97. The Cryptoruble as a Stepping Stone to Digital Sovereignty

“By 2038, there won’t just be one internet — there will be many, split along national lines” — An Xiao Mina, 2038 podcast, Episode 2, New York Magazine Intelligencer, 25 October 2018.

[Editor’s Note:  While the prediction above is drawn from a podcast that posits an emerging tech cold war between China and the U.S., the quest for digital sovereignty and national cryptocurrencies is an emerging global trend that portends the fracturing of the contemporary internet into national intranets.  This trend erodes the prevailing Post-Cold War direction towards globalization.  In today’s post, Mad Scientist Laboratory welcomes back guest blogger Dr. Mica Hall, who addresses Russia’s move to adopt a national cryptocurrency, the cryptoruble, as a means of asserting its digital sovereignty and ensuring national security.  The advent of the cryptoruble will have geopolitical ramifications far beyond Mother Russia’s borders, potentially ushering in an era of economic hegemony over those states that embrace this supranational cryptocurrency. (Note:  Some of the embedded links in this post are best accessed using non-DoD networks.)]

At the nexus of monetary policy, geopolitics, and information control is Russia’s quest to expand its digital sovereignty. At the October 2017 meeting of the Security Council, “the FSB [Federal Security Service] asked the government to develop an independent ‘Internet’ infrastructure for BRICS nations [Brazil, Russia, India, China, South Africa], which would continue to work in the event the global Internet malfunctions.” 1 Security Council members argued the Internet’s threat to national security is due to:

“… the increased capabilities of Western nations to conduct offensive operations in the informational space as well as the increased readiness to exercise these capabilities.”2

This echoes the sentiment of Dmitry Peskov, Putin’s Press Secretary, who stated in 2014,

We all know who the chief administrator of the global Internet is. And due to its volatility, we have to think about how to ensure our national security.”3

At that time, the Ministry of Communications (MinCom) had just tested a Russian back-up to the Internet to support a national “Intranet,” lest Russia be left vulnerable if the global Domain Name Servers (DNS) are attacked. MinCom conducted “a major exercise in which it simulated ‘switching off’ global Internet services,” and in 2017, the Security Council decided to create just such a backup system “which would not be subject to control by international organizations” for use by the BRICS countries.4

While an Internet alternative (or Alternet) may be sold to the Russian public as a way to combat the West’s purported advantage in the information war, curb excessive dependency on global DNS, and protect the country from the foreign puppet masters of the Internet that “pose a serious threat to Russia’s security,”5 numerous experts doubt Russia’s actual ability to realize the plan, given its track record.

Take the Eurasian Economic Union (EAEU), for example, an international organization comprised of Russia, Kazakhstan, Kyrgyzstan, Armenia, and Belarus. Russia should be able to influence the EAEU even more than the BRICS countries, given its leading role in establishing the group. The EAEU was stood up in January 2016, and by December, “MinCom and other government agencies were given the order to develop and confirm a program for the ‘Digital Economy,’ including plans to develop [it in] the EAEU.”6 As Slavin observes, commercial ventures have already naturally evolved to embrace the actual digital economy: “The digital revolution has already occurred, business long ago switched to electronic interactions,”7 while the state has yet to realize its Digital Economy platform.

Changing the way the government does business has proven more difficult than changing the actual economy. According to Slavin, “The fact that Russia still has not developed a system of digital signatures, that there’s no electronic interaction between government and business or between countries of the EAEU, and that agencies’ information systems are not integrated – all of that is a problem for the withered electronic government that just cannot seem to ripen.”8 The bridge between the state and the actual digital economy is still waiting for “legislation to support it and to recognize the full equality of electronic and paper forms.”9 Consequently, while the idea to create a supranational currency to be used in the EAEU has been floated many times, the countries within the organization have not been able to agree on what that currency would be.

The cryptoruble could be used to affect geopolitical relationships. In addition to wielding untraceable resources, Russia could also leverage this technology to join forces with some countries against others. According to the plan President Putin laid out upon announcing the launch of a cryptoruble, Russia would form a “single payment space” for the member states of the EAEU, based on “the use of new financial technologies, including the technology of distributed registries.”10 Notably, three months after the plan to establish a cryptoruble was announced, Russia’s Central Bank stated the value of working on establishing a supranational currency to be used either across the BRICS countries or across the EAEU, or both, instead of establishing a cryptoruble per se.11

This could significantly affect the balance of power not only in the region, but also in the world. Any country participating in such an economic agreement, however, would subject themselves to being overrun by a new hegemony, that of the supranational currency.

