Security Notes: Sandy’s Timely Warning

Gideon Samid • gideon@bitmint.com

Last month, millions of people found themselves in distress as they struggled to bounce back from the massive knockout blow dealt them by superstorm Sandy. Gas stations, even if they had generators for their pumps, could not operate their card-payment systems, and long lines were formed by cash-paying customers. Most people did not have enough cash on hand, and they could not go to the bank to withdraw cash because the banks were de-networked.

Under this duress, small neighborhood banks had an advantage since the tellers knew their customers intimately, and were confident that their accounts were in order. So they could give out cash and track the flow of transactions with the technology known as P&P–paper and pencil.

In times of emergency, money is bond and glue. It allows strangers to work as friends, it moves people to help their fellow man. “What about charity?” you ask. “In an emergency, don’t we expect people to do what they can without thinking of money?” Well, could we expect the gas-station owner to pump gasoline against a promise to pay later when the crisis is over? Could we demand that the neighborhood emporium allow its shelves to be emptied without being paid to replenish the same shelves the next day?

We live in crowded urban areas. A storm or an earthquake could toss millions of strangers into extreme distress. How do you help such a massive collection of humanity function positively? You allow them to trade what they have against what they need. I’m not referring to barter. This is most impractical in normal times, much more so in an emergency. That is why money was invented in the first place, and that is what we need to enable in modern-day emergencies.

When Iraq succumbed to invading U.S. forces in 2003, its banking system collapsed, its currency melted away, and the U.S. civilian administration had no other way to move and organize people than by hauling around bundles of $100 paper bills. The bundles were handed out with little accounting and with little efficiency. Most of the cash was whisked away by anyone touching it. So, we can’t just drop cash from helicopters on a stricken zone, nor can we mandate that people keep bundles of cash for an emergency. People will be tempted to spend it, and thieves will want to steal it.

What is needed is a technological solution. We need digital-cash functionality that works with battery-operated devices. We need money that can be stored and moved around in pre-activation mode, so that stealing it would do nobody any good. The money in place should become legal tender upon a public announcement by the authorities and stay so for a predetermined period, within which it can be redeemed as normal money.

Digital money is not heavy, does not take up space, and is media-independent. You can carry it in your phone or on a USB stick. One viable solution envisions tamper-resistant keychain devices that exchange cash with a similar device (through a physical hook or near-field communication). This modern, dynamic “coin” can be limited in capacity to align it with the cost for counterfeiters to construct a fake coin. Much as the U.S. Treasury does not print $1,000 paper bills because the cost to counterfeit them is lower than their face value, so will it be with tamper-resistant dynamic coins.

The coins may be filled with money as well as discharged while operating on a small, replaceable battery. They may be handed out by the Federal Emergency Management Agency ahead of an impending disaster. They can even be literarily dropped from the skies, if necessary, because each coin needs a personal PIN to activate. And the PIN is pre-distributed or texted in real time. With ready money, a society of strangers can operate in harmony. Individuals can exert themselves, innovate, and help each other, rather than wait helplessly until a government truck unloads necessities.

If the government would prevail on the cell-tower operators to install battery backups so that mobile devices operate during an emergency, then the phone network may be a conduit for downloading money to the population, even if the card-payment systems are knocked out.

Readers of this magazine build and maintain the magnificent payment systems we enjoy daily. We should now also plan for a payment solution that will allow us to bounce back from a massive disaster.