#cryptoanarchism

Timothy C. May

1988

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.

“This paper by Wei Dai foreruns the origins of Bitcoin and is a part of the catalysts in the development of cryptocurrencies today, this paper is incredibly important as it shows us just what the cypherpunks were thinking when they were creating bitcoin. At the heart of their motivations was to end capital slavery, and essentially to disband the threat of violence as a means of coersion in the market of global trade. Ultimately these are the goals of cryptocurrency.” - Aeon Borealis [Cypher_Punx (c) 2022 Waxwing Publishing]

By: Wei Dai

November 1998

I am fascinated by Tim May's crypto-anarchy. Unlike the communities traditionally associated with the word "anarchy", in a crypto-anarchy the government is not temporarily destroyed but permanently forbidden and permanently unnecessary. It's a community where the threat of violence is impotent because violence is impossible, and violence is impossible because its participants cannot be linked to their true names or physical locations.

Until now it's not clear, even theoretically, how such a community could operate. A community is defined by the cooperation of its participants, and efficient cooperation requires a medium of exchange (money) and a way to enforce contracts. Traditionally these services have been provided by the government or government sponsored institutions and only to legal entities. In this article I describe a protocol by which these services can be provided to and by untraceable entities.

I will actually describe two protocols. The first one is impractical, because it makes heavy use of a synchronous and unjammable anonymous broadcast channel. However it will motivate the second, more practical protocol. In both cases I will assume the existence of an untraceable network, where senders and receivers are identified only by digital pseudonyms (i.e. public keys) and every messages is signed by its sender and encrypted to its receiver.

In the first protocol, every participant maintains a (seperate) database of how much money belongs to each pseudonym. These accounts collectively define the ownership of money, and how these accounts are updated is the subject of this protocol.

1. The creation of money. Anyone can create money by broadcasting the solution to a previously unsolved computational problem. The only conditions are that it must be easy to determine how much computing effort it took to solve the problem and the solution must otherwise have no value, either practical or intellectual. The number of monetary units created is equal to the cost of the computing effort in terms of a standard basket of commodities. For example if a problem takes 100 hours to solve on the computer that solves it most economically, and it takes 3 standard baskets to purchase 100 hours of computing time on that computer on the open market, then upon the broadcast of the solution to that problem everyone credits the broadcaster's account by 3 units.

2. The transfer of money. If Alice (owner of pseudonym KA) wishes to transfer X units of money to Bob (owner of pseudonym KB), she broadcasts the message "I give X units of money to KB" signed by KA. Upon the broadcast of this message, everyone debits KA's account by X units and credits KB's account by X units, unless this would create a negative balance in KA's account in which case the message is ignored.

3. The effecting of contracts. A valid contract must include a maximum reparation in case of default for each participant party to it. It should also include a party who will perform arbitration should there be a dispute. All parties to a contract including the arbitrator must broadcast their signatures of it before it becomes effective. Upon the broadcast of the contract and all signatures, every participant debits the account of each party by the amount of his maximum reparation and credits a special account identified by a secure hash of the contract by the sum the maximum reparations. The contract becomes effective if the debits succeed for every party without producing a negative balance, otherwise the contract is ignored and the accounts are rolled back. A sample contract might look like this:

KA agrees to send KB the solution to problem P before 0:0:0 1/1/2000. KB agrees to pay KA 100 MU (monetary units) before 0:0:0 1/1/2000. KC agrees to perform arbitration in case of dispute. KA agrees to pay a maximum of 1000 MU in case of default. KB agrees to pay a maximum of 200 MU in case of default. KC agrees to pay a maximum of 500 MU in case of default.

4. The conclusion of contracts. If a contract concludes without dispute, each party broadcasts a signed message "The contract with SHA-1 hash H concludes without reparations." or possibly "The contract with SHA-1 hash H concludes with the following reparations: ..." Upon the broadcast of all signatures, every participant credits the account of each party by the amount of his maximum reparation, removes the contract account, then credits or debits the account of each party according to the reparation schedule if there is one.

5. The enforcement of contracts. If the parties to a contract cannot agree on an appropriate conclusion even with the help of the arbitrator, each party broadcasts a suggested reparation/fine schedule and any arguments or evidence in his favor. Each participant makes a determination as to the actual reparations and/or fines, and modifies his accounts accordingly.

In the second protocol, the accounts of who has how much money are kept by a subset of the participants (called servers from now on) instead of everyone. These servers are linked by a Usenet-style broadcast channel. The format of transaction messages broadcasted on this channel remain the same as in the first protocol, but the affected participants of each transaction should verify that the message has been received and successfully processed by a randomly selected subset of the servers.

Since the servers must be trusted to a degree, some mechanism is needed to keep them honest. Each server is required to deposit a certain amount of money in a special account to be used as potential fines or rewards for proof of misconduct. Also, each server must periodically publish and commit to its current money creation and money ownership databases. Each participant should verify that his own account balances are correct and that the sum of the account balances is not greater than the total amount of money created. This prevents the servers, even in total collusion, from permanently and costlessly expanding the money supply. New servers can also use the published databases to synchronize with existing servers.

The protocol proposed in this article allows untraceable pseudonymous entities to cooperate with each other more efficiently, by providing them with a medium of exchange and a method of enforcing contracts. The protocol can probably be made more efficient and secure, but I hope this is a step toward making crypto-anarchy a practical as well as theoretical possibility.

Appendix A: alternative b-money creation

One of the more problematic parts in the b-money protocol is money creation. This part of the protocol requires that all of the account keepers decide and agree on the cost of particular computations. Unfortunately because computing technology tends to advance rapidly and not always publicly, this information may be unavailable, inaccurate, or outdated, all of which would cause serious problems for the protocol.

