Tim May, The Crypto-Anarchist Manifesto and Modern Cryptofinance

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Here’s a classic piece of internet lore which I recently rediscovered, The original Crypto-Anarchist Manifesto.

A specter is haunting the modern world, the specter of crypto anarchy.

Computer technology is on the verge of providing the ability for individuals and groups to communicate and interact with each other in a totally anonymous manner. Two persons may exchange messages, conduct business, and negotiate electronic contracts without ever knowing the True Name, or legal identity, of the other. Interactions over networks will be untraceable, via extensive re- routing of encrypted packets and tamper-proof boxes which implement cryptographic protocols with nearly perfect assurance against any tampering. Reputations will be of central importance, far more important in dealings than even the credit ratings of today. These developments will alter completely the nature of government regulation, the ability to tax and control economic interactions, the ability to keep information secret, and will even alter the nature of trust and reputation.

The technology for this revolution–and it surely will be both a social and economic revolution–has existed in theory for the past decade. The methods are based upon public-key encryption, zero-knowledge interactive proof systems, and various software protocols for interaction, authentication, and verification. The focus has until now been on academic conferences in Europe and the U.S., conferences monitored closely by the National Security Agency. But only recently have computer networks and personal computers attained sufficient speed to make the ideas practically realizable. And the next ten years will bring enough additional speed to make the ideas economically feasible and essentially unstoppable. High-speed networks, ISDN, tamper-proof boxes, smart cards, satellites, Ku-band transmitters, multi-MIPS personal computers, and encryption chips now under development will be some of the enabling technologies.

The State will of course try to slow or halt the spread of this technology, citing national security concerns, use of the technology by drug dealers and tax evaders, and fears of societal disintegration. Many of these concerns will be valid; crypto anarchy will allow national secrets to be trade freely and will allow illicit and stolen materials to be traded. An anonymous computerized market will even make possible abhorrent markets for assassinations and extortion. Various criminal and foreign elements will be active users of CryptoNet. But this will not halt the spread of crypto anarchy.

Just as the technology of printing altered and reduced the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and of government interference in economic transactions. Combined with emerging information markets, crypto anarchy will create a liquid market for any and all material which can be put into words and pictures. And just as a seemingly minor invention like barbed wire made possible the fencing-off of vast ranches and farms, thus altering forever the concepts of land and property rights in the frontier West, so too will the seemingly minor discovery out of an arcane branch of mathematics come to be the wire clippers which dismantle the barbed wire around intellectual property.

Arise, you have nothing to lose but your barbed wire fences!

This was originally written two decades ago now (Happy New Year, everybody) in the middle of 1988. What makes it even more interesting is that it was authored by Tim C. May, a physicist, engineer and chief scientist for Intel.

So what has happened between then and now? Where is our promised crypto-anarchic utopia? Well, it’s sort of here and it sort of isn’t. Many commonly used communication protocols are (or can) be encrypted, PGP use is common, Tor is used for safe web surfing, SSL is used for secure online transactions, and so forth. Cryptography enables us to be autonomous in protecting our privacy, and it is necessary considering the NSA is reading your internets. But the world banking structure hasn’t crumbled and people still pay their taxes.

Whuffie
The economics of crypto-anarchy are really fascinating, but haven’t yet become practical or popular. Real-world banks have moved their services online and there are other popular online banking services such as PayPal, but neither of these options offer the true anonymity of real cryptofinance, where transactions can be made between secret parties through the use of cryptography and anonymous remailers. Because the parties involved communicate only through pseudonyms, this gives rise to reputation-based economies, where trustworthiness and value are determined by history and peer review. If you’re interest in how this works, I recommend Down and Out in the Magic Kingdom by Cory Doctorow, available for free through a CC-license.

There are two primary reasons that cryptofinance has not become what the early cypherpunks thought it would. One reason is physical, the other is digital.

