--- begin forwarded text Date: Wed, 13 Nov 1996 15:32:34 -0500 From: Robert Hettinga <rah@shipwright.com> Subject: Financial Cryptography and the Theory of International Relations X-Sender: rah@pop.tiac.net To: IRTHEORY_LIST <irtheory_list@unimelb.edu.au> MIME-version: 1.0 Somebody asked me, regarding my posting here of the Digital Commerce Society of Boston meeting announcement (DCSB: Money Laundering -- The Headless Horseman of the Infocalypse):

Yes, I would like you to explain. Just what does this have to do with the theory of international relations?

People like the attorney "Black Unicorn" are interested in the international application of the technology of strong cryptography; in particular, strong financial cryptography. See <http://www.vmeng.com/rah/>, for pointers to more information on this, which I include here by reference. The short answer is, what happens if nation states can't fund themselves anymore because the cheapest transaction method available (cheaper by several orders of magnitude in lowered transaction and distribution costs) involves anonymous digital "cash" settlement? To quote something someone said in a Harvard Law seminar list a couple of years ago, "What happens when taxes become a tip?". The strongest financial cryptography protocols (like those invented by David Chaum of Digicash, or Mark Manasse of DEC, or Adi Shamir of RSA) use no book-entries whatsoever, which means no audit trails, which in turn means no book-entry taxes, like, say, those on income, or capital gains, or sales. In addition, what happens when we can effect the sale of financial assets with the digital equivalent of old-fashioned bearer certificates, which use the same cryptographic technology? The centralization of capital markets may become a thing of the past. Centralized markets for *anything* may become a thing of the past. The nation-state's ability to reallocate income, criminally, ala Amin or Mobutu, or otherwise, is severely limited in this scenario, certainly. :-). With anonymous voting protocols, you can have anonymous (or, more correctly, perfectly pseudonymous) control of financial assets. Possible damage to one's reputation (pseudonymous or not) works just fine to prevent the non-repudiation of cash-settled transactions, so the power of nation states aren't even necessary to regulate commerce, really. The only thing left that nation states do is physical security, or the "rational" application of force, which can probably be handled privately, particularly if nation states can't command the payment of taxes for this service anyway. Which brings me to the current discussion here about the imploding pseudo-states of Africa. What we're witnessing right now is the re-emergence of tribal groups as the common political denominator. Nation states based on those groups are likely. However, I also expect that this process of literal dis-integration will continue, but recursively, as it becomes more and more possible for ordinary people to use information (like asset pricing, the returns on those assets, or the technical knowlege to profitably control those assets) once only found at the top of large industrial hierarchies like multinatioal corporations and nation states. That information will be applied to smaller and smaller economic units as processor prices continue to fall. That is, large groups of the same ethnic nationality will be created on the rubble of the old colonial boundries, which the cold war propped up for the last 50 years. However, those large groups will continue to factionalize as access to western-style economic activity increases. The continuing ubiquity of the internet can only increase this process, especially if the promise of financial cryptography survives the test of economic reality. I expect that as financial technology like the above is introduced, the ability of political and business elites to hold together large hierarchical entities, like the modern nation-state or multinational corporation, will continue to deminish. The ability for anyone to get paid for their work, no matter where they are, and to work where they live, probably in a peer-to-peer economic relationship with the buyer of their work, who may well live on the other side of the world, will create much less reliance on geography as capital, which were the hallmarks both agrarianism and industrialism. Both of which, by the way, created cities, and then the nation state, in the first place. Whew. Clear as mud. Oh, well. Besides stirring things up more than a little bit, does that answer your question? ;-). Cheers, Bob Hettinga ----------------- Robert Hettinga (rah@shipwright.com) e$, 44 Farquhar Street, Boston, MA 02131 USA "The cost of anything is the foregone alternative" -- Walter Johnson The e$ Home Page: http://www.vmeng.com/rah/ --- end forwarded text ----------------- Robert Hettinga (rah@shipwright.com) e$, 44 Farquhar Street, Boston, MA 02131 USA "The cost of anything is the foregone alternative" -- Walter Johnson The e$ Home Page: http://www.vmeng.com/rah/