Internet Shutdowns: Increasingly common and increasingly hard to detect
In 2021, more than 182 internet shutdowns took place around the world. This was an increase of just over seventeen percent, up from 155 in 2020. After the recent US-EU Trade and Technology Council meeting a statement was released stating “the European Union and the United States reiterate our alarm at the increasingly entrenched practice of government-imposed Internet shutdowns”.
India had the highest number of targeted shutdowns in 2021. More than 100 targeted shutdowns took place throughout the country. Myanmar, Sudan, and Iran had the next highest number of shutdowns respectively. The Carnegie centre underlines five main reasons for shutdowns: “mass demonstrations, military operations, and coups elections, communal violence and religious holidays, and school exams”.
Internet shutdowns, besides shutting down avenues of communication, cause widespread disruptions to essential services. Shutdowns in India have seen disruptions to banking and education among others.
There are two key methods of implementation for internet shutdowns:
The first and currently most common implementation method is to instate a complete shutdown of internet servers in a region or country.
This process has been seen most recently in Iran, following widespread protests throughout the country after the death of Jhina (Mahsa) Amini. Several regions of the country lost all internet access for periods of time during heavy protests — in one case, for an entire day. In Myanmar, complete internet shutdowns throughout the country continued for days during the military coup d’état in 2021.
The second and increasingly used method is to implement a blockage of specific sections of internet services in a region or country.
In recent months, Russia has avoided implementing complete internet shutdowns in favour of new tools to block dissident media networks and internet sites in the country. These new tools, which can block different sections of the internet without being detected instantly, offer new ways for authorities to block access to the internet. A similar incident was reported in Egypt in 2016 when authorities shut down Facebook’s Free Basics service in a highly targeted shutdown.
Overarching concerns
As shutdowns are expected to increase and become more targeted according to an OHCHR report, authorities and internet rights groups are working on entrenching protective measures against them into law. A United Nations General Assembly report on internet shutdowns recommended states and companies agree to ensure internet access. However, commitments to internet freedom by the UN and other organisations will not be useful if governments worldwide continue to restrict access. Indeed, analysts at Censored Planet at the University of Michigan, warn that it is possible the Russian Government will export internet shutdown methods to other governments.
The effect of recent instances of internet shutdowns show these tactics becoming increasingly common within conflicts affected regions. Methods for creating internet shutdowns are becoming increasingly tailored to a specific section of the internet. These trends are likely to continue unless international partners increase public international responses to shutdowns.
China’s Race for AI Supremacy
In 2017, the Chinese Communist Party (CCP) set out its “New Generation Artificial Intelligence Development Plan”, setting a deadline to be the world leader in AI by 2030, unseating the US from its long-held top position. This is more than a symbolic race with the US though. AI is a key industry of the future and will redefine many aspects of the economic, social, and military spheres. China is determined to lead. Unsurprisingly, the US is keen to defend its top spot, but China’s long-term trajectory, ambitions, and unique advantages make for an interesting battle in years to come.
Currently, the US is ranked as the dominant player in AI investment, largely due to the thriving tech hub of Silicon Valley combined with the nation's strong and stable capital markets. US total private investment in AI is three times higher than in China, and the US has twice as many AI start-ups. A key difference in the two countries' approach to AI is the role of the state. Much of Chinese AI investment is controlled by the central government, which has launched several tech-investment vehicles. Figures here are opaque, though the 2017 plan suggested an investment of 1 trillion RMB ($138 Bn USD) over the next few years. Although a significant sum, it would not draw level with US numbers. China is, however, rapidly emerging as a leader in AI research. Indeed, accounting for AI research publications, China had 63.2% more publications than the US in 2021. But analysts have commented that these publications were, on average, of a lower quality compared to US ones.
Many consider the race for AI supremacy almost synonymous with the race for semiconductor supremacy and, therefore, linked with the national capacity to build high-end computer chips. Indeed, advanced chips are crucial for cutting-edge AI research and development. China has lagged behind the US in this regard, producing only 6% of the chips it used in 2020, whilst having even lower numbers for the most advanced chip technology.
The supply chains behind these advanced chips are complex and rely on numerous highly specialised suppliers. Currently, the United States and its allies have a significant competitive advantage in most parts of the supply chain of these chips. For example, the US firm Nvidia dominates AI chip design, and three other US firms dominate electronic design automation (EDA) software used to design chips.
