Cypherpunks: Freedom and the Future of the Internet Read online

  JULIAN: The guys who did e-gold ended up being prosecuted in the US.91

  JACOB: It’s so incredibly frustrating.

  JULIAN: I want to go back to these three fundamental freedoms: freedom of communication, freedom of movement and freedom of economic interaction. If we look at the transition of our global society onto the internet, when we made that transition the freedom of personal movement is unchanged essentially. The freedom of communication is enhanced tremendously in some ways, in that we can now communicate to many more people; on the other hand it is also tremendously degraded because there is no privacy anymore, and so our communications can be spied on, and are spied on and stored and, as a result, can be used against us. And so that elementary interaction that we have with people physically is degraded.

  ANDY: Privacy is available but it comes at a cost.

  JULIAN: Our economic interactions have suffered precisely the same consequences. So in a traditional economic interaction, who knows about it? The people who saw you go down to the market. Now, who knows about your economic interaction? If you buy something from your next-door neighbor with your Visa card, which you could have done in a traditional market society almost completely privately, who knows about it now?

  JACOB: Everybody.

  JULIAN: Everybody knows. They have the data sharing between all the major Western powers, they all know about it and they store it forever.

  ANDY: Julian, it’s not wrong what you’re saying, but I’m not sure you can really distinguish between the freedom of communication and the freedom of economic interaction, because the internet as we have it today is the infrastructure for our social, our economic, our cultural, our political, all our interactions.

  JACOB: Certainly the freedom of movement.

  ANDY: Whatever the communication architecture is, the money is just bits. This is just a usage of the internet. So if the economic system is based on the electronic infrastructure, the architecture of the electronic infrastructure says something about how the money flow is going, how it is being controlled, how it is being centralized and so on. The internet was perhaps not even thought to be the infrastructure for everything in the first days but the economic logic said, “Well, it’s cheaper to do that with the internet.” The banks and credit card companies previously had ATM machines out there with X.25 interfaces, which was a separate network ten or twenty years ago, and now it’s all TCP/IP because it is cheaper.92 So the architecture of the technology is becoming a key issue because it affects all the other areas, and that’s what we need to actually rethink, meaning that if we want a decentralized economic way of handling our payments, we need to take the infrastructure in our hands.

  JACOB: Bitcoin is essentially an electronic currency.

  ANDY: With no inflation.

  JACOB: It tends to do it in a decentralized manner, so instead of having the Federal Reserve you have a bunch of people all across the world that together agree on what reality is, and what their current currency is.

  JULIAN: And there are some computer programs that help facilitate this.

  JACOB: I want to explain it in a non-technical manner. It’s an electronic currency which is more like a commodity than a currency in that people do determine how many euros it is to one Bitcoin. So it’s a little bit like gold in this regard and there’s a cost of the so-called mining of the Bitcoins, where you do a search on a computer to find a Bitcoin, and the idea is that there’s this computational complexity and it’s tied to the value of the thing. So in non-technical terms it’s a way for me to send Julian currency and for Julian to confirm it without Andy really being able to interfere or to stop it. There are some problems, though—it’s not actually an anonymous currency, and this is a really bad thing in my opinion.

  JULIAN: Bitcoin is a very interesting hybrid, as the account holders are completely private and you can create an account at will, but the transactions for the entire Bitcoin economy are completely public. And that is how it works; it needs to be that way in order for everyone to agree that a transaction has occurred, that the sending account now has less money and the destination that much more. That’s one of the few ways to run a distributed currency system that doesn’t require a central server, which would be an attractive target for coercive control. It is the distribution that is really innovative in Bitcoin, and the algorithms that permit that distribution, where you do not trust any particular part of, if you like, the Bitcoin banking network. Rather the trust is distributed. And enforcement is not done through law or regulation or auditing, it is done through the cryptographic computational difficulty that each part of the network has to go through to prove that it is doing what it claims. So the enforcement of honest Bitcoin “banking” is built into the architecture of the system. Computation translates into electricity costs for each branch of the Bitcoin bank, so we can assign a cost to commit fraud, in terms of electricity prices. The work needed to commit a fraud is set to be higher in electricity costs than the economic benefit derived from it. It is very innovative, not because these ideas haven’t been explored before (they have been for over twenty years on paper), but because Bitcoin got the balance almost right and added one very innovative idea about how to prove a true global consensus about transactions of the Bitcoin economy, even assuming that many banks were fraudulent and that anyone could start one.

  Of course, just like every other currency, you have to buy the currency with something else; with work, or Bitcoins are traded for another currency—there are foreign exchange groups that do that. There are some other limitations. It has about a ten minute settlement time—it takes about ten minutes of computational work between handing over currency and the other party being sure that there is a global consensus that the transaction has taken place. It is exactly like cash, so it has all the theft problems that cash has. It has all the benefits as well: once you’ve got it you’re sure that you have been paid, the check can’t be cancelled, the bank can’t retract it. Coercive force relations cut their ties. On the other hand, you have to guard cash well. That is, I think, its biggest problem. But it is quite easy to build additional layers on top, to build escrow services where you store your Bitcoins in a service that is specifically designed to keep them safe and add insurance against theft.

