-a-cryptocurrency-at-all/#62bab5126cbe

[3] https://www.washingtonpost.com/news/worldviews/wp/2017/12/04/venezuela-says-its-in-a-financial-world-war-and-wants-to-fight-back-with-its-own-digital-currency/?utm_term=.6535f14a058a

[4] Ibid

[5] Ibid

[6] https://www.ft.com/content/a72a61dc-e6f2-11e7-8b99-0191e45377ec

[7]http://www.businessinsider.com/bitcoin-price-factor-could-be-social-status-2018-1?international=true&r=US&IR=T

[8] For the sake of comparison: there are 180 world currencies (UN recognized)

[9] https://www.coindesk.com/report-south-korea-eyes-joint-crypto-regulations-with-china-japan/

[10] http://theconversation.com/bitcoins-surge-intensifies-need-for-global-regulation-of-cryptocurrencies-86893

[11]http://www.newsweek.com/north-korea-hacking-war-bitcoin-exchanges-part-biggest-global-sting-752161

[12]https://www.diplomaticourier.com/blockchain-cannot-blocked-cryptocurrency-international-security/

[13]http://www.newsweek.com/north-korea-hacking-war-bitcoin-exchanges-part-biggest-global-sting-752161

[14] Ibid

[15] http://research.ijcaonline.org/ncwbcb/number2/ncwbcb1414.pdf