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16. Crypto Anarchy

THE CYPHERNOMICON: Cypherpunks FAQ and More, Version 0.666, 1994-09-10, Copyright Timothy C. May. All rights reserved. See the detailed disclaimer. Use short sections under "fair use" provisions, with appropriate credit, but don't put your name on my words.

16.2. SUMMARY: Crypto Anarchy

16.2.1. Main Points

  • "...when you want to smash the State, everything looks like a hammer."
  • strong crypto as the "building material" for cyberspace (making the walls, the support beams, the locks)

16.2.2. Connections to Other Sections

  • this section ties all the other sections together

16.2.3. Where to Find Additional Information

  • again, almost nothing written on this
  • Vinge, Friedman, Rand, etc.

16.2.4. Miscellaneous Comments

  • a very long section, possibly confusing to many

16.3. Introduction

16.3.1. "The revolution will not be televised. The revolution will, however, be digitized." Welcome to the New Underworld Order! (a term I have borrowed from writer Claire Sterling.)

16.3.2. "Do the views here express the views of the Cypherpunks as a whole?"

  • This section is controversial. Hence, even more warnings than usual about being careful not to confuse these comments with the beliefs of all or even most Cypherpunks.
  • In fairness, libertarianism is undeniably the most represented ideology on the list, as it is in so much of the Net. The reasons for this have been extensively debated over the years, but it's a fact. If other major ideologies exists, they are fairly hidden on the Cypherpunks list.
  • Yes, some quasi-socialist views are occasionally presented. My friend Dave Mandl, for example, has at times argued for a less-anarchocapitalist view (but I think our views are actually fairly similar...he just has a different language and thinks there's more of a difference than their actually is--insert smiley here).
  • And several Cypherpunks who've thought about the issues of crypto anarchy have been disturbed by the conclusions that seem inevitable (markets for corporate information, assassianation made more liquid, data havens, espionage made much easier, and other such implications to be explored later in this section).
    • So, take this section with these caveats.
  • And some of the things I thing are inevitable, and in many cases positive, will be repugnant to some. The end of welfare, the end of subsidies of inner city breeders, for example. The smashing of the national security state through digital espionage, information markets, and selective assassinations are not things that everyone will take comfort in. Some may even call it illegal, seditious, and dangerous. So be it. 16.3.3. "What are the Ideologies of Cyperpunks?"
  • I mentioned this in an earlier section, but now that I'm discussing "crypto anarchy" in detail it's good to recap some points about the ideology of Cypherpunks.
  • an area fraught with dangers, as many Cypherpunks have differing views of what's important
    • Two main foci for Cypherpunks:
      • Personal privacy in an increasingly watchful society
      • Undermining of states and governments
  • Of those who speak up, most seem to lean toward the libertarian position, often explicitly so (libertarians often are to be found on the Internet, so this correlation is not surprising)
    • Socialists and Communitarians
  • Should speak up more than they have. Dave Mandl is the only one I can recall who's given a coherent summary of his views.
    • My Personal Outlook on Laws and Ideology:
      • (Obviously also scattered thoughout this document.)
      • Non-coercion Principle
        • avoid initiation of physical aggression
  • "to each his own" (a "neo-Calvinist" perspective of letting each person pick his path, and not interfering)
  • I support no law which can easily be circumvented. (Traffic laws are a counterexample...I generally agree with basic traffic laws...)
  • And I support no law I would not personally be willing to enforce and punish. Murder, rape, theft, etc, but not "victimless crimes, " not drug laws, and not 99.9998% of the laws on the books.
  • Crypto anarchy is in a sense a throwback to the pre-state days of individual choice about which laws to follow. The community exerted a strong force.
  • With strong crypto ("fortress crypto," in law enforcement terms), only an intrusive police state can stop people from accessing "illegal" sites, from communicating with others, from using "unapproved" services, and so on. To pick one example, the "credit data haven" that keeps any and all financial records--rent problems from 1975, bankruptcy proceedings from 1983, divorce settlements, results from private investigators, etc. In the U.S., many such records are "unusable": can't use credit data older than 7 years (under the "Fair Credit Reporting Act"), PI data, etc. But if I am thinking about lending Joe Blow some money, how the hell can I be told I can't "consider" the fact that he declared bankruptcy in 1980, ran out on his debts in Haiti in 1989, and is being sued for all his assets by two ex-wives? The answer is simple: any law which says I am not allowed to take into account information which comes my way is flawed and should be bypassed. Dialing in to a credit haven in Belize is one approach--except wiretaps might still get me caught. Cyberspace allows much more convenient and secure bypasses of these laws.
  • (For those of you who think such bypasses of laws are immoral, tough. Strong crypto allows this. Get used to it.)

16.3.4. Early history of crypto anarchy

  • 1987-8, AMIX, Salin, Manifesto
  • discussed crypto implications with Phil Salin and Gayle Pergamit, in December of 1987
  • with a larger group, including Marc Stiegler, Dave Ross, Jim Bennett, Phil Salin, etc., in June 1988.
    • released "The Crypto Anarchist Manifesto" in August 1988.
  • Fen LaBalme had "Guerillan Information Net" (GIN), which he and I discussed in 1988 at the Hackers Conference
    • "From Crossbows to Cryptography," 1987?
      • made similar points, but some important differences
    • TAZ also being written at this time

16.4. The Crypto Anarchist Manifesto

16.4.1. Unchanged since it's writing in mid-1988, except for my email address.

  • There are some changes I'd make, but...
  • It was written quickly, and in a style to deliberately mimic what I remembered of the "Communist Manifesto." (for ironic reasons)
  • Still., I'm proud that more than six years ago I correctly saw some major points which Cypherpunks have helped to make happen: remailers, anonymous communictation, reputationbased systems, etc.
    • For history's sake, here it is:


The Crypto Anarchist Manifesto

Timothy C. May 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!

16.5. Changes are Coming

16.5.1. Technology is dramatically altering the nature of governments.

  • It may sound like newage trendiness, but strong crypto is "technological empowerment." It literally gives power to individuals. Like Sam Colt, it makes them equal.
  • "Politics has never given anyone lasting freedom, and it never will. Anything gained through politics will be lost again as soon as the society feels threatened. If most Americans have never been oppressed by the government (aside from an annual mugging) it is because most of them have never done anything to threaten the government's interests." [Mike Ingle, 1994-01-01]
    • Thesis: Strong crypto is a good thing
      • tool against governments of all flavors, left and right
      • religious freedom
      • personal choice

16.5.2. Dangers of democracy in general and electronic democracy in particular

  • mob rule, rights of minority ignored
  • too many things get decided by vote that have no business being voted on
    • "don't tax me...", De Tocqueville's warning
    • electronic democracy is even worse
  • moves further from republican, representative system to electronc mob rule
    • too rapid a system
  • Detweiler's "electrocrasy" (spelling?)...brain-damaged, poorly thought-out

16.5.3. The collapse of democracy is predicted by many

  • the "tipping factor" exceeded, with real taxation rates at 50% or more in most developed countries, with conditions of "taxation without representation" far beyond anything in American colonial times
  • with professional politicians...and mostly millionaires running for office
  • the Cincinnatus (sp?) approach of going into government just for a few years, then returning to the farm or business, is a joke
    • rise of nominalism [argued by James Donald]
  • "After Athenian democracy self destructed, the various warring parties found that they could only have peace if they disowned omnipotent government. They put together a peace agreement that in part proclaimed limits to government, in part acknowledged inherent limits to what was proper for governments to do and in part guaranteed that the government would not go beyond what it was proper for government to do, that the majority could not do as it pleased with the minority, that not any act of power was a law, that law was not merely whatever the government willed. They did not agree on a constitution but agreed to respect an unwritten constitution that already existed in some sense. A similar arrangement underlies the American constitution (now defunct) and the English declaration of right (also defunct) The problem with such formal peace agreements is that they can only be put together after government has substantially collapsed. Some of us wish to try other possibilities in the event of collapse. The American constitution collapsed because of the rise of nominalist theories "The constitution says whatever the courts say that it says." [James Donald, 1994-08-31] - War on Drugs, conspiracy charges, random searches, emergency preparedness orders (Operation Vampire Killer, Operation Night Train, REX-84). The killings of more than a dozen reporters and tipsters over the past decade, many of them covering the Iran-Contra story, the drug deals, the CIA's dealings...the Farm appears to be "swamping" more and more of these troublemakers in the headlong march toward fascism.
  • De Tocqueville's warning that the American experiment in democracy would last only until voters discovered they could pick the pockets of others at the ballot box
    • a point reached about 60 years ago
  • (prior to the federal income tax and then the "New Deal," there were systemic limitations on this ability to the pockets of others, despite populist yearnings by some...after the New Deal, and the Great Society, the modern era of runaway taxation commenced.)

16.5.4. Depredations of the State

  • "Discrimination laws"..choice no longer allowed
  • the strip club in LA forced to install wheelchair access- -for the dancers!
    • age no longer allowed to be a factor...gag!
    • democracy run rampant...worst fears of Founders
      • votes on everything...
  • gun control, seizures, using zoning laws (with FFL inspections as informants)
    • welfare state,...Murray, inner cities made worse...theft
  • "currency export" absurd that governments attempt to control what folks do with their own money!

16.5.5. Things are likely to get worse, financially (a negative view,though there are also reasons to be optimistic)

  • a welfare state that is careening toward the edge of a cliff...escalating spending, constantly increasing national debt (with no signs that it will ever be paid down)
  • pension burdens are rising dramatically, according to "Economist", 1994-08.
  • the link to crypto is that folks had better find ways to immunize themselves from the coming crunch
  • Social Security, other pension plans are set to take 30-40% of all GDP
    • too many promies, people living longer
    • estimate: $20 trillion in "unfunded liabilities"
    • health care expectations... growing national debt

16.5.6. Borders are becoming transparent to data...terabytes a day are flowing across borders, with thousands of data formats and virtually indistinguishable from other messages. Compressed files, split files, images, sounds, proprietary encryption formats, etc. Once can almost pity the NSA in the hopelessness of their job.

