Bitcoin and the End of History

You’re looking at this and going, “Wow! Wouldn’t it be amazing if this worked.” And then you realize, “Oh my gosh, it does work!” National borders are just speed bumps in the information superhighway. Cryptography is really, really strong. We can do whatever we want here. It might provide the equivalent of what government does in a decentralized fashion. I talk about collapse of governments. I think we actually saw that in the Middle Ages, probably as a result of the printing press. This is the story of a community of scientists, mathematicians, philosophers, and activists who believe that the internet combined with recent breakthroughs in the field of cryptography would upend society and usher in a new era of sovereign individualism.

00:41 - We have it in our power to begin the world over again right now. And its internal clash over the optimal path to achieving that goal. Can evil be done with this technology? Yes. And so, what? Deal with it. Here’s the final installment in a four-part series on the origins of the cypherpunk movement and how it helped shape our modern world. We see a free world that has achieved a level of prosperity unprecedented in all human history. Mr.

Gorbachev, tear down this wall! 01:32 - If you had asked me 10 years ago, “is it possible that communism could collapse by the year 1992,” I would’ve said, “absolutely ridiculous.” The fall of the Berlin Wall was important to me because I thought it was the end of history and that national borders would cease being the walls of prisons. And so, a couple years later, when I discovered the internet, I thought, “Oh, this is part of this pattern where borders and distance stop being barriers to people.” Then I discovered a whole clan of people who self-identified as computer people. I found my tribe. And among that clan was the cypherpunks mailing list.

02:17 - If you want to subscribe to our mailing list, send a blank email message and just say subscribe cypherpunks. And what is a cypherpunk? What do you guys stand for? Cypherpunks are cryptography activists. The cypherpunks email list, which started in the fall of 1992, one year after the launch of the World Wide Web, became a gathering place for a global community interested in using cryptography to allow individuals to communicate and transact on the internet privately and without interference from a central authority. In the last 20 years, the basic techniques to do all sorts of impossible-seeming things have suddenly emerged. Put them into practice. Many cypherpunks were inspired by the work of the computer scientist David Chaum, who had demonstrated that it was possible to use cryptography to build an anonymous payment network that ran on the internet.

03:04 - Because of the cypherpunks and because of the science papers of David Chaum, I thought the third thing that’s going to happen is economic freedom. That people are going to be no longer constrained by national borders and distance from cooperating and sharing resources and helping each other. But at this watershed moment of collapsing borders, there was a divide within the cypherpunk community over whether these cryptographic tools would lead to more individual freedom, free trade, and the spread of democracy, or the end of government altogether. The cypherpunk movement’s most influential figure was the physicist and intellectual provocateur Tim May, who coined the phrase ‘crypto anarchy.’ He saw the fall of the Berlin wall as evidence that the societal institutions we take for granted could collapse in short order, just as they had in the Middle Ages.

03:53 - We saw the little principalities, the monarchies, the religious, the papal states, we saw those collapse probably as a result of publishing, printing. May penned a one-page summary of how cryptography would upend society. So I just sat down at my little Macintosh and loosely patterned this after the Communist Manifesto. “A specter is haunting the modern world, the specter of crypto- anarchy.” Cryptography is really, really strong. We can be protected from anything without, from the observers, from the watchers, from the imposers of the past, upon the future we’re trying to create.

04:33 - May was skeptical of the idea that humanity was witnessing an unabashed victory of economic and political liberalism or that it was possible to overcome tyranny through collective action. As the political scientist Francis Fukuyama argued, “We as human beings want to be recognized with a certain dignity. This is the essential driving force behind democratic revolutions, whether they take place in Eastern Europe or in Asia or in Latin America.” May embraced a technology-based theory of historic change summed up by the movement’s tagline, which was coined by the mathematician Eric Hughes, “cypherpunks write code.” What Eric meant by “cypherpunks write code” is don’t be one of those guys who goes to a Libertarian Party conference and sits about getting somebody elected to the Los Gatos City Council. That way lies madness.

