16.1 copyright
   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
  - 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 e-
   mail 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, reputation-
     based 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
   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
   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
   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
  - 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
  - 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
       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
  + 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" laws...how 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
    + 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
    - 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
  - 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, at
   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
    - 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
        - no chalk marks on mailboxes to signal a message is
        - no "burning" of spies by following them to dead drops
        - 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"
        - 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
    - 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
    - this raises the privacy issue in all its glory...privacy
       protects illegality...it 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
         execution...is 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
      - recall that many musicians left Europe to avoid 90% tax
    + the "nest egg" scam: drawing on a lump sum not reported
      + Scenario: Alice sells something very valuable-perhaps
         the specs on a new product-to Bob. She deposits the
         fee, which is, say, a million dollars, in a series of
         accounts. This fee is not reported to the IRS or anyone
        - the fee could be in cash or in a "promise"
        - in multiple accounts, or just one
        + regardless, the idea is that she is now paid, say,
           $70,000 a year for the next 20 years (what with
           interest) as a "consultant" to the company which
           represents her funds
          - this of course does not CA of any form, merely some
             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
             whatever...in practice, it's easiest to call it
      + 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 tax-
           free, 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
    - 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
      - 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
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 mandatory....how else to catch sexual deviates,
     child molestors, marijuana growers, counterfeiters, and the
  - 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, 1994-09-

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
    - (As the chances decline, this suggests a rise in
       punishment severity)
  - businesses will tend to shy away from illegal markets,
  + 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 trading...like I said, a debatable
  - 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
  - recall the 1981 market in Exocet missile codes (France,
     Argentina--later of relevance when an Exocet sank a British
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
    + 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
        - 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 productions...as 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
        - 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
      - 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
      - "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
  + 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
  + 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
  - 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, 6-24-
    - "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 anti-
       laundering 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
    - to ensure compliance, a la a tamper-resistant cash
    - 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
    - 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
      + links go back to OSS and Mafia in Italy and Sicily, and
         to heroin trade in SE Asia
        - 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
        - "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
          + 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
          + links to organized crime, e.g., Santo Trafficante,
            - 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
          - and when info was released, it was blacked out with
             a "B-1" note, implying national security
          + 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
        + 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
          + owners of Harken Energy Corp. a Texas-based company
             that bought G.W. Bush's oil company "Spectrum 7" in
            - 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
          - Vesco active in drug trade
        + also involved in purchase of land for Walt Disney
          - 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,
        + 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
          + a related company was Dominion Mortgage Company,
             located at same address as WFC
            - linked to narcotics flow into Las Vegas
            - and to Trafficante, Jr.
            - suitcases of cash laundered from Las Vegas to
          - Jefferson Savings and Loan Association, Texas
        + Guilermo Hernández 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 Hernández recruited by BNDD (Bureau of Narcotics
         and Dangerous drugs, predecessor to DEA) to form a
         death squad to assassinate other drug traffickers
      + possible links of the drug dealers to
         UltraBlack/Witness Security Program
        - 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
        - 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
        - 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
    + 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
      - real use could be as "digital cutouts": transferring
         wealth to other agents (also controlled from afar, like
      - advantage is that they can be programmed to perform
         operations that are perhaps illegal, but without
    + Information brokers as money launderers (the two are
       closely related)
      - the rise of AMIX-style information markets and Sterling-
         style "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
        - 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
    + 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
      + 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
      + tax and other advantages of these "crypto annuities"
        - tax only paid on the yearly income, not on the lump
        - 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
        - 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
          - and even then, there could be claims that the
             government didn't follow the deals
        - not enough time or manpower to handle all these
        - 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
          + 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
              - 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
    + May also be used to create "multi-tier" currency systems,
       e.g., where reported transactions are some fraction of
      - 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
        - 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
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:
  + never link physical ID with pseudonyms! (they won't kill
     you if they don't know who you are)
    - 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

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
  - 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 escrow-
   like 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,
16.17.3. Escrow Services
  + "Digital Escrow" accounts for mutually suspicious parties,
     especially in illegal transactions
    - drug deals, information brokering, inside information,
    + 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
      + 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
16.17.4. Reputation-Based Systems
  + Credit Rating Services that are Immune from Meddling and
    + 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
      + 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
          - 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
        - 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
    + 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 reputation-
       based 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
    + 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
        - 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
    - 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
  + many avenues for laundering money for persistent
    + 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
    - shell games, of course (networks of reputation-based
  - 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 non-
         Mob 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,
  - 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
  - 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

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,
  + 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
    - 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
      - Repeat Business.
      - Escrow Services.
  + The "right of contract" (and the duty to adhere to them, to
     not try to change the contract after the facts) is a
     crucial building block.
    - Imagine a society in which contracts are valid. This
       allows those willing to sign contracts setting limits on
       malpractice to get cheaper health care, while those who
       won't sign such contracts are free to sue--but will of
       course have to pay more for health care. Nothing is free,
       and frivolous malpractice lawsuits have increased
       operating costs. (Recall the "psychic" who alleged that
       her psychic powers were lost after a CAT scan. A jury
       awarded her millions of dollars. Cf. Peter Huber's books
       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)

16.21 - Cyberspace, private spaces, enforcement of rules, and technology
16.21.1. Consider the "law" based approach
  - a discussion group that wants no men involved ("a protected
     space for womyn")
  - so they demand the civil law system enforce their rules
  - practical example: sysadmins yank accounts when
     "inappropriate posts" are made
  - the C&S case of spamming is an example
  - Note: The Net as currently constituted is fraught with
     confusion about who owns what, about what are public and
     what are private resources, and about what things are
     allowed. If Joe Blow sends Suzy Creamcheese an "unwanted"
     letter, is this "abuse" or "harassement"? Is it stealing
     Suzy's resources? (In my opinion, of course not, but I
     agree that things are confusing.)
16.21.2. The technological approach:
  - spaces created by crypto...unbreachable walls
  + example: a mailing list with controls on membership
    - could require nomination and vouching for by others
    - presentation of some credential (signed by someone), e.g.
       of femaleness
  - pay as you go stops spamming
16.21.3. This is a concrete example of how crypto acts as a kind of
   building material
  - and why government limitations on crypto hurt those who
     wish to protect their own spaces
  - a private mailing list is a private space, inaccessible to
     those outside
  - "There are good engineering approaches which can force data
     to behave itself.  Many of them involve cryptography.  Our
     government's restrictions on crypto limit our ability to
     build reliable computer systems.  We need strong crypto for
     basic engineering reasons." [Kent Borg, "Arguing Crypto:
     The Engineering Approach," 1994-06-29]
16.21.4. Virtual Communities-the Use of Virtual Networks to Avoid
  - that is, alternatives to creating new countries (like the
     Minerva project)
  - the Assassin cult/sect in the mountains of Syria, Iraq,
     Afghanistan, etc. had a network of couriers in the mountain
  - pirate communities, networks of trading posts and watering
     holes, exempt-if only for a few years-from the laws of the
     imperial powers
16.21.5. These private spaces will, as technology makes them more
   "livable" (I don't mean in a full sense, so don't send me
   notes about how "you can't eat cyberspace"), become full-
   functioned "spaces" that are outside the reach of
   governments. A new frontier, untouchable by outside, coercive
  - Vinge's "True Names" made real
16.21.6. "Can things really develop in this "cyberspace" that so many
   of us talk about?"
  - "You can't eat cyberspace!' is the usual point made. I
     argue, however, that abstract worlds have always been with
     us, in the forms of commerce, reputations, friends, etc.
     And this will continue.
  - Some people have objected to the sometimes over-
     enthusiastic claims that economies and socities will
     flourish in computer-mediated cyberspaces. The short form
     of the objection is: "You can't eat cyberspace." Meaning,
     that profits and gains made in cyberspace must be converted
     to real world profits and gains.
  - In "Snow Crash," this was made out to be difficult...Hiro
     Protagonist was vastly wealthy in the Multiverse, but lived
     in a cargo container at LAX in the "real world." A fine
     novel, but this idea is screwy.
  + There are many ways to transfer wealth into the "real"
    + all the various money-laundering schemes
      - money in offshore accounts, accessible for vacations,
         visits, etc.
      - phony purchase orders
      - my favorite: Cyberspace, Inc. hires one as a
         "consultant" (IRS cannot and does not demand proof of
         work being done, the nature of the work, one's
         qualifications to perform the work, etc....In fact,
         many consultants are hired "on retainer," merely to be
         available should a need arise.)
    - information-selling
    - investments
16.21.7. Protocols for this are far from complete
  - money, identity, walls, structures
  - a lot of basic work is needed (though people will pursue it
     locally, not after the work is done...so solutions will
     likely be emergent)

16.22 - Data Havens
16.22.1. "What are data havens?"