16.6. Free Speech and Liberty--The Effects of Crypto

16.6.1. "What freedom of speech is becoming."

  • An increased willingness to limit speech, by attaching restrictions based on it being "commercial" or "hate speech."
  • advertising laws being the obvious example: smoking, alcohol, etc. - doctors, lawyers, etc. - sex, nudity - even laws that say billboards can't show guns
  • A chilling but all too common sentiment on the Net is shown by this quote: "Is it freedom of speech to spew racism , and steriotypes, just because you lack the intellectual capacity to comprehend that , perhaps, somewhere, there is a different way of life, which is not congruent with your pre-conceived notions?" [Andrew Beckwith, soc.culture.usa]

16.6.2. We don't really have free speech

  • election laws
  • advertising laws
  • "slander" and "libel"
    • thankfully, anonymous systems will make this moot
  • permission needed...licensing, approval, certification
    • "qualifications"
  • granted, Supremes have made it clear that political comments cannot be restricted, but many other areas have
    • often the distinction involves 'for pay"
  • Perhaps you are thinking that these are not really examples of government censorship, just of other crimes and other rights taking precedence. Thus, advertisers can't make false or misleading claims, and can't advertise dangerous or otherwise unapproved items. And I can't make medical diagnoses, or give structural and geological advice, and so on...a dozen good examples. But these restrictions emasculate free speech, leaving only banal expression of appropriately-hedged "personal opinions" as the free speech that is allowed...and even that is ofen subject to crazy lawsuits and threats of legal action.

16.7. The Nature of Anarchies

16.7.1. Anarchy doesn't mean chaos and killing

  • As J. Bruce Dawson put it in a review of Linux in the September, 1994 "Byte," "It's anarchy at its best."
  • Ironically, crypto anarchy does admit the possibility (and hence probablility) of more contract killings as an ultimate enforcement mechanism for contracts otherwise unenforceable.
  • which is what is occurring in drug and other crime situaions: the parties cannot go to the police or courts for righting of wrongs, so they need to have the ultimate threat of death to enforce deals. It makes good sense from a reputation/game theory point of view.

16.7.2. Leftists can be anarchists, too

  • In fact, this tends to be the popular interpretation of anarchy. (Besides the bomb-throwing, anti-Tsar anarchists of the 19th century, and the bomb-throwing anarchists of the U.S. early this century.)
    • "Temporary Autonomous Zones" (TAZ)
      • Hakim Bey (pseudonym for )
  • Mondo 2000, books, (check with Dave Mandl, who helps to publish them)

16.7.3. Anarchic development

  • Markets and emergent behaviors vs. planned development
  • principles of locality come into play (the local players know what they want and how much they'll pay for it)
    • central planners have "top-down" outlooks
  • Kevin Kelley's "Out of Control" (1994). Also, David Friedman's "Technologies of Freedom."
  • An example I heard about recently was Carroll College, in Wisconsin. Instead of building pathways and sidewalks across the newly-constructed grounds, the ground was left bare. After some time, the "emergent pathways" chosen by students and faculty were then turned into paved pathways, neatly solving the problem of people not using the "planned" pathways. I submit that much of life works this way. So does the Net (the "information footpaths"?).
  • anarchies are much more common than most people think...personal relationships, choices in life, etc.

16.7.4. The world financial system is a good example: beyond the reach of any single government, even the U.S. New World Order, money moves and flows as doubts and concerns appear. Statist governments are powerless to stop the devaluation of their currencies as investors move their assets (even slight moves can have large marginal effects).

  • "anarchy" is not a term most would apply, but it's an anarchy in the sense of there being no rulers ("an arch"), no central command structure.

16.8. The Nature of Crypto Anarchy

16.8.1. "What is Crypto Anarchy?"

  • "Why the name?"
    • a partial pun on several things"
  • "crypto," meaning "hidden," as used in the term "crypto fascist" (Gore Vidal called William F. Buckley this)
  • "crypto anarchy" meaning the anarchy will be hidden, not necessarily visible - and of course cryptology is centrally invovled
    • Motivation
      • Vernor Vinge's "True Names"
  • Ayn Rand was one of the prime motivators of crypto anarchy. What she wanted to do with material technology (mirrors over Galt's Gulch) is much more easily done with mathematical technology.

16.8.2. "Anarchy turns people off...why not a more palatable name?"

  • people don't understand the term; if people understood the term, it might be more acceptable
  • some have suggested I call it "digital liberty" or somesuch, but I prefer to stick with the historical term

16.8.3. Voluntary interactions involve Schelling points, mutually- agreed upon points of agreement

16.8.4. Crypto anarchy as an ideology rather than as a plan.

  • Without false modesty, I think crypto anarchy is one of the few real contributions to ideology in recent memory. The notion of individuals becoming independent of states by bypassing ordinary channels of control is a new one. While there have been hints of this in the cyberpunk genre of writing, and related areas (the works of Vinge especially), the traditional libertarian and anarchist movements have mostly been oblivious to the ramifications of strong crypto.
  • Interestingly, David Friedman, son of Milton and author of "The Machinery of Freedom," became a convert to the ideas. At least enough so as to give a talk in Los Angeles entitles "Crypto Anarchy and the State."
  • Conventional political ideology has failed to realize the huge changes coming over the next several decades. Focussing on unwinnable battles at the ballot box, they fritter away their energies; they join the political process, but they have nothing to "deal" with, so they lose. The average American actually wants to pick the pockets of his neighbors (to pay for "free" health care, to stop companies from laying-off unneeded workers, to bring more pork back to the local enonomy), so the average voter is highly unlikely to ever vote for a prinicpled Libertarian candidate.
  • Fortunately, how people vote has little effect on certain "ground truths" that emerge out of new technologies and new economic developments.

16.9. Uses of Crypto Anarchy

16.9.1. Markets unfettered by local laws (digital black markets, least for items that can be moved through cyberspace)

16.9.2. Espionage

16.10. The Implications-Negative and Positive-of Crypto Anarchy 16.10.1. "What are some implications of crypto anarchy?"

  • A return to contracts
    • whiners can't go outside contracts and complain
  • relates to: workers, terms of employment, actions, hurt feelings
    • with untraceable communication, virtual networks...
    • Espionage
      • Spying is already changing dramatically.
        • Steele's (or Steeler?) "open sources"
  • collecting info from thousands of Internet sources - Well, this cuts both ways..
    • Will allow:
  • BlackNet-type solicitations for military secrets ("Will pay $300,000 for xxxx") + Digital Dead Drops
  • totally secure, untraceable (pools, BlackNet mode)
  • no Coke cans near the base of oak trees out on Route 42
  • no chalk marks on mailboxes to signal a message is ready
  • no..."burning" of spies by...following
  • No...wonder the spooks are...freaked out! -...Strong...crypto will also have...a major effect...on...NSA,...CIA, and FBI abilities to wiretap, to conduct surveillance, and to do domestic and foreign counterintelligence
  • This is not altogether a great thing, as there may be some counterintelligence work that is useful (I'm perhaps betraying my lingering biases), but there's really only one thing to say about it: get used to it. Nothing short of a totalitarian police state (and probably not even that, given the spread of strong crypto) can stop these trends.
    • Bypassing sanctions and boycotts
  • Just because Bill Clinton doesn't like the rulers of Haiti is no reason for me to honor his "sanctions"
    • Individual choice, made possible by strong crypto (untraceable transactions, pseudonyms, black markets) + Information Markets and Data Havens
      • medical
      • scientific
      • corporate knowledge
      • dossiers
      • credit reports
  • without the absurd rules limiting what people can store on their computers (e.g., if Alice keeps records going back more than 7 years, blah blah, can be thrown in jail for violating the "Fair Credit Reporting Act") - bypassing such laws
  • true, governments can attempt to force disclosure of "reasons" for all decisions (a popular trend, where even one's maid cannot be dismissed without the "reasons" being called into question!); this means that anyone accessing such offshore (or in cyberspace...same difference) data bases must find some acceptable reason for the actions they take...shouldn't be too hard
  • (as with so many of these ideas, the beauty is that the using of such services is voluntary...)
    • Consulting
      • increased liquidity of information
      • illegal transactions
  • untraceability and digital money means many "dark" possibilities
  • markets for assassinations
  • stolen property
  • copyright infringement
    • Espionage
      • information markets (a la AMIX)
      • "digital dead drops"
    • Offshore accounts
    • Money-laundering
    • Markets for Assassinations
  • This is one of the more disturbing implications of crypto anarchy. Actually, it arises immediately out of strong, unbreakable and untraceable communication and some form of untraceable digital cash. Distrurbing it may be, but the implications are also interesting to consider...and inevitable.
    • And not all of the implications are wholly negative.
    • should put the fear of God into politicians
      • "Day of the Jackal" made electronic
  • any interest group that can (anonymously) gather money can have a politician zapped. Positive and negative implications, of course.
  • The fact is, some people simply need killing. Shocking as that may sound to many, surely everyone would agree that Hitler deserved killing. The "rule of law" sounds noble, but when despicable people control the law, other measures are called for.
  • Personally, I hold that anyone who threatens what I think of as basic rights may need killing. I am held back by the repercussions, the dangers. With liquid markets for liquidations, things may change dramatically. 16.10.2. The Negative Side of Crypto Anarchy
    • Comment:
  • There are some very real negative implications; outweighed on the whole by the benefits. After all, free speech has negatives. Poronography has negatives. (This may not be very convincing to many...I can't do it here- -the gestalt has to be absorbed and considered.)
    • Abhorrent markets
      • contract killings
  • can collect money anonymously to have someone whacked...nearly anyone who is controversial can generate enough "contributions"
    • kidnapping, extortion
    • Contracts and assassinations
      • "Will kill for $5000"
      • provides a more "liquid" market (pun intended)
        • sellers and buyers more efficiently matched
  • FBI stings (which are common in hiring hit men) are made almost impossible
  • the canonical "dark side" example--Eric Drexler, when told of this in 1988, was aghast and claimed I was immoral to even continue working on the implications of crypto anarchy!
  • made much easier by the inability to trace payments, the lack of physical meetings, etc.
    • Potential for lawlessness
      • bribery, abuse, blackmail
      • cynicism about who can manipulate the system
    • Solicitation of Crimes
      • untraceably, as we have seen
    • Bribery of Officials and Influencing of Elections
  • and direct contact with officials is not even needed...what if someone "lets it be known" that a council vote in favor of some desired project will result in campaign contributions?
    • Child molestors, pederasts, and rapists
  • encrypting their diaries with PGP (a real case, says the FBI)
  • this raises the privacy issue in all its glory...privacy protects always has and it always will
    • Espionage is much easier
  • from the guy watching ships leave a harbor to the actual theft of defense secrets
  • job of defending against spies becomes much more difficult: and end to microdots and invisible ink, what with the LSB method and the like that even hides the very existence of encrypted messages!
    • Theft of information
      • from corporations and individuals
      • corporations as we know them today will have to change
      • liquidity of information
    • selling of corporate secrets, or personal information + Digilantes and Star Chambers
      • a risk of justice running amok?
  • Some killers are not rehabilitated and need to be disposed of through more direct means + Price, Rhode Island, 21, 4 brutal killings
  • stabbings of children, mother, another
  • for animals like this, vigilantism...discreet justified...
  • or, at least some of us will consider it justified
  • which I consider to be a good thing - this relates to an important theme: untraceable communication and markets means the ability to "opt out" of conventional morality
    • Loss of trust
  • even in families, especially if the government offers bounties and rewards
  • recall Pavel Morozov in USSR, DARE-type programs (informing on parents)
  • more than 50% of all IRS suits involve one spouse informing to the IRS
    • how will taxes be affected by the increased black market?
  • a kind of Laffer curve, in which some threshold of taxation triggers disgust and efforts to evade the taxes
  • not clear how large the current underground economy is...authorities are motivated to misstate the size (depending on their agenda)
  • Tax Evasion (I'm not defending taxation, just pointing out what most would call a dark side of CA)
  • By conducting business secretly, using barter systems, alternative currencies or credit systems, etc.
  • a la the lawyers who use AMIX-like systems to avoid being taxed on mutual consultations

