Shadow information economics development milestones

In this article we try to analyze the source of shadow information economics, historical phases of its establishment, and preconditions of its appearance. The phases will be discussed and the key milestones are outlined.

Shadow information economics is the illegal research, design, production, spreading, and use of information and communication technologies hidden from the state and society, being outside state accounting and control. Thus, the main precondition for shadow information economy existence is certain circumstances when hiding activity or its elements is advantageous. The problem about money flows that are not under state control is the fact that such money may be used to fund other illegal activity such as terrorism, weapon and drug business.

Vast majority of researchers single out the events of XX-XXI centuries as a starting point for both information technologies development and shadow information economics, but we consider that the roots of the problem lie much deeper within the history of mankind.

It is also very important to notice that shadow information economics finds its origins from many different sciences, historic events and discoveries and thus the problem should be viewed as a much more complex one than just a problem of economic or technological domain.

We separate three main stages in the history of shadow economics development:
• Pre-computer.
• Early.
• Modern.

The phases are schematically represented on fig.1 and are analyzed in more detail below.

Figure 1. General historical phases of shadow information economics development.

1. Pre-computer stage. During this phase the premises of shadow information economics are emerging. First computer prototypes make their appearance, first law systems start to emerge. By the end of this period most of the countries have encountered the problem of shadow information economics.

Even in ancient times valuable information could be traded, very often, with malicious purposes such as military spying data, industry espionage, etc. Among the most noteworthy events of this phase we would like to outline the following:
a. Money – as soon as first coins were minted, various fake copies were produced.
b. Abacus – is considered to be one of the first calculating devices used by mankind. The first exemplars of this device date back to around 3000 B.C.
c. Calculator – the arrival of the first mechanical calculator is often attributed to year 1820.
d. Roman law – served as the basis of the law systems that exist nowadays around the world. Its first steps are dated back to the Twelve Tables, c. 439 B.C. One of the reasons of classic shadow economics existence is the taxes. One of the classic problems of shadow economics is the fact entrepreneurship sometimes tries to evade taxes by showing less profit in accounting reports, which leads us to the next important milestone of the phase under consideration.
e. Double-entry bookkeeping system – is a set of financial accounting rules, which was introduced around 13th century in Florence and was codified in 15th century. The system
f. Charga Plate (1) – was introduced in 1928 and is widely considered to be predecessor of modern credit cards. Credit card fraud and data theft are one of the most common and profitable (2) felonies nowadays.
g. Piracy – in its current, most widely spread meaning – intellectual property piracy, the term was first used c.a. 1603 (3) in Great Britain.
h. Programmable devices – Antikythera mechanism is considered one of the first programmable devices in the history. It was designed to calculate astronomical positions. Another breakthrough in the domain may be considered the works of al-Jazari, who designed and built several working automata in 1209.

2. Early stage. This phase started in mid-XX century with major progress of computer engineering, appearance of the first hackers, who later start to group into formations. Most of malware emerged at this stage bear destructive character. The law and economical systems and principles tend to be more stable from this stage further on and few breakthroughs are accomplished, even though these domains largely tend to adapt to the new environment. Among the most noteworthy events of this phase we would like to outline the following ones:
a. First programmable computer – the Colossus was designed and built during the Second World War by British code breakers to decrypt German messages.
b. Theory of Self-Reproducing Automata (4) – a famous work by John von Neumann. This work is widely considered to lie at the basis of computer viruses and worms.
c. ARPANET – was introduced in 1969 being the first computer network to use packet switching technology that was later put to the basis of the Internet.
d. TCP/IP – the Internet protocol suite are the communication protocols that the Internet is based on.
e. The Internet – is the most common means of communication, malware spread, money laundering nowadays. Probably one of the most important milestones in the history of shadow information economics.
f. Intel 80386 – another very important milestone in the development of shadow information economics. First, Intel 80386-based computers helped spread the computers to large public. Second, large popularity of the processors lead to appearance of many of i386-compatible analogues, e.g. AMD 5×86, Harris 286, Cyrix Cx486-SLC, OKI M80C86, etc. Finally, another important fact is the appearance of different colors attributed to assembled computers in dependence of their country of origin: “yellow” for the hardware assembled in the East Asia, “red” for the USSR-based production. Both of these have lost their topicality as of today, since the USSR doesn’t exist anymore, and almost all of the hardware is assembled in the East Asia. Other colors that retained their importance even today are “white” and “grey”. White hardware is the hardware that is sold legally, while the grey color refers to that haven’t passed certification, or avoided the taxes, etc.