So I propose an alternative money creation subprotocol, in which account keepers (everyone in the first protocol, or the servers in the second protocol) instead decide and agree on the amount of b-money to be created each period, with the cost of creating that money determined by an auction. Each money creation period is divided up into four phases, as follows:

1. Planning. The account keepers compute and negotiate with each other to determine an optimal increase in the money supply for the next period. Whether or not the account keepers can reach a consensus, they each broadcast their money creation quota and any macroeconomic calculations done to support the figures.

2. Bidding. Anyone who wants to create b-money broadcasts a bid in the form of <x, y> where x is the amount of b-money he wants to create, and y is an unsolved problem from a predetermined problem class. Each problem in this class should have a nominal cost (in MIPS-years say) which is publicly agreed on.

3. Computation. After seeing the bids, the ones who placed bids in the bidding phase may now solve the problems in their bids and broadcast the solutions.

February 8, 1996

John Perry Barlow

Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us. You have no sovereignty where we gather.

We have no elected government, nor are we likely to have one, so I address you with no greater authority than that with which liberty itself always speaks. I declare the global social space we are building to be naturally independent of the tyrannies you seek to impose on us. You have no moral right to rule us nor do you possess any methods of enforcement we have true reason to fear.

Governments derive their just powers from the consent of the governed. You have neither solicited nor received ours. We did not invite you. You do not know us, nor do you know our world. Cyberspace does not lie within your borders. Do not think that you can build it, as though it were a public construction project. You cannot. It is an act of nature and it grows itself through our collective actions.

You have not engaged in our great and gathering conversation, nor did you create the wealth of our marketplaces. You do not know our culture, our ethics, or the unwritten codes that already provide our society more order than could be obtained by any of your impositions.

You claim there are problems among us that you need to solve. You use this claim as an excuse to invade our precincts. Many of these problems don’t exist. Where there are real conflicts, where there are wrongs, we will identify them and address them by our means. We are forming our own Social Contract. This governance will arise according to the conditions of our world, not yours. Our world is different.

Cyberspace consists of transactions, relationships, and thought itself, arrayed like a standing wave in the web of our communications. Ours is a world that is both everywhere and nowhere, but it is not where bodies live.

We are creating a world that all may enter without privilege or prejudice accorded by race, economic power, military force, or station of birth.

We are creating a world where anyone, anywhere may express his or her beliefs, no matter how singular, without fear of being coerced into silence or conformity.

Your legal concepts of property, expression, identity, movement, and context do not apply to us. They are all based on matter, and there is no matter here.

Our identities have no bodies, so, unlike you, we cannot obtain order by physical coercion. We believe that from ethics, enlightened self-interest, and the commonweal, our governance will emerge. Our identities may be distributed across many of your jurisdictions. The only law that all our constituent cultures would generally recognize is the Golden Rule. We hope we will be able to build our particular solutions on that basis. But we cannot accept the solutions you are attempting to impose.

In the United States, you have today created a law, the Telecommunications Reform Act, which repudiates your own Constitution and insults the dreams of Jefferson, Washington, Mill, Madison, DeToqueville, and Brandeis. These dreams must now be born anew in us.

You are terrified of your own children, since they are natives in a world where you will always be immigrants. Because you fear them, you entrust your bureaucracies with the parental responsibilities you are too cowardly to confront yourselves. In our world, all the sentiments and expressions of humanity, from the debasing to the angelic, are parts of a seamless whole, the global conversation of bits. We cannot separate the air that chokes from the air upon which wings beat.

In China, Germany, France, Russia, Singapore, Italy and the United States, you are trying to ward off the virus of liberty by erecting guard posts at the frontiers of Cyberspace. These may keep out the contagion for a small time, but they will not work in a world that will soon be blanketed in bit-bearing media.

Your increasingly obsolete information industries would perpetuate themselves by proposing laws, in America and elsewhere, that claim to own speech itself throughout the world. These laws would declare ideas to be another industrial product, no more noble than pig iron. In our world, whatever the human mind may create can be reproduced and distributed infinitely at no cost. The global conveyance of thought no longer requires your factories to accomplish.

These increasingly hostile and colonial measures place us in the same position as those previous lovers of freedom and self-determination who had to reject the authorities of distant, uninformed powers. We must declare our virtual selves immune to your sovereignty, even as we continue to consent to your rule over our bodies. We will spread ourselves across the Planet so that no one can arrest our thoughts.

We will create a civilization of the Mind in Cyberspace. May it be more humane and fair than the world your governments have made before.

Davos, Switzerland

From: [email protected] (Timothy C. May)

Subject: The Crypto Anarchist Manifesto

Date: Sun, 22 Nov 92 12:11:24 PST

Cypherpunks of the World,

Several of you at the "physical Cypherpunks" gathering yesterday in Silicon Valley requested that more of the material passed out in meetings be available electronically to the entire readership of the Cypherpunks list, spooks, eavesdroppers, and all. <Gulp>

Here's the "Crypto Anarchist Manifesto" I read at the September 1992 founding meeting. It dates back to mid-1988 and was distributed to some like-minded techno-anarchists at the "Crypto '88" conference and then again at the "Hackers Conference" that year. I later gave talks at Hackers on this in 1989 and 1990.

There are a few things I'd change, but for historical reasons I'll just leave it as is. Some of the terms may be unfamiliar to you...I hope the Crypto Glossary I just distributed will help.

(This should explain all those cryptic terms in my .signature!)

--Tim May

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Bitcoin vs the world

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