    • By doing it offshore
  • so that the "products" are all offshore, even though many or most of the workers are telecommuting or using CA schemes

  • this of course does not CA discreet lawyers

  • and of course Alice reports the income to the IRS-they never challenge the taxpayer to "justify" work done (and would be incapable of "disallowing" the work, as Alice could call it a "retainer," or as pay for Board of Directors duties, or practice, it's easiest to call it consulting)

  • these scams are closely related to similar scams for laundering money, e.g., by selling company assets at artificially low (or high) prices
  • an owner, Charles, could sell assets to a foreign company at low prices and then be rewarded in taxfree, under the table, cash deposited in a foreign account, and we're back to the situation above
  • Collusion already is common; crypto methods will make some such collusions easier
    • antique dealers at an auction
  • espionage and trading of national secrets (this has positive aspects as well)
    • "information markets" and anonymous digital cash
  • (This realization, in late 1987, was the inspiration for the ideas behind crypto anarchy.)
    • mistrust
    • widening gap between rich and poor, or those who can use the tools of the age and those who can't

16.10.3. The Positive Side of Crypto Anarchy

  • (other positive reasons are implicitly scattered throughout this outline)
    • a pure kind of libertarianism
  • those who are afraid of CA can stay away (not strictly true, as the effects will ripple)
  • a way to bypass the erosion of morals, contracts, and committments (via the central role of reputations and the exclusion of distorting governments)
    • individual responsibility
  • protecting privacy when using hypertext and cyberspace services (many issues here)
  • "it's neat" (the imp of the perverse that likes to see radical ideas)
    • A return to 4th Amendment protections (or better)
  • Under the current system, if the government suspects a person of hiding assets, of conspiracy, of illegal acts, of tax evasion, etc., they can easily seize bank accounts, stock accounts, boats, cars, ec. In particular, the owner has little opportunity to protect these assets.
    • increased liquidity in markets
    • undermining of central states
      • loss of tax revenues
      • reduction of control
    • freedom, personal liberty
    • data havens, to bypass local restrictive laws
  • Anonymous markets for assassinations will have some good aspects
  • the liquidation of politicians and other thieves, the killing of those who have assisted in the communalization of private property
    • a terrible swift sword

16.10.4. Will I be sad if anonymous methods allow untraceable markets for assassinations? It depends. In many cases, people deserve death--those who have escaped justice, those who have broken solemn commitments, etc. Gun grabbing politicians, for example should be killed out of hand. Anonymous rodent removal services will be a tool of liberty. The BATF agents who murdered Randy Weaver's wife and son should be shot. If the courts won't do it, a market for hits will do it.

  • (Imagine for a moment an "anonymous fund" to collect the money for such a hit. Interesting possibilities.)
    • "Crypto Star Chambers," or what might be called "digilantes," may be formed on-line, and untraceably, to mete out justice to those let off on technicalities. Not altogether a bad thing.

16.10.5. on interference in business as justified by "society supports you" arguments (and "opting out)

  • It has been traditionally argued that society/government has a right to regulate businesses, impose rules of behavior, etc., for a couple of reasons:
    • "to promote the general welfare" (a nebulous reason)
  • because government builds the infrastructure that makes business possible
  • the roads, transportation systems, etc. (actually, most are privately built...only the roads and canal are publically built, and they certainly don't have to be)
  • the police forces, courts, enforcement of contracts, disputes, etc.
  • protection from foreign countries, tariff negotiations, etc., even to the physical protection against invading countries
    • But with crypto anarchy, all of these reasons vanish!
  • society isn't "enabling" the business being transacted (after all, the parties don't even necessarily know what countries the other is in!)
  • no national or local courts are being used, so this set of reasons goes out the window
  • no threat of invasion...or if there is, it isn't something governments can address
  • So, in addition to the basic unenforceability of outlawing crypto anarchy--short of outlawing encryption--there is also no viable argument for having governments interfere on these traditional grounds.
  • (The reasons for them to interfere based on fears for their own future and fears about unsavory and abominable markets being developed (body parts, assassinations, trade secrets, tax evasion, etc.) are of course still "valid," viewed from their perspective, but the other reasons just aren't.)

16.11. Ethics and Morality of Crypto Anarchy

16.11.1. "How do you square these ideas with democracy?"

  • I don't; democracy has run amok, fulfilling de Tocqueville's prediction that American democracy would last only until Americans discovered they could pick the pockets of their neighbors at the ballot box
  • little chance of changing public opinion, of educating them
  • crypto anarchy is a movement of individual opting out, not of mass change and political action

16.11.2. "Is there a moral responsibility to ensure that the overall effects of crypto anarchy are more favorable than unfavorable before promoting it?"

  • I don't think so, any more than Thomas Jefferson should have analyzed the future implications of freedom before pushing it so strongly.
  • All decisions have implications. Some even cost lives. By not becoming a doctor working in Sub-Saharan Africa, have I "killed thousands"? Certainly I might have saved the lives of thousands of villagers. But I did not kill them just because I chose not to be a doctor. Likewise, by giving money to starving peasants in Bangladesh, lives could undeniably be "saved." But not giving the money does not murder them.
  • But such actions of omission are not the same, in my mind, as acts of comission. My freedom, via crypto anarchy, is not an act of force in and of itself.
    • Developing an idea is not the same as aggression.
  • Crypto anarchy is about personal withdrawal from the system, the "technologies of disconnection," in Kevin Kelly's words.

16.11.3. "Should individuals have the power to decide what they will reveal to others, and to authorities?"

  • For many or even most of us, this has an easy answer, and is axiomatically true. But others have doubts, and more people may have doubts as some easily anticipated develpoments occur.
  • (For example, pedophiles using the much-feared "fortress crypto," terrorists communicating in unbreakable codes, tza evaders, etc. Lots of examples.)
  • But because some people use crypto to do putatively evil things, should basic rights be given up? Closed doors can hide criminal acts, but we don't ban closed doors.

16.11.4. "Aren't there some dangers and risks to letting people pick and choose their moralities?"

  • (Related to questions about group consensus, actions of the state vs. actions of the individual, and the "herd.)
  • Indeed, there are dangers and risks. In the privacy of his home, my neighbor might be operating a torture dungeon for young children he captures. But absent real evidence of this, most nations have not sanctioned the random searches of private dwellings (not even in the U.S.S.R., so far as I know).

16.11.5. "As a member of a hated minority (crypto anarchists) I'd rather take my chances on an open market than risk official discrimination by the state...Mercifully, the technology we

are developing will allow everyone who cares to to decline to participate in this coercive allocation of power." [Duncan Frissell, 1994-09-08]

16.11.6. "Are there technologies which should be "stopped" even before they are deployed?"

