The Ukraine/Russia Conflict and the Balkanization of Tech
Disclaimer: The views expressed here are my own and are not the views of my employer.
From having seen the sanctions imposed by the West on Russia because of its Ukraine invasion in early 2022, there’s a lot of lessons to be learned by the large nation-states of the world. The breath of the shutdowns and the speed of their implementation means that any actions that self-respecting powers need to take must be planned and implemented well ahead of when policy differences might arise. The risk is that they can be beaten down by the West, and unlike nuclear weapons where once used, the recoil was so strong that they have not been, in all likelihood, economic and technological sanctions are likely to be used more often, since they don’t have a visible human impact, in terms of death and suffering.
I will explore the risk of the current state where countries have largely been aligning themselves around core systems that are shared. The result of all this is likely to be that we will move away from common platforms and towards numerous independent platforms that are sponsored by the major powers. For the purposes of this post, I would look at the US, China, the European Union, Russia, and India as 5 parties that are large markets, sufficiently independent politics and the capability to strategize in such a fashion.
Financial Sanctions, SWIFT, and Digital Currencies
Beyond the typical asset freezes of dollar-denominated holdings, the initial set of sanctions came in the form of blackouts of the SWIFT network, preventing the financial institutions of a country from inter-operating and hence preventing the settlement of financial transactions. This has meant the inability for banks from supporting inter-state payments and, hence blocking trade. This has implications even if the specific countries issuing the sanctions are not parties to the trade. Hence, team SWIFT can block activity between 2 countries that might be neutral in a conflict.
The Chinese CIPS is one alternative settlement network but there may be others that would need to develop, possibly all following open-source messaging protocols, just at CIPS handles SWIFT messages. One outcome of this Russian/Ukrainian conflict will be more standardization of protocols as well as establishment of connectivity between financial institutions on these multiple networks as a basis for doing business. It creates more costs to be able to operate on multiple networks, each with a layer of operational complexity.
Similarly, the currency of settlement is the USD, and much has been written about the likelihood of the yuan as a secondary reserve currency. While it seems that some reserves will continue to shift from the USD to the Yuan as a result of the issuance of massive amounts of US debt by the US federal government and the likely of increased interest rates creating challenges for the debt to be serviced without impact the existing US government programs, there may be another alternative that starts to become more amenable to all. Relying on a stable digital currency may also allow for transaction settlement to occur without a single entity being able to control and shut-down trade. In one case, a basket of reserve currencies could be held, but this still comes with the strings that a portion of your reserves could be blocked from use. Meanwhile, a federated system of capturing and executing value exchange would be less amenable to sanctions.
Social Media
Social media could be classified as 2 things — a medium for broadcast communication and a means for gathering immense amounts of profiling information. Twitter was useful during the Arab uprising to mobilize people at protests, and Facebook has been used to polarize people into separate realities of truth. This is known and often one of the first things during a conflict will be to block social media to reduce unwanted messaging. One might argue though that leaving it operating is fundamentally a larger threat, since it enables the dissemination of propaganda by each party — though it’s the status quo and so seems less worrisome.
The larger risk is the implications of a state actor having access to very detailed profiles about each citizen — how they are inter-connected, what are their triggers, what shameful things might have happened in their past, etc. Imagine knowing everything about the past of aspiring political leaders and the ability for the countries that have access to this psychographic data to influence voters using social media platforms to interfere with another country’s elections. This is both knowing more about the political players as well as knowing more about the voters and sending appropriate messages. Knowing what types of salacious videos someone might be seeing on TikTok or what sorts of polarizing affiliations a person holds in their private life can be useful in creating messaging to help sway elections.
Given this, is it reasonable to think that a major power, say China, would be ok if another power, say the US, knew everything about its citizens via their use of Facebook services? Of course this is not possible since China has already taken the necessary steps to prevent this from happening. This data collection is possible over long periods of time and well ahead of any conflict. Hence, over time I see countries being more prescriptive about how any personal data of their citizens is stored and used, and perhaps even wanting to promote locally based social media network operators, since it has such immense potential for misuse. It may even mean that, again, while open-source protocols might exist for messaging and publishing of posts, the actual operation of information capture, storage, and usage is done by a state-linked entity.
Payment Networks (VISA, Mastercard, etc.)
The implications of VISA and Mastercard shutting down services in Russia seem even more odd. Is it an action of a private corporation or a state-level decision and don’t these firms have operating agreement and obligations with their member banks? It brings up the question of whether payment services operators need to have greater sponsorship from the country in which they are operating, once again especially for the named powers. China has UnionPay and Russia has Mir, and India has RuPay. While some of these have only recently been started (last 20 years), the actions of VISA and Mastercard risk creating an environment where all these payment networks need to be supported by each financial institution, reducing the likely impact in the future of such sanctions. The larger implication is that nationals of these major powers might be required to use their own sponsored networks, to prevent disruption from the threat of sanctions, hence reducing the scale that VISA/Mastercard can operate at. It also has cost and operational implications for multi-national banks operating in multiple countries where these different payment networks would be in place.
