The Blockchain Revolution Page 10

  “And there’s nothing we can do to clamp down on the individual companies involved?”

  “Difficult, sir. With no bank in the middle and anonymous wallets, the Russ blockchain provides the perfect means to get around our sanctions. Even the payment terms and shipping details are encrypted and included in something called ‘smart contracts.’ Blockchain technology supports those, too. So, if we intercept a transaction, we may not be able to decrypt the information to tell who’s doing business with the Russians, what they’re selling, and how much they’re being paid.”

  “Give me numbers,” Yazzi said. “How much is getting around the sanctions?”

  “We believe the Russians are currently using the Russ blockchain to sell goods worth about six billion dollars a month, mostly shipped in bulk out of Black Sea ports to destinations in Myanmar and Somalia. Once they get there, the cargoes are broken up into smaller lots, redirected, and shipped to their ultimate destinations.”

  “Do we know what they’re using the profits for?”

  “Yes, sir. Our best estimate is the Russians are spending about half the Russ they receive to support the Russian economy generally. They’re using the other half to procure goods we’re embargoing in the other direction, like advanced computers. They buy those through shell companies around the world and then ship them back through the same channels they use to avoid the embargo when they’re on the sell side. The sales volume in both directions is going up fast.”

  “Unbelievable,” Yazzi said.

  “Excuse me, sir,” Hansen said, “the Russians are receiving another major economic benefit I should mention.”

  “What’s that?”

  “The Russ has become a darling of cryptocurrency speculators. Right now, only bitcoin sells for more, and sometimes, the Russ tops it.”

  “Where?” Yazzi asked.

  “Everywhere – even in the United States, sir, because it’s a much less risky alt coin. The price of Russ does fluctuate, just like other alt coins. But not as much, and mostly upwards, because the Kremlin controls the supply. When the value of the Russ starts to slip, the government buys it back to shore up its price. None of the free market cryptocurrencies enjoy that kind of support because there’s no country backing them. So, the upside opportunity for speculators is unlimited while the downside risk is covered. That makes Russ a uniquely attractive investment of any kind. All kinds of financial institutions, including the biggest hedge funds, are building up significant Russ positions.”

  Yazzi shook his head. Businessmen were signing on to make a quick buck even though it meant trading with the enemy. He turned to Calhoun. “So, while we’re planning this grand oil strategy to bankrupt Russia, our own investors are propping it up?”

  Hugh Calhoun cleared his throat. “That would be one way to put it, Mr. President. But I doubt the appreciation in the value of the Russ and the sales of embargoed goods can offset a big drop in the price of oil.” He hoped he was right.

  “How much impact will it have?” Yazzi asked.

  Calhoun turned to the aide sitting beside him. Flustered, the younger man said, “Can you give me a moment to work that figure out?”

  Hansen knew how it felt to be in that spot. “Shall I go on, sir?”

  “Continue,” Yazzi said.

  “As I was about to say, sir, the Russians not only buy back Russ to prop it up, but they can issue and sell more when it’s value is moving up. Unlike bitcoin, the Russian technology doesn’t cap the number of alt coins that can be issued.

  “The Russians don’t have to worry about causing domestic inflation, either, because the value of the Russ isn’t pegged to the value of the ruble – the two are separate, and their values fluctuate independently. In effect, that means it doesn’t cost the Russian government anything to buy embargoed goods using their blockchain. And they can keep selling as much Russ as they want so long as the speculators keep buying up the new coins.”

  “It doesn’t cost them anything at all!” Yazzi echoed, turning back to his secretary of state. “So, tell me, Hugh. How are we going to drive the Russians to the bargaining table if the Kremlin is making a laughingstock of our trade sanctions?”

  “Excuse me, sir,” the aide interrupted meekly, “I’ve got the numbers you wanted now. Dividing the Kremlin’s monthly profit from selling embargoed goods for Russ by the number of barrels of oil it exports each month gives an offset of about eighty-nine cents. So, from a bottom line perspective, it’s as if Russia is selling oil for an extra eighty-nine cents per barrel. If embargoed product sales and the value of the Russ increase for six months at the rates they are now, that number goes up to approximately two dollars and nineteen cents per barrel.”

  “That’s it!” Yazzi snapped, turning back to Calhoun. “That means we’ll have to go back to the oil companies and get them to agree to push the price of oil well below thirty-three dollars a barrel to break the Russians. Hugh, what do you think of that?”

  There was nothing Calhoun could think of, other than to wish his aide had taken longer to come up with those numbers.

  “It’s a hell of a situation,” Yazzi fumed, “when I’m the one who finds a critical flaw in a strategy my team asks me to approve. We’re in too far to turn around now, so I strongly suggest that before our next meeting you and Terry” – he gestured to Terrence Dougherty, the CIA director – “come up with a deniable plan for busting the Russ blockchain. I expect you’ll need to bring in Defense as well. This will be at the top of the agenda of our next meeting.”

  * * *

  Frank desperately wanted to scratch his nose, but Fang would notice the movement. He needed the squirrel to get a little closer to be sure to reach him with the full force of the Super Swoosher water gun he was holding.