  • Pandora's Box, "things Man was not meant to know," etc.
  • It used to be that my answer was mostly a clear "No," with nuclear and biological weapons as the only clear exception. But recent events involving key escrow have caused me to rethink things.
  • Imagine a company that's developing home surveillance cameras...perhaps for burglar prevention, child safety, etc. Parents can monitor Junior on ceiling-mounted cameras that can't easily be tampered with or disconnected, without sending out alarms. All well and good.
  • Now imagine that hooks are put into these camera systems to send the captured images to a central office. Again, not necessarily a bad idea--vacationers may want their security company to monitor their houses, etc.
  • The danger is that a repressive government could make the process else to catch sexual deviates, child molestors, marijuana growers, counterfeiters, and the like?
  • Sound implausible, unacceptable, right? Well, key escrow is a form of this.
  • The Danger. That OS vendors will put these SKE systems in place without adequate protections against key escrow being made mandatory at some future date.

16.11.7. "Won't crypto anarchy allow some people to do bad things?"

  • Sure, so what else is new? Private rooms allows plotters to plot their plots. Etc.
  • Not to sound too glib, but most of the things we think of as basic rights allow various illegal, distasteful, or crummy things to go on. Part of the bargain we make.
  • "Of course you could prevent contract killings by requiring everyone to carry government "escrowed" tape recordings to record all their conversations and requiring them to keep a diary at all times alibing their all their activities. This would also make it much easier to stamp out child pornography, plutonium smuggling, and social discrimination against the politically correct." [James Donald, 1994-0909]

16.12. Practical Problems with Crypto Anarchy

16.12.1. "What if "bad guys" use unbreakable crypto?"

  • What if potential criminals are allowed to have locks on their doors? What if potential rapists can buy pornography? What if...
  • These are all straw men used in varous forms throughout history by tyrants to control their populations. The "sheepocracies" of the modern so-called democratic era are voting away their former freedoms in favor of cradle to grave safety and security.
  • The latest tack is to propose limits on privacy to help catch criminals, pedophile, terrorists, and father rapers. God help us if this comes to pass. But Cypherpunks don't wait for God, they write code!

16.12.2. Dealing with the "Abhorrent Markets"

  • such as markets for assassinations and extortion
  • Possibilities:
    • physical protection, physical capure
      • make it risky
      • (on the other hand, sniping is easy)
    • "flooding" of offers
      • "take a number" (meaning: get in line)
    • attacking reputations
  • I agree that more thought is needed, more thorough analysis
  • Some people have even pointed out the benefits of killing off tens of thousands of the corrupt politicians, narcs, and cops which have implemented fascist, collectivist policies for so long. Assassination markets may make this much more practical.

16.12.3. "How is fraud dealt with in crypto anarchy?"

  • When the perpetrators can't even be identified.
  • One of the most interesting problems.
  • First, reputations matter. Repeat business is not assured. It is always best to not have too much at stake in any single transaction.

16.12.4. "How do we know that crypto anarchy will work? How do we know that it won't plunge the world into barbarism, nuclear war, and terror?"

  • We don't know, of course. We never can.
  • However, things are already pretty bad. Look at Bosnia, Ruanda, and a hundred other hellholes and flashpoints around the world. Look at the nuclear arsenals of the superpowers, and look at who starts the wars. In nearly all cases, statism is to blame. States have killed a hundred million or more people in this century alone--think of Hitler, Stalin, Mao, and Pol Pot--through forced starvation of entire provinces, liquidation of the peasantry, killing of intellectuals, and mass exterminations of religious and ethnic groups. It's hard to imagine crypto anarchy causing anything that bad!
  • Crypto anarchy is a cyberspatially-mediated personal course of action; by itself it involves no actions such as terrorism or nuclear blackmail. One could just as easily ask, "Will freedom lead to nuclear blackmail, weapons trading, and pedophilia?" The answer is the same: maybe, but so what?

16.12.5. It is true that crypto anarchy is not for everyone. Some will be too incompetent to prepare to protect themselves, and will want a protector. Others will have poor business sense.

16.12.6. "But what will happen to the poor people and those on welfare if crypto anarchy really succeeds?"

  • "So?"
  • Many of us would see this as a good thing. Not just for Calvinist-Randite reasons, but also because it would break the cycle of dependency which has actually made things worse for the underclass in America (at least). See Charles Murray's "Losing Ground" for more on this.
  • And remember that a collapse of the tax system will mean more money left in the hands of former taxpayers, and hence more left over for true charity (for those who truly cannot help themselves).

16.13. Black Markets

16.13.1. "Why would anyone use black markets?"

  • when the advantages of doing so outweigh the disadvantages
  • including the chance of getting caught and the consequences
    • (As the chances decline, this suggests a rise in punishment severity)
  • businesses will tend to shy away from illegal markets, unless...
    • Anonymous markets for medical products
      • to reduce liability, local ethical and religious laws
  • Example: Live AIDS vaccine...considered too risky for any company to introduce, due to inability to get binding waivers of liability (even for "fully informed" patients who face likely death)
    • markets in body parts...

16.13.2. Crypto anarchy opens up some exciting possibilities for collusion in financial deals, for insider trading, etc.

  • I'm not claiming that this will mean instant riches, as markets are fairly efficient () and "insiders" often don't do well in the market. ( Some argue that relaxing laws against insider trading will make for an even fairer market...I agree with this.)
  • What I am claiming is the SEC and FinCEN computers will be working overtime to try to keep up with the new possibilities crypto anarchy opens up. Untraceable cash, as in offshore bank accounts that one can send anonymous trading instructions to (or for), means insider trading simply can't be stopped...all that happens is that insiders see their bank accounts increase (to the extent they win because of the insider I said, a debatable point).
  • Price signalling, a la the airline case of a few years back (which, you won't be surprised to hear, I have no problems with), will be easier. Untraceable communications, virtual meetings, etc.

16.13.3. Information Markets

  • a la "information brokering," but mediated cryptographically
  • recall the 1981 market in Exocet missile codes (France, Argentina--later of relevance when an Exocet sank a British ship)

16.13.4. Black Markets, Informal Economies, Export Laws

  • Transborder data flow, legal issues
    • complex..laws, copyrights, "national sovereignty"
  • e.g., Phillipines demanded in-the-clear transmissions during bank loan renegotiations..and several Latin American countries forbid encrypted transmissions.
    • Export, Technology Export, Export Control
      • Export Control Act
  • Office of Munitions (as in "Munitions Act", circa 1918) + export of some crypto gear shifted from Dept. of State, Office of Munitions, to Dept. of Commerce
  • Commodity Control List, allows s/w that is freely available to the public to be exported without additional paperwork
  • Munitions used to be stickier about export (some would say justifiably paranoid)
  • Commodity Jurisdiction request, to see whether product for export falls under State or Commerce regulations
    • Trading with the Enemy Act
    • Exocet codes--black market sales of emasculated chips

16.13.5. Smuggling and Black Markets

  • Black Markets in the USSR and Other Former East Bloc Nations
  • a major issue, because the normal mechanisms for free markets-property laws, shops, stock markets, hard currencies, etc.-have not been in place - in Russia, have never really existed
    • Role of "Mafia"
  • various family-related groups (which is how trade always starts, via contacts and connections and family loyalty, until corporations and their own structures of loyalty and trust can evolve) + how the Mafia in Russia works
  • bribes to "lose" materials, even entire trainloads
  • black market currency (dollars favored)
    • This could cause major discontent in Russia
  • as the privileged, many of them ex-Communist officials, are best prepared to make the transition to capitalism
  • those in factory jobs, on pensions, etc., will not have the disposable income to take advantage of the new opportunities
  • America had the dual advantages of a frontier that people wanted to move to (Turner, Protestant ethic, etc.) and a high-growth era (industrialization)
  • plus, there was no exposure to other countries at vastly higher living standards
    • Smuggling in the EEC
  • the dream of tariff-free borders has given way to the reality of a complex web of laws dictating what is politically correct and what is not: - animal growth hormones
  • artificial sweeteners are limited after 1-93 to a small list of approved foods: and the British are finding that their cherished "prawn cocktail-flavored crisps" are to be banned (for export to EEC or completely?) because they're made with saccharin or aspartame
  • "European content" in television and movies may limit American with Canada, isn't this a major abridgement of basic freedoms?
  • this may lead to a new kind of smuggling in "politically incorrect" items
  • could be argued that this is already the case with bans on drugs, animal skins, ivory, etc. (so tediously argued by Brin)
  • recall Turgut Ozal's refreshing comments about loosening up on border restrictions
  • as more items are declared bootleg, smuggling will increase...politically incorrect contraband (fur, ivory, racist and sexist literature)
  • the point about sexist and racist literature being contraband is telling: such literature (books, magazines) may not be formally banned, for that would violate the First Amendment, but may still be imported anonymously (smuggled) and distributed as if they were banned (!) for the reason of avoiding the "damage claims" of people who claim they were victimized, assaulted, etc. as a result of the literature!
  • avoidance of prosecution or damage claims for writing, editing, distributing, or selling "damaging" materials is yet another reason for anonymous systems to emerge: those involved in the process will seek to immunize themselves from the various tort claims that are clogging the courts
  • producers, distributors, directors, writers, and even actors of x-rated or otherwise "unacceptable" material may have to have the protection of anonymous systems
  • imagine fiber optics and the proliferation of videos and talk shows...bluenoses and prosecutors will use "forum shopping" to block access, to prosecute the producers, etc.
  • Third World countries may declare "national sovereignty over genetic resources" and thus block the free export and use of plant- and animal-derived drugs and other products - even when only a single plant is taken
  • royalties, taxes, fees, licenses to be paid to local gene banks
  • these gene banks would be the only ones allowed to do genetic cataloguing - the problem is of course one of enforcement
    • technology, programs
  • scenario: many useful programs are priced for corporations (as with hotel rooms, airline tickets, etc.), and price-sensitive consumers will not pay $800 for a program they'll use occasionally to grind out term papers and church newsletters
    • Scenario: Anonymous organ donor banks
  • e.g., a way to "market" rare blood types, or whatever, without exposing one's self to forced donation or other sanctions
  • "forced donation" involves the lawsuits filed by the potential recipient
  • at the time of offer, at least...what happens when the deal is consummated is another domain
  • and a way to avoid the growing number of government stings
  • the abortion and women's rights underground...a hopeful ally (amidst the generally antiliberty women's movement)
  • RU-486, underground abortion clinics (because many clinics have been firebombed, boycotted out of existence, cut off from services and supplies)
    • Illegal aliens and immigration
  • "The Boxer Barrier" used to seal barriers...Barbara Boxer wants the military and national guard to control illegal immigration, so it would be poetic justice indeed if this program has her name on it