  + Places where data can be hidden or protected against legal
    - Sterling, "Islands in the Net," 1988
  + Medical experiments, legal advice, pornography, weapons
    - reputations, lists of doctors, lawyers, rent deadbeats,
       credit records, private eyes
  - What to do about the mounting pressure to ban certain kinds
     of research?
  - One of the powerful uses of strong crypto is the creation
     of journals, web sites, mailing lists, etc., that are
     "untraceable." These are sometimes called "data havens,"
     though that term, as used by Bruce Sterling in "Islands in
     the Net" (1988), tends to suggest specific places like the
     Cayman Islands that corporations might use to store data. I
     prefer the emphasis on "cypherspace."
  - "It is worth noting that private "data havens" of all sorts
     abound, especially for financial matters, and most are not
     subject to governmental regulation....Some banks have
     research departments that are older and morecomprehensive
     than credit reporting agencies.  Favored customers can use
     them for evaluation of private deals....Large law firms
     maintain data banks that approach those of banks, and they
     grow with each case, through additions of private
     investigators paid for by successive clients....Security
     professionals, like Wackenhut and Kroll, also market the
     fruits of substantial data collections....To these add
     those of insurance, bonding, investment, financial firms
     and the like which help make or break business deals."
     [John Young, 1994-09-07]
16.22.2. "Can there be laws about what can be done with data?"
  - Normative laws ("they shouldn't keep such records and hence
     we'll outlaw them") won't work in an era of strong crypto
     and privacy. In fact, some of us support data havens
     precisely to have records of, say, terminal diseases so
     we'll not lend money to Joe-who-has-AIDS. It may not be
     "fair" to Joe, but it's my money. (Same idea as in using
     offshore or cryptospatial data havens to bypass the
     nonsense in the "Fair Credit Reporting Act" that outlaws
     the keeping of certain kinds of facts about credit
     applicants, such as that they declared bankruptcy 10 years
     ago or that they left a string of bad debts in Germany in
     the 1970s, etc.)
16.22.3. Underground Networks, Bootleg Research, and Information
  + The Sharing of Forbidden Knowledge
    - even if the knowledge is not actually forbidden, many
       people relish the idea of trafficking in the forbidden
    + Some modern examples
      + drugs and marijuana cultivation
        - drugs for life extension, AIDS treatments
        - illegal drugs for recreational use
      + bootleg medical research, AIDS and cancer treatments,
        - for example, self-help user groups that advise on
           treatments, alternatives, etc.
      + lockpicking and similar security circumvention
        - recall that possession of lockpicks may be illegal
        - what about manuals? (note that most catalogs have a
           disclaimer: "These materials are for educational
           purposes only, ...")
      - defense-related issues: limitations on debate on
         national security matters may result in "anonymous
      + BTW, recent work on crab shells and other hard shells
         has produced even stronger armor!
        - this might be some of the genetic research that is
           highly classified and is sold on the anonymous nets
    + Alchemists and the search for immortality
      + theory that the "Grandfather of all cults" (my term)
         started around 4500 B.C.
        - in both Egypt and Babylonia/Sumeria
        + ancestor of Gnostics, Sufis, Illuminati, etc.
          - The Sufi mystic Gurdjieff claimed he was a member
             of a mystical cult formed in Babylon about 4500
          - spider venom?
        + Speculation: a group or cult oriented toward life
           extension, toward the search for immortality-perhaps
           a link to The Epic of Gilgamesh.
          + The Gilgamesh legend
            - Gilgamesh, Akkadian language stone tablets in
            - made a journey to find Utnapishtim, survivor of
               Babylonian flood and possessor of secret of
               immortality (a plant that would renew youth)
            - but Gilgamesh lost the plant to a serpent
          + Egyptians
            - obviously the Egyptians had a major interest in
               life extension and/or immortality
            + Osiris, God of Resurrection and Eternal Life
              - also the Dark Companion of Serius (believed to
                 be a neutron star?)
            - they devoted huge fraction of wealth to pyramids,
               embalming, etc. (myrhh or frankincense from
               desert city in modern Oman, discovered with
               shuttle imaging radar)
            + "pyramid power": role on Great Seal, as sign of
               Illuminati, and of theories about cosmic energy,
               geometrical shapes, etc.
              - and recall work on numerological significance
                 of Great Pyramid dimensions
          + Early Christianity
            - focus on resurrection of Jesus Christ
          + Quest for immortality is a major character
             motivation or theme
            + arguably for all people: via children,
               achievements, lasting actions, or even "a good
              - "Living a good life is no substitute for living
            - but some seek it explicitly
            - "Million alive today will never die." (echoes of
               past religious cults....Jehovah's Witnesses?)
      - banned by the Church (the Inquisition)
      + research, such as it was, was kept alive by secret
         orders that communicated secretly and in code and that
         were very selective about membership
        - classes of membership to protect against discovery
           (the modern spy cell system)
        - red herrings designed to divert attention away
      + all of this fits the structure of such groups as the
         Masons, Freemason, Illuminati, Rosicrucians, and other
         mystical groups
        - with members like John Dee, court astrologer to Queen
        + a genius writer-scientist like Goethe was probably a
           member of this group
          - Faust was his message of the struggle
      - with the Age of Rationalism, the mystical, mumbo-jumbo
         aspects of alchemical research were seen to be passé,
         and groups like Crowleys O.T.O.  became purely mystical
      + but the need for secrecy was now in the financial
         arena, with vast resources, corporate R & D labs, and
         banks needed
        - hence the role of the Morgans, Rothschilds, etc. in
           these conspiracies
      + and modern computer networks will provide the next
         step, the next system of research
        - funded anonymously
        - anonymous systems mean that researchers can publish
           results in controversial areas (recall that
           cryobiologists dare not mention cryonics, lest they
           be expelled from American Cryobiology xxx)
  + Bootleg Medical Research (and Cryonics)
    + Cryonics Research and Anti-aging Treatments
      + Use of Nazi Data
        - hypothermia experiments at Dachau
      + Anti-aging drugs and treatments
        - fountain of youth, etc.
        - many FDA restrictions, of course
        - Mexico
        + Switzerland
          - foetal calf cells?
          - blood changing or recycling?
      + Illegal Experiments
        - reports that hyperbaric oxygen may help revival of
           patients from neat-death in freezing accidents
    + Black Markets in Drugs, Medical Treatments
      + RU-486, bans on it
        - anti-abortion foes
        - easy to synthesize
        - NOW has indicated plans to distribute this drug
           themselves, to create networks (thus creating de
           facto allies of the libertarian-oriented users)
      + Organ Banks
        + establishing a profit motive for organ donors
          - may be the only way to generate enough donations,
             even from the dead
          - some plans are being made for such motives,
             especially to motivate the families of dying
          - ethical issues
        + what about harvesting from the still-living?
          - libertarians would say: OK, if informed consent was
        - the rich can go to overseas clinics
      + AIDS patients uniting via bulletin boards to share
         treatment ideas, self-help, etc.
        - with buying trips to Mexico and elsewhere
      - authorities will try to halt such BBSs (on what
         grounds, if no money is changing hands?)
    + Doctors may participate in underground research networks
       to protect their own reputations and professional status
      - to evade AMA or other professional organizations and
         their restrictive codes of ethics
      + or lawsuits and bad publicity
        - some groups, the "Guardian Angels" of the future,
           seek to expose those who they think are committing
           crimes: abortionists (even though legal), etc.
      - "politically incorrect" research, such as vitamin
         therapy, longevity research, cryonics
    -  breast implant surgery may be forced into black markets
       (and perhaps doctors who later discover evidence of such
       operations may be forced to report such operations)
  + Back Issues of Tests and Libraries of Term Papers
    - already extant, but imagine with an AMIX-like frontend?
  + Different kinds of networks will emerge, not all of them
     equally accessible
    + the equivalent of the arms and drug networks-one does not
       gain entree merely by asking around a bit
      - credibility, reputation, "making your bones"
      - these networks are not open to the casual person
  + Some Networks May Be For the Support of Overseas
    + who face restrictions on their research
      - e.g., countries that ban birth control may forbid
         researchers from communication with other researchers
      + suppose U.S. researchers are threatened with
         sanctions-loss of their licenses, censure, even
         prosecution-if they participate in RU-486 experiments?
        - recall the AIDS drug bootleg trials in SF, c. 1990
    - or to bypass export restrictions
    - scenario: several anonymous bulletin boards are set
       up-and then closed down by the authorities-to facillitate
       anonymous hookups (much like "anonymous FTP")
  + Groups faced with debilitating lawsuits will "go
    - Act Up! and Earth First! have no identifiable central
       office that can be sued, shut down, etc.