Technology Operating Systems (Microsoft Windows, Google Android, Apple iOS)
In the past, technology operating systems (OS), such as those running on your phones and computers, used to work locally on the device that was running them. Over the last 15 years, these OSes have become much more integrated with cloud services — whether for identity and authentication, app stores with payment options, or other data services (network finders, location services). The threat of being able to shut-down all cell phones and computers in a country is a very high risk, and this is before any discussion of corporate-driven or state-sponsored data collection comes into play.
As a result of this trend towards connected operating systems and the data collection that’s been built into these systems, all governments are starting to tackle the privacy implications. Even the US is starting to discuss legislation about the stranglehold of app stores. Equally worrisome is the location and surveillance capabilities of these devices, all equipped with webcams, microphones, and GPS locators. These create a possibility for massive surveillance, which to-date has been used in one-off criminal cases, and likely spying in a directed manner, but not for disruption at the level of nation-states.
China has already started to create their own version of Android, which isn’t linked to the Google eco-system. There is likely to be a move towards de-coupling the services that are built-in such that the OS is hardened to run without those links. There may also be a greater push, for entirely different reasons, towards an open-source OS, such as Linux, running on the desktop/laptop side. Given that a large portion of applications have become browser-based, this possibility in the name of national security, is a real likelihood, given the actions taken by Microsoft, Google, and Apple in implementing Russia sanctions. And while they have only cut certain aspects of their services to Russia — such as new sales in the case of Microsoft, it’s laid bare that they clearly can do much more damage, in the case of a serious escalation of this war.
Technology Cloud Providers and Internet Companies
As more organizations move to leveraging cloud computing for their own information technology (IT) needs, ensuring that the cloud providers can be counted on to operate in the case of a conflict will become a larger imperative, not just for the critical services in a country (financial, infrastructure, health, agriculture,..), but over-time even other consumer-oriented non-critical industries. The cloud providers do run data centers in different regions, and these satisfy data residency mandates and performance/latency needs, they do not address the more serious issue of a country applying pressure through forcing the cloud providers to shut down services. The control panes for these operators have not been battle-tested to be able to run with the staff and the technology footprint that is local to a region. As such, this is likely to create an opportunity for companies that support and promote the use of standardized open-source technologies (i.e. OpenStack) for managing these cloud resources.
A lot of the Web 2.0 services (the last 15 years of Internet companies) have been built on-top of highly scalable and centralized cloud footprints, without national sovereignty as a design concern. These are often non-critical services but given how much of consumer behavior has mushroomed around these (ex. PayPal), these can cause disruption in the functioning of a society and hence can be weaponized. China once again has taken the lead in developing services that operate within their boundaries, and their societal eco-systems have developed around those. In this space, given that it is non-critical, the primary area I see as developing a policy around local services would be payments and messaging.
The Future and our Collective Perspective
Over the last 75 years and even more so in the last 30 years since the break-up of the Soviet Union, we’ve operated with a certain perspective. There’s been 1–2 super-powers, economic and political stability and massive growth of services that have uplifted the standards of living for billions of people. There’s been an explosion of opportunity and the availability of capital in support of that. We’re now at a place where the money supply has grown enormously and so have national debts — in essence the long-term debt cycle has peaked (as Ray Dalio puts it). Even if there is not shrinkage, there cannot be the same level of growth in the money supply and availability of cheap money. How long will the US, with an ever-growing Debt/GDP ratio, be able to issue debt at such low rates based on the US dollar being the reserve currency, now that they have weaponized this much beyond soft power? The greater implication of the war, assuming it doesn’t escalate into a world war, is that we have lighted the path which will lead us away from a single reserve currency.
Some of what I’ve shared here might seem dramatic, but I remember passing through airport security in India in the 90s and feeling why were they so paranoid, where the experience through a US airport was so seamless, and yet post-9/11, it all seemed to converge towards a similar level of security checks (take off your shoes, laptops separate, etc..). During COVID, each major power developed their own vaccines, whereas 20 years ago, one might have expected to get something from a few key multi-national pharma companies. Europe has started to move away from the holdovers of WWII and a pacifism, with a realization that they have distinct interests and politics from the US and the Brexit might have further emboldened them towards that identity. Something has fundamentally changed. We have shown that economic growth alone, when implemented without national security concerns factored in, can be reversed in a very short period. In my view, we could win the battle to save Ukraine’s independence but may have lost the war of economic supremacy.