Chinese firms are also far behind on AI chip design and heavily rely on US EDA software. ASML, a pioneering Dutch firm, claims 80% of the total market for lithography machines that make semiconductors. It is the only company capable of making the cutting-edge extreme ultraviolet (EUV) lithography machines used to make the most advanced chips needed for AI research and development.
In its efforts to restrict China’s AI progress, the US has pushed ASML to stop selling its EUV machines to China. They can still sell less advanced deep ultraviolet (DUV) machines, but the US is now pushing for the Dutch government to ban exports of these machines to China as well. The US has also moved to restrict exports of EDA software. China is placing a huge focus on its semiconductor industry and has invested heavily, in 2015 setting out a target of 70% of chip supply to be met domestically by 2025. However, this figure is now expected not to surpass 20% by 2025.
The competition over AI is not confined to funding and hardware. High-performance AI also requires immense quantities of data. The race for AI supremacy cannot be won without procuring and compiling large-scale datasets that are needed to train AI models. This is where the surveillance state plays into China’s hands, in contrast to the West’s focus on privacy. Combine this with both the scale of China’s population (over four times larger than the US), and the booming digital economy with vibrant social networks and online commerce having almost entirely replaced cash, and China finds itself with a significant data advantage.
Further, China is investing heavily in the Belt and Road Initiative, which may extend its data advantage beyond its borders. Indeed, MI6 chief Richard Moore has warned of China’s “data-traps” abroad, whereby it uses its economic heft to “harvest data from around the world” and “get people on the hook”. Data is the fuel of the AI economy, and China is keen to extend its advantage here.
Abroad, there is much concern over China’s approach to ethics within AI as well as concern over how China may use AI to boost its military capabilities. The lack of focus on ethics may partially explain China’s AI progress. Whilst other countries are held up by regulation and lengthy discussions and deliberation on ethics, China has powered ahead. Nicolas Chaillan, the Pentagon’s first chief software officer, has already criticised debates on AI ethics for slowing down development within the military. Chaillan also directed blame toward Google’s refusal to work with the military on AI. This is a stark contrast to China where, he said, Chinese companies are obliged to work with Beijing and are making “massive investment” into AI without regard for ethics.
Technological prowess and semiconductor advantage is keeping the West ahead of China for now. But China’s vision for a world order that places surveillance above privacy, and forgoes ethics in favour of state ambitions, may well give it the upper hand in the race for AI supremacy.
EU Targets Crypto In Its Newest Sanction Package: Where Is Cryptocurrency In Russia Headed?
Russia has been experiencing an onslaught of sanctions from countries like the US, the UK, the EU, Japan, Canada, and New Zealand since its invasion of Ukraine in February 2022. Most of these sanction impositions aim to disrupt Russia’s trade, alienating it from the rest of the world by putting travel restrictions and thereby choking the nation’s economy. One of the most recent sanctions is the complete ban on any crypto transactions between Russia and the EU. The ban forbids European crypto services providers from continuing their work in Russia. According to a statement made by the European Commission (EC), “The existing prohibitions on crypto assets have been tightened by banning all crypto-asset wallets, accounts, or custody services, irrespective of the amount of the wallet”. The current ban on crypto usage is an extension of the previous rule mentioned in the EC's fifth package of restrictive measures against Russia. The EC declared “A prohibition on providing high-value crypto-asset services to Russia” which imposed a cap of 10,000 euros for Russian-EU crypto payments.
Russia’s Stance on Cryptocurrency
Russia became the third largest crypto miner based on the data released by Cambridge University in October 2021. According to the estimates made by the officials in the data study, Russians’ crypto holding range anywhere between $27 billion and $220 billion. With about 10 percent of Russians currently owning cryptocurrency and a steady increase in ownership, the Russian government has increasingly treated the use and circulation of crypto both for inter and intra-state transactions as a chief imperative. The Russian government’s position on crypto has fluctuated from completely decrying its use and calling for a regulatory crackdown to drafting legislation for the national adoption of the technology.