    - and Operation Rescue has done the same thing
16.22.4. Illegal Data
  - credit histories that violate some current law about
  - bootleg medical research
  - stolen data (e.g., from competitors....a GDS system could
     allow remote queries of a database, almost "oracular,"
     without the stolen data being in a U.S. jurisdiction)
  - customers in the U.K or Sweden that are forbidden to
     compile data bases on individuals may choose to store the
     data offshore and then access it discreetly (another reason
     encryption and ZKIPS must be offered)
16.22.5. "the Switzerland of data"
  - Brussells supposedly raises fewer eyebrows than
     Lichtenstein, Luxembourg, Switzerland, etc.
  - Cayman Islands, other small nations see possibilities
16.22.6. Information markets may have to move offshore, due to
   licensing and other restrictions
  - just as stock brokers and insurance brokers are licensed,
     the government may insist that information resellers be
     licensed (pass exams, be subject to audits and regulations)

16.23 - Undermining Governments--Collapse of the State
16.23.1. "Is it legal to advocate the overthrow of governments or the
   breaking of laws?"
  - Although many Cypherpunks are not radicals, many others of
     us are, and we often advocate "collapse of governments" and
     other such things as money laundering schemes, tax evasion,
     new methods for espionage, information markets, data
     havens, etc. This rasises obvious concerns about legality.
  - First off, I have to speak mainly of U.S. issues...the laws
     of Russia or Japan or whatever may be completely different.
     Sorry for the U.S.-centric focus of this FAQ, but that's
     the way it is. The Net started here, and still is
     dominantly here, and the laws of the U.S. are being
     propagated around the world as part of the New World Order
     and the collapse of the other superpower.
  - Is it legal to advocate the replacement of a government? In
     the U.S., it's the basic political process (though cynics
     might argue that both parties represent the same governing
     philosophy). Advocating the *violent overthrow* of the U.S.
     government is apparently illegal, though I lack a cite on
  + Is it legal to advocate illegal acts in general? Certainly
     much of free speech is precisely this: arguing for drug
     use, for boycotts, etc.
    + The EFF gopher site has this on "Advocating Lawbreaking,
       Brandenburg v. Ohio. ":
      - "In the 1969 case of Brandenburg v. Ohio, the Supreme
         Court struck down the conviction of a Ku Klux Klan
         member under a criminal syndicalism law and established
         a new standard: Speech may not be suppressed or
         punished unless it is intended to produce 'imminent
         lawless action' and it is 'likely to produce such
         action.' Otherwise, the First Amendment protects even
         speech that advocates violence. The Brandenburg test is
         the law today. "
16.23.2. Espionage and Subversion of Governments Will be
   Revolutionized by Strong Crypto
  - (I think they see what we see, too, and this is a
     motivation for the attempts to limit the use of strong
     crypto. Besides some of the more conventional reasons.)
  + Digital dead drops will revolutionize espionage
    + spies and their controllers can communicate securely,
       relatively quickly, without fear of being watched, their
       drops compromised, etc.
      - no more nooks of trees, no more chalk marks on
         mailboxes to signal a drop to be made
    + this must be freaking out the intelligence community!
      - more insights into why the opposition to crypto is so
  + Cell-Based Systems and Conventional Protection Systems
    + Cells are a standard way to limit the damage of exposure
      - the standard is the 3-person cell so common in the
         early days of Soviet espionage in the U.S.
      - but computer systems may allow new kinds of cells, with
         more complicated protocols and more security
    + Keeping files for protection is another standard
       protection method
      + and with strong crypto, these files can be kept
         encrypted and in locations not apparent (e.g., posted
         on bulletin boards or other such places, with only the
         key needed at a later time to open them)
        - a la the "binary files" idea, wherein encrypted files
           are widely available for some time before the key is
           distributed (thus making it very hard for governments
           to halt the distribution of the raw files)
16.23.3. "Xth Column" (X = encrypted)
  - The possible need to use strong cryptography as a tool to
     fight the state.
  + helping to undermine the state by using whistleblowers and
     anonymous information markets to leak information
    - the 63,451 people given false identities in the WitSec
       program...leak their names, watch them be zapped by
       vengeful enemies, and watch the government squirm
    - auction off the details of the 1967 Inspector General's
       report on CIA assassinations
16.23.4. use of clandestine, cell-based systems may allow a small
   group to use "termite" methods to undermine a society, to
   destroy a state that has become too repressive (sounds like
   the U.S. to me)
  - encrypted systems, anonymous pools, etc., allow truly
     secure cell-based systems (this is, by the way, one of the
     concerns many countries have about "allowing" cryptography
     to be used...and they're right abou the danger!)
  - subversion of fascist or socialist governments, undermining
     the so-called democratic governments
16.23.5. "Why won't government simply ban  such encryption methods?"
  + This has always been the Number One Issue!
    - raised by Stiegler, Drexler, Salin, and several others
       (and in fact raised by some as an objection to my even
       discussing these issues, namely, that action may then be
       taken to head off the world I describe)
  + Types of Bans on Encryption and Secrecy
    - Ban on Private Use of Encryption
    - Ban on Store-and-Forward Nodes
    - Ban on Tokens and ZKIPS Authentication
    - Requirement for public disclosure of all transactions
    + Recent news (3-6-92, same day as Michaelangelo and
       Lawnmower Man) that government is proposing a surcharge
       on telcos and long distance services to pay for new
       equipment needed to tap phones!
      - S.266 and related bills
      - this was argued in terms of stopping drug dealers and
         other criminals
      - but how does the government intend to deal with the
         various forms fo end-user encryption or "confusion"
         (the confusion that will come from compression,
         packetizing, simple file encryption, etc.)
  + Types of Arguments Against Such Bans
    - The "Constitutional Rights" Arguments
    + The "It's Too Late" Arguments
      - PCs are already widely scattered, running dozens of
         compression and encryption programs...it is far too
         late to insist on "in the clear" broadcasts, whatever
         those may be (is program code distinguishable from
         encrypted messages? No.)
      - encrypted faxes, modem scramblers (albeit with some
      - wireless LANs, packets, radio, IR, compressed text and
         images, etc....all will defeat any efforts short of
         police state intervention (which may still happen)
    + The "Feud Within the NSA" Arguments
      - COMSEC vs. PROD
    + Will affect the privacy rights of corporations
      - and there is much evidence that corporations are in
         fact being spied upon, by foreign governments, by the
         NSA, etc.
  + They Will Try to Ban Such Encryption Techniques
    + Stings (perhaps using viruses and logic bombs)
      - or "barium," to trace the code
    + Legal liability for companies that allow employees to use
       such methods
      - perhaps even in their own time, via the assumption that
         employees who use illegal software methods in their own
         time are perhaps couriers or agents for their
         corporations (a tenuous point)
16.23.6. "How will the masses be converted?"
  - Probably they won't. Things will just happen, just as the
     masses were not converted on issues of world financial
     markets, derivative instruments, and a lot of similar
  - Crypto anarchy is largely a personal approach of
     withdrawal, of avoidance. Mass consensus is not needed
     (unless the police state option is tried).
  - Don't think in terms of selling crypto anarchy to Joe
     Average. Just use it.
16.23.7. As things seem to be getting worse, vis-a-vis the creation of
   a police state in the U.S.--it may be a good thing that
   anonymous assassination markets will be  possible. It may
   help to level the playing field, as the Feds have had their
   hit teams for many years (along with their safe houses,
   forged credentials, accommodation addresses, cut-outs, and
   other accouterments of the intelligence state).
  - (I won't get into conspiracies here, but the following
     terms may trigger some memories: Gehlen Org, Wackenhut,
     McKee Team, Danny Casolaro, Cabazon Indians, Gander crash,
     Iraq arms deals, Pan Am 103, Bridegrooms of Death, French
     Connection, Fascist Third Position, Phoenix Program, Bebe
     Rebozo, Marex, Otto Skorzeny, Nixon, P-2, Klaus Barbie,
  - Plenty of evidence of misbehavior on a massive scales by
     the intelligence agencies, the police forces, and states in
     general. Absolute power has corrupted absolutely.
  - I'm certainly not advocating the killing of Congressrodents
     and other bureaucrats, just noting that this cloud may have
     a silver lining.

16.24 - Escrow Agents and Reputations
16.24.1. Escrow Agents as a way to deal with contract renegging
  - On-line clearing has the possible danger implicit in all
     trades that Alice will hand over the money, Bob will verify
     that it has cleared into hisaccount (in older terms, Bob
     would await word that his Swiss bank account has just been
     credited), and then Bob will fail to complete his end of
     the bargain. If the transaction is truly anonymous, over
     computer lines, then of course Bob just hangs up his modem
     and the connection is broken. This situation is as old as
     time, and has always involved protcols in which trust,
     repeat business, etc., are factors. Or escrow agents.
  - Long before the "key escrow" of Clipper, true escrow was
     planned. Escrow as in escrow agents. Or bonding agents.