 

As long as the state continues to cloak its digital sovereignty efforts in the mantle of national security – via the cryptoruble or the Yarovaya laws, which increase Internet surveillance – it can continue to constrict the flow of information without compunction. As Peskov stated, “It’s not about disconnecting Russia from the World Wide Web,” but about “protecting it from external influence.”12 After Presidents Putin and Trump met at the G20 Summit in July 2017, MinCom Nikiforov said the two countries would establish a working group “for the control and security of cyberspace,” which the U.S. Secretary of State said would “develop a framework for cybersecurity and a non-interference agreement.”13 Prime Minister Medvedev, however, said digitizing the economy is both “a matter of Russia’s global competitiveness and national security,”14 thus indicating Russia is focused not solely inward, but on a strategic competitive stance. MinCom Nikiforov makes the shortcut even clearer, stating, “In developing the economy, we need digital sovereignty,”15 indicating a need to fully control how the country interacts with the rest of the world in the digital age.

The Kremlin’s main proponent for digital sovereignty, Igor Ashmanov, claims, “Digital sovereignty is the right of the government to independently determine what is happening in their digital sphere. And make its own decisions.” He adds, “Only the Americans have complete digital sovereignty. China is growing its sovereignty. We are too.”16 According to Lebedev, “Various incarnations of digital sovereignty are integral to the public discourse in most countries,” and in recent years, “The idea of reining in global information flows and at least partially subjugating them to the control of certain traditional or not-so-traditional jurisdictions (the European Union, the nation-state, municipal administrations) has become more attractive.”17   In the Russian narrative, which portrays every nation as striving to gain the upper hand on the information battlefield, Ashmanov’s fear that, “The introduction of every new technology is another phase in the digital colonization of our country,”18 does not sound too far-fetched.

The conspiracy theorists to the right of the administration suggest the “global world order” represented by the International Monetary Fund intends to leave Russia out of its new replacement reference currency, saying “Big Brother is coming to blockchain.”19 Meanwhile, wikireality.ru reports the Russian government could limit web access in the name of national security, because the Internet “is a CIA project and the U.S. is using information wars to destroy governments,” using its “cybertroops.”20 As the site notes, the fight against terrorism has been invoked as a basis for establishing a black list of websites available within Russia. Just as U.S. citizens have expressed concerns over the level of surveillance made legal by the Patriot Act, so Russian netizens have expressed concerns over the Yarovaya laws and moves the state has made to facilitate information sovereignty.

According to the Financial Times, “This interest in cryptocurrencies shows Russia’s desire to take over an idea originally created without any government influence. It was like that with the Internet, which the Kremlin has recently learned to tame.”21 Meanwhile, a healthy contingent of Russian language netizens continue to express their lack of faith in the national security argument, preferring to embrace a more classical skepticism, as reflected in comments in response to a 2017 post by msmash called, “From the Never-Say-Never-But-Never Department,” — “In Putin’s Russia, currency encrypts you!”22 To these netizens, the state looks set to continue to ratchet down on Internet traffic: “It’s really descriptive of just how totalitarian the country has become that they’re hard at work out-Chinaing China itself when it comes to control of the Internet,” but “China is actually enforcing those kind of laws against its people. In Russia, on the other hand, the severity of the laws is greatly mitigated by the fact that nobody gives a **** about the law.”23 In addition to suggesting personal security is a fair price to be paid for national security via surveillance and Internet laws, the state appears poised to argue all information about persons in the country, including about their finances, should also be “transparent” to fight terrorism and crime in general.

If you enjoyed reading this post, please also see:

Dr. Mica Hall is a Russian linguist and holds an MA and PhD in Slavic Linguistics and an MPA.

The views expressed in this article are those of the author and do not reflect the official policy or position of the Department of the Army, DoD, or the U.S. Government.


1 Russia to Launch ‘Independent Internet’ for BRICS Nations – Report, 2017, RT.com, https://www.rt.com/politics/411156-russia-to-launch-independent-internet/, 28 November 2017.

2 Russia to Launch.

3 Russia to Launch.

4 Russia to Launch.

5 Russia to Launch.

6 Boris Slavin, 2017, People or Digits: Which One Do We Need More? vedomosti.ru, https://www.vedomosti.ru/opinion/articles/2017/01/17/673248-lyudi-tsifri-nuzhnee, 17 January 2017.