  There! Fang was tensing to make his leap from the railing to the feeder! Frank drew and fired, catching the little bandit in midair. Hah! Take that!

  But Frank’s act of defiance had unexpected consequences, altering the animal’s trajectory by more than Frank had anticipated. He watched in triumph, and then in horror, as his diminutive nemesis flew past the feeder and out into the void. It disappeared downward, hurtling toward the street and the traffic below. Frank dropped the Swoosher and edged up to the railing, afraid he’d see a small, still, two-dimensional form pasted to the pavement below. But Fang was nowhere to be seen. Had he crept away, injured?

  Frank slumped into his chair. Could he have actually killed Fang? He felt terrible. Then he remembered that squirrel tails acted like parachutes, protecting the furry aerialists from the otherwise lethal consequences of their occasional slips. As if on cue, a fierce chattering attracted his attention. Sure enough, the infuriated rodent was back on the ivy next to his balcony, giving Frank a thorough dressing down. Just you wait! It seemed to be saying.

  The next day, the feeder was not only empty but lying on the balcony. Fang had gnawed through the wire.

  Chapter 12

  The Decider in Chief Makes Up His Mind

  President Yazzi was not looking forward to this meeting. He was as mad at himself as he was at the situation. If he’d never brought the Russ up, he wouldn’t have to decide whether to take it down.

  For the hundredth time, he told himself that when you took the oath of office, you made a deal with the devil. On the one hand, you were expected to have a firm moral compass and the will to stand by it. But on the other, you had to be willing to get both hands dirty when the situation demanded it. The tricky point was figuring out when that was. Only you could make the call, but anyone could – and would – second-guess you when things didn’t work out as planned.

  He envied the more straightforward roles of his advisers. John Hightower, the secretary of defense, would surely argue today for taking out the Russ, and more power to him. That was the position he should be pushing. And Hugh Calhoun would counsel caution, just as he should, to make sur
e the president didn’t start something he couldn’t finish.

  But when their little debate was over, it would be him – Henry Dodge Yazzi – the first Native American president of the United States of America, who would have to call the coin toss. Liberals had ridiculed George W. Bush’s folksy way of phrasing it, but the forty-third president had nailed it: when you came down to it, he’d said, the main job of the chief executive was to be “the Decider in Chief.” The guy where the buck stopped even when all the alternatives were equally terrible. The one that had to decide which acts were over the line, and which ones weren’t.

  Yazzi found it particularly tough to make those judgments in matters involving spy craft. After all, espionage was by definition based on lies and trickery. Once you were on that slippery slope, was there any logical place to stop? Why not just slide all the way to the bottom and stay there?

  But Yazzi rejected that conclusion. He didn’t know for sure where the dividing line was, but he was still convinced there was one.

  Which secretary of state was it, he wondered, who had said, “Gentlemen do not read each other’s mail,” and then disbanded his department’s highly effective “Cypher Office”? Yazzi plugged the quote into his phone browser. Right. Henry Stimson, way back in 1929. Well, that was a far simpler time, although not for much longer. Stimson’s high-mindedness had died a rapid death once the Axis Powers unleashed World War II, and things had been decidedly ungentlemanly ever since.

  An aide arrived at the door to the Oval Office to remind Yazzi it was time for his meeting. Time to go. The Decider’s chair was waiting for him at the head of the table where it was easy for everyone else to watch, fascinated, as he twisted in the wind.

  * * *

  “All right, let’s get started,” Yazzi said, rapping his knuckles on the table.

  The side conversations halted, and the National Security Council meeting got underway.

  “First up on the agenda is Russia. As you’ll recall from our last meeting, the Kremlin has rolled out a financial network based on a new technology, called a blockchain, to generate a virtual currency they call the Russ. They’re using that system with increasing success to evade our economic sanctions. This in turn undermines our strategy to force the Russians to back off on their aggression in Eastern Europe and the Near East. I’ve asked State and Defense to evaluate how we might disrupt that system to the point of collapse. Gentlemen, which of you drew the short straw?”

  “Thank you, Mr. President,” Hugh Calhoun said. “That would be me. I’ll start the presentation by placing your request in the diplomatic context. By that, I mean, what are the consequences you’re willing to accept from disrupting the Russ network? I pose this question because the greater our tolerance for Russian retaliation the more technical options we have while, conversely, if our tolerance is low, the approaches we can consider become much more restricted.

  “For example, if we launch a cyberattack that severely disrupts or destroys the Russ payment network, the Kremlin might interpret that as an economic act of war that demands a stiff response. What might that be? Well, our banks use a somewhat similar blockchain system called BankCoin. That network carries virtually all financial transactions within the United States and between us and our trading partners. That would be the logical and symmetrical retaliatory target.

  “If the Russians took BankCoin down, the disruption to our economy would be immediate and severe. Then we’d have to decide how to react, which would be tricky. This is a new type of warfare, and therefore, each act of cyber aggression and response needs to be looked at much more carefully than other, more traditional exchanges.”

  “Explain,” Yazzi said.