  - Alice and Bob want to conduct a transaction. Neither trusts
     the other;
     indeed, they are unknown to each other. In steps "Esther's
     Escrow Service." She is _also utraceable_, but has
     established a digitally-signed presence and a good
     reputation for fairness. Her business is in being an escrow
     agent, like a bonding agency, not in "burning" either
     party. (The math of this is interesting: as long as the
     profits to be gained from any small set of transactions is
     less than her "reputation capital," it is in her interest
     to forego the profits from burning and be honest. It is
     also possible to arrange that Esther cannot profit from
     burning either Alice or Bob or both of them, e.g., by
     suitably encrypting the escrowed stuff.)
  - Alice can put her part of the transaction into escrow with
     Esther, Bob can do the same, and then Esther can release
     the items to the parties when conditions are met, when both
     parties agree, when adjudication of some sort occurs, etc.
     (There a dozen issues here, of course, about how disputes
     are settled, about how parties satisfy themselves that
     Esther has the items she says she has, etc.)
16.24.2. Use of escrow services as a substute for government
  + as in underworld deals, international deals, etc.
    - "Machinery of Freedom" (Friedman), "The Enterprise of
       Law" (Benson)
  - "It is important to note in any case that the use of third-
     party escrow as a substitute for Government regulation was
     a feature of the Northern European semi-anarchies of
     Iceland and Ireland that have informed modern libertarian
     thought." [Duncan Frissell, 1994-08-30]
16.24.3. Several people have raised the issue of someone in an
   anonymous transaction simply taking the money and not
   performing the service (or the flip side). This is where
   _intermediaries_ come into the picture, just as in the real
   worl (bonds, escrow agents, etc.).
16.24.4. Alice and Bob wish to conduct an anonymous transaction; each
   is unknown to the other (no physical knowledge, no pseudonym
   reputation knowledge). These "mutually suspicious agents," in
   1960s- and 70s-era computer science lingo, must arrange
   methods to conduct business while not trusting the other.
16.24.5. Various cryptographic protocols have been developed for such
   things as "bit commitment" (useful in playing poker over the
   phone, for example). I don't know of progress made at the
   granularity of anonymous transactions, though. (Though the
   cryptographic protocol building blocks at lower levels--such
   as bit commitment and blobs--will presumably be used
   eventually at higher levels, in markets.)
16.24.6. I believe there is evidence we can shorten the cycle by
   borrowing noncryptographic protocols (heresy to purists!) and
   adapting them. Reputations, for example. And escrow agents (a
   form of reputation, in that the "value" of a bonding entity
   or escrow agent lies in reputation capital).
16.24.7. if a single escrow agent is suspected of being untrustworthy
   (in a reputation capital sense), then can use _multiple_
  - with various protocols, caveat emptor
  - n-out-of-m voting schemes, where n escrow agents out of m
     are required to complete a transaction
  - hard to compromise them all, especially if they have no
     idea whether they are being "legitimately bribed" or merely
     pinged by a reputation-rating service
  - Hunch: the work of Chaum, Bos, and the Pfaltzmanns on DC-
     nets may be direcly applicable here...issues of collusion,
     sets of colluders, detection of collusion, etc.

16.25 - Predictions vs. Implications
16.25.1. "How do we know that crypto anarchy will 'work,' that the
   right institutions will emerge, that wrongs will be righted,
  - We don't know. Few things are certain. Only time will tell.
     These are emergent situations, where evolution will
     determine the outcome. As in other areas, the forms of
     solutions will take time to evolve.
  - (The Founders could not have predicted the form corporate
     law would take, as but one example.)
16.25.2. My thinking on crypto anarchy is not so much _prediction_ as
   examination of trends and the implications of certain things.
   Just as steel girders mean certain things for the design of
   buildings, so too does unbreakable crypto mean certain things
   for the design of social and economic systems.
16.25.3. Several technologies are involved:
  - Unbreakable crypto
  - Untraceable communication
  - Unforgeable signatures
16.25.4. (Note: Yes, it's sometimes dangerous to say "unbreakable,"
   "untraceable," and "unforgeable." Purists eschew such terms.
   All crypto is economics, even information-theoretically
   secure crypto (e.g., bribe someone to give you the key, break
   in and steal it, etc.). And computationally-secure crypto--
   such as RSA, IDEA, etc.--can in *principle* be brute-forced.
   In reality,  the costs may well be exhorbitantly
   high...perhaps more energy than is available in the entire
   universe would be needed. Essentially, these things are about
   as unbreakable, untraceable, and unforgeable as one can
16.25.5. "Strong building materials" implies certain things. Highways,
   bridges, jet engines, etc. Likewise for strong crypto, though
   the exact form of the things that get built is still unknown.
   But pretty clearly some amazing new structures will be built
   this way.
16.25.6. Cyberspace, walls, bricks and mortar...
16.25.7. "Will strong crypto have the main effect of securing current
   freedoms, or will it create new freedoms and new situations?"
  - There's a camp that believe mainly that strong crypto will
     ensure that current freedoms are preserved, but that this
     will not change things materially, Communications can be
     private, diaries can be secured, computer security will be
     enhanced, etc.
  - Another camp--of which I am a vocal spokesman--believes
     that qualitatively different types of transactions will be
     made possible. In addition, of course, to the securing of
     liberties that the first camp things is the main effect.
  + These effects are specultative, but probably include:
    - increased hiding of assets through untraceable banking
    - markets in illegal services
    - increased espionage
    - data havens
16.25.8. "Will all crypto-anarchic transactions be anonymous?"
  - No, various parties will negotiate different arrangements.
     All a matter of economics, of enforcement of terms, etc.
     Some will, some won't. The key thing is that the decision
     to reveal identity will be just another mutually negotiated
     matter. (Think of spending cash in a store. The store owner
     may _want_ to know who his customers are, but he'll still
     take cash and remain ignorant in most cases. Unless a
     government steps in and distorts the market by requiring
     approvals for purchases and records of identities--think of
     guns here.)
  - For example, the local Mob may not lend me money if I am
     anonymous to them, but they have a "hook" in me if they
     know who I am. (Aspects of anonymity may still be used,
     such as systems that leave no paper or computer trail
     pointing to them or to me, to avoid stings.)
  - "Enforcement" in underground markets, for which the
     conventional legal remedies are impossible, is often by
     means of physical force: breaking legs and even killing
  - (Personally, I have no problems with this. The Mob cannot
     turn to the local police, so it has to enforce deals its
     own way. If you can't pay, don't play.)

16.26 - How Crypto Anarchy Will Be Fought
16.26.1. The Direct Attack: Restrictions on Encryption
  + "Why won't government simply ban  such encryption methods?"
    + This has always been the Number One Issue!
      - raised by Stiegler, Drexler, Salin, and several others
         (and in fact raised by some as an objection to my even
         discussing these issues, namely, that action may then
         be taken to head off the world I describe)
    + Types of Bans on Encryption and Secrecy
      - Ban on Private Use of Encryption
      - Ban on Store-and-Forward Nodes
      - Ban on Tokens and ZKIPS Authentication
      - Requirement for public disclosure of all transactions
      + Recent news (3-6-92, same day as Michaelangelo and
         Lawnmower Man) that government is proposing a surcharge
         on telcos and long distance services to pay for new
         equipment needed to tap phones!
        - S.266 and related bills
        - this was argued in terms of stopping drug dealers and
           other criminals
        - but how does the government intend to deal with the
           various forms fo end-user encryption or "confusion"
           (the confusion that will come from compression,
           packetizing, simple file encryption, etc.)
    + Types of Arguments Against Such Bans
      - The "Constitutional Rights" Arguments
      + The "It's Too Late" Arguments
        - PCs are already widely scattered, running dozens of
           compression and encryption programs...it is far too
           late to insist on "in the clear" broadcasts, whatever
           those may be (is program code distinguishable from
           encrypted messages? No.)
        - encrypted faxes, modem scramblers (albeit with some
        - wireless LANs, packets, radio, IR, compressed text
           and images, etc....all will defeat any efforts short
           of police state intervention (which may still happen)
      + The "Feud Within the NSA" Arguments
        - COMSEC vs. PROD
      + Will affect the privacy rights of corporations
        - and there is much evidence that corporations are in
           fact being spied upon, by foreign governments, by the
           NSA, etc.
    + They Will Try to Ban Such Encryption Techniques
      + Stings (perhaps using viruses and logic bombs)
        - or "barium," to trace the code
      + Legal liability for companies that allow employees to
         use such methods
        - perhaps even in their own time, via the assumption
           that employees who use illegal software methods in
           their own time are perhaps couriers or agents for
           their corporations (a tenuous point)
  - restrictions on: use of codes and ciphers
  + there have long been certain restrictions on the use of
    - encryption over radio waves is illegal (unless the key is
       provided to the government, as with Morse code)
    + in war time, many restrictions (by all governments)
      - those who encrypt are ipso facto guilty and are shot
         summarily, in many places
    - even today, use of encryption near a military base or
       within a defense contractor could violate laws
  + S.266 and similar bills to mandate "trapdoors"
    + except that this will be difficult to police and even to
      - so many ways to hide messages
      - so much ordinary compression, checksumming, etc.
