The Cyphernomicon

16. Crypto Anarchy

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
whole?»

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:
16.4.2. The Crypto Anarchist Manifesto Timothy C. May
tcmay@netcom.com A specter is haunting the modern world, the specter of crypto
anarchy. Computer technology is on the verge of providing the ability
for individuals and groups to communicate and interact with
each other in a totally anonymous manner. Two persons may
exchange messages, conduct business, and negotiate electronic
contracts without ever knowing the True Name, or legal
identity, of the other. Interactions over networks will be
untraceable, via extensive re-routing of encrypted packets
and tamper-proof boxes which implement cryptographic
protocols with nearly perfect assurance against any
tampering. Reputations will be of central importance, far
more important in dealings than even the credit ratings of
today. These developments will alter completely the nature of
government regulation, the ability to tax and control
economic interactions, the ability to keep information
secret, and will even alter the nature of trust and
reputation. The technology for this revolution–and it surely will be
both a social and economic revolution–has existed in theory
for the past decade. The methods are based upon public-key
encryption, zero-knowledge interactive proof systems, and
various software protocols for interaction, authentication,
and verification. The focus has until now been on academic
conferences in Europe and the U.S., conferences monitored
closely by the National Security Agency. But only recently
have computer networks and personal computers attained
sufficient speed to make the ideas practically realizable.
And the next ten years will bring enough additional speed to
make the ideas economically feasible and essentially
unstoppable. High-speed networks, ISDN, tamper-proof boxes,
smart cards, satellites, Ku-band transmitters, multi-MIPS
personal computers, and encryption chips now under
development will be some of the enabling technologies. The State will of course try to slow or halt the spread of
this technology, citing national security concerns, use of
the technology by drug dealers and tax evaders, and fears of
societal disintegration. Many of these concerns will be
valid; crypto anarchy will allow national secrets to be trade
freely and will allow illicit and stolen materials to be
traded. An anonymous computerized market will even make
possible abhorrent markets for assassinations and extortion.
Various criminal and foreign elements will be active users of
CryptoNet. But this will not halt the spread of crypto
anarchy. Just as the technology of printing altered and reduced the
power of medieval guilds and the social power structure, so
too will cryptologic methods fundamentally alter the nature
of corporations
and of government interference in economic transactions.
Combined with emerging information markets, crypto anarchy
will create a liquid market for any and all material which
can be put into words and pictures. And just as a seemingly
minor invention like barbed wire made possible the fencing-
off of vast ranches and farms, thus altering forever the
concepts of land and property rights in the frontier West, so
too will the seemingly minor discovery out of an
arcane branch of mathematics come to be the wire clippers
which dismantle the barbed wire around intellectual property. 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
governments.

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
  particular
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
  defunct) 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
fascism.
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 speech.»
- 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 unenforceable.
- 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
crypto.
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
  feelings
- 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
    42
  - no chalk marks on mailboxes to signal a message is
    ready
  - 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» possibilities
  - 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
  inevitable.
- 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
  FBI)
- 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
  rates
- 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 else.
  - 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
    consulting)
- 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 aspects
- 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
  be)
- 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
know).
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
like?
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-
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
  consequences
- (As the chances decline, this suggests a rise in
  punishment severity)
businesses will tend to shy away from illegal markets,
unless…
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
point).
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
cryptographically
recall the 1981 market in Exocet missile codes (France,
Argentina–later of relevance when an Exocet sank a British
ship)
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 Nations
- 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 opportunities
  - 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
    systems
  - 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
  products
- 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
  sanctions
- «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
  stings
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
  methods
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
powers
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 cryptography
- 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- 94
- «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 cyberspace:
- to ensure compliance, a la a tamper-resistant cash
  register
- 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
  Austria
- 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
    Sicily
  - «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
    Caymans
  - 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, Jr.
    - 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
    investigations
  - and when info was released, it was blacked out with
    a «B-1» note, implying national security
    implications
  - 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
    forgeries
  - 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
    Phillipines
  - owners of Harken Energy Corp. a Texas-based company that bought G.W. Bush’s oil company «Spectrum 7» in 1986
    - 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
    assassination
  - Vesco active in drug trade
  - also involved in purchase of land for Walt Disney
    World
  - 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,
    Bahamas
  - 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
      Miami
  - Jefferson Savings and Loan Association, Texas
  - Guilermo Hernndez 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 Hernndez 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 enterprises
  - 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 lifestyles\
  - 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
    Department)
- 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
    works
- real use could be as «digital cutouts»: transferring
  wealth to other agents (also controlled from afar, like
  marionettes)
- advantage is that they can be programmed to perform
  operations that are perhaps illegal, but without
  traceability
- 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 buyers)
  - 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
  gift)
- 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
  wealth
- 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
    interests
- tax and other advantages of these «crypto annuities»
  - tax only paid on the yearly income, not on the lump
    sum
  - 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
    stream)
  - 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
    paperwork
  - and even then, there could be claims that the
    government didn’t follow the deals
  - not enough time or manpower to handle all these
    things
  - 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
    transactions)
  - 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
      banned?
    - 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
    protection
- May also be used to create «multi-tier» currency systems,
  e.g., where reported transactions are some fraction of
  actuals
- 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 software?
  - 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
chance.
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
killings!)

