Crypto Did What it Was Supposed to Do
A cyber-libertarian anarcho-capitalist wild west was always the goal
Note: This post is based on a talk for the Blockchain Association at Imperial College, London. I drew on David Gerard’s excellent book, Attack of the 50 foot Blockchain, to prepare it.
A popular misconception is that the crypto movement started in late 2008 when the bitcoin whitepaper was published.
It didn’t.
The intellectual movement that led to what we now call “crypto” started decades earlier in the 1980s, when computer programmers and cryptographers worried about how computers and the internet were going to change the world and started doing something about it.
It was the cold war. As software rapidly improved, technologists feared that digitization posed significant national security and personal privacy risks. Fringes of the American right even feared that IT could turn the US government into a Soviet-style surveillance state.
David Chaum, the “godfather of cryptocurrency,” produced some very early research reflecting these fears. In 1982, he wrote “Computer Systems Established, Maintained and Trusted by Mutually Suspicious Groups,” which proposes an early proto-blockchain database, though without a consensus mechanism like proof of work. He wrote “Blind Signatures for Untraceable Payments” that same year and published “Security Without Identification: Transaction Systems to Make Big Brother Obsolete” a few years later.
What Chaum wanted to do was use the advances in cryptography from the late 1970s to create databases that could be trusted by anyone and private online transactions systems, and he wasn’t alone. In 1988, computer engineer Tim May wrote the now-famous “Crypto Anarchist Manifesto,” which outlined his vision of the cyber-libertarian, anarcho-capitalist future that he wanted the internet to unleash:
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 [...]
The State will of course try to slow or halt the spread of this technology […] these concerns will be valid; crypto anarchy will […] allow illicit and stolen materials to be traded […] will even make possible […] markets for assassinations and extortion […] But this will not halt the spread of crypto anarchy.
By the 1990s, this vision had spread to a group of like-minded activists and engineers that developed software to make it happen. These were the cypherpunks, the people who laid the technical and intellectual foundations for what we now call “crypto”. They would vigorously discuss system designs, cryptography, code, politics and philosophy in an email list that started with a few hundred members in the early 90s and grew to about two thousand by 1997, by which point it generated hundreds of email messages per day.
Satoshi Nakamoto was part of the mailing list and shared the original Bitcoin whitepaper there. So was Adam Back, the creator of an early proof-of-work system to limit email spam. So was Hal Finney, the early bitcoin contributor that received the first bitcoin transaction from Satoshi. So was Nick Szabo, the inventor of smart contracts. The group was co-founded by Eric Hughes, who wrote another key document in 1993, “A Cypherpunk’s Manifesto”:
We the Cypherpunks are dedicated to building anonymous systems. We are defending our privacy with cryptography, with anonymous mail forwarding systems, with digital signatures, and with electronic money.
Cypherpunks write code.
The mailing list was active. There were almost 100 proposals for new forms of electronic money, bitcoin being just one of them:
Cypherpunks believed that no government should have oversight or legal jurisdiction over the internet; that no nation should impose its laws or regulations or censor activities or content on the web. They believed that online marketplaces should be self-regulated and open, including open for crime; that true freedom includes the freedom to scam and be scammed. They believed that technology is neutral; that moral responsibility is borne only by perpetrators of crimes, not the platforms that facilitate them.
These cyber-libertarian and anarcho-capitalist views were frequently accompanied by heterodox positions from Austrian economics, especially skepticism towards central banks, fractional reserve banking and fiat money (not backed by gold).
Modern crypto reflects the cypherpunk ideology it was born from. Blockchain databases don’t require trusting a central intermediary because cypherpunks wanted to disintermediate banks and the government. Blockchains are open and permissionless because cypherpunks don’t believe anyone should have to ask permission for anything on the web. Crypto is resistant to censorship because cypherpunks don’t want central authorities surveilling or restricting their activities. Wallet addresses are pseudonymous because cypherpunks value privacy.
Cypherpunks purpose-built a world for the hacks, scams, pump and dumps, Ponzis, and regulatory arbitrages we see in crypto everyday. They created an ecosystem where all actors and activities, legitimate or not, can prosper; where there aren’t good tools to censor anti-social behavior and identify wrongdoers. Cypherpunks don’t hide from this fact.
They embrace it.
Modern crypto obviously has a few useful non-speculative use cases, especially sending value across borders, but outside that it’s largely a wild west of wrongdoing and wasteful, unproductive nonsense. This shouldn’t be construed as a failure, though. Cypherpunks set out to create a cyber-libertarian, anarcho-capitalist world where anything, good or bad or idiotic, is possible — and they succeeded.
As you might guess, I see limited overall value in this world. It’s endlessly funny and fascinating — so much that I’m teaching a class on it next semester! — but it adds little if any net welfare to the world.
Some form of online wild west built on public blockchains was probably always inevitable. The mistake was ever believing that it could be more than just a fringe corner of the internet.
The mistake was believing that a cyber-dystopia could be a good place to create the “future of finance” and that systems built in a digital jungle where North Korean hackers reign might result in a better, stable or even functional financial system. The mistake was believing self-interested token holders that crypto might be better for financial inclusion than centralized fintech like Brazil’s PIX app that are free, easy, accepted everywhere, and don’t break irreparably if you lose your password.
These newer purported “use cases” in finance, financial inclusion and other areas are deeply misguided and were all glued onto crypto after the fact for the wrong reasons. Ecosystems that fundamentally resist law and order (and make steep performance and security tradeoffs for it) aren’t good foundations for finance or other activities that require trust and cooperation.
It’s not surprising that the Securities Exchange Commission (SEC) is dropping the sledgehammer on crypto in America with the recent actions on Coinbase and Binance. In what other realm does the US federal government tolerate such overt lawlessness and anarchy?
If I was the securities regulator, I would also struggle to see what place a dysfunctional, crime-ridden financial system has in the country when there are already working banks and capital markets.
I wish I could have read this article earlier before I put my money into the bitcoin market 😂
Frank, don't you think that making everyday payments more accessible, cheaper, and faster would give commerce anywhere a breath of fresh air?
A payment made via the lightning network is significantly cheaper (often free), faster, and much more accessible than any other electronic payment method.
Merchant accounts, POS terminal rentals, purchases, replacements and repairs, processing fees, settlement times of days or weeks, and the requirement to be banked are all barriers that merchants must overcome if they wish to accept electronic payments. Bitcoin and the Lightning Network removes all of them making it trivial for anyone anywhere to have an objectively superior, global, free and instant electronic payments system that anyone and anywhere can use.