7 Slavin, People or Digits.

8 Slavin, People or Digits.

9 Slavin, People or Digits.

10 Kyree Leary, 2017, Vladimir Putin Just Revealed Russia’s Plans for Cryptocurrencies, futurism.com, https://futurism.com/vladimir-putin-just-revealed-russias-plans-for-cryptocurrencies/, 26 October 26017.

11 CB is Discussing Creating a Supranational Cryptocurrency Together With EAEU and BRICS, 2017, vedomosti.ru, https://www.vedomosti.ru/finance/news/2017/12/28/746856-sozdanie-kriptovalyuti-v-ramkah-eaes-i-briks-bank-rossii-v-2018-g, 28 December 2017.

12 Russia to Launch.

13 Russia and the US to Create a Working Group for the Regulation of Cyberspace, 2017, RIA Novosti, https://ria.ru/world/20170708/1498126496.html?=inj=1, 8 July 2017.

14 MinComSvyazi: We Need Digital Sovereignty to Develop the Economy, 2017, RIA Novosti, https://ria.ru/soceity/20170905/1501809181.html, 5 September 2017.

15 MinComSvyazi: We Need Digital Sovereignty.

16 Irina Besedovala, 2016, The Yarovaya Laws Will Save Us from the CIA, fontanka.ru, http://www.fontanka.ru/2016/10/22/061/, 22 October 2016.

17 Dmitry Lebedev, 2017, Digital Sovereignty à la Russe, opendemocracy.net, https://www.opendemocracy.net/od-russia/dmitry-lebedev/digital-sovereignty-a-la-russe, 3 November 2017.

18 Igor Ashmanov, 2017, The Recipe for Digital Sovereignty, Rossijskoe Agentstvo Novostej, http://www.ru-an.info/, 22 August 2017.

19 Global Elites’ Secret Plan for Cryptocurrencies, 2017, pravosudija.net, http://www. pravdosudija.net/article/sekretynyy-plan-globalnyh-elit-otnositelno-kriptovalyut, 5 September 2017.

20 Information Sovereignty, 2017, wikireality.ru, http://www.wikireality.ru/wiki/Информационный_сувернитет, 28 March 2017.

21 FT: Russia Is Looking For A Way to “Cut Off” Cryptocurrencies, 2018, Russian RT, https://russian.rt.com/inotv/2018-01-02/FT-Rossiya-ishhet-sposob-ukrotit, 2 January 2018.

22 msmash, 2017, We’ll Never Legalize Bitcoin, Says Russian Minister, yro.slashdot.org, https://yro.slashdot.org/story/17/11/22/2111216/well-never-legalize-bitcoin-says-russian-minister, 22 November 2017.

23 We’ll Never Legalize Bitcoin.

96. Weaponizing an Economy: The Cryptoruble and Russia’s Dystopian Future

[Editor’s Note: The U.S. Army Training and Doctrine Command (TRADOC) G-2’s Mad Scientist Initiative tracks a number of emergent disruptive technologies that have the potential to impact the Future Operational Environment.  We have already seen a number of these technologies being applied by regimes as a means for social control and manipulation — China’s use of facial recognition cameras to surveil the Uighur population in Xinjiang province, and social credit scores to control the general population across width and breadth of the Middle Kingdom (beginning in 2020) are but two examples.  Mad Scientist Laboratory is pleased to publish guest blogger Dr. Mica Hall‘s post addressing the potential societal, economic, and political disruptions posed by Russia’s embrace of cryptocurrency technology.  (Note:  Some of the embedded links in this post are best accessed using non-DoD networks.)]

Cryptocurrencies and Distributed Ledger Technology (DLT), including blockchain, have clear implications for the Future Operational Environment — affecting domestic infrastructure, the race for information sovereignty, domestic politics, and geopolitics. What may appear to be a purely economic factor is being used as a lever to affect state access to citizens’ personal information, control of information flows, and foreign relations both at a regional and global level.

Cryptocurrencies, untethered from traditional economic paradigms, can be used for illicit transactions in support of crime and terrorism, proliferation, countering sanctions, and potential existential economic threats. If money is an idea based on trust, understanding it is an information-related capability. A country’s degree of digital sovereignty can have both foreign policy and military consequences, so the race to control information is a significant effort in hybrid warfare.

