Data is not the New Oil; Data is the New Sea

If you secure it you own it.

Interest in the political, economic, and social implications of the digital age has been gathering for some time, and with good reason. As pointed out in Wired and The Australian and referenced widely elsewhere, data, loosely defined as a resource and notwithstanding existing problems with fungability, in its exploding magnitude and scale of economic applications, might be thought of as rivaling oil as a strategically pivotal commodity. Oil remains the most traded commodity by value in the world, and as such is still a key pillar underwriting the global political economy. This increased awareness is important and welcomed, and the comparison is valid, but it misses a critical angle about data in the digital age. Data is much, much more than a commodity. Data has become a substrate. Upon which 21st century strategic competition is already playing out.

Think of substrates as the substances or objects ubiquitous and necessary to the functioning of some process. They will have structures and properties relevant to that process. Respiration is a process for which animals require oxygen. But oxygen is not the substrate in this example. The substrate is the presence of a molecular bio-chemical exchange capacity relevant to the lungs and the oxygen. Oil is not a substrate either. Its extraction and pricing have been extremely important to the functioning of the global political economy since WWII, a system led by the United States. But the United States does not control the extraction and pricing of oil. The market does that. The primary role the United States has played in the oil regime since WWII is in guaranteeing the security of the supply chain from extraction to processing and its subsequent transport across the high seas and through global choke points to markets. The substrates in this example are areas of land, sky, and sea. By securing the sea lines of communication necessary for the transport of the world’s most traded commodity, the United States Navy has controlled the pivotal substrate for the functioning of the global economy for 70 years.

Money might be thought of as a substrate too, because it is key to the exchange of value in any economic transaction. But in the era of fiat currencies, it’s really the existence of trust in a ‘paper promise’ that is required for that money to perform its function. The only thing underwriting a global economy based on floating currencies is confidence. The US dollar remains the global reserve currency, meaning more people trust it as a reliable store of value in international economic transactions than any other currency. By far. No true rival exists. The artificial demand this creates for the US dollar gives it, the US Federal Reserve, and by extension the US government enormous geo-economic power. But the substrate for money is confidence.

When we talk about data, we are talking about digital ones and zeros whose substrate is the electromagnetic spectrum. The EMS is naturally occurring, but for the digital domain, ie. cyberspace to exist, the EMS must be hosted on man-made objects. Integrated circuits, microprocessors, fibre optic cables. The networks these objects host are extremely complex and structurally predisposed to penetration. This is why defence in the cyber-security industry is sarcastically referred to as “patch and pray”. The attack surface is so large that any defender is dealing with exponential levels of vulnerability. Getting the humans that manage these networks to actually implement basic defensive measures is a whole other story in itself. For these reasons, the digital substrate we have all migrated onto over the last twenty-five years, the substrate that increasingly hosts an entirety of our social, economic, and political lives, is fundamentally insecure.

It should be no surprise then that the race to secure the digital substrate is on. Opting out is not an option. How each country competes though will vary wildly. It’s a high tech, high cost game so naturally the United States has a lead. It helps also that the Pentagon foresaw this vector of strategic competition twenty-five years ago. DARPA and IARPA are years into dozens of programs aimed at building security into the substrate, and for the military services cyberspace is now a legitimate domain of battle in the same sense as air, sea, land, and space. Economically, people will interact with the internet 2.0 in fundamentally different ways. For those that can afford it, the internet-of-things will be host to billions and billions of micro-payments flying around the globe every second, unlocking goods and services via applications hosted in an ecosystem of blockchains, payed for in crypto-tokens. This efficiency of transaction is only possible if banks and other siloed structures are sidelined, and only secure if the digital substrate is secure. Blockchains are the risk-mitigation machines designed to manage this new, distributed form of trust.

Don’t count out the banks though. One of the obstacles to widespread blockchain implementation, apart from the ongoing question of the appropriate consensus mechanism, is the volatility of cryptocurrencies. How can such a massive shift be ushered in while the consumer has no reason to trust that the tokens he/she buys to unlock a smart contract on a blockchain with fiat currency will retain their value tomorrow, next week, or next month? Eventually we might just trust that Ether or Syscoin or Bitcoin has become relatively stable. But until then? The problem of cryptocurrency volatility is pivotal, and a number of companies are developing solutions, one of which might take us back to the origins of money itself. Before fiat currencies, money was pegged to tangible stores of wealth such as gold. This relationship underpinned the stability of the global reconstruction effort after WWII, before it was removed by Nixon in 1971. In this current climate of uncertainty and tangible disruption, could cryptocurrencies pegged to precious metals underwrite the mass migration of economic activity to crypto-tokens and blockchains? JPMorgan Chase, one of the world’s oldest banks and member of the Enterprise Ethereum Alliance, a consortium formed to develop standards and technology in aid of Ethereum’s adoption, has reportedly been acquiring silver in unprecedented quantities since 2011.

An I-O-T functioning on an ecosystem of blockchains supporting billions of micropayments will generate extraordinary amounts of data, eclipsing today’s already bloated levels. Artificial intelligence and other forms of machine learning will extract highly valuable patterns from this data. This could all unlock turbo-charged economic activity, previously held back by inefficient modes of transaction and value transferral. Or not. What seems clear is that to get to this place, high levels of disruption are inevitable. The insecurity of the digital substrate we are currently transacting so much of our lives on must be understood as having strategic value. Securing it will not come cheap, easily, or evenly. Scary stories like the ransomware attack over the weekend are just the beginning. Expect a heightened narrative of cyber insecurity to become much more visible. The strategic value of securing the digital substrate is diluted when consumers are apathetic.

Australia is set to triple the size of its cyber-security industry, is leading the push for the standardization of blockchain technology, and in February introduced legislation making data breach reporting mandatory for organisations with responsibilities under the Privacy Act. Clearly high levels of government get it. All this should alert people to the fact that data and the digital substrate that hosts it is much more than a new 21st century commodity. Cyberspace is more like a new global commons. A conduit for everything. Like the land we controlled to grow food and inhabit, then the sea and the air we controlled to conduct global trade, whoever secures it tends to own it. The competition to secure the digital substrate is on, with global strategic implications that involve the most central relationship in the history of civilization: That between the centres of financial and political power in society.


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