  “Well, Mr. President, as you know, whether, and how far, to escalate a hostile situation is always a difficult decision. We want to send a message that will be well-understood so the enemy can tell exactly how serious we are and therefore does not itself overreact. We and our enemies have had lots of experience with traditional forms of pressure and response, like imposing sanctions, stopping and searching a ship on the high seas, detaining foreign nationals, and so on. Everybody has a sense of where each one of those actions falls on the scale of aggression as well as what types of response might be of appropriate magnitude. But we don’t have much to go on yet when it comes to cyber warfare.”

  “What about by analogy?” Yazzi asked. “Aggression is aggression. It’s just old wine in new bottles.”

  “I take your point, sir. But so far, our record in calibrating those analogies has been poor, at least if having second thoughts is a good indicator. For example, when the North Koreans hit Sony, the big entertainment and electronics company, with a major cyberattack, all we did was impose a few minor sanctions. Similarly, we waited a long time to react to Russian meddling in the 2016 election. When we did react, many thought our response was far too mild – we ordered the Russians to abandon a few facilities in Maryland everyone knew supported their espionage activities and we deported some known Russian agents. That limited retaliation may have encouraged our enemies to be more aggressive in their cyber war planning.

  “So, the bottom line is we don’t know how Russia would react to an attack on the Russ that was traceable to the US. They might want to make a point by retaliating aggressively – we know President Denikin hates to look weak, either at home or abroad. Then it would be our turn to decide whether to escalate, and if we did, we could have a major crisis on our hands with no easy way to avert further escalation without looking soft.”

  “Then the answer on traceability is no,” Yazzi said. “The only reason we’re talking about the Russ at all is to prevent it from undermining our oil price strategy. And even that’s just a stepping stone. Our end goal is to bring Russia to the negotiating table, and I don’t want to do anything that would work against that goal.”

  “Exactly,” Calhoun continued. “That was our conclusion as well. So, to sum up the diplomatic context, our recommendation is to address the Russ situation by persuading our allies to join us in imposing additional sanctions. However, if you believe a more aggressive response is required now or in the future, we urge you to consider a cyberattack that is untraceable to the US or at least one that is so deniable that Russia would hesitate to retaliate in kind. And with that, I’ll pass the baton to John.”

  “Thanks, Hugh,” the secretary of defense said. “Mr. President, we believe a forceful response is called for although I do agree that deniability should be preserved. Given our recent history of lackluster responses, we think we need to let the Russians know your administration will not hesitate to meet serious cyber aggressions with serious cyber responses.

  “Consequently, my recommendation is that we urgently begin work on an exploit modeled loosely on Stuxnet, the malware attack we developed with the Israelis to disable Iranian nuclear efforts back in 2010. As you’ll recall, when it was introduced to the Iranian systems controlling the production of weapons-grade uranium, Stuxnet caused centrifuges to spin so quickly they self-destructed. Importantly for current purposes, the malware was designed to suggest a system malfunction arising from preexisting software defects.

  “This accomplished three goals. First, it made it extremely difficult for the Iranians to figure out what the problem was and fix it. Second, it took a long time before the problem was traced to malware. And finally, it was impossible to prove the bad code came from us or the Israelis. Adopting a similar approach in the current case would minimize the risk of retaliatory escalation while maximizing the time it would take the Russians to find and fix the problem.”

  “And how would you go about that?” Yazzi asked.

  “While blockchains are by their nature difficult to attack in some ways, a variety of approaches should be possible. We might, for example, try to develop malware that introduces random errors into the transaction process. The result would be that some Russian trading partners would be underpaid and
others overpaid. This would cause the system to become untrusted and likely force the Russians to take it off-line until they can figure out what’s wrong. Given that the Russ blockchain is running fine now, they’ll suspect we’re behind the problems but won’t know for sure. By the time they do, we should have forced them to the bargaining table, where the need to reach a broader resolution of outstanding issues should make them decide that retaliation for the Russ attack is not in their best interests.”

  “Thank you both for your recommendations,” the president said. “Comments anyone?”

  Of course, everyone had comments. Yazzi had already made his decision, but he let the discussion run until all who wished to weigh in had done so. “Okay,” he said., “All good thoughts. Now, here’s what we’re going to do. First off, Hugh, I want you to persuade our allies as quickly as you can to add purchasing or holding Russ to the prohibited activities list.

  “Now, regarding what’s already invested in Russ: this one goes to the CIA. Terry, I want your folks to get access to a Russ node somewhere or even set one up under cover of a fake trading partner, if that’s easier. Then I want your best cryptographers to figure out how to decipher the transaction data so we can tell who owns Russ and who’s violating the trade sanctions. And before you say it, yes, I know you can’t predict how long that will take.

  “That takes me to task three, which is one for Treasury. Carson, get in touch with Jack over there and tell him I want his people to draft regulations that prohibit banks, investment houses, and so on from hosting accounts holding Russ or wiring funds to Russ exchanges.

  “If those steps don’t go a long way towards chopping the value of the Russ, I’ll be surprised. But just in case, I want to be able to launch a cyberattack against the Russ as a last resort. If a few private investors get burned because they’re still holding Russ in violation of the law, well, tough luck for them. Coming up with an attack sounds like a job for CYBERCOM, so John, I’d like you to start work on that.