16.13.6. Organized Crime and Cryptoanarchy

  • How and Why
  • wherever money is to be made, some in the underworld will naturally take an interest - loan sharking, numbers games, etc.
  • they may get involved in the setup of underground banks, using CA protocols - shell games, anonymity
  • such Mafia involvement in an underground monetary system could really spread the techniques
    • but then both sides may be lobbying with the Mafia
      • the CA advocates make a deal with the devil
  • and the government wants the Mob to help eradicate the methods
    • Specific Programs
      • False Identities
  • in the computerized world of the 90s, even the Mob (who usually avoid credit cards, social security numbers, etc.) will have to deal with how easily their movements can be traced + so the Mob will involve itself in false IDs
  • as mentioned by Koontz
    • Money Laundering, naturally
  • but some in the government see some major freelance opportunities in CA and begin to use it (this undermines the control of CA and actually spreads it, because the government is working at cross purposes)
  • analogous to the way the government's use of drug trade systems spread the techniques

16.13.7. "Digital Escrow" accounts for mutually suspicious parties, especially in illegal transactions

  • drug deals, information brokering, inside information, etc.
  • But why will the escrow entity be trusted?
    • reputations
  • their business is being a reliable escrow holder, not it destroying their reputation for a bribe or a threat
  • anonymity means the escrow company won't know who it's "burning," should it try to do so
  • they never know when they themselves are being tested by some service
  • and potential bribers will not know who to contact, although mail could be addressed to the escrow company easily enough

16.13.8. Private companies are often allies of the government with regards to black markets (or grey markets)

  • they see uncontrolled trade as undercutting their monopoly powers
    • a way to limit competition

16.14. Money Laundering and Tax Avoidance

16.14.1. Hopelessness of controlling money laundering + I see all this rise in moneylaundering as an incredibly hopeful trend, one that will mesh nicely with the use of

 - why should export of currency be limited?
 - what's wrong with tax evasion, anyway?
  • corrupting, affects all transactions
  • vast amounts of money flowing
  • 2000 banks in Russia, mostly money-laundering
  • people and countries are so starved for hard currency that most banks outside the U.S. will happily take this money
    • no natural resources in many of these countries
    • hopeless to control
  • being presented as "profits vs. principals," but I think this is grossly misguided
  • Jeffery Robinson, "The Landrymen," interviewed on CNN, 6-2494
    • "closer to anarchy" (yeah!)
    • hopeless to control
  • dozens of new countries, starved for hard currency, have autonomy to set banking policies (and most European countries turn a blind eye toward most of the antilaundering provisions)

16.14.2. Taxes and Crypto

  • besides avoidance, there are also issues of tax records, sales tax, receipts, etc.
  • this is another reason government may demand access to cyberspace:
  • to ensure compliance, a la a tamper-resistant cash register
    • to avoid under-the-table transactions
    • bribery, side payments, etc.
  • Note: It is unlikely that such access to records would stop all fraud or tax evasion. I'm just citing reasons for them to try to have access.
  • I have never claimed the tax system will collapse totally, or overnight, or without a fight. Things take time.
    • tax compliance rates dropping
  • the fabric has already unraveled in many countries, where the official standard of living is below the apparent standard of living (e.g., Italy). - tax evasion a major thing
  • money runs across the border into Switzerland and Austria
    • Frissell's figures
    • media reports
  • Tax issues, and how strong crypto makes it harder and harder to enforce
  • hiding income, international markets, consultants, complexly structured transactions

16.14.3. Capital Flight

  • "The important issue for Cypherpunks is how we should respond to this seemingly inevitable increased mobility of capital. Does it pose a threat to privacy? If so, let's write code to thwart the threat. Does it offer us any tools we can use to fight the efforts of nation-states to take away our privacy? If so, let's write code to take advantage of those tools." [ Sandy Sandfort, Decline and Fall, 1994--06-19]

