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The World is Changing - Cyber Edition

Josh Blanchfield

Nov 1

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In a world filled with risks, all of us need to decide which ones we are going to do something about. Taking some risk is an inevitable part of life. You can’t spend your life encased in bubble wrap in a bomb shelter. I wear a seatbelt and I have fire insurance on my house. I do not own iodine pills to hedge against a nuclear attack on Denver. You pick which risks are material enough to warrant spending time on.

Which risks are worthy of attention is obviously not static. Herodotus had to mitigate the risk of accidentally interacting with lepers. If you lived in Salem in the 1690s you really wanted to take precautions that you weren’t deemed to be a witch. In the US in the early 1800s, steamboats were a useful form of transportation but had a pesky habit of exploding. In all of those cases, the world changed, and that meant you had to update your list of things to worry about.

Well, the world is changing about as fast as it ever has, and that means it’s worth updating your risk list. Specifically, recent conversations we’ve had with AI researchers on the cutting edge, as well as people involved with the Mythos saga, has changed my personal calculation as it relates to cyber risk. I now believe the probability of a successful attack on a major financial institution is much closer to “when” rather than “if.” And I wrote this piece before this week’s Binance hack, so depending on your definition of “major financial institution” it’s possible we are already there.

I think about this kind of cyber risk - not just having your identity or password stolen, but the actual institution itself getting compromised - a bit like the risk of a natural disaster. You can’t prevent it, you can only take steps to mitigate the damage. With that in mind, we are advising clients to take 4 steps to help protect themselves:

1. Don’t use any rinky-dink financial institutions. You want your money custodied by firms with the resources to put an army against this problem. Joe’s Credit Union up the block from you might have friendly tellers, but that is going to be a small solace when a devious teenager decides to blow their systems wide open.

2. Use more than one custodian. Custodial diversification has gone from an afterthought to the equivalent of fire insurance. If the failure of any one financial institution could be ruinous, you need to remedy that.

3. Keep records. In the case that a hack impedes the ability for an institution to know customer balances, it will be helpful to have evidence. I turned paper statements back on in my accounts and just throw them into a drawer. Downloading PDFs works too.

4. Keep some cash on hand. I don’t think you need to go crazy with this, but enough to cover the basics for a week or two sounds about right.

Like a seatbelt or fire insurance, my fingers are crossed that I never need any of this. But I am prepared in case I do.