05:22 - Whereas the interesting things that had happened had been technological changes, the telephone, copy machine, the VCR, the thing that I really got interested in is that you don’t just go and ask the regulator, “Oh, we need more privacy online.’ We go fix it. Arguing and complaining and lobbying and politics have nominal effects. And what changes the world is technology adoption and society moving, shifting its viewpoints. For crypto-anarchists like May, writing code meant building systems for anonymous transactions on the internet. It made the arbitrary divisions of the political world irrelevant. National borders are just speed bumps on the information superhighway. Online cryptographic networks would be structured like a geodesic dome, a form hailed by the counter-cultural technologists of the 1970s for being in harmony with nature and highly resistant to external attack. Networks with no owners with many interconnecting nodes that would be basically unstoppable. In a geodesic market, “economics will no longer be the handmaiden of politics,” the cyberpunk writer Robert Hettinga noted. “Nation-states will eventually be as ceremonial as modern-day constitutional monarchs.

” 06:31 - This idea of a many-to-many connection was clearly going to happen. But it was much easier to build a functional network for cooperation and trade when you can rely on a central authority to enforce the rules. How could we use this weird crypto technique to solve this strange, esoteric little problem that in the real world you just solve because, “Oh, I know what your social security number is,” or you have to have your government-issued ID that you take to the bank so that you can open up your bank account, and they can link the two together and say, “Okay, if Jim McCoy walks out on this $100,000 loan, well, we know where to find him.” It was trying to deal with those problems. You can buy and sell property in cyberspace using cryptographic protocols. The idea of ways in which people might provide the equivalent of what government does in a decentralized fashion.

07:20 - Tim stole some ideas from my Machinery of Freedom and he reprocessed them with all this technological stuff, and then I stole them back. A function of government that was particularly hard to replicate using cryptography was the issuance of money. The cypherpunks attempted to build a borderless internet currency system as anonymous as cash, and that like gold, held its value without the backing of a central bank. Gold makes very good money because nobody can manufacture more of it very readily, to put it mildly. Right? Whereas bits are perfectly copyable, so turning bits into good money is quite difficult.

07:54 - Tim May and many others considered electronic cash to be the holy grail because it completed the picture. A private and decentralized monetary system, May argued, was a key component in constructing a new borderless world where the activities and assets of individuals would be resistant to government control and confiscation. You don’t physically meet the person, if you don’t even know what continent they’re on you can’t coerce them. But there was another faction within the movement that rejected Tim May’s vision of cordoning off a new world in cyberspace. The High-Tech Hayekians were people like Eric Drexler, Mark Miller, Phil Salin.

08:33 - They were focused on designing secure computing systems based on economic insights, particularly those of the Austrian-born Nobel Prize winner Friedrich Hayek. Instead of building a new virtual world shielded from government interference, the High-Tech Hayekians sought to use technology to demolish walls and divisions within the existing world. They imagined that introducing new tools for human coordination would gradually erode the government’s ability to impinge on our freedoms. We did lots and lots of fantasizing about how the world could be different, but we saw this as emerging from inside the world. Cryptography was a tool for porting economic concepts and legal structures onto the internet.

09:16 - But the aim was to foster new forms of peer-to-peer commerce and knowledge sharing. And the High-Tech Hayekians believed that even imperfect systems can transform society gradually from within. The overall arc of world history is towards rule of law, towards less corruptible systems. If the emergence of the world of crypto-commerce creates systems that are vastly less corruptible, but under a whole mix of different mechanisms and governance regimes such that they’re not always everywhere incorruptible, I think that’s fine. There’s a lot of power in providing people tools such that they can successfully start to act more like you would like them to.