16.14.4. Money Laundering and Underground Banks

  • a vast amount of money is becoming available under the table: from skimming, from tax avoidance, and from illegal activities of all kinds
  • can be viewed as part of the internationalization of all enterprises: for example, the Pakistani worker who might have put his few rupees into some local bank now deposits it with the BCCI in Karachi, gaining a higher yield and also increasing the "multiplier" (as these rupees get lent out many times)
    • is what happened in the U.S. many years ago
  • this will accelerate as governments try to get more taxes from their most sophisticated and technical taxpayers, i.e., clever ways to hide income will be sought
    • BCCI, Money-Laundering, Front Banks, CIA, Organized Crime
      • Money Laundering
  • New York City is the main clearinghouse, Federal Reserve of New York oversees this - Fedwire system - trillions of dollars pass through this system, daily + How money laundering can work (a maze of techniques)
  • a million dollars to be laundered
  • agent wires it, perhaps along with other funds, to Panama or to some other country
  • bank in Panama can issue it to anyone who presents the proper letter
  • various ways for it to move to Europe, be issued as bearer stock, etc.
  • 1968, offshore mutual funds, Bernie Kornfield
    • CIA often prefers banks with Mob connections
  • because Mob banks already have the necessary security and anonymity
  • and are willing to work with the Company in ways that conventional banks may not be
  • Naval Intelligence struck a deal in WW2 with Mafia, wherby Meyer Lansky would protect the docks against strikes (presumably in exchange for a "cut"), if Lucky Luciano would be released at the end of the war (he was)
  • Operation Underworld: Mafia assisted Allied troops in Sicily
  • "the Corse"
  • Luciano helped in 1947 to reopen Marseilles when Communist strikers had shut it down
  • continuing the pattern of cooperation begun during the war
  • thus establishing the French Connection!
  • Nugan Hand Bank + BCCI and Bank of America favored by CIA
  • Russbacher says B of A a favored cover
  • we will almost certainly discover that BCCI was the main bank used, with the ties to Bank of America offices in Vienna
  • Bank of America has admitted to having had early ties with BCCI in the early 1970s, but claims to have severed those ties
  • however, Russbacher says that CIA used B of A as their preferred bank in Europe, especially since it had ties to companies like IBM that were used as covers for their covert ops
  • Vienna was a favored money-laundering center for CIA, especially using Bank of America
  • a swirl of paper fronts, hiding the flows from regulators and investors - "nominees" used to hide true owners and true activities
  • various nations have banking secrecy laws, creating the "veil" that cannot be pierced
  • CIA knew about all of the flights to South America (and probably elsewhere, too)
  • admitted Thomas Polgar, a senior ex-CIA official, in testimony on 9-19-91
  • this indicates that CIA knew about the arms deals, the drug deals, and the various other schemes and scams
    • Earlier CIA-Bank Scandals (Nugan Hand and Castle Bank)
      • Nugan Hand Bank, Australia
  • Frank Nugan, Sydney, Australia, died in 1980
  • apparent suicide, but clearly rigged
  • Mercedes, rifle with no fingerprints, position all wrong
  • evidence that he'd had a change of heart-was praying daily, a la Charles Colson-and was thinking about getting out of the business
  • set up Nugan Hand Bank in 1973
  • private banking services, tax-free deposits in Caymans
  • used by CIA agents, both for Agency operations and for their own private slush/retirement funds
  • several CIA types on the payroll (listed their addresses as same as Air America)
  • William Colby on Board, and was their lawyer
  • Florida, heroin, links to JFK assassination
  • trafficante was known as "the Cobra" and handled many transactions for the CIA
  • money-laundering for Asian drug dealers
  • Golden Triangle: N-H even had branches in GT
  • and branch in Chiang Mai, in Thailand
  • links to arms dealers, like Edwin P. Wilson
  • U.S. authorites refused to cooperate with investigations
  • and when info was released, it was blacked out with a "B-1" note, implying national security implications
  • investigations by Australian Federal Bureau of Narcotics were thwarted-agents transferred and Bureau disbanded shortly thereafter
  • similar to "Don't fuck with us" message sent to FBI and DEA by CIA
  • N-H Bank had close working relation with Australian Security Intelligence Organization (ASIO)
  • NSA tapped phone conversations (speculative) of Nugan that indicated ASIO collusion with N-H Bank in the drug trade
  • Pine Gap facility, near Alice Springs (NSA, NRO)
  • P.M. Gough Whitlam's criticism of Pine Gap led to CIA-ASIO plot to destroy the Whitlam gov't.
  • November 1975 fall instigated with wiretaps and forgeries
  • Nugan Hand Bank was also involved with "Task Force 157," a Naval Intelligence covert operation, given the cover name "Pierce Morgan" (a good name?)
    • reported to Henry Kissinger
    • recall minor point that Navy is often the preferred service for the ruling elite (the real preppies) + and George Bush's son, George W. Bush, was involved with Nugan Hand:
  • linked to William Quasha, who handled N-H deals in Phillipines
  • owners of Harken Energy Corp. a Texas-based company that bought G.W. Bush's oil company "Spectrum 7" in 1986
  • later got offshore drilling rights to Bahrain's oil-with G.W. Bush on the Board of Directors
  • could this be another link to Gulf Crisis? + Castle Bank, Bahamas, Paul E. Helliwell
  • OSS (China). CIA
  • Mitch WerBell, White Russian specialist in assassination, silencers, worked for him in China
  • Howard Hunt worked for him
  • after WW2, set up Sea Supply Inc., CIA front in Miami + linked to Resorts International
  • law firm of Helliwell, Melrose and DeWolf
  • lent money to Bahamian P.M. Lynden Pindling in exchange for extension of gambling license
  • Robert Vesco, Bebe Rebozo, and Howard Hughes
  • in contrast to the "Eastern Establishment," these were Nixon's insiders
  • links with ex-CIA agent Robert Maheu (who worked for Hughes); onvolved withTrafficante, CIA plot to kill Castro, and possible links to JFK assassination
  • Vesco active in drug trade
  • also involved in purchase of land for Walt Disney World
  • 27,000 acres near Orlando
  • Castle Bank was a CIA conduit + Operation Tradewinds, IRS probe of bank money flows
  • late 60s
  • investigation of "brass plate" companies in Caymans, Bahamas
  • Plot Scenario: Operation Tradewinds uncovered many UltraBlack operations, forcing them to retrench and dig in deeper, sacrificing several hundred million
  • circa 1977 (Castle Bank shut down) + World Finance Corporation (WFC)
  • started in 1971 in Coral Gables
  • first known as Republic National Corporation
  • Walter Surrey, ex-OSS, like Helliwell of Castle Bank, helped incorporate it
  • Business
  • exploited cash flows in Florida
  • dealt with CIA, Vesco, Santo Trafficante, Jr.
  • also got loan deposits from Arabs
  • links to Narodny Bank, the Soviet bank that also pay agents
  • linked to narcotics flow into Las Vegas
  • and to Trafficante, Jr.
  • suitcases of cash laundered from Las Vegas to Miami
  • Jefferson Savings and Loan Association, Texas
  • Guilermo Hernandez Cartaya, ex-Havana banker, Cuban exile, was chief figure
  • veteran of Bay of Pigs (likely CIA contacts)
  • investigated by R. Jerome Sanford, Miami assistant U.S. attorney
  • Dade County Organized Crime Bureau also involved in the 1978 investigation - Rewald and his banking deals - BCCI was a successor to this bank
    • CIA and DEA Links to Drug Trade
      • former agents and drug traffickers were frequently recruited by DEA and CIA to run their own drug operation, sometimes with political motivations
      • Carlos Hernandez recruited by BNDD (Bureau of Narcotics and Dangerous drugs, predecessor to DEA) to form a death squad to assassinate other drug traffickers
  • agents in Florida, the stock broker killing in 1987
  • Seal was betrayed by the DEA and CIA, allowed to be killed by the Columbians
    • Afghan Rebels, Arms to Iran (and Iraq), CIA, Pakistan
      • there was a banking and arms-running network centered in Karachi, home of BCCI, for the various arms deals involving Afghan rebels
      • Karachi, Islamabad, other cities
    • Influence Peddling, Agents
      • a la the many senior lawyers hired by BCCI (Clark Clifford, Frank Manckiewicz [spelling?]
  • illustrates again the basic corruptability of a centralized command economy, where regulators and lawmakers are often in the pockets of corrupt enterprises
  • clearly some scandals and losses will occur in free markets, but at least the free markets will not be backed up with government coercion
    • Why CIA is Involved in So Many Shady Deals?
      • ideal cover for covert operations
  • outside audit channels
  • links to underworld
  • agents providing for their own retirements, their own private deals, and feathering their own nests
  • freedom from interferance
  • greed
  • deals like that of Noriega, in which CIA-supported dictators and agents provided for their own lavish lifestyles\
  • and the BCCI-Noriega links are believed to have contributed to the CIA's unwillingness to question the activities of the BCCI (actually, the Justice Department)
    • Role of Banks in Iraq and Gulf War, Iraq-Gate, Scandals
  • Export Import Bank (Ex-Im), CCC
  • implicated in the arming of Iraq
  • Banco Lavorzo Nazionale [spelling?]
  • CIA was using BNL to arrange $5B in transfers, to arm Iraq, to ensure equality with Iran
  • because BNL wouldn't ask where it came from
  • federally guaranteed loans used to finance covert ops
  • the privatizing of covert ops by the CIA and NSA
  • deniability
  • they subcontracted the law-breaking
  • the darker side of capitalism did the real work
  • but the crooks learned quickly just how much they could steal...probably 75% of stolen money
  • insurance fraud...planes allowed to be stolen, then shipped to Contras, with Ollie North arguing that nobody was really hurt by this whole process
  • ironically, wealthy Kuwaitis were active in financing "instant banks" for money laundering and arms transactions, e.g., several in Channel Islands
  • Ahmad Al Babtain Group of Companies, Ltd., a Netherlands Antilles corporation - Inslaw case fits in with this picture
  • Federal Reserve and SEC Lack the Power to "Peirce the Veil" on Foreign Banks - as the Morgenthau case in Manhattan develops - a well-known issue
    • But should we be so surprised?
      • haven't banks always funded wars and arms merchants?
      • and haven't some of them failed?
      • look at the Rothschilds
      • what is surprising is that so many people knew what it was doing, what its business was, and that it was even nicknamed "Banks of Crooks and Criminals International"
  • Using software agents for money laundering and other illegal acts
  • these agents act as semi-autonomous programs that are a few steps beyond simple algortihms
  • it is not at all clear that these agents could do very much to run portfolio, because nothing really works
  • real use could be as "digital cutouts": transferring wealth to other agents (also controlled from afar, like marionettes)
  • advantage is that they can be programmed to perform operations that are perhaps illegal, but without traceability
  • Information brokers as money launderers (the two are closely related)
  • the rise of AMIX-style information markets and Sterlingstyle "data havens" will provide new avenues for money laundering and asset-hiding
  • information is intrinsically hard to value, hard to put a price tag on (it varies according to the needs of the buyers)
  • meaning that transnational flows of inforamation cannot be accurately valued (assigned a cash value)
  • is closely related to the idea of informal consulting and the nontaxable nature of it
  • cardboard boxes filled with cash, taped and strapped, but still bursting open
  • gym bags carrying relatively tiny amounts of the skim: a mere hundred thousand in $100s
  • L.A. becoming a focus for much of this cash
    • nearness to Mexico, large immigrant communities
    • freeways and easy access
    • hundreds of airstrips, dozens of harbors
  • though East Coast seems to have even more, so this doesn't seem like a compelling reason - Ventura County and Santa Barbara

16.14.5. Private Currencies, Denationalization of Money

  • Lysander Spooner advocated these private currencies
  • and "denationalization of money" is a hot topic
  • is effect, alternatives to normal currency already exist
    • coupons, frequent flier coupons, etc.
  • telephone cards and coupons (widely used in Asia and parts of Europe)
  • ironically, U.S. had mostly opted for credit cards, which are fully traceable and offer minimal privacy, while other nations have embraced the anonymity of their kind of cards...and this seems to be carrying over to the toll booth systems being planned
    • barter networks
    • chop marks (in Asia)
    • "reputations" and favors
      • if Al gives Bob some advice, is this taxable? (do lawyers who talk amongst themselves report the transactions/ od course not, and yet this is effectively either a barter transaction or an outright gift)
    • sophisticated financial alternatives to the dollar
      • various instruments
      • futures, forward contracts, etc.
    • "information" (more than just favors)
    • art works and similar physical items
  • not a liquid market, but for high rollers, an easy way to transfer hundreds of millions of dollars (even with the discounted values of a stolen item, and not all the items will be stolen...many people will be very careful to never travel with stolen art)
  • diamonds, gems have long been a form of transportable wealth + art works need not be declared at most (?) borders
  • this may change with time