  + Key Registration Trail Balloon
    - cite Denning's proposal, and my own postings
16.26.2. Another Direct Attack: Elimination of Cash
  + the idea being that elimination of cash, with credit cards
     replacing cash, will reduce black markets
    - "one person, one ID" (goal of many international
       standards organizations)
  - this elimination of cash may ultimately be tied in to the
     key registration ideas...government becomes a third party
     in all transactions
  + a favorite of conspiracy theorists
    - in extreme form: the number of the Beast tattooed on us
       (credit numbers, etc.)
    - currency exchanges (rumors on the Nets about the imminent
       recall of banknotes, ostensibly to flush out ill-gotten
       gains and make counterfeiting easier)
    + but also something governments like to do at times, sort
       of to remind us who's really in charge
      - Germany, a couple of times
      - France, in the late 1950s
      - various other devaluations and currency reforms
  + Partial steps have already been made
    - cash transactions greater than some value-$10,000 at this
       time, though "suspicious" sub-$10K transactions must be
       reported-are banned
    + large denomination bills have been withdrawn from
      - used in drug deals, the argument goes
    - Massachussetts has demanded that banks turn over all
       account records, SS numbers, balances, etc.
  + "If what you're doing is legal, why do you need cash for
    - part of the old American dichotomy: privacy versus "What
       have you got to hide?"
  + But why the outlawing of cash won't work
    + if a need exists, black markets will arise
      - i.e., the normal tradeoff between risk and reward:
         there may be some "discounts" on the value, but cah
         will still circulate
    + too many other channels exist: securities, secrets, goods
      + from trading in gold or silver, neither of which are
         outlawed any longer, to trading in secrets, how can the
         government stop this?
        - art being used to transfer money across international
           borders (avoids Customs)
        - "consideration" given, a la the scam to hide income
      + total surveillance?
        - it doesn't even work in Russia
        - on the other hand, Russia lacks the "point of sale"
           infrastructure to enforce a cashless system
16.26.3. Another Direct Attack: Government Control of Encryption,
   Networks,  and Net Access
  - a la the old Bell System monopoly, which limited what could
     be hooked up to a phone line
  + the government may take control of the networks in several
    + FCC-type restrictions, though it is hard to see how a
       private network, on private property, could be restricted
      - as it is not using part of the "public spectrum"
      - but it is hard to build a very interesting network that
         stays on private property....and as soon as it crosses
         public property, BINGO!
    + "National Data Highway" could be so heavily subsidized
       that alternatives will languish (for a while)
      - the Al Gore proposals for a federally funded system
         (and his wife, Tipper, is of course a leader of the
         censorship wing)
      - and then the government can claim the right and duty to
         set the "traffic" laws: protocols, types of encryption
         allowed, etc.
    - key patents, a la RSA (if in fact gov't.  is a silent
       partner in RSA Data Security)
16.26.4. An Indirect Attack: Insisting that all  economic transactions
   be "disclosed" (the "Full Disclosure Society" scenario)
  + this sounds Orwellian, but the obvious precedent is that
     businesses must keep records of all financial transactions
     (and even some other records, to see if they're colluding
     or manipulating something)
    - for income and sales tax reasons
    - and OSHA inspections, INS raids, etc.
    + there is currently no requirement that all transactions
       be fully documented with the identies of all parties,
       except in some cases like firearms purchases, but this
       could change
      - especially as electronic transactions become more
         common: the IRS may someday insist on such records,
         perhaps even insisting on escrowing of such records, or
      + this will hurt small businesses, due to the entry cost
         and overhead of such systems, but big businesses will
         probably support it (after some grumbling)
        - big business always sees bureaucracy as one of their
           competitive advantages
    + and individuals have not been hassled by the IRS on minor
       personal transactions, though the web is tightening:
       1099s are often required (when payments exceed some
       amount, such as $500)
      - small scale barter transactions
  + but the nature of CA is that many transactions can be
     financial while appearing to be something else (like the
     transfer of music or images, or even the writing of
    - which is why a cusp is coming: full disclosure is one
       route, protection of privacy is another
  + the government may cite the dangers of a "good old boy
     network" (literally) that promulgates racist, sexist, and
     ableist discrimination via computer networks
    - i.e., that the new networks are "under-representing
       people of color"
    - and how can quotas be enforced in an anonymous system?
  - proposals in California (7-92) that consultants file
     monthly tax statements, have tax witheld, etc.
  - a strategy for the IRS: require all computer network users
     to have a "taxpayer ID number" for all transactions, so
     that tax evasion can be checked
16.26.5. Attempts to discredit reputation-based systems by deceit,
   fraud, nonpayment, etc.
  - deliberate attacks on the reputation of services the
     government doesn't want to see
  - there may be government operations to sabotage  businesses,
     to undermine such efforts before they get started
  - analogous to "mail-bombing" an anonymous remailer
16.26.6. Licensing of software developers may be one method used to
   try to control the spread of anonymous systems and
   information markets
  - by requiring a "business license" attached to any and all
     chunks of code
  + implemented via digital signatures, a la the code signing
     protocols mentioned by Bob Baldwin as a means of reducing
     trapdoors, sabotage, and other modifications by spies,
     hackers, etc.
    - proposals to require all chunks of code to be signed,
       after the Sililcon Valley case in mid-80s, where
       spy/saboteur went to several s/w companies and meddled
       with code
  - "seals" from some group such as "Software Writers
     Laboratories," with formal specs required, source code
     provided to a trusted keeper, etc.
  + such licensing and inspection will also serve to lock-in
     the current players (Microsoft will love it) and make
     foreign competition in software more difficult
    - unless the foreign competition is "sanctioned," e.g.,
       Microsoft opens a code facility in India
16.26.7. RICO-like seizures of computers and bulletin board systems
  - sting operations and setups
  - Steve Jackson Games is obvious example
  - for illegal material (porno, drug advocacy, electronic
     money, etc.) flowing through their systems
  - even when sysop can prove he did not know illegal acts were
     being committed on his system (precedents are the yachts
     seized because a roach was found)
  + these seizures can occur even when a trial is never held
    - e.g., the "administrative seizure" of cars in Portland in
       prostitution cases
    - and the seizures are on civil penalties, where the
       standards of proof are much lower
  + in some cases a mere FBI investigation is enough to get
     employees fired, renters kicked out, IRS audits started
    + reports that a woman in Georgia who posted some "ULs"
       (unlisted numbers?) was fired by her company after the
       FBI got involved, told by her landlord that her lease was
       not being extended, and so forth
      - "We don't truck with no spies"
    - the IRS audit would not ostensibly be for harassment, but
       for "probable cause" (or whatever term they use) that tax
       avoidance, under-reporting, even money-laundering might
       be involved
16.26.8. Outlawing of Digital Pseudonyms and Credentialling
  + may echoe the misguided controversy over Caller ID
    - misguided because the free market solution is clear: let
       those who wish to hide their numbers-rape and battering
       support numbers, police, detectives, or even just
       citizens requesting services or whatever-do so
    - and let those who refuse to deal with these anonymous
       callers also do so (a simple enough programming of
       answering machines and telephones)
  - for example, to prevent minors and felons from using the
     systems, "true names" may be required, with heavy fines and
     forfeitures of equipment and assets for anybody that fails
     to comply (or is caught in stings and setups)
  + minors may get screened out of parts of cyberspace by
     mandatory "age credentialing" ("carding")
    - this could be a major threat to such free and open
       systems, as with the various flaps over minors logging on
       to the Internet and seeing X-rated images (however poorly
       rendered) or reading salacious material in alt.sex
    - there may be some government mood to insist that only
       "true names" be used, to facillitate such age screening
       (Fiat-Shamir passports, papers, number of the Beast?)
  + the government may argue that digital pseudonyms are
     presumptively considered to be part of a conspiracy, a
     criminal enterprise, tax evasion, etc.
    - the old "what have you got to hide" theory
    - closely related to the issue of whether false IDs can be
       used even when no crimes are being committed (that is,
       can Joe Average represent himself by other than his True
  - civil libertarians may fight this ban, arguing that
     Americans are not required to present "papers" to
     authorities unless under direct suspicion for a crime
     (never mind the loitering laws, which take the other view)
16.26.9. Anonymous systems may be restricted on the grounds that they
   constitute a public nuisance
  - or that they promote crime, espionage, etc.
  + especially after a few well-publicized abuses
    - possibly instigated by the government?