g. Morris worm – was one of the first computer worms that spread through the Internet in 1988 and attracted a lot of mass-media attention. It infected computers due to several vulnerabilities and could infect a computer several times resulting in slow down to the point of uselessness, although the author said that he had no malicious intention when writing and releasing the virus.
h. MS DOS – another important milestone in the development of shadow information economics. It both helped spread computer into masses and was one of the first widely pirated computer software.

3. Modern stage. The main characteristic of this phase is the tendency of malefactors to act in well-thought and efficient groups. Very often each member of the group performs particular and highly tailored tasks and might even be unaware of the other members. The tasks may range from purely scientific research of software, hardware, market, tendencies, laws, opportunities to malware design and implementation, money laundering, etc. These groups are likely to be ruled by skilled individuals and the structure resembles classical criminal structures. Malware tends to bear materialistic, monetary nature: it steals personal data, uses victims’ computers calculating power and networking resources with the final goal of making profit out of it.

Cybercrime tends to resemble real-life crimes more and more, e.g. extortion, stalking, espionage, even such term as cyberwarfare emerges (quote?). People who were hackers during previous stage now tend to become information security experts. This period is characterized by many large computer virus epidemics. Volumes of pirated intellectual property tend to grow significantly as well as means of counteracting it.

Another noteworthy feature of this phase is hacktivism. People use their computers to express their opinion on certain real-life events. Finally, during this stage mobile devices as well as fraud involving them are becoming more and more popular. Among the most important milestones of this phase we would like to outline the following:

a. Zeus – is a Trojan horse malware that steals user banking data and unites infested computers into a large botnet. Researchers state that the epidemic hit 196 countries with 3.6 million infected computers in the US alone (quote!). The virus was first identified in 2007 and in late 2010 its creator shared the source code.

b. Conficker – first detected in early November 2008. The number of infected computers is estimated from 9 to 15 million (5). Even though a patch was released as soon as Microsoft was made aware of the vulnerability used by the virus, a large part of Windows machines was still not patched, allowing the virus to spread further. The virus had an impact over French Navy, United Kingdom Ministry of Defence, Bundeswehr and others (6).
c. Stuxnet, Duqu, Flame – these viruses are thought to have similar origins (quote) and are often referred to as weapons of cyber warfare.

d. DDoS attacks on Amazon, Visa, PayPal, Mastercard – a book example of hacktivism. Ordinary people were able to express their protest on the case of Julian Assange, the owner of Wikileaks project. By their sheer numbers the attackers were able to slow down the work of large companies’ web-sites.

This paper tried to outline the most important stages of shadow information economics development throughout its history, development of its features. It is obvious that the problem of shadow information economics finds its roots deep within history of mankind, economics, and information technology. The struggle against the problem should be put into practice on different levels: global, international, government, regional, corporate and even personal.

1. Starbuck Gerson, Emily. Pre-plastic credit: Charge plates, coins, celluloids. [Online] November 7, 2007.
2. Richardson, Robert J. Monitoring Sale Transactions for Illegal Activity. IIMA online . [Online] 2006.
3. Dekker, Thomas. The Wonderfull yeare. 1603. [Online]
4. von Neumann, John. Theory of Self-Reproducing Automata. London : Urbana and London, 1951.
5. Virus strikes 15 million PCs. [Online] January 26, 2009. [Cited: June 10, 2012.]
6. Page, Lewis. MoD networks still malware-plagued after two weeks. [Online] January 20, 2009. [Cited: June 10, 2012.]

Опубликовать в

Comments close