16.14.6. Tax Evasion Schemes

  • unreported income, e.g., banks like the BCCI obviously did not report what they or their customers were doing to the various tax authorities (or anyone else)
  • deferred income, via the kind of trust funds discussed here (wherein payment is deferred and some kind of trust is used to pay smaller amounts per year)
  • Asset-Hiding, Illegal Payments, Bribes, and Tax Evasion Funds Can Be Protected in a "Retirement Fund"
  • e.g., a politician or information thief-perhaps an Intel employee who sells something for $1M-can buy shares in a crypto-fund that then ensures he is hired by a succession of consulting firms for yearly consulting...or even just placed on a "retainer" of, say, $100K a year
  • IRS may come to have doubts about such services, but unless the government steps in and demands detailed inspection of actual work done-and even then I think this would be impossible and/or illegal-such arrangements would seem to be foolproof
  • why can't government demand proof of work done?
  • who judges the value of an employee?
  • of advice given, of reports generated, or of the value of having a consultant "on retainer"?
  • such interference would devastate many vested interests + tax and other advantages of these "crypto annuities"
  • tax only paid on the yearly income, not on the lump sum
  • authorities are not alerted to the sudden receipt of a lump sum (an ex-intelligence official who receives a payement of $1 M will come under suspicion, exactly as would a politician)
  • and a lump sum payment might well arouse suspicions and be considered evidence of some criminal activity
  • the original lump sum is protected from confiscation by governments, by consideration in alimony or bankruptcy cases, etc.
  • such "consulting annuities" may be purchased just so as to insulate earnings from alimony, bankruptcy, etc.
  • as usual, I'm not defending these steps as moral or as good for the business climate of the world, just as inevitable consequences of many current trends and technical developments
    • the "shell game" is used to protect the funds
      • with periodic withdrawals or transfers
  • note that this whole scheme can pretty much be done by attorneys and agents today, though they may be subpoenaed or otherwise encouraged to blab
  • it may not even be illegal for a consultant to take his fee over a period of many years
  • the IRS may claim the "discounted present value" as a lump sum, but other folks already do things like this
  • royalty streams (and nobody claims an author must agree with the IRS to some estimated value of this stream)
  • percentages of the gross (and the like)
  • engineers and other professionals are often kept on payrolls not so much for their instantaneous achievements as for their past and projected achievements-are we to treat future accomplishments in a lump sum way?
  • IRS and others may try to inspect the terms of the employment or consulting agreement, but these seems too invasive and cumbersome
  • it makes the government a third party in all negotiations, requiring agents to be present in all talks or at least to read and understand all paperwork
  • and even then, there could be claims that the government didn't follow the deals
  • not enough time or manpower to handle all these things
  • and the invasion of privacy is extreme!
  • Scenario: the Fincen-type agencies may deal with the growing threat of CA-type systems (and encryption in general) by involving the government in ostensibly private deals
  • analogous to the sales tax and bookkeeping arrangements (where gov't. is a third party to all transactions)
  • or EEOC, race and sex discimination cases
  • will transcripts and recordings of all job interviews come to be required?
  • "laying track"
  • OSHA, pollution, etc.
  • software copying laws (more to the point): government seems to have the power to enter a business to see if illegal copies are in use; this may first require a warrant
  • how long before various kinds of software are banned?
  • with the argument being that some kinds of software are analogous to lockpicks and other banned burglar tools
  • "used to facillitate the illegal copying of protected software"
  • the threat of encryption for national security as well as for the money-laundering and illegal payments possibilities may cause the government to place restrictions on the use of crypto software for anything except approved uses (external e-mail, etc.)
  • and even these uses can of course be subverted
  • and crypto techniques are not actually necessary: lawyers and other discreet agents will suffice
  • furthermore, corporations have a fair amount of lattitude in setting retirement policies and benefits, and so the methods I've described to shelter current income may become more widespread
  • though there may be some proviso that if benefits exceeed some percentage of yearly income, factoring in years on the job, that these benefits are taxed in some punative way
  • e.g.., a corporation that pays $100K a year to a critical technical person for a year of work and then pays him $60K a year for the next ten years could reasonably be believed to have set up a system to help him avoid taxes on a large lump sum payment
  • Asset-hiding, to avoid seizure in bankruptcies, lawsuits + e.g., funds placed in accounts which are secret, or in systems/schemes over which the asset-hider has control of some kind (voting, consulting, etc.)
  • this is obscure: what I'm thinking of is some kind of deal in which Albert is hired by Bob as an "advisor" on financial matters: but Bob's money comes from Albert and so the quid pro quo is that Bob will take Albert's advice...hence the effective laundering and protection
  • May also be used to create "multi-tier" currency systems, e.g., where reported transactions are some fraction of actuals
  • suppose we agree to deal at some artificially low value: electricians and plumbers may barter with each other at a reported $5 an hour, while using underground accounts to actually trade at more realistic levels
  • government (IRS) has laws about "fair value"-but how could these laws be enforced for such intangibles as software?
  • if I sell a software program for $5000, can the government declare this to be over or underpriced?
  • likewise, if a plumber charges $5 an hour, can the government, suspecting tax evasion, force him to charge more?
  • once again, the nature of taxation in our increasingly many-dimensioned economy seems to necessitate major invasions of privacy

16.14.7. "Denationalization of Money"

  • as with the old SF standby of "credits"
  • cf. the books on denationalization of money, and the idea of competing currencies
  • digital cash can be denominated in these various currencies, so it makes the idea of competing currencies more practical
    • to some extent, it already exists
  • the hard money advocates (gold bugs) are losing their faith, as they see money moving around and never really landing in any "hard" form
  • of course, it is essential that governments and groups not have the ability to print more money
  • international networks will probably denominate transactions in whatever currencies are the most stable and least inflationary (or least unpredictably inflationary)

16.15. Intellectual Property

16.15.1. Concepts of property will have to change

  • intellectual property; enforcement is becoming problematic
  • when thieves cannot be caught

16.15.2. Intellectual property debate

  • include my comment about airwaves
  • work on payment for items...Brad Cox, Peter Sprague, etc.
    • Superdistribution, metered usage
  • propertarian
  • many issues

16.16. Markets for Contract Killings, Extortion, etc.

16.16.1. Note: This is a sufficiently important topic that it deserves its own heading. There's material on this scattered around this document, material I'll collect together when I get a chance.

16.16.2. This topic came up several times on then Extropians mailing list, where David Friedman (author of "The Machinery of Freedom" and son of Nobel Prize winner Milton Friedman) and Robin Hanson debated this with me.

16.16.3. Doug Cutrell summarized the concerns of many when he wrote:

  • "...the availability of truly secure anonymity, strong encryption, and untraceable digital cash could allow contract killing to be an openly conducted business. For example, an anonymous news post announces a public key which is to be used to encode a contract kill order, along with a digital cash payment. The person placing the contract need only anonymously place the encrypted message in alt.test. Perhaps it is even possible to make it impossible to tell that the message was encrypted with the contract killer's public key (the killer would have to attempt decryption of all similarly encoded messages on alt.test, but that might be quite feasible). Thus it could be completely risk free for anyone to place a contract on anyone else." [Doug Cutrell, 1994-09-09]

16.16.4. Abhorrent markets

  • contract killings
  • can collect money anonymously to have someone whacked...nearly anyone who is controversial can generate enough "contributions"
  • kidnapping, extortion

16.16.5. Dealing with Such Things:

  • and even if one pseudonym is linked, make sure your financial records are not linkable
    • trust no one
  • increased physical security...make the effort of killing much more potentially dangerous
  • flooding attacks..tell extortionists to "get in line" behind all the other extortionists
    • announce to world that one does not pay extortionists...set up protocol to ensure this
      • yes, some will die as a result of this
  • console yourself with the fact that though some may die, fewer are dying as a result of state-sponsored wars and terrorism (historically a bigger killer than contract killings!)

16.17. Persistent Institutions

16.17.1. Strong crypto makes possible the creation of institutions which can persist for very long periods of time, perhaps for centuries.

  • such institutions already exist: churches (Catholics of several orders), universities, etc.

16.17.2. all of these "persistent" services (digital banks, escrow services, reputation servers, etc.) require much better protections against service outages, seizures by governments, natural disasters, and even financial collapse than do most existing computer services-an opportunity for offshore escrowlike services

  • to maintain a distributed database, with unconditional privacy, etc.
  • again, it is imperative that escrow companies require all material placed in it to be encrypted
  • to protect them against lawsuits and claims by authorities (that they stole information, that they censored material, that they are an espionage conduit, etc.)

16.17.3. Escrow Services

  • "Digital Escrow" accounts for mutually suspicious parties, especially in illegal transactions
  • drug deals, information brokering, inside information, etc.
    • But why will the escrow entity be trusted?
      • reputations
  • their business is being a reliable escrow holder, not it destroying their reputation for a bribe or a threat
  • anonymity means the escrow company won't know who it's "burning," should it try to do so
  • they never know when they themselves are being tested by some service
  • and potential bribers will not know who to contact, although mail could be addressed to the escrow company easily enough
    • like bonding agencies
  • key is that these entities stand to gain very little by stealing from their customers, and much to lose (hinges on ratio of any single transaction to size of total market)
  • useful for black markets and illegal transactions (a reliable third party that both sides can trust, albeit not completely)

16.17.4. Reputation-Based Systems

  • Credit Rating Services that are Immune from Meddling and Lawsuits
  • with digital pseudonyms, true credit rating data bases can be developed
  • with none of the "5 year expirations" (I mean, who are you to tell me I must not hold it against a person that records show he's declares Chapter 7 every 5 years or so?...such information is information, and cannot be declared illegal, despite the policy issues that are involved)
  • this could probably be done today, using offshore data banks, but then there might develop injunctions against use by Stateside companies
  • how could this be enforced? stings? entrapment?
  • it may be that credit-granting entities will be forced to use rigid formulas for their decisions, with a complete audit trail available to the applicant
  • if any "discretion" or judgment is allowed, then these extralegal or offshore inputs can be used
  • related to "redlining" and other informal signalling mechanisms
  • remember that Prop. 103 attempted to bypass normal laws of economics
    • AMIX-like services will offer multiple approaches here
  • ranging from conventional credit data bases, albeit with lower costs of entry (e.g., a private citizen could launch a "bankruptcy filings" data base, using public records, with no expiration-they're just reporting the truth, e.g., that Joe Blow filed for personal bankruptcy in 1987
  • this gets into some of the strange ideas involving mandatory rewriting of the truth, as when "credit records are expunged" (expunged from what? from my personal data bases? from records that were public and that I am now selling access to?)
  • there may be arguments that the "public records" are copyrighted or otherwise owned by someone and hence cannot be sold
  • telephone book case (however, the Supremes held that the "creative act" was the specific arrangement)
  • one ploy may be a Habitat-like system, where some of the records are "historical" - to offshore data bases
    • Book Reviews, Music Reviews
  • sometimes with pseudonyms to protect the authors from retaliation or even lawsuits
    • "What should I buy?" services, a la Consumer Reports
      • again, protection from lawsuits