  JACOB: Interestingly, if the people that created Bitcoin had made it mandatory to use Tor, so you don’t create an account, you create some cryptographic identifiers, it would have been possible if everything went over Tor as a core design that you did have location anonymity, even if you had long-term identifiers that identified you so you could link your transactions together.

  JÉRÉMIE: Without entering into the technical considerations we could agree that Bitcoin has excellent concepts but some flaws. It has a deflationist nature, because money tends to disappear from Bitcoin. So it cannot work in the long run but it sets concepts that can be improved. It is maybe version 0.7 or 0.8 now.

  JACOB: This is like David Chaum reinvented.93

  ANDY: Bitcoin was the most successful attempt to introduce a digital currency for the last ten years, I would say.

  JULIAN: They got the balance almost right. I think Bitcoin will continue. It’s an efficient currency; you can start up an account in ten seconds, and to transfer money there is no overhead other than the cost of an internet connection and a few minutes of electricity. It’s highly competitive compared to almost any other form of currency transfer. I think it will prosper. Look at what happened following several Bitcoin thefts and negative follow-up press in the summer of 2011 that drove the exchange rate down to three dollars US.94 Bitcoin has gradually risen back up to twelve dollars. It hasn’t climbed up or bounced back suddenly, it has climbed up in a gradual curve that seems to show a broad demand for the currency. I suspect a lot of the demand is petty drug trading, mail order marijuana and so on.95 But Bitcoin has low overheads as a currency. Several ISPs, especially in places that can’t get easy credit-card services, like the former Soviet Union, are starting to use it.


  There will be a crackdown if it continues to grow. That will not get rid of Bitcoin, because cryptography prevents any simple attack via coercive force from working, but the sort of foreign exchange services that convert to and from Bitcoin could be targeted much more easily. On the other hand, these exchanges can run anywhere in the world, so there are quite a few jurisdictions one has to work through before there are no more exchanges, and then the black market has its own exchange logic. I think the play that needs to be conducted with Bitcoin is to get it adopted by the ISP and internet service industry for these little games you buy on Facebook and so on, because it is so efficient, and once it is well adopted by a variety of industries they will form a lobby to stop it being banned. That’s a bit like how cryptography was adopted. It used to be classified as arms trading, and some of us as arms traders, but once it was in browsers and used for banking there was a powerful enough lobby to prevent it from being banned—although I concede there are moves afoot again.

  JACOB: The problem is that the privacy concerns are wrong. Let’s be honest here. It’s wrong to suggest that the economics of the situation are different with the internet than without the internet. When I came here and I bought British pounds I had to give up my social security number, which is my unique identifier in the United States, I had to give up my name, I had to link it to a bank account, I had to give them the money. They recorded all the serial numbers and then they took all that information and they reported that to the Federal Government. So, that’s the analogue. It’s actually harder to get foreign currencies in the US because we’re so far away from everywhere else. But there’s a historical trend of control with regard to currency and it’s not just in regard to the internet that we see this control. In fact, there are to my understanding ATM machines in banks that record the serial numbers of cash and then track them to do flow analyses on the cash to see where it has been spent and who has done stuff with it.

  If we look at those systems and then we look at the internet, they did not improve the privacy as we migrated to the internet—in fact, they kept it as bad as it was to begin with. In this way I think it’s very important to then look at the trends from the world before the internet to see where we’re headed. What we find is that if you have a lot of money you can pay a premium to keep your privacy, and if you don’t have a lot of money you almost certainly have no privacy. And it’s worse with the internet. Something like Bitcoin is a step in the right direction because when combined with an anonymous communications channel, like Tor for example, it allows you to actually send WikiLeaks a Bitcoin over Tor and anyone watching this transaction would see a Tor user sending a Bitcoin and you receiving it. It’s possible to do it—that is much better in some ways than cash.

  JULIAN: We all speak about the privacy of communication and the right to publish. That’s something that’s quite easy to understand—it has a long history—and, in fact, journalists love to talk about it because they’re protecting their own interests. But if we compare that value to the value of the privacy and freedom of economic interaction, actually every time the CIA sees an economic interaction they can see that it’s this party from this location to this party in this location, and they have a figure to the value and importance of the interaction. So isn’t the freedom, or privacy, of economic interactions actually more important than the freedom of speech, because economic interactions really underpin the whole structure of society?

  JACOB: They’re inherently linked. I think you can tell the difference between the American and European cypherpunks right here because most of the American cypherpunks would say that they are exactly the same. Because in a society which has a free market one would argue that you put your money where your mouth is.

  JULIAN: Where you put your money is where you put your power.

  JACOB: Exactly. I’m not saying that that is right, that’s almost a Right attitude towards this, which maybe is not what we want. Maybe we want a socially constrained capitalism, for example.

