The Fog Of Metawar

Overhauling Society's Operating System

2/24/2022

“There are decades where nothing happens; and there are weeks where decades happen” – Vladimir Ilyich Lenin

Russia invaded Ukraine this morning. My heart goes out to those who are suffering and who will continue to suffer. It feels silly and a bit blithe to be writing today. There’s nothing quite like the heaviness of the physical world to evince the lightness of the digital one.

With that said, events like these illuminate the need for stronger, more resilient systems. The world will realize more quickly than it may have wished that we need a better set of tools for the coming decades. Rather than an end in itself, decentralization will unlock better properties for the modern societal operating system. 

Definition: A protocol is simply a set of rules that mediate how a system works. I use it quite liberally. If you look around, it’s protocols all the way down. 

Note: I do not claim to be an expert in anything, never mind geopolitics, supply chains, macroeconomics, energy dynamics, European/Soviet history etc.. I simply try to read broadly and learn from those that I gather to be the most informed in their respective domains. 

The Fog Of Meta War

Overhauling Society’s Operating System

In many ways, an invasion quells uncertainty and suppresses volatility. An event with <100% probability of occurring has now occurred. But while markets become less foggy in the short-run, they become foggier in the long-run. War changes the rules of the game, forcing its constituents and its observers to adapt. The world’s players update their world-views and make the best chess moves that they can. When Putin invaded Ukraine, he released a tremendous butterfly into the fog that shrouds the board.  

The fog of war refers to a military agent’s uncertainty regarding his own capacity, the capacity of his adversary, and the intent of his adversary. This is the morass playing out between Russian forces, Ukrainian forces, neighboring nations, US and European governments, and NATO. The fog of actual, physical war casts fog on markets (both financial and commercial), hence the fog of meta war. In my opinion, the chess board upon which the world’s stakeholders strategize has changed drastically. And actually, in the long-run, for the better (please excuse my insensitivity). 

(“Fog of War” was coined in 1873 by Prussian general and military theorist Carl Von Clausewitz. He also strongly influenced the development of another of my favorite concepts: Auftragstaktik, or mission-type tactics. In mission-type tactics, the commander gives subordinate leaders a clearly defined goal (the objective). The forces need to accomplish that goal within a predetermined time frame. The subordinate leaders then implement the order independently. The subordinate leader is given planning initiative and freedom in execution which allows a high degree of flexibility at the operational and tactical levels of command. Mission-type orders free the higher leadership from tactical details.)

Rather than a Cypherpunk Ideal, Decentralization Means Survival 

Just like an edge case reveals the weaknesses of an argument, a crisis reveals the vulnerabilities of a system. Through an attack on the fundamental protocols upon which society hums, food supply and energy production, Putin has forced the world to re-evaluate its operating system. Decentralization was once a cypherpunk ideal restricted to the ivory computer towers of Satoshi and Hal Finney. Decentralization is now a fundamental condition of survival. 

Putin’s Gambit

“Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world” - Henry Kissinger 

Putin made a bet that he could invade Ukraine with relative impunity—Russia plays a critical role in global food and energy supply. 55% of Germany’s LNG, 47% of the EU’s LNG, and 7% of the US’ LNG comes from Russia. 

Russia procures 43% of the world’s palladium (used in catalytic conversion) and 11% of the world’s wheat (used in metabolic conversion). It also supplies a substantial portion of the world’s nitrogen, phosphorus, and potassium.

The invasion temporarily paralyzed Western governments: do nothing or fight back (without triggering the NATO’s Article 5 defense clause) and invite broad-based inflation and the strong possibility of civil unrest at home. In a single chess move, Putin reminded the Western world how fragile its basic societal OS was. 

Re-Writing, Re-Shoring, and Decentralizing Societal Protocols 

COVID demonstrated that long, multi-leg supply chains deliver efficiency at the cost of anti-fragility. Particularly when they lack the flexibility to swap out suppliers, manufacturers, shippers, and distributors. Ricardo’s “comparative advantage” is only that, an advantage, until the single country, company, or factory that a business relies on for manufacturing is shuttered. Putin’s bellicosity will introduce the next chapter in the saga that COVID kicked off: energy, food, and supply chain protocols will be re-wired over the coming decades. 

According to Ryan Peterson at Flexport, the average door-to-door (factory → consumer) is now upwards of 120 days. The transport of a shipping can has increased from $2000 in 2019 to $10,000 in 2022. Though the world still reels from die cast in March 2020, such dynamics have only recently become explicit as per a 7.5% CPI print.