The first and most obvious reason is that anonymity disappears for physical transactions. Let’s consider a potential website ‘darkBay,’ an encrypted and anonymous form of eBay. This would quickly become a black market for drugs, weapons and organs. Although the bidding would be hidden, the ultimate transaction of goods and money can not be done in secrecy as there are no physical equivalents to anonymous remailers. The drugs have to be sent somewhere, and somebody has to send them. The most likely choice would be a delivery service like UPS, but they require telephone identification, and even though that could be forged, they still know the ultimate destination so the transaction is not secure. Another option would be a delivery service provided by, say, the mafia, who aren’t known for their reliability and who have little motive to serve as drug-weapon-and-organ runners for anonymous strangers.
So this rules out the benefits of anarchocryptofinance for physical black markets. An opposite effect occurs for digital ones.

In Neal Stephenson’s Snow Crash, there is a massive, government-backed economy based around acquiring and distributing information. Gargoyles, as they are called, record noteworthy and are then paid whenever their information is accessed. This kind of information-based economy is exactly what the early cypherpunk pioneers like Tim May had in mind. With all of the recent advances in technology, it would be entirely feasible for digital black market infoconomies to dominate our society. Although there certainly are modern examples of these, such as data-mining botnets, information is not the hot commodity which it could be because members of an unappreciated class of netizen: the pirate.

piratebay
The term pirate is a complete misnomer. In reality, pirates are altruists that prevent black-market information economies from forming. The term ‘pirate’ (as in bootlegger, not yarr) used to mean somebody who made copies of products who then sold these for profit. Now, partially in thanks to the **IA’s propaganda campaign, pirate generally means file sharer. Digital pirates do not profit from their piracy. A dedicated seeder on a public BitTorrent server has no motivation other than altruism and an expectation of reciprocated altruism for when he needs a file. Sharing is caring. Without these altruistic pirates, there would be a lot of black markets for desirable data where pirates would be charging for access to copies of other people’s information. This is in effect what the industries are trying to do with DRM another attempted anti-piracy measures, but practically speaking, DRM is irrelevant because any DRM’d media will fall through the ‘analog hole’ and be freely redigitizable. Ultimately, the information will be freed.

In a sense, we are all pirates. This is in the nature of our relationship with information. Humans aren’t good at keeping secrets, information wants to be be free. This is facilitated incredibly rapidly by the internet. A good example of this would be last year’s AACS Key Controversy. In a black market infoconomy, the key (09 F9 11 02 9D 74 E3 5B D8 41 56 C5 63 56 88 C0, just for good measure) would have been very valuable to anybody wanting to build their own HD-DVD player. However, the nature of information means that once one copy can be made, an unlimited number of copies can be made, so there is no stopping information’s inevitable spread.

Despite these drawbacks, I still find cryptofinance to be quite fascinating and I do think that it’s influence on the economy will grow, just much slower and to a lesser ultimate degree than May and Stephenson envisioned. Financial cryptography is still being developed academically and as part of military intelligence. The 12th annual Financial Cryptography and Data Security 2008 Conference will be held in Cozumel, Mexico in a few weeks. Would anybody like to send me there?

I’ll finish this article with a selection from another Tim May essay, True Nyms and Crypto Anarchy (which I can’t find in it’s entirety, although a large chunk of it is available on Google Books):

Crypto anarchy is the cyber spatial realization of anarcho-capitalism, transcending national boundaries and freeing individuals to consensually make the economic arrangements they wish to make..

[It] ensures that men with guns cannot be brought in to interfere with mutually agreed-upon transactions, the only kind of economics interaction possible in crypto anarchy. Some people will of course scream “Unfair!” and demand government intervention, which is why strong cryptography will probably be opposed by the masses, unless of course, they are wise and take the long view. This may smack of elitism, but I have very little faith in democracy. De Tocqueville warned in 1840 that, roughly translated, “The American Republic will endure, until politicians realize they can bribe the people with their own money.” We reached that point several decades ago..

To put it bluntly, crypto anarchy basically undermines democracy: it removes behaviors and transactions from the purview of the mob. And once crypto is deeply entwined into the fabric of life and commerce, it will be too late to pull the plug.

Rich

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