16.17.5. Crypto Banks and the "Shell Game" as a Central Metaphor + Central metaphor: the Shell Game

  • description of conventional shell game (and some allusions to con artists on a street corner-the hand is quicker than the eye)
  • like entering a room filled with safe deposit boxes, with no surveillance and no way to monitor activity in the boxes...and user can buy new boxes anonymously, transferring contents amongst the boxes
  • only shutting down the entire system and forcing all the boxes open would do anything-and this would "pool" all of the contents (unless a law was passed saying people could "declare" the contents before some day...)
  • the shell game system can be "tested"-by testing services, by suspicious individuals, whatever-at very low cost by dividing some sum amongst many accounts and verifying that the money is still there (by retrieving or cashing them in)
  • and remember that the accounts are anonymous and are indistinguishable, so that the money cannot be seized without repercussions
  • this is of course the way banks and similar reputationbased institutions have always (or mostly) worked
  • people trusted the banks not to steal their money by verifying over some period of time that their money was not vanishing
  • and by relying upon some common sense ideas of what the bank's basic business was (the notion that a bank exists to continue in business and will make more money over some long run period by being trustworthy than it would make in a one-shot ripoff)
    • Numbered accounts
  • recall that Switzerland has bowed to international pressure and is now limiting (or eliminating) numbered accounts (though other countries are still allowing some form of such accounts, especially Lichtenstein and Luxembourg)
    • with crypto numbers, even more security
      • "you lose your number, tough"
    • but the money must exist in some form at some time?
    • options for the physical form of the money
      • accounts are shares in a fund that is publicly invested
  • shares act as "votes" for the distribution of proceeds
  • dividends are paid to the account (and sent wherever)
  • an abstract, unformed idea: multiple tiers of money, like unequal voting rights of stock... + could even be physical deposits
  • perhaps even manipulated by automatic handling systems (though this is very insecure)
  • the Bennett-Ross proposal for Global Data Services is essentially the early form of this

16.17.6. cryonicists will seek "crypto-trusts" to protect their assets + again, the "crypto" part is not really necessary, given

  trustworthy lawyers and similar systems
  • but the crypto part-digital money-further automates the system, allowing smaller and more secure transactions (overhead is lower, allowing more dispersions and diffusion)
    • and eliminates the human link
    • thus protecting better against subpoenas, threats, etc.
  • and to help fund "persistent institutions" that will fund research and protect them in suspension
  • they may also place their funds in "politically correct" longterm funds-which may or may not exert a postive ifluence in the direction they wish, what with the law of unintended consequences and all opl
  • many avenues for laundering money for persistent institutions
    • dummy corporations (or even real corporations)
      • with longterm consulting arrangements
      • "shell game" voting
  • as people begin to believe that they may just possibly be revived at some future time, they will begin to worry about protecting their current assets
    • recollections of "Why Call Them Back from Heaven?"
  • worries about financial stability, about confiscation of wealth, etc.
  • no longer will ersatz forms of immortality-endowments fo museums, universities, etc.-be as acceptable...people will want the real thing
    • Investments that may outlive current institutions
  • purchases of art works (a la Bill Gates, who is in fact a possibel model for this kind of behavior)
  • rights to famous works, with provision for the copyright expirations, etc. (which is why physical possession is preferable)
  • shell games, of course (networks of reputation-based accounts)
  • Jim Bennett reports that Saul Kent is setting up such things in Lichtenstein for Alcor (which is what I suggested to Keith Henson several years ago)

16.18. Organized Crime: Triads, Yakuza, Mafia, etc.

16.18.1. "The New Underworld Order"

  • Claire Sterling's "Thieve's World"
  • (Sterling is well-known for her conservative views on political matters, having written the controversial "The Terror Connection," which basically dismissed the role of the CIA and other U.S. agencies in promoting terrorism. "Thieve's World" continues the alarmist stance, but has some juicy details anyway.)
    • she argues for more law enforcement
  • but it was the corrupt police states of Nazi Germany, Sovet Russia, etc., that gave so many opportunities for modern corruption
  • and the CIA-etc. drug trade, Cold War excuses, and national security state waivers
  • in the FSU, the Russian Mafia is the chief beneficiary of privatization...only they had the cash and the connections to make the purchases (by threatening nonMob bidders, by killing them, etc.)
  • as someone put in, the world's first complete criminal state

16.18.2. "Is the criminal world interested in crypto? Could they be early adopters of these advanced techniques?"

  • early use: BBS/Compuserve messages, digital flash paper, codes
    • money-laundering, anstalts, banks
    • Triads, chop marks
  • Even though this use seem inevitable, we should probably be careful here. Both because the clientele for our advice may be violent, and ditto for law enforcement. The conspiracy and RICO laws may be enough to get anyone who advises such folks into major trouble. (Of course, advice and consulting may happen throught the very same untraceable technology!)

16.18.3. crypto provides some schemes for more secure drug distribution

  • cells, dead drops, secure transfers to foreign accounts
  • communication via pools, or remailers
  • too much cash is usually the problem...
  • "follow the money" (FinCEN)
  • no moral qualms...nearly all drugs are less dangerous than alcohol is...that drug was just too popular to outlaw
  • this drug scenario is consistent with the Triad/Mob scenario

16.19. Privately Produced Law, Polycentric Law, Anarcho-Capitalism

16.19.1. "my house, my rules"

16.19.2. a la David Friedman

16.19.3. markets for laws, Law Merchant

  • corporations, other organizations have their own local legal rules
  • Extropians had much debate on this, and various competing legal codes (as an experiment...not very sucessful, for various reasons)
    • "Snow Crash"

16.19.4. the Cypherpunks group is itself a good example:

  • a few local rules (local to the group)
  • a few constraints by the host machine environment (toad, soda)
    • but is the list run on "United States law"?
      • with members in dozens of countries?
  • only when the external laws are involved (if one of us threatened another, and even then this is iffy) could the external laws...
    • benign neglect, by necessity

16.19.5. I have absolutely no faith in the law when it comes to cyberspatial matters (other matters, too).

  • especially vis-a-vis things like remote access to files, a la the AA BBS case
  • "the law is an ass"
    • patch one area, another breaks
    • What then? Technology. Remailers, encryption

16.19.6. Contracts and Cryptography

  • "How can contracts be enforced in crypto anarchy situations?"
  • A key question, and one which causes many people to question whether crypto anarchy can work at all.
  • First, think of how many situations are already essentially outside the scope of the law...and yet in which something akin to "contracts" are enforceable, albeit not via the legal process. - friends, relationships + personal preferences in food, books, movies, etc.
  • what "recourse" does one have in cases where a meal is unsatisfactory? Not going back to the restaurant is usually the best recourse (this is also a hint about the importance of "future expectation of business" as a means of dealing with such things).
  • In these cases, the law is not directly involved. In fact, the law is not involved in most human (and nonhuman!) interactions.
    • The Main Approaches:
      • Reputations.
  • reputations are important, are not lightly to be regarded - Repeat Business. - Escrow Services.

won't sign such contracts are free to sue--but will of course have to pay more for health care. and frivolous malpractice lawsuits have increased operating costs. (Recall the her psychic powers were lost after a CAT scan. awarded her millions of dollars. Cf. on liability laws.)

  • Now imagine a society in which it is never clear if a contract is valid, or whether courts will overturn or amend a contract. This distorts the above analysis, and so hospitals, for example, have to build in safety margins and cushions.
  • Crypto can help by creating escrow or bonding accounts held by third parties--untraceable to the other parties--which act as bonding agents for completion of contracts.
  • Such arrangements may not be allowed. For example, a hospital which attempted to deal with such a bonding agency, and which asked customers to also deal with them, could face sanctions.
  • "Secured credit cards" are a current example: a person pays a reserve amount greater than the card limits (maybe 110%). The reason for doing this is not to obtain "credit," obviously, but to be able to order items over the phone, or to avoid carrying cash. (The benefit is thus in the channel of commerce).

16.19.7. Ostracism, Banishment in Privately Produced Law

  • Voluntary and discretionary electronic communities also admit the easy possibility of banishment or ostracism (group-selected kill files). Of course, enforcement is generally difficult, e.g., there is nothing to stop individuals from continuing to communicate with the ostracized individual using secure methods.
  • I can imagine schemes in which software key escrow is used, but these seem overly complicated and intrusive.
  • The ability of individuals, and even subgroups, to thwart the ostracism is not at all a bad thing.
  • "In an on-line world it would be much easier to enforce banishment or selective ostracism than in real life. Filtering agents could look for certificates from accepted enforcement agencies before letting messages through. Each user could have a set of agencies which were compatible with his principles, and another set of "outlaws". You could even end up with the effect of multiple "logical subnets" of people who communicate with each other but not outside their subnet. Some nets might respect intellectual property, others not, and so on." [Hal Finney, 1994-08-21]

16.19.8. Governments, Cyberspaces, PPLs

  • Debate periodically flares up on the List about this topic.
  • Can't be convered here in sufficient detail.
  • Friedman, Benson, Stephenson's "Snow Crash," etc.

16.19.9. No recourse in the courts with crypto-mediated systems

  • insulated from the courts
  • PPLs are essential
  • reputations, escrow, mediation (crypto-mediated mediation?)

16.19.10. Fraud

  • not exactly rare in the non-crypto world!
  • new flavors of cons will likely arise
  • anonymous escrow accounts, debate with Hal Finney on this issue, etc.

16.19.11. PPLs, polycentric law

16.20. Libertaria in Cyberspace

16.20.1. what it is

16.20.2. parallels to Oceania, Galt's Gulch

16.20.3. Privacy in communications alters the nature of connectivity

  • virtual communities, invisible to outsiders
  • truly a crypto cabal
  • this is what frightens the lawmakers the most...people can opt out of the mainstream governmental system, at least partly (and probably increasingly)