I don't agree with the extreme position that cryptography will lead to the failure of the income tax and the destruction of the government. Consider: untraceable, anonymous transactions occur every day - not through cryptography, but through simple cash purchases at the local grocery store, gas station, department store, restaurant, and so on. There are many occupations which primarily involve cash transactions. Are these people immune from income tax? Of course not. The government has many ways of extracting tax in these cases, ranging from periodic audits with heavy penalties (which keep people honest) to imputing income (as in the case of tip income by waiters), to fraud investigations for those living beyond their means. As I see it, cryptography may extend similar conditions to information workers - programmers, architects, authors. Naturally, since a disproportionate number of those on the net fall into these categories, this seems like a revolutionary development. But from the larger perspective, it is not a major change. The fact is, information purchases are a small part of most people's budgets. If you add up all of what the average person purchases that would fall into the general category of "information" - books, magazines, newspapers, music, video - you probably won't exceed a few percent of income. Information, despite the hype, is not a dominant part of our economy. Particularly at the corporate level, the notion that cryptography will allow widespread tax cheating seems especially questionable. I don't agree that the major force for tax compliance is government surveillance of telephone and electronic communications. Instead, the corporations have to keep books which reflect their financial transactions, and they have to make appropriate reports to the government and investors. To cheat they'd have to have two sets of books, with all the concomitant risks. It would be difficult to pass on the illegal gains to shareholders because they wouldn't match up with what was reported to the governments. Perhaps the beneficiaries in this scenario are the corporate officers? This sounds like simple fraud, and I doubt that the shareholders would allow their investments to be jeapordized in this fashion. Suppose I walk into IBM today and offer to go to work as a programmer, for 10% less than they would normally pay me, as long as they pay me "off the books", and pass on to me in cash the amount they would normally have to pay to the government in payroll taxes. Sounds like a win-win situation, right? Both IBM and I save money. But naturally IBM won't agree to this. And it's not because they're afraid of government bugging of their phones, which cryptography might overcome. They know that there are many ways a scheme like this can be detected. I don't think this will change once strong cryptography allows me to make the same offer to IBM across the net. Sure, my electronic conversations with IBM will be private - but my conversations in the example above were just as private. The advent of cryptography will not change the fact that violating the tax laws is a serious, difficult, and very risky business. Now, I don't know much about high finance, so it's hard for me to judge what the effects would be of cryptographically-protected communications with offshore banks. Again, I am skeptical that the main barrier to such widespread tax evasion that the government would collapse is the government's ability to eavesdrop on electronic communications. I was under the impression that money transfers have used the Data Encryption Standard for years, which is not known to be breakable, and yet government has survived. Summing up, the main change I see cryptography bringing is to extend to information workers some of the same possibilities for anonymous, private cash transactions that plumbers and shopkeepers have always had. Even then, big business will continue to operate under the present rules. I don't see this as a major change in society. I might add that over-hyping of the changes due to cryptography is actually counterproductive. To the extent that law enforcement believes these projections, the government will oppose simple cryptographic technologies that do have an important role to play in preserving privacy. Hal Finney hfinney@shell.portal.com ------------------------------------------------------------------------- To find out more about this anonymous remail service, send mail to remail@tamsun.tamu.edu with the word "remail help" as the only words in the subject field.