Digital currencies, DeFi and the impact of the next Carrington event

‘But have you hedged yourself in crypto?’ is the kind of question I am being asked a lot lately. Ignoring the technical and economic miracles/mirages of DeFi, I started to scratch an itch about non-obvious vulnerabilities. Like everything I write, this remains work in progress.

If you read a sufficient amount of human history it’s inevitable that you start thinking about progress in terms of disasters. I’m particularly interested by non-extinction disasters, the kind which are globally damaging but not fatal to humanity. I’d categorise Covid as a relatively mild entry in this category (by historical measures).

The impact of non-extinction disasters on humanity is in part a function of how the impact area is configured. For example, had the Tunguska event (most likely a meteor which exploded mid-air) happened over New York or London in 1908, it would have set much of the western economy back several decades. Instead it exploded in Siberia so the impact was materially zero (unless you were one of 80 million trees). Side-note: I often wonder how much more seriously we’d be taking asteroid/comet impact risk today if Tunguska had been imprinted upon a city. Anyway.

Whatever your views on DeFi and digital currency, it’s clear that the world’s economic ecosystem is becoming more, not less, digital. This brings me to my current non-extinction disaster obsession: the next Carrington event.

A quick primer: the sun is still quite poorly understood as a physical entity. However we have enough data to know that it operates on ~11yr cycles where it periodically vomits out solar flares (coronal mass ejections). Mostly they’re pretty small (and relatively harmless to us). Sometimes they’re quite huge and potentially devastating if they hit our planet. In 1863 one of the latter (the Carrington event) resulted in the largest geomagnetic storm we have on record and badly damaged much of the planet’s telegraph network.

If a Carrington-level event struck today however, the impact area is configured very differently. With a planet run on electricity and digital communications, damage estimates (calculated by insurance companies) run into trillions of dollars with a recovery time of several years. Although many western electrical grids are shielded for solar events, those near coastlines (where most of our population centres are) will likely take significant transformer damage. Satellite infrastructure will be heavily impacted. The UK government’s assessment is that “services from a significant proportion (of satellites) are expected to be lost either temporarily or permanently” and even transmissions from hardened military satellites will be “degraded, or totally lost, due to ionospheric impacts”.

Bear in mind also this is a when, not if, statement. We had a near miss in 2012 where a Carrington-scale solar flare missed the planet’s rotation by nine days. I’ve read a few papers where authors suggest probability of this scenario at ~0.7% per year and <2% for the next decade. However the data to support this is (understandably) limited.

DeFi is definitely cool. I’m still unclear whether cryptocurrencies are actually currencies or more accurately defined as religions but it appears they’re going to stick around. One thing is clear: this pivot to a digital economy is significantly increasing the impact that a solar driven non-extinction event (a mathematical certainty) will have. Digital requires electricity.

This is obviously not an anti-technology rallying call. It’s really just thinking aloud about how we’re unintentionally increasing risk profile/fragility with a new technology. I am categorically not an expert on anything in this post but a few questions that I haven’t found answers to:

  1. For countries planning to introduce a digital currency (e.g. digital Yuan), have they run assessments on the impact of prolonged electricity blackouts?
  2. Should there be (deep breath) regulatory requirements for DeFi continuity of service plans?
  3. Why isn’t anyone in a hurry to replace our solar monitoring equipment, most of which are now operating beyond their expected lifetimes? 😱

Still mulling…

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