Global Container Freight Index from July 2019 to February 2022

Source: Statista

The invasion of Ukraine will likely send shipping, food, energy, and other commodity prices even higher. This cascade of higher input costs will carry severe consequences for people and businesses. Africans will starve as war and sanctions against the import of Russian carbohydrates drive wheat prices to new highs. Cost of living for normal folks around the world will become an existential concern. Due to potash and urea (fertilizers) shortages and pricing, US farmers may miss the April planting season. The loss of Russian palladium and aluminum will suppress the supply of new internal combustion engine vehicles (ICEs)—used cars, already the most inflated category within the CPI, will become even more expensive. Nickel, a rare earth metal used in batteries for its large storage capacity and high energy density, has spiked 95% in price over the past month. This represents an event that is roughly 30 standard deviations from the mean. Depending on Russian tactics, we may see electricity and/or internet service outages in Europe or the US. The price of tomorrow—gasoline, electricity, internet, and food—is becoming increasingly unaffordable and the societal OS is reeling. 

As a matter of survival, Western companies and governments will re-shore supply chains and add redundancy to basic energy and agricultural infrastructure. Agricultural capacity in Mexico will grow. The US may launch broader subsidization for solar and wind energy solutions across the sunbelt and on residences. Fracking will become “woke” for a bit. Europe will reconsider its hostility towards nuclear power. Critical finished goods like chips and medical devices will be sourced from multiple and domestic sources. The “China Plus One” strategy assumed by multinational corporations in response to Sino-American tariff wars will become a “China +5” resiliency strategy assumed by all corporate players. The existential risk of a single-point-of-failure is now mainstreaming—decentralization is no longer a theoretical nice-to-have, but rather a commercial and political necessity. 

China Plus One: Companies mostly maintain manufacturing capacity in China but add additional capacity in primarily SE Asian countries. This strategy adds redundancy to the supply chain and reduces reliance on China. Source: CKGSB Knowledge 

In their narrowest capacity, distributed ledgers and the applications built upon them dis-intermediate financial middle-men who are tempted to abuse their control. Because American and European systems have tended to work well historically, such a feature seemed rarefied and irrelevant. Maybe a Venezuelan or an Argentinian could benefit, but why fuss over decentralization in the states? Now we enter an age where people will increasingly grow dubious of choke points across protocols, whether malicious or innocent, are possible: supply chains, manufacturing, agriculture, raw materials, precious metals, and energy. 

The Suez Canal was blocked for six days after the grounding of Ever Given, a 20,000 can freighter. While purportedly accidental, such choke-points can and are deliberately blocked. Source: NYT

I want to emphasize an important point here. Societal protocols (food, energy, etc.) are visibly at risk of disruption via centralization and censorship. What I mean by this is that people can easily see that physical goods can be jammed, blocked, delayed, sanctioned, or seized. And so adding redundancy to such systems is a sort of first-order solution to an explicit problem. But just as important to “censor-proof” are the databases that mediate these systems and the rest of the systems that run our lives. Databases underpin everything—finance, energy, commerce, media, warfare. Increasingly, society will restructure around networked databases that are owned, mediated, and governed by the stakeholders to which they matter. More on this at a future date. 

“We shape our tools and thereafter our tools shape us.” - Marshall Mcluhan 

Crypto Muting the Drums of War

In more ways than one, this violent chapter in world history will shift the Overton window, or humanity’s window of discourse. We will reflect not only on the vulnerabilities of supply chains but on the vulnerabilities of other, broader institutions. As we rewire our supply chains for resiliency we will re-underwrite our institutions for logic. 

An inquisition into how well institutions really serve their constituents is already afoot, but it will intensify from here. Oligopolies and monopolies (points of failure) over resources like news, social media, music (Spotify is down right now—3.8.22), messaging (Discord is down right now—3.8.22), telecommunications, mapping, compute and finance, among others, will be called into question. The historical control of money by governments will weaken.  

As the harsh realities of physical violence make very clear, crypto/distributed ledger tech is not a panacea. But it can provide reprieve to victims by standing up the networks and services that strongmen seek to suppress. 

Caesar and Putin: History is Written (and deleted) By The Victors

Caesar (accidentally) burned down part of the Library of Alexandria, incinerating thousands of scrolls and the history recorded upon them. Putin, in an attempt to enfeeble Ukrainian comms and hem the annals of history to his liking, will censor quite liberally. Ukranians have, within hours of the invasion, called into service Arweave, a protocol that provides a permanent, on-chain record of information via decentralized storage. Arweave enables individuals at risk of censorship to permanently upload a time capsule with information in it. 

Because of a clever incentive mechanism and blockweave design, Arweave stores information indefinitely and redundantly across many devices. The network currently contains over 6.5 million tweets, videos, photos and articles related to the Ukraine conflict and just registered its 3rd highest weekly transaction volume ever. 

If a need is met for Ukraine, then the same logic should apply in the Xinjiang Uyghur Autonomous region, in Taiwan, in Hong Kong, in Turkey, in North Korea, and of course, in Russia. If interested in exploring this topic further, Chris Heaney and I wrote about the role of immutable storage in maintaining truth here. 

Source: Arweave - Archived Documents Related to the Ukraine/Russia Crisis 

History, or the record of events, punctuates our perception of the passage of time. Without robust, decentralized storage our perception of time can literally be modified. The savvy reader will recognize that other basic services are at risk of censorship, manipulation, and failure. What happens when a huge server farm goes down on the East coast? Akash Network seeks to provide a solution. What happens if YouTube is spun off to ByteDance, TikTok’s developer, and begins censoring all “unpatriotic” content? Livepeer/Media Network seeks to provide a solution. What if a cyberattack cripples AT&T communications? Helium seeks to provide a solution. Or much more foundationally: what happens when our access to money is throttled? 