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
centuries.

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,
  etc.)
  16.17.3. Escrow Services
«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
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
completely)
16.17.4. Reputation-Based Systems
Credit Rating Services that are Immune from Meddling and Lawsuits
- 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
  involved)
- 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
    applicant
  - 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
    arrangement)
  - 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
  day….)
- 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
  Luxembourg)
- 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
    proceeds
  - 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
  diffusion)
- 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
  opl
many avenues for laundering money for persistent institutions
- 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
  preferable)
- shell games, of course (networks of reputation-based
  accounts)
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,
codes
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
distribution
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
scenario

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,
soda)
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 situations?»
- 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
    regarded
- 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
Government
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
fastnessess
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
governments.
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» world:
- 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 action.
- 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
Smuggling
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, etc.
  - for example, self-help user groups that advise on
    treatments, alternatives, etc.
- lockpicking and similar security circumvention techniques
  - 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
  forums»
- 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
    B.C.
  - 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
      Nineveh
    - 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
      life»
    - «Living a good life is no substitute for living
      forever»
    - 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
    Elizabeth
  - 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 pass,
  and groups like Crowleys O.T.O. became purely mystical
  showmanship
- 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
    patients
  - ethical issues
  - what about harvesting from the still-living?
  - libertarians would say: OK, if informed consent was
    given
  - 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 Researchers
- 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 underground»
- 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
records
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
this.
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
  strong
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
  restrictions)
- 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
things.
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,
etc.)
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
escrows
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,
etc.?»

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
imagine.)
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
  systems
- 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
welshers.
(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
    restrictions)
  - 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
- 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
  detect
- 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
  circulation
- 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 it?»
- 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 ways:
- 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
  time-stamping
- 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 letters)
- 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
  Name?)
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
  «credentiallers»
- 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
demanded…

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
systems…
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
government!
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
measures
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
  users
- an attempt to limit the wide use of digital
  data-hopeless!
- 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 communications
- 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,
  etc.
- 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
investigation
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
  developed
  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-
playing
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
  methods
- 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 behaviors:
  - 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
  worlds
- 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
  «outsiders»
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
  «religion.»
- «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 interference
  - «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 Reverends»
  - 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
  reading.
- 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
  «Replies»).
- 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»
  mode.)
- If Alice and Bob wish to meet in person it is then easy
  for them to communicate real phone numbers and the
  like.
- 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 stuff)
- 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
  networks
- and suppose a Nolo Press-type publishing venture started
  up on the Nets? (publishing self-help info under
  pseudonyms)
- 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
  majority
- 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
  accounting»
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
volume
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
  borders
- 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
acceptance
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
  guaranteee)
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
anarchy.)
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,
Germany
and a minority trend can affect others
16.29.6. «National borders are just speedbumps on the digital
superhighway.»
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
implications….
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
it]
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
  damages)
- 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
  systems

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16. Crypto Anarchy

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