One of the most prominent reasons for the government's fluctuating policyn has been the fear that cryptocurrency undermines the state’s control over digital assets and the economy. Major institutions, particularly the Central Bank of Russia, have been vocal and harsh critics of cryptocurrency, going as far as to call it a pyramid scheme. The Governor of the Bank of Russia Elvira Nabiullina remarks, “The approaches proposed by the government do not yet allow neutralizing the risks that we see, and at the same time they create new threats.” However, despite the prevalence of conflicting views, the government and the central bank have reached a compromise leading to the passing of a bill that regulates cross-border crypto payments. Deputy Minister of Finance of the Russian Federation Alexei Moiseev states, “Now we have a bill agreed upon with the Central Bank. It generally describes how to acquire cryptocurrency, what can be done with it, and how it can or cannot be settled in the first place in cross-border payments”. This comes after Moseiv, in a report, states that “it was impossible for Russia to conduct international trade without the use of bitcoin and cryptocurrencies due to current circumstances concerning sanctions”. Apart from this, the Bank and the Ministry are still at odds with each other with the former not being in favour of the legalisation of crypto-payments and exchanges within the country.
Current Situation in Russia
The announcement of the EC's eighth sanction package against Russia came soon after Moscow legalised cross-border crypto payments. Following this declaration, Russians saw numerous crypto companies and service providers such as LocalBitcoins, Crypto.com, and Blockchain.com ask them to withdraw their funds. While some companies like Dapper Labs and Kraken have completely halted their services in Russia, exchanges like Binance and Garantex are yet to fully implement the restrictions. The head of research and analytics for Unizen, Ajay Dhingra, remarks, “The ban will bring pain to Russian retail and some financial institutions. Given the fact that BTC experienced sharp appreciation in price when the war broke out, European Authorities took note of this loophole in their strategy to curtail and suffocate Russia.” Despite the ban, various other exchanges such as Singapore-registered Bybit, Seychelles-registered Huobi Global, KuCoin, and OKX have refused to implement these restrictions. The crypto economy in Russia thus faces an uncertain future as the war progresses and countries keep imposing sanctions.
The Geopolitics of Undersea Cables - Underappreciated and Under Threat
Abstract:
This report assesses the range of threats facing undersea cables, which are central to the internet’s infrastructure, the world’s communication system and thus the global economy. The paper draws particular attention to the nation-state threats, and espionage tactics, namely, cyber-attacks and cable tapping used for surveillance purposes by intelligence agencies and adversarial states to collect sensitive data as well as monitor crime and terror activities. In terms of physical damage to cables Russia presents a persistent threat due to the advanced capabilities of Russian spy vessels. This has led many experts to characterise the threat as existential. Similarly, Chinese telecommunications companies are increasing their global influence, which is of growing importance as US-China technology tensions intensify; illustrating that undersea cable sabotage would have dangerous geopolitical consequences if China were ever to invade Taiwan. Lastly, the report foregrounds how the lack of clarity in regulation represents a critical global infrastructure vulnerability.
Sarah Kuszynski
Who watches the UK Fintech Industry?
London continues to be ranked as one of the most ‘fintech-friendly’ cities in the world and, as such, a broad spectrum of fintech businesses at various stages of growth and development are represented in the United Kingdom (UK). There are currently over 2,500 FinTech companies in the UK, a figure which is expected to at least double within the next 10 years. It has been estimated that half the UK’s small businesses and over four million consumers use services powered by Open Banking technology.
There are currently no prohibitions or restrictions that are specific to fintech businesses in the UK, and depending on the nature of the business, fintech is regulated in the same way as other traditional financial services firms. However, the fintech industry has been subject to the proverbial problem of too many cooks. Presently this sector is regulated by several agencies in the UK. The Financial Conduct Authority (FCA) is responsible for most regulated activities and services that a fintech would provide.
The Prudential Regulation Authority (PRA) covers the prudential regulation of banks and insurers in conjunction with the FCA. The Payment Services Regulator (PSR) looks at the payment systems and the financial institutions that participate in them. HM Revenue and Customs (HMRC) and the Information Commissioner’s Office also play a role in this space.
This is not all, as more government departments are looking to get involved. The Bank of England and HM Treasury have recently set up a task force to scope out the viability of a UK central bank digital currency, and in April 2022, the government announced plans for stablecoins to be recognised as a valid form of payment. As crypto assets technology and investment is a growing area within fintech, the UK aims to make it a global hub for crypto assets technology and investment.
Upcoming Areas of Regulation
The FCA’s Director of Strategy and Competition, Chris Woolard, stated that regulation has a role to play in creating an environment to encourage innovation and competition.
After regulations passed in 2011 (Electronic Money Regulations 2011) and 2017 (Payment Services Regulations 2017), payment services and e-money are separately regulated. However, as previously mentioned, the government is in the process of introducing a new set of policies relating to the custody of stablecoin as part of its approach to establishing a bespoke regulatory framework for this type of digital asset.