A Convergence of Interests: Developed and Developing

Diaspora highlights the importance of financial sovereignty and non-custodial stores of wealth. Ukrainian families under attack cannot not rely on banks to fulfill their obligations, on gold due to its unwieldiness and risk of seizure, or on their homes for obvious reasons. A store of value with a physical footprint or custodied by a third-party (really an IOU) represents a single-point-of failure. A chokepoint that can be exploited by force. Merely by memorizing twelve words, a seed phrase, a family is able to carry with it its entire blockchain vault. Ukrainian refugees can send and receive remittances without permission, making it easy for related or unrelated parties to fund their refuge. 

This episode will carry lessons for other groups at risk of censorship or violent suppression. I’d be surprised if more Ukrainian, Russian, Polish, Georgian, Taiwanese, Western Chinese, Brazilian, Argentinian, Venezuelan, Korean, Turkish, Pakistania, Indian, and Balkan crypto wallets did not come online in the coming year. As a Westerner, I cannot help but view the plights of these nations from a removed, modestly empathetic, and mostly analytical vantage point. Sort of like watching a documentary. As much as the wokescienti would like us to believe, Westerners are, on a relative basis, not disenfranchised or at risk of autocratic overreach. So as Chamath inelegantly pointed out with regard to the Uyghurs, we don’t really care. We don’t care because it doesn't affect us. But it is starting to.

Source: Bitcoin.com

Our neighbors to the north have recently forced many Westerners to wake up. Due to their holding of “unacceptable views”, Trudeau invoked an emergency act to freeze the financial accounts and insurance policies of the truckers protesting lockdowns and vaccines. With a visible hand, Trudeau strangled key intermediaries in order to starve those that he disagreed with. 

The Emergencies Act, which replaced the War Measures Act, has been utilized three times: WWI, WWII, and during the 1970 October Crisis when the Deputy PM was kidnapped by the FLQ militant separatist group. This marks the first time that such power has been wielded in peacetime. A line was crossed—the social contract took a hit. 

A risk that seemed restricted to volatile, authoritarian regimes became all too real right here at home. Folks in America, Canada, and Europe will start to broadly reconsider storing their wealth within institutions that can be coerced into defection. Trudeau’s unprecedented actions are helping to bridge the intrinsic motivations of the developing and the developed.

A Convergence of Interests: The Governed and The Governors

The Ukrainian government has raised more than $56.2MM in USDT, PolkaDot, Tron, Dogecoin, Solana, Ether, and Bitcoin in the past 4 days. This marks a new chapter for the legitimacy of decentralized finance and communications. For the first time, a nation state has initiated a crowdfunding campaign on social media. Further, Russia’s deplatforming from SWIFT, a global payments system, will usher in the participation of global central banks and sovereign wealth funds in crypto-economic systems. As I pontificated in 2022: The Great Dispersion, “[El Salvador] is not sufficient for social proof. But when the next sovereign follows, the dominoes will fall.” 

On the issue of decentralized money, the governors and the governed have long been at loggerheads. The governors figure, often rightly, that non-fiat currency is a fundamental threat to their authority. But a stronger fiat authority is an equal, if not greater threat to this authority. To invite crypto domestically is to circumvent dollar or yuan hegemony and the associated powers of sanction (India…opportunity of a lifetime here). Permission-less finance enters the survival toolkit not just for the governed, but for the governors. 

Reckless Prognostication

I always liked the Fog of War as a model to describe how humans deal with problems. We do our best with incomplete information. Based on the incentives that appear to us, we make moves based on the perceived expected value of those moves. Then we modify based on the moves of others. Some of this is conscious but much of it is intuitive. Individual actions sum to steer the world in certain directions. 

I have moved quickly and often in the last two years because, to me, the incentives have shifted enormously. The world we live in today is more different from the world of 2010 than the world of 2010 was from the world of 2000. Technology and thus power structures are changing at an exponential rate. People will grow slowly uncomfortable with gatekeeping. Most of these relationships will continue for the sake of convenience. But the specter of centralization will continue to haunt us. It’ll appear to have subsided, only to drift back into the light during a crisis. It’ll slowly drift from country to country, from sector to sector, from company to company, until the world is re-architected around networked systems that put the needs of their constituents above all else. 

Dedication: I’d like to dedicate this piece to my late grandfather, Hugh Appleton Ragsdale II, or Pappy to me. He was a well-read Russian history scholar and prolific writer. The author in me probably comes, in no small part, from him.

Disclaimer: TJ Ragsdale and Lupine Capital I, LP may own some of the tokens mentioned. TJ Ragsdale contributes to MakerDAO. This piece is intended purely for educational purposes and is in no way, shape, or form financial advice.