National Security Implications of Virtual Currency

Non-State Actors Can Use VCs to Disrupt Sovereignty and Increase Political and/or Economic Power, but Unlikely to Use Established VC; Many Challenges Posed by Creation of VCs

• VC deployments are attractive in developing countries and in countries undergoing internal turmoil, where the existing financial infrastructure is either insufficient or weakened.
• The rapid deployment of a VC over a large geographic area would likely be less complicated than deploying more common currencies, such as those based on commodities or paper-based currencies.
• A non-state actor's VC (including Bitcoin-like currencies) would likely be vulnerable to cyber attack by a sophisticated adversary; more generally, creating new, usable yet reliable VC may pose great challenges, particularly for a non-state actor without technical sophistication.
• Promoting adoption of VCs among population is difficult due to newness, lack of legitimacy, and familiarity with physical tangibility of currency.
• Deployment of a VC by non-state actors, such terrorist organizations, insurgent groups, drug cartels, and other criminal organizations, would be easier if supported by a nation-state with advanced cyber expertise.
• Despite numerous hurdles, trends indicate a future in which VCs could be deployed by non-state actors or other organizations.

VCs Are Vulnerable to Attacks, Especially by a Technologically Sophisticated Adversary

• It would be difficult for a non-state actor to structurally design a VC that would be both resilient to attack and usable by all persons in the non-state actor's geographic area of influence.
• Unsophisticated attacks are possible by governments, other non-state actors, and users of another VC; more sophisticated attackers could target services that are more centralized, even for decentralized VCs, such as digital wallets and, if applicable, mining pools.

Development and Implementation of VCs Could Add to Security-Related Technological Developments That Could Aid Non-State Actors

• VCs demonstrate a resilient means of storing data in a highly distributed fashion that is very hard to corrupt; possible implications of this include information dissemination (blogs, social media, forums, news websites) that is eventually completely resilient to nation-state interference.
• The need to develop security mechanisms for VCs could encourage the development of advanced cryptographic techniques, such as secure multiparty computation, which seeks to perform distributed computation while preserving the confidentiality of inputs and outputs in the presence of malicious activity.
• VCs represent the latest step toward decentralized cyber services. In particular, the historical trend suggests the development of a resilient public cyber key terrain, which this report defines as the ability of unsophisticated cyber actors to have persistent, assured access to cyber services regardless of whether a highly sophisticated state actor opposes their use. This has implications for national firewalls, access to extremist rhetoric, the feasibility of nation-state cyber attacks, and the ability to maintain uninterruptible and anonymous encrypted links.