Another new regulatory requirement within this sector would be Consumer Duty which is expected to be implemented by 30 April 2023. It is driven by the FCA and aims to set higher expectations of firms in order to have confidence in financial markets and future gains from innovation’. The Consumer Duty will require firms to review all financial products and services in the UK that are aimed at retail customers.
Another important fintech product that will be under the scanner is Buy-Now Pay-Later credit agreements which allow people to spread the full cost of a purchase over time.
In June 2022, the UK government announced proposals to bring unregulated BNPL products within the Consumer Credit Act 1974 (CCA) to protect customers.
Additionally, there are also EU initiatives on the horizon, including MiCAR, covering the crypto asset market, and the EU Retail Payments Strategy, which is expected to lead to a greater supervisory focus on the sector as a whole and may impact the UK market as well.
Advanced Semiconductors: Ukraine-Russia effect
In London Politica’s annual overlooked risks report, I considered the semiconductor industry and its role in geopolitics. Specifically, I looked at Taiwan’s use of semiconductors in their diplomacy strategy, keeping China at bay through strengthening ties with the US. At the time of the report, the war in Ukraine was yet to materialise. This article will consider how the war has changed the course of geopolitics and the semiconductor industry.
The advanced semiconductor manufacturing process makes use of two key resources that are central to Russia and Ukraine, neon and palladium. 70% of neon is produced by Ukraine, as a byproduct of older steel plants that are largely phased out elsewhere. Neon is utilised during laser operation when engraving chips. Two of the biggest neon producers are based in Odessa and Mariupol, and shut their operation at the start of the conflict. To highlight the significance of neon production in Ukraine, the invasion of Crimea in 2014 saw a price increase by 600%. The ongoing conflict has meant that supply chain disruptions have become commonplace, resulting in similar price spikes.
Palladium is another key resource affected by the conflict. Russia produces 40% of the world’s palladium, and it is critical for component production. The significance of palladium is evident from the European Union’s (EU) stockpiling efforts. March 2022 saw the European Union buy 164,000 ounces of palladium from Russia. This is up from March 2021, when they bought 90,000 ounces. A prolonged war effort could see this stockpile deplete, and a semiconductor shortage could materialise.
Furthermore, Taiwan's adoption of international sanctions has brought an end to business with Russia. This means that Russia cannot access TSMC’s high end chips, whilst the sale of key resources by Russia has also faced disruption. However, Russia has circumvented this disruption through pushing resources for sale into their Eastern hub. There have also been suggestions that Russia may start requesting payment for these key resources in Rubles in a bid to boost the Russian economy and bypass sanctions. Russia would also be able to access chips from China’s main manufacturer, Semiconductor Manufacturing International Corporation. These chips (7nm) lag behind TSMC and Samsung’s 3nm chips, however 7nm chips are important as they are used in a wide range of industries.
The semiconductor industry has been negatively impacted by the interconnected nature of their supply chain. Whilst there have been announcements of localisation, with investments from US, China, Japan, Singapore, Israel, Europe, and India; the high barrier of entry and intensive R&D would mean that new competitors would lag behind for years to come. Additionally, the importance of advanced semiconductors in defence contracts will likely create blue and red chip states depending on their alliances. This has started playing out with Taiwan’s investment in a US based manufacturing plant, placing it firmly in the US’ sphere of influence.
Sustainable Rethink: The Role of Data
The need to deal with issues related to climate change has caused a scramble to rethink the way humans live. A product of this rethink, are Neom’s line concept and Oceanix’s floating city.
Neom wants to revolutionise the way humans live, and data will play a big part. The head of technology, Joseph Bradley, said that they want “to collect 90% of the data from residents and smart infrastructure.” A system called Neos would collect this data, and this would ultimately create a more intuitive environment. For example, your fingerprint would be able to unlock doors at hotels, without the need to check in at a desk. Many are likely to embrace the efficiency with open-arms, however some are likely to express serious concerns about the use of data, and data protection.
In the not so distant past, you had the Facebook scandal, Cambridge Analytica Scandal, Yahoo data breach, Google data breach. The list is endless. The common theme in all of these instances was the misuse or mishandling of user data which historically has not gone down well. Data plays a central role in improving how we live, with 1% of data being utilised in other smart city projects. Whilst Neom states that there will be an opt out option for its residents, it remains to be seen how data protection regulation and transparency in the space will unfold. Watch this space!
Risks of An Increasingly Digitalised World
Our 2022 Digital risks report covering cryptocurrency and social media-related issues, risks, and their implications.