  - operators may have to post bonds that effectively drive
     them out of business
16.26.10. Corporations may be effectively forbidden to hire consultants
   or subcontractors as individuals
  + the practical issue: the welter of tax and benefit laws
     make individuals unable to cope with the mountains of forms
     that have to be filed
    - thus effectively pricing individuals out of this market
  + the tax law side: recall the change in status of
     consultants a few years back...this may be extended further
    - a strategy for the IRS: require all computer network
       users to have a "taxpayer ID number" for all
       transactions, so that tax evasion can be checked
    - not clear how this differs from the point above, but I
       feel certain more such pressures will be applied (after
       all, most corporations tend to see independent
       contractors as more of a negative than a positive)
  - this may be an agenda of the already established companies:
     they see consultants and free lancers as thieves and
     knaves, stealing their secrets and disseminating the crown
     jewels (to punningly mix some metaphors)
  - and since the networks discussed here facilitate the use of
     consultants, more grounds to limit them
16.26.11. There may be calls for U.N. control of the world banking
   system in the wake of the BCCI and similar scandals
  - to "peirce the veil" on transnationals
  - calls for an end to banking secrecy
  - talk about denying access to the money centers of New York
     (but will this push the business offshore, in parallel to
     the Eurodollar market?)
  + motivations and methods
    - recall the UNESCO attempt a few years back to credential
       reporters, ostensibly to prevent chaos and "unfair"
       reporting...well, the BCCI and nuclear arms deals
       surfacing may reinvigorate the efforts of
    + the USSR and other countries entering the world community
       may sense an opportunity to get in on the formation of
       "boards of directors" of these kinds of banks and
       corporations and so may push the idea in the U.N.
      - sort of like a World Bank or IMF with even more power
         to step in and take control of other banks, and with
         the East Bloc and USSR having seats!
16.26.12. "National security"
  - if the situation gets serious enough, a la a full-blown
     crypto anarchy system, mightn't the government take the
     step of declaring a kind of national emergency?
  - provisions exist: "401 Emergency" and FEMA plans
  - of course, the USSR tried to intitiate emergency measures
     and failed
  - recall that a major goal of crypto anarchy is that the
     systems described here will be so widely deployed as to be
     essential or critical to the overall economy...any attempt
     to "pull the plug" will also kill the economy
16.26.13. Can authorities force the disclosure of a key?
  + on the "Yes" side:
    + is same, some say,  as forcing combination to a safe
       containing information or stolen goods
      - but some say-and a court may have ruled on this-that
         the safe can always be cut open and so the issue is
         mostly moot
      - while forcing key disclosure is compelled testimony
    - and one can always claim to have forgotten the key
    - i.e., what happens when a suspect simply clams up?
    - but authorities can routinely demand cooperation in
       investigations, can seize records, etc.
  + on the "No" side:
    - can't force a suspect to talk, whether about where he hid
       the loot or where his kidnap victim is hidden
    - practically speaking, someone under indictment cannot be
       forced to reveal Swiss bank accounts....this would seem
       to be directly analogous to a cryptographic key
    - thus, the key to open an account would seem to be the
       same thing
    - a memorized key cannot be forced, says someone with EFF
       or CPSR
  - on balance, it seems clear that the disclosure of
     cryptographic keys cannot be forced (though the practical
     penalty for nondisclosure could be severe)
  - but this has not really been tested, so far as I know
  - and many people say that such cooperation can be

16.27 - How Crypto Anarchy Advocates Will Fight Back
16.27.1. Bypassing restrictions on commercial encryption packages by
   not making them "commercial"
  - public domain
  - freely distributed
  - after all, the basic algorithms are simple and don't really
     deserve patent protection: money will not be made by the
     originators of the code, but by the actual providers of
     services (for transmission and storage of packets)
16.27.2. Noise and signals are often indistinguishable
  - as with the LSB audio signal approach...unless the
     government outlaws live recordings or dubs on digital
16.27.3. Timed-release files (using encryption) will be used to hide
   files, to ensure that governments cannot remove material they
   don't like
  - easier said than done
16.27.4. Legal approaches will also be taken: fundamental
   constitutional issues
  - privacy, free speech, free association
16.27.5. The Master Plan to Fight Restrictions on Encryption
  + "Genie out of the bottle" strategy: deploy crypto widely
    - intertwined with religions, games, whistleblower groups,
       and other uses that cannot easily just be shut down
    - scattered in amongst many other activities
  - Media attention: get media to report on value of
     encryption, privacy, etc.
  + Diffusion, confusion, and refusion
    - Diffuse the use by scattering it around
    - Confuse the issue by fake religions, games, other uses
    - Refuse to cooperate with the government
  - Free speech arguments: calling the discussions free speech
     and forcing the government to prove that the free speech is
     actually an economic transaction
  + links with religions, corporations, etc.
    - private meetings protected
    - voting systems

16.28 - Things that May Hide the Existence of Crypto Anarchy
16.28.1. first and foremost, the incredible bandwidth, the bits
   sloshing around the world's networks...tapes being exchanged,
   PCs calling other PCs, a variety of data and compression
   formats, ISDN, wireless transmission, etc.
16.28.2. in the coming years, network traffic will jump a thousand-
   fold, what with digital fax, cellular phones and computers,
   ISDN, fiber optics, and higher-speed modems
  - and these links will be of all kinds: local, private,
     corporate, business, commercial, bootleg (unrecorded),
     cellular radio, etc.
16.28.3. corporations and small groups will have their own private
   LANs and networks, with massive bandwidth, and with little
   prospects that the government can police them-there can be no
   law requiring that internal communications be readable by the
  - and the revelations that Ultra Black has been used to read
     messages and use the information will be further proof to
     corporations that they need to adopt very strong security
  + and "partnerships" can be scattered across the country, and
     even internationally, and have great lattitude in setting
     up their own communication and encryption systems
    - recall Cargill case
    - and also remember that the government may crack down on
       these systems
16.28.4. AMIX-like services, new services, virtual reality (for games,
   entertainment, or just as a place of doing business) etc.
  + many users will encrypt their links to VR servers, with a
     decryption agent at the other end, so that their activities
     (characters, fantasies, purchases, etc.) cannot be
     monitored and logged
    + this will further increase the bandwidth of encrypted
       data and will complicate further the work of the NSA and
       similar agencies
      - attempts to force "in the clear" links will be doomed
         by the welter of PC standards, compression utilities,
         cellular modems, and the like...there will be no
         "cleartext" that can be mandated
16.28.5. steganography
  + in general, impossible to know that a message contains
     other encypted messages
    - except in stings and setups, which may be ruled illegal
  + the LSB method, and variants
    + LSB of DAT, DCC, MD, etc., or even sound bites (chunks of
       sampled sounds traded on bulletin boards)
      - especially of live or analog-dubbed copies (the noise
         floor of a typical consumer-grade mike is much higher
         than the LSB of DAT)
    + of images, Adobe Photoshop images, artwork, etc.
      + imagine an "Online Art Gallery" that is used to store
         messages, or a "Photo Gallery" that participants post
         their best photos to, offering them for sale
        - Sturges case
        - LSB method
    + gets into some theoretical nitpicking about the true
       nature of noise, especially if the entire LSB channel is
       uncharacteristic of "real noise"
      - but by reducing the bandwidth somewhat, the noise
         profile can be made essentially undistinguishable from
         real noise
      - and a 2 GB DAT produces 130 MB of LSB, which is a lot
         of margin!
    + what could the government do?
      - stings and setups to catch and scare off potential
      - an attempt to limit the wide use of digital
      + a requirement for government-approved "dithering"?
        - this would be an enforcement nightmare
        + and would only cause the system to be moved into
           higher bits
          - and with enough error correction, even audible
             dithering of the signal would not wipe out the
             encrypted signal
    + variants: text justification, word selection
      - bandwidth tends to be low
      - but used in Three Days of the Condor
  + virtual reality art may further enable private
    - think of what can be encrypted into such digital images!
    - and user has total privacy and is able to manipulate the
       images and databases locally
16.28.6. in the sense that these other things, such as the governments
   own networks of safe houses, false identities, and bootleg
   payoffs, will tend to hide any other such systems that emerge
  + because investigators may think they've stumbled onto yet
     another intelligence operation, or sting, or whatever
    - this routinely cripples undercover investigations
    - scenario: criminals even float rumors that another agency
       is doing an operation....?
16.28.7. Government Operations that Resemble Cryptoanarchy will
   Confuse the Issues
  - various confidential networks already exist, operated by
     State, DoD, the services, etc.
  + Witness Protection Program (or Witness Relocation Program)
    - false IDs, papers, transcripts
    - even money given to them (and the amounts seem to be
       downplayed in the press and on t.v., with a sudden spate
       of shows about how poorly they do in the middle of middle
       America-sounds like a planted story to me)
    - cooperation with certain companies and schools to assist
       in this aspect
  + Payoffs of informants, unofficial agents
    - like agents in place inside defense contractors
    - vast amount of tips from freelancers, foreign citizens,
    - operators of safe houses (like Mrs. Furbershaw)
  + Networks of CIA-funded banks, for various purposes
    - a la the Nugan-Hand Bank, BCCI, etc.