Cryptocurrency in its “traditional” definition has three primary characteristics:

1) It is decentralized (i.e., the information is not held by one organization, such as a nation’s central bank or the Federal Reserve) and decisions to approve a payment and move “funds” from one account to another are made by multiple users, commonly known as “miners”;

2) Ownership of funds is anonymous – the system itself often does not require any identification for membership and a user’s identity is not identified in any way in the transfers (although identities could potentially be traced via IP addresses, credit card numbers, and e-mail addresses used); and

3) All transactions are transparent and immutable (unless overwritten by a longer chain) – once completed, everyone can see the accounts involved in the transaction, the amount, and when it was transferred.  Once transferred, there is (typically) no way to block the transfer, even if one party claims that the other did not provide the promised goods or services, or they were not of the commensurate quality, and there is no recourse regarding the seller/provider.

President Putin has both scared the public by talking about the criminal potential evidenced in cryptocurrencies, while simultaneously promoting the Digital Economy.  He has announced plans to launch the cryptoruble as part of realizing his Digital Economy platform. If Putin’s administration implements a DLT-based national cryptocurrency and legislates that all Russian citizens convert to the new system by allowing only one way to participate in the economy (e.g., by removing paper rubles from circulation), they will have an open ledger to every citizen’s finances. The state could also use it to exclude state-identified dissidents completely from the economy. 1

In a potential nightmare scenario, the elimination of the paper ruble would eliminate any ability for individuals to engage in anonymous transactions or even remain anonymous at all:

Cash is the most important factor in people’s freedom and independence. If we turn away from cash voluntarily… we’ll become bio-objects who are that much more manipulable. And if you even squeak, you’ll become a pariah in the best case scenario, and homeless in the worst case scenario, with no way to support yourself.”2

It begs the question whether the current freedom of speech netizens currently enjoy might also disappear, once each individual is ultimately trackable.

The beauty of the cryptoruble, from the administration’s standpoint, is that it “bring(s) under its control a technology in complete anarchy,”3
and provides the government access to Russian citizens’ information while doing so in the name of protecting citizens from criminals who use cash rubles to hide crimes, such as money laundering and terrorism.4

This technology would allow the Russian government to have complete control over currency inventory and flow via visibility over all money operations.  “It would be dumb to think that the authorities would pass up these fantastic opportunities.”5 As Polčák and Svantesson suggest,

Data not only represent an integral part of the identity of a person, they also represent, together with other essentials, an integral part of the identity of a state. Keeping control over such data is equally important for both an individual and for a state to retain their sovereign existence.”6

The cryptoruble is the ultimate foil to any desire by individual citizens to protect their privacy and anonymity, providing for “protection” by the state for the greater good for all its citizens. In this way, President Putin’s Digital Economy project, a political platform, deftly works towards full digital sovereignty and information sovereignty on the foundation of technological sovereignty and in the name of national security.

The opinions expressed in the Russian-language media regarding what the future the cryptoruble may portend run the gamut, with both supporters and dissenters agreeing on the significance of this level of government control of the economy.  Cryptoruble skeptics predict a dystopian future, warning of this transparent ledger system, “The President will know everything about everyone in the country – who paid who and how much.”7 In a way strangely similar to the current method of issuing social security numbers in the United States, @dimon777 suggests, “Newborns could be assigned cryptowallets at birth.”8

A state-issued blockchain currency could also bring order – via total control – to all government documentation processes. DLT has already been proposed as a system for recording real estate transactions, the argument being they would be processed faster than paper documentation and are a matter of public record.  While banks may process credit requests faster, a centralized information hub may actually provide all the information the state knows about the applicant at the touch of a button, via an “interagency electronic cooperation system,” with data on marriages and divorces, births, and deaths; “all the data about an applicant’s family situation;” data regarding the Pension Fund of the RF; “about their place of work and payments made into the fund;” and about their immigration status, in addition to their actual credit history.9

Once blockchain-based processes become the norm for doing business in Russia, several sources suggest the next step could be using biometrics to verify identity. Perhaps with the one added benefit of never having to remember a password again, the Russian banking system could soon move to a system of virtual identity verification via biometrics.10

In June 2016, President Putin announced plans to establish a “federal information system for biometric registration that would store data about ‘persons involved in terrorism and extremism'” and since then, the Russian authorities have been “increasingly active in their collection and use of various biometric data (fingerprints, DNA samples, photographs, etc.).”11

The justification provided for this data collection has been national security, yet the scope is broad, including cases covered by legislation on “defense, security, combatting terrorism, transport safety, anti-corruption, investigative activity, civil service, criminal enforcement legislation, requirements for entry and exit from the country, and citizenship,”12 so expanding the system even further is plausible.