  JULIAN: If we just look from a simple intelligence perspective: You’ve got a 10 million dollar intelligence budget. You can spy on people’s email interactions or you can have total surveillance of their economic interactions. Which one would you prefer?

  ANDY: Well, these days they will say, “Ok, we’ll just force the payment companies and banks to use the internet, so we have both.” And that’s what they did. So the point is indeed that there is no direct escape here. You can do things like use Tor to protect your communication, you can encrypt your phone calls, you can do secure messaging. With money, it’s a lot more complicated and we have these things called money laundering laws and so on, and they tell us that drug and terrorist organizations are abusing the infrastructure to do evil things.

  JACOB: It’s the Horsemen of the Info-pocalypse.

  ANDY: Actually, I’d be very interested to have more transparency on surveillance companies and government spending on these issues. The question is what do we buy when we provide total anonymity of only the money system? What would actually happen? I think this might lead here and there to interesting areas where people may get themselves a little more easy and say, “Well, you know, I can raise my voice, I can go to the parliament, but I can also just buy some politicians.”

  JÉRÉMIE: You’re describing the US, right?

  JACOB: It’s not anonymous.

  ANDY: I’m not sure this is limited to the US. In Germany we don’t actually call it corruption, we call it foundations that buy paintings painted by wives of politicians, and so it’s in the art trade or other areas. So we have better names for it. Maybe in France you call it friendship parties and others call it hiring prostitutes.

  JÉRÉMIE: In the US it’s particular because the link between the political system and money is so tight. Larry Lessig said, after ten years of working on copyright issues, that he gave up on trying to fix copyright (he didn’t really give up) because he found out that the problem wasn’t politicians’ understanding of what a good copyright policy would be, the problem was that there were just too many links to the industrial actors that were pushing for a bad copyright regime.96 So there is a real problem here.

  JULIAN: Are you sure it’s a problem, Jérémie? Maybe in fact it is a good attribute that those industries that are productive…

  ANDY: I think the devil’s advocate is drinking my whiskey.

  JACOB: Let’s see if he can actually finish this sentence without cracking up. Troll us, Master Troll.

  JULIAN: Those industries that are productive, that produce wealth for the whole society, use a portion of their money in order to make sure that they continue to be productive, by knocking out random legislation that comes out of political myth-making seeded by hype. And the best way to do that is, in fact, to buy Congressmen, to take the labor of their productive industry and use it to modify the law—so as to keep the productive nature of the industry going.

  JACOB: Wait—I’ll get this one. Ready? Ready? Right now, ready? No.

  JULIAN: Why?

  JACOB: There are a couple of reasons but for one, there is a feedback loop that is extremely negative. For example, I believe one of the largest political campaign donors in the state of California is the prison guard union, and part of the reason for this is because they like to lobby for stronger laws, not because they care about the rule of law but because there is a job incentive.97 So, if you see that these people are lobbying to create more prisons, to jail more people, to have longer sentences, what is it they are effectively doing? What they’re doing is they’re using the benefit that they receive for the labor that was actually beneficial—arguably—in order to expand the monopoly that the state grants to them.

  JULIAN: So they’re just using it for wealth transfer from actual productive industries to industries that are not productive?

  JACOB: You could sum it up that way.

  JULIAN: But maybe that’s just a small component. Every system is abused, perhaps these free-riders that are just inv
olved in wealth transfer are a small element, and in fact the majority of the lobbying, the majority of the influence on Congress does actually come from productive industries making sure that that the laws continue to permit those industries to be productive.

  JACOB: But you can measure that very easily because you can look to see which people wish to promote rent-seeking activities, and wish to restrict the freedoms of other people to create a situation in which they themselves could not have risen to be where they are today. When they do those things then you know that something has gone wrong and they’re just protecting what they have, which they’ve essentially created through an exploitation—usually by an appeal to emotion where they say, “Gosh, stop the terrorist, stop the child pornography, stop the money laundering, fight the war on drugs.” Maybe those things are all totally reasonable in the context in which they’re originally presented, and usually they are, because generally speaking we think that those are bad because there is a serious component in each one of them.

  ANDY: I’d like to get back to copyright and give you another example—there were serious issues when cars came out. Those who ran companies transporting passengers with horses feared that this would kill their business, which was true, but maybe it also made sense. I was invited to speak to the German movie companies’ association and before my speech there was a professor from a university in Berlin who spoke super politely about the evolution of the human race and the development of culture, saying that copying thoughts and processing them further on is the key thing, just as making movies is about taking themes and expressing them in a dramaturgic way. After his forty minutes the moderator brashly interrupted him and said, “Ok, so after you just said that we should legalize theft, let’s see what the guy from the Chaos Computer Club has to say.” And I was thinking, “Wow, what the fuck? If I’m going to speak out, will they let me out of here alive?” So some industries just have business cases that are not serving evolution. This is selfish, staying on their de-evolutionary drive, making it even more monopolistic. When cassettes came out they also thought that the record industry was going to die. The opposite happened, the record industry exploded. The question is what’s the policy here? What’s the positive way we could formulate these things?