    - First American, Bank of Atlanta, Centrust Savings, etc.
    - these banks and S&Ls act as conduits for controversial or
       secret operations, for temporary parking of funds, for
       the banking of profits, and even for the private
       retirement funds of agents (a winked-at practice)
  + Confidential networks over computer lines
    - e.g., encrypted teleconferencing of Jasons, PFIAB, etc.
    + these will increase, for many reasons
      - concerns over terrorism
      - demands on time will limit travel (especially for
         groups of non-fulltime committee members)
  - these suspected government operations will deter
16.28.8. Encrypted Traffic Will Increase Dramatically
  - of all kinds
  - mail, images, proposals, faxes, etc.
  - acceptance of a P-K mail system will make wide use of
     encryption nearly automatic (though some fraction, perhaps
     the majority, will not even bother)
  + there may even be legal reasons for encryption to increase:
    - requirements that employee records be protected, that
       medical records be protected, etc.
    - "prudent man" rules about the theft of information (could
       mean that files are to be encrypted except when being
       worked on)
    - digital signatures
    - echoes of the COMSEC vs. SIGINT (or PROD) debate, where
       COMSEC wants to see more encryption (to protect American
       industry against Soviet and commercial espionage)
  + Selling of "Anonymous Mailers"?
    - using RSA
    + avoiding RSA and the P-K patent morass
      - could sell packets of one-time pads
      + no effective guarantee of security, but adequate for
         many simple purposes
        + especially if buyers swap them with others
          - but how to ensure that copies are not kept?
      - idea is to enable a kind of "Democracy Wall"
    + prepaid "coins," purchased anonymously
      - as with the Japanese phone cards
      - or the various toll booth electronic tokens being
16.28.9. Games, Religions, Legal Consultation, and Other "Covers" for
   the Introduction and Proliferation of Crypto Anarchy
  - won't be clear what is real encryption and what is game-
  - imagine a game called "Cryptoanarchy"!
  + Comment on these "Covers"
    - some of these will be quite legitimate, others will be
       deliberately set up as covers for the spread of CA
    - perhaps subsidized just to increase traffic (and
       encrypted traffic is already expected to increase for a
       variety of reasons)
    - people will have various reasons for wanting anonymity
  + Games
    + "Habitat"-style games and systems
      - with "handles" that are much more secure than at
         present (recall Chip's comments)
      + behaviors that are closely akin to real-world illegal
        - a thieves area
        - an espionage game
        - a "democracy wall" in which anything can be posted
           anonymously, and read by all
    + MUDs (Multi-user Domains, Multi-User Dungeons)
      - lots of interest here
      - topic of discussion at a special Cypherpunks meeting,
         early 1994.
    + interactive role-playing games will provide cover for the
       spread of systems: pseudonyms will have much more
       protection than they now have
      - though various methods may exist to "tag" a transaction
         (a la barium), especially when lots of bandwidth is
         involved, for analysis (e.g., "Dark Dante" is
         identified by attaching specific bits to stream)
      + Dealing with Barium Tracers
        - code is allowed to simmer in an offsite machine for
           some time (and with twiddling of system clock)
        - mutations added
    + Shared Worlds
      - authors, artists, game-players, etc. may add to these
      - hypertext links, reputation-based systems
    + hypothesize a "True Names" game on the nets, based
       _explicitly_ on Vinge's work
      - perhaps from an outfit like Steve Jackson Games, maker
         of similar role-playing games
      - with variable-resolution graphics (a la Habitat)
      - virtual reality capabilities
    + a game like "Habitat" can be used as a virtual Labyrinth,
       further confusing the line between reality and fantasy
      - and this could provide a lot of bandwidth for cover
      - the Smalltalk "Cryptoids" idea is related to this...it
         looks like a simulation or a game, but can be used by
  + Religions
    + a nearly ironclad system of liberties, though _some_
       limits exist
      - e.g., a church that uses its organization to transport
         drugs or run a gambling operation would be shut down
         quickly (recall the drug church?)
      - and calls for tax-break limitations (which Bill of
         Rights says nothing about)
    - still, it will be _very_ difficult for the U.S.
       government to interfere with the communications of a
    + "ConfessionNet"
      + a hypothetical anonymous system that allows confessions
         to be heard, with all of the privileges of privacy that
         normal confessions have
        - successors to 900 numbers?
      + virtually ironclad protections against government
        - "Congress shall make no law..."
      + but governments may try to restrict who can do this, a
         la the restrictions in the 70s and 80s on "instant
        - Kirby J. Hensley's Univeral Life Church
        - various IRS restrictions, effectively establishing
           two classes of religions: those grandfathered in and
           given tax breaks and the like, and those that were
           deemed invalid in some way
    + Scenario: A Scientology-like cult using CA as its chief
       communications system?
      - levels of initiation same as a cell system
      - "clearing"
      - New Age garbage: Ascended Masters, cells, money flowing
         back and forth
      - blackballing
  + Digital Personals
    - the "personals" section of newspapers currently requires
       the newspaper to provide the anonymity (until the parties
       mutually agree to meet)
    - what about on AMIX or similar services?
    - a fully digital system could allow self-arranging systems
    + here's how it could work:
      - Alice wants to meet a man. She writes up a typical ad,
         "SWF seeks SWM for fun and walks on the beach..."
      - Alice encloses her specially-selected public key, which
         is effectively her only name. This is probably a one-
         time deal, unlinkable to her in any way.
      - She encrypts the entire package and sends it through a
         remailing chain (or DC-Net) for eventual posting in a
         public place.
      - Everyone can download the relevant area (messages can
         be sorted by type, or organized in interest groups),
         with nobody else knowing which messages they're
      - Bob reads her message and decides to repond. He
         digitizes a photo of himself and includes some other
         info, but not his real name. He also picks a public key
         for Alice to communicate with him.
      - Bob encrypts all of this with the public key of Alice
         (though remember that he has no way of knowing who she
         really is).
      - Bob sends this message through a remailing chain and it
         gets posted as an encrypted message addressed to the
         public key of Alice. Again, some organization can
         reduce the total bandwidth (e.g., an area for
      - Alice scans the replies and downloads a group of
         messages that includes the one she can see-and only she
         can see!-is addressed to her.
      - This has established a two-way communication path
         between Alice and Bob without either of them knowing
         who the other one is or where they live. (The business
         about the photos is of course not conducive to
         anonymity, but is consistent with the "Personals"
      - If Alice and Bob wish to meet in person it is then easy
         for them to communicate real phone numbers and the
    + Why is this interesting?
      - it establishes a role for anonymous systems
      - it could increase the bandwidth of such messages
  + Legal Services (Legitimate, i.e., not even the bootleg
    + protected by attorney-client privileges, but various Bar
       Associations may place limits on the use of networks
      - but if viewed the way phones are, seems unlikely that
         Bars could do much to limit the use of computer
    - and suppose a Nolo Press-type publishing venture started
       up on the Nets? (publishing self-help info under
    - or the scam to avoid taxes by incorporating as a
       corporation or nonprofit?
  + Voting Systems
    - with and without anonymity
    + Board of Directors-type voting
      - with credentials, passwords, and (maybe) anonymity
         (under certain conditions)
    + Blackballing and Memberships
      - generally anonymous
      - blackballing may be illegal these days (concerns about
         racism, sexism, etc.)
      - cf. Salomaa for discussion of indistinguishability of
         blackballing from majority voting
    + Consumer Ratings and Evaluations
      - e.g., there may be "guaranteed anonymous" evalution
         systems for software and other high-tech items (Joe
         Bluecollar won't mess with computers and complicated
         voting systems)
    + Politically Active Groups May Have Anonymous Voting
      - to vote on group policies, procedures, leadership
      - or on boycott lists (recall the idea of the PC-Card
         that doesn't allow politically incorrect purchases)
      + this may be to protect themselves from lawsuits (SLAPP)
         and government harassment
        - they fear government infiltrators will get the names
           of voters and how they voted
    + Official Elections
      - though this is unlikely for the barely-literate
      - the inevitable fraud cases will get wide exposure and
         scare people and politicians off even more
      - unlikely in next decade
    + Journal Refereeing
      - some journals, such as Journal of Cryptology,
         appropriately enough, are already using paper-based
         versions of this
      + Xanadu-like systems may be early adopters
        - there are of course reasons for just the opposite:
           enhanced used of reputations
        - but in some cases anonymity may be preferred
  + Groupware
    - anonymous comment systems (picture a digital blackboard
       with anonymous remarks showing up)
    - these systems are promoted to encourage the quiet to have
       an equal voice
    - but they also provide another path to anonymous and/or
       reputation-based systems
  + Psychological Consultations
    - will require the licensing of counselors, of course
       (under U.S. laws)
    - what if people call offshore counselors?