One cryptocurrency that could be controlled if needed is Byteball, so called for the shape of its chains. Like “traditional” cryptocurrency payments, Byteball transactions take place cryptowallet to cryptowallet, yet Byteball has a parallel, non-transparent system called “blackbytes” whose transactions are both visible in a public ledger and untraceable. These coins could be used when transactions “need to be concealed, for example, in funding secret programs.”13 These are the only conditions in which Russia will embark on a cryptocurrency épopée – if it is fully controlled by the state.

As Telley suggests, “Cryptocurrencies must now be counted as an impactful part of the operational environment.”14 In the case of the cryptoruble, it is the nexus of the political, economic, social, information, and infrastructure effects that may manifest the greatest danger or the greatest change. While the Digital Economy program may resemble a simple slide backwards towards a centrally controlled economy, a DLT-based currency issued by the Russian Central Bank would allow the administration to wield a significant level of access to personal information, in addition to economic control.

For a deeper dive into this topic, go to the TRADOC G-2’s Foreign Military Studies Office (FMSO) OEWatch page and download Volume 8, Issue #1, January 2018, featuring a host of articles on Cryptocurrencies and Blockchains and their impact in nations around the world.

Also see the following guest blog posts describing addressing other potential disruptors that may affect the Future Operational Environment:

Dr. Mica Hall is a Russian linguist and holds an MA and PhD in Slavic Linguistics and an MPA.

The views expressed in this article are those of the author and do not reflect the official policy or position of the Department of the Army, DoD, or the U.S. Government.


1 nalivaiko43 (2017), It’s Going to End up Being an Electronic Concentration Camp, golos.io, https://golos.io/ru–konczlagerx/@nalivaiko/elektronnyi-konclager-nacionalnykh-kriptovalyut, 16 October 2017.

2 nalivaiko43, It’s Going to End up.

3 Cryptoruble: What is it, Can I Buy it, When Are They Issuing it, and How Can I Use it to Make Money? kripto-rubl.ru, https://kripto-rubl.ru, 24 October 2017.

4 Fyodor Naumov, 2017, Digital Sovereignty: Why the Government Needs the Cryptoruble, Forbes.ru, http://www.forbes.ru/finansy-i-investicii/352381-cifrovoy-suvernitet-zachem-pravitelstvu-ponadobitsya-kriptorubl, 3 November 2017.

5 mr-kryply59, 2017, CryplyNews. Cryptoruble and Cryptoyuan, Two Bitcoin Killers, golos.io, https://golos.io/ru–bitkoin/@mr-kryply/cryplynews-kriptorubl-i-kriptoyuan-srazu-dva-ubiicy-bitkoina, 16 October 2017.

6 Radim Polčák and Dan Jerker Svantesson, 2017, Information Sovereignty: Data Privacy, Sovereign Powers and the Rule of Law, Northampton, MA, Edward Edgar Publishing.

7 @dimon777, 2017, Phantasmagoria about the Cryptoruble, golos.io, https://golos.io/ru–bitkoin/@dimon777/fantasmagoriya-o-kriptoruble, 25 August 2017.

8 @dimon777, Phantasmagoria about the Cryptoruble.

9 Nikolay Alekseenko, 2017, Blockchain without The Middleman: What Developments Does the Digital Economy Hold? realty.rbc.ru, https://realty.rbc.ru/news/59788fab9a7947d94ee1ddcb, 26 July 2017.

10 Alekseenko, Blockchain without the Middleman.

11 Agora International Human Rights Group, 2017, Russia under Surveillance 2017: How The Russian State Is Setting Up A System Of Total Control Over Its Citizens, http://en.agora.legal/articles/Report-of-Agora-International-%E2%80%98Russia-under-surveillance-2017%E2%80%99/6, 1 November 2017.

12 Agora, Russia under Surveillance 2017.

13 freeman39, 2017, The Cryptoruble Already Exists – It’s Called Byteball, Golos.io. https://golos.io/ru–kriptorublx/@freeman39/kriptorubl-uzhe-sushestvuet-eto-byteball, 24 October 2017.

14 MAJ Chris Telley, 2018, A Coin for the Tsar: The Two Disruptive Sides of Cryptocurrency, Small Wars Journal, http://smallwarsjournal.com/jrnl/art/coin-tsar-two-disruptive-sides-cryptocurrency, 15 January 2018.