10:09 - As opposed to, “You’ve got to come over here where it’s really hard edge encrypted and it works exactly the way we want.” No no, let’s raise people’s levels incrementally, and that’s an improvement in the world. For many cypherpunks the darker side of crypto-anarchy was epitomized by the writings of a chemist and electrical engineer Jim Bell, a participant on the email list, who in the mid-nineties compared aggression by the state to that of muggers, rapists, robbers, and murderers, and posited a cryptographically protected marketplace in which anonymous individuals could in effect, pay to have government employees killed with the goal of destroying the state. In 1997, Bell was arrested and went to prison for, among other things, dropping a stink bomb on a government building. Tim May distanced himself from Bell’s writings and activities while maintaining that marketplaces for assassination, like the one Bell had described, might be both inevitable and desirable.

11:06 - Can evil be done with this technology? Not just the internet, but especially the crypto part of it? Yes. And so what? Deal with it. Zimmerman once told me that he sometimes regretted ever introducing PGP to the world because it could be used by Al-Qaeda or the Taliban or whatnot. I say, so what? I’m not morally responsible. It would have happened whether we had existed or not. Because technology has its own logic? And people want to do what they want to do. I mean, they want free sh*t. They want freedom to do things.

Even if they say that it should be regulated, they’ll often make the conscious decision to copy music, 12:02 - copy videotapes they want to see. BlackNet is a negative consequence. I’m not interested in creating that. When you build technology to solve problems, then you create— then there are consequences that we try to think ahead of, and look at, and figure out how we might address, and get ahead of the downsides of what we build, and that’s responsible development. And we certainly engaged in that. And talking with Tim May and putting on that “What if I was a black hat” kind of thing was certainly a useful foil for working through those kinds of ideas, but that’s absolutely not what cypherpunks were. So the progress of the spread of democracy, if you take a sufficiently long-term view of it, has been really quite remarkable. Our dream was to enable the future of human freedom, and we had this bizarre confidence about how the future would unfold, and to use Alan Kay’s famous phrase, have a huge hand in inventing it.

13:14 - But the road had a lot more weeds and detours than we could have anticipated. When we first launched, we were hoping for maybe 400, 500 people. Now we’re at 100 thousand people. So who knows where we’re going next? Using the ever-growing storage capacity of servers belonging to companies like Google. Instead of it being on your server under your desk, that stuff is being taken of for you. Professionals keep track of all the programs and the data. Who doesn’t want a simpler life? I find this way of working more simple. You collect half a gigabyte of information on your customers. What do you do with that information? They want to know everything about you so they can sell your stuff. And it results in you each getting a digital proctology exam. The NSA specifically targets the communications of everyone.

13:59 - Over the next quarter-century, the internet would make possible an explosion of individual freedom and information sharing, just as Phil Salin had predicted in 1991. But it would also grow into a surveillance apparatus that bore out the dystopian vision of journalist David Burnham in his 1983 book, The Rise of the Computer State. “Large bureaucracies with the power that the computer gives them become more powerful and they are escaping the checks and balances of representative democracy.” Facebook collects information that the East German Stasi would have killed for. I think that most people are quite happy to hand people all of the information about them online in return for a few pics of your high school friends, kids, or whatever.

14:44 - By the mid-2000s, it seemed the cypherpunk movement had mostly failed. Then came a global financial crisis followed by massive bailouts by central banks. On October 31st, 2008, a pseudonymous inventor named Satoshi Nakamoto shared a white paper describing a new peer-to-peer, non-governmental monetary system, pulling together technical and philosophical concepts developed on the Cypherpunks’ email list. Within a few years, the movement was reborn with a new generation committed to enhancing personal freedom and privacy with cryptographic tools. It’s like discovering an oasis when you’re lost in the desert.

15:20 - It’s bitcoin that’s single-handedly responsible for the current wave of cypherpunk activity. It’s always messier than visionaries can anticipate because reality is bigger than any one head. We’re still on the road in the quest to build architectures that amplify human freedoms and protect us from the dynamics in the other direction. .