    + and various limitations on privacy of records exist
      - Tarisoff [spelling?]
      - subpoenas
      - record-keeping required
    + may be used by various "politically correct" groups
      - battered women
      - abused children
      - perhaps in conjunction with the RU-486-type issues,
         some common ground can be established (a new kind of
         Underground Railroad)
  + Advice on Medicine (a la AIDS, RU 486)
    - anonymity needed to protect against lawsuits and seizure
    - NOW and other feminist groups could use crypto anarchy
       methods to reduce the risks to their organizations
  + Anonymous Tip Lines, Whistleblower Services
    + for example, a newspaper might set up a reward system,
       using the crypto equivalent of the "torn paper" key
      - where informant holds onto the torn off "key"
    - even something like the James Randi/Yuri Geller case
       reveals that "anonymous critics" may become more common
    + corporate and defense contractor whistleblowers may seek
       protection through crypto methods
      - a "Deep Throat" who uses bulletin boards to communicate
         with DS?
    + this presumes much wider use of computers and modems by
       "average" people...and I doubt "Prodigy"-type systems
       will support these activities!
      - but there may be cheap systems based on video game
         machines, a la the proposed Nintendo computers
    - environmentalists set up these whistleblower lines, for
       people to report illegal logging, spraying, etc.
  + Online, "Instant" Corporations
    + shell companies, duly incorporated in Delaware or
       wherever (perhaps even foreign sites) are "sold" to
       participants who wish to create a corporate cover for
       their activities
      - so that AMIX-like fees are part of the "internal
  + Anonymous collaborative writing and criticism
    - similar to anonymous voting
16.28.10. Compressed traffic will similarly increase
  - and many compression algortithms will offer some form of
     encryption as a freebie
  - and will be difficult to decypher, based just on sheer
  - files will have to at least be decompressed before key word
     searches can be done (though there may be shortcuts)

16.29 - The Coming Phase Change
16.29.1. "We'd better hope that strong cypto, cheap telecoms and free
   markets can provide the organizing basis for a workable
   society because it is clear that coercion as an organizing
   principle ain't what it used to be."    [Duncan Frissell, in
   his sig, 4-13-94]
16.29.2. "What is the "inevitability" argument?"
  - Often made by me (Tim May), Duncan Frissell, Sandy
     Sandfort, and Perry Metzger (with some twists). And Hal
     Finney takes issue with certain aspects and contributes
     incisive critiques.
  + Reasons:
    - borders becoming more transparent to data flow
    - encryption is not detectable/stoppable
    - derivative financial instruments, money sloshing across
    - transnationalism
    - cash machines, wire transfers
    - "permanent tourists"
  - Borders are becoming utterly transparent to massive data
     flows. The rapid export of crypto is but an ironic example
     of this. Mosaid, ftp, gopher, lynx...all cross borders
     fluidly and nearly untraceably. It is probably too late to
     stop these systems, short of "pulling the plug" on the Net,
     and this pulling the plug is simply too expensive to
     consider. (If the Feds ever really figure out the long-
     range implications of this stuff, they may try it...but
     probably not.)
16.29.3. "What is the "crypto phase change"?"
  - I'm normally skeptical of claims that a "singularity" is
     coming (nanotechnology being the usual place this is
     claimed, a la Vinge), but "phase changes" are more
     plausible. The effect of cheap printing was one such phase
     change, altering the connectivity of society and the
     dispersion of knowledge in a way that can best be described
     as a phase change. The effects of strong crypto, and the
     related ideas of digital cash, anonymous markets, etc., are
     likely to be similar.
  - transition
  - tipping factors, disgust by populace, runaway taxation
  + "leverage effect"
    - what Kelly called "the fax effect"
    - crypto use spreads, made more popular by common use
  - can nucleate in a small group...doesn't need mass
16.29.4. "Can crypto anarchy be stopped?"
  + A goal is to get crypto widely enough deployed that it
     cannot then be stopped
    - to the point of no return, where the cost of withdrawing
       or banning a technology is simply too high (not always a
  - The only recourse is a police state in which homes and
     businesses are randomly entered and searched, in which
     cryptography is outlawed and vigorously prosecuted, in
     which wiretaps, video surveillance, and other forms of
     surveillance are used aggressively, and in which perhaps
     the very possession of computers and modems is restricted.
  - Anything short of these police state tactics will allow the
     development of the ideas discussed here. To some extent.
     But enough to trigger the transition to a mostly crypto
     anarchic situation.
  - (This doesn't mean everyone, or even most, will use crypto
16.29.5. Need not be a universal or even popular trend
  - even if restricted to a minority, can be very influential
  - George Soros, Quantum fund, central banks, Spain, Britain,
  - and a minority trend can affect others
16.29.6. "National borders are just speedbumps on the digital
16.29.7. "Does crypto anarchy have to be a mass movement to succeed?"
  - Given that only a tiny fraction is now aware of the
  + Precedents for "vanguard" movements
    + high finance in general is an elite thing
      - Eurodollars, interest rate swaps, etc....not exactly
         Joe Average...and yet of incredible importance (George
         Soros has affected European central bank policy)
    - smuggling is in general not a mass thing
    - etc.
  + Thus, the users of crypto anarchic tools and instruments
     can have an effect out of proportion to their numbers
    - others will start to use
    - resentment by the "suckers" will build
    - the services themselves--the data havens, the credit
       registries, the espionage markets--will of course have a
       real effect
16.29.8. Strong crypto does not mean the end to law enforcement
  - "...cryptography is not by any means a magic shield for
     criminals.  It eliminates, perhaps, one avenue by which
     crimes might be discovered.  However, it is most certainly
     not the case that someone who places an open anonymous
     contract for a murder in an open forum is doing so "risk
     free".  There are *plenty* of ways she might be found out.
     Likewise, big secret societies that nefariously undermine
     the free world via cryptography are as vulnerable as ever
     to the motivations of their own members to expose the
     groups in a double-cross." [Mike McNally, 1994-09-09]

16.30 - Loose Ends
16.30.1. governments may try to ban the use of encryption in any
   broadcast system, no matter how low the power, because of a
   realization that all of them can be used for crypto anarchy
   and espionage
  - a losing battle, of course, what with wireless LANs of
     several flavors, cellular modems, the ability to hide
     information, and just the huge increase in bandwidth
16.30.2. "tontines"
  - Eric Hughes wrote up some stuff on this in 1992 [try to get
  - Italian pseudo-insurance arrangements
  - "digital tontines"?
16.30.3. Even in market anarchies, there are times when a top-down,
   enforced set of behaviors is desirable. However, instead of
   being enforced by threat of violence, the market itself
   enforces a standard.
  - For example, the Macintosh OS, with standardized commands
     that program developers are "encouraged" to use. Deviations
     are obviously allowed, but the market tends to punish such
     deviations. (This has been useful in avoiding modal
     software, where the same keystroke sequence might save a
     file in one program and erase it in another. Sadly, the
     complexity of modern software has outpaced the Mac OS
     system, so that Command-Option Y often does different
     things in different programs.)
  - Market standards are a noncoercive counter to total chaos.
16.30.4. Of course, nothing stops people from hiring financial
   advisors, lawyers, and even "Protectors" to shield them from
   the predations of others. Widows and orphans could choose
   conservative conservators, while young turks could choose to
   go it alone.
16.30.5. on who can tolerate crypto anarchy
  - Not much different here from how things have been in the
     past. Caveat emptor. Look out for Number One. Beware of
     snake oil.
16.30.6. Local enforcement of rules rather than global rules
  + e.g., flooding of Usenet with advertising and chain letters
    + two main approaches
      - ban such things, or set quotas, global acceptable use
         policies, etc. (or use tort law to prosecute & collect
      - local carrriers decide what they will and will not
         carry, and how much they'll charge
    - it's the old rationing vs. market pricing argument
16.30.7. Locality is a powerful concept
  - self-responsibility
  - who better to make decisions than those affected?
  - tighter feedback loops
  - avoids large-scale governments
  + Nonlocally-arranged systems often result in calls to stop
     "hogging" of resources, and general rancor and envy
    + water consumption is the best example: anybody seen
       "wasting" water, regardless of their conservations
       elsewhere or there priorities, is chastised and rebuked.
       Sometimes the water police are called.
      - the costs involved (perhaps a few pennies worth of
         water, to wash a car or water some roses) are often
         trivial...meanwhile, billions of acre-feet of water are
         sold far below cost to farmers who grow monsoon crops
         like rice in the California desert
      - this hypocrisy is high on my list of reasons why free
         markets are morally preferable to rationing-based