--- begin forwarded text X-Sender: rah@pop.sneaker.net Mime-Version: 1.0 Date: Fri, 20 Feb 1998 08:36:21 -0500 To: e$@vmeng.com From: Robert Hettinga <rah@shipwright.com> Subject: A Geodesic Society? Sender: <e$@vmeng.com> Precedence: Bulk The following is something I wrote for a private online conference sponsored by Nikkei, the Japanese financial news organization. Since they're supposedly combing the list for quotable bon mots, I may end up in the Japanese papers. :-). Anyway, longtime residents of this list have seen me say this kind of stuff before, but for those who haven't, the following explains the kinds of effects I think the combination of ubiquitous public networks and financial cryptography can have. Cheers, Bob Hettinga --- begin forwarded text X-Sender: rah@pop.sneaker.net Mime-Version: 1.0 Date: Thu, 19 Feb 1998 00:24:07 -0500 To: gis-ec@nikkei.co.jp, gis-net@nikkei.co.jp From: Robert Hettinga <rah@shipwright.com> Subject: [gis-asia 10] A Geodesic Society? Cc: gis-asia@nikkei.co.jp Reply-To: gis-asia@nikkei.co.jp X-MLserver: majordomo-1.94.1 k-patch-2.0-alpha p-patch-1.0 X-sequence: gis-asia 10 Sender: owner-gis-asia@tokyo.nikkei.co.jp Precedence: bulk -----BEGIN PGP SIGNED MESSAGE----- As the token cryptoanarchist around here, I've been lurking way too long, mostly because I'm working on this financial cryptography conference we're doing in Anguilla next week. However, A lot of good stuff has gone by on all of these groups, and I think it's time I put my oar in and earned my keep a bit before I enter the maelstrom of next week's FC98 conference, and loose my chance to say anything here until it's all over. The first topic I'd like to talk about is something which is more general than my ostensible commercial focus in these discussions, and, after I've said my piece here, I'll go back to the commerce list and pay more attention to that end of things. I have a little more to say there on what you can do with the technology of money on public networks, though I'll drop a few hints here to get people thinking about them. My observation about networks in general is a rather obvious one when you think about it: our social structures map to our communication structures. As intuitive as it is to understand, this observation provides great insight into where the technology of computer assisted communication will take us in the years ahead. Because of Moore's Law and its effect of collapsing the price of semiconductors by half every 18 months, our telecommunication architectures have changed from hierarchical networks, where it's cheaper to add lines than it is to add expensive switching nodes, to geodesic networks, where it is ever-exponentially cheaper to add microprocessor switches instead of now relatively more expensive transmission lines. This isn't new. In fact, it's outlined in Peter Huber's landmark "The Geodesic Network", written in 1986 as a report for Judge Harold Greene as part of the Modified Final Judgement which broke up American Telephone and Telegraph, and with it the US telephone monopoly. I believe the original version is still available from the US Government Printing Office, and I know that you can order a revised edition from Peter Huber's law firm in Washington. Huber himself is now a famous technology analyst from the Manhattan Institute and a Forbes columnist, among other things. In "The Geodesic Network", Huber observed that because the network was becoming more and more geodesic, competition in telecommunications was becoming much easier. That's because switching, a scarce thing which had theretofore caused economies of scale and resultant "natural" monopoly, was becoming cheaper and cheaper to build, and thus causing *dis*economies of scale in the telephone markets. One can almost hear Huber doing a little heavy lifting from the Marines in report's conclusion, which was, essentially, "Deregulate 'em all, and let God sort 'em out." It's nice to see that we're finally getting to see deregulation of the "last mile" of the US telephone network 10 years after Huber's recommendation. As it is, it took *me* almost 10 years to realize something else about geodesic networks. It's something which required me getting back on the internet 4 years ago, after not being there since grad school, and discovering that financial cryptography -- that is, the cryptographic protocols for internet payment -- was much more important than the project management software I had wanted to sell on the net at the time. My realization was, if Moore's Law creates geodesic communications networks, and our social structures -- our institutions, our businesses, our governments -- all map to the way we communicate in large groups, then we are in the process of creating a geodesic society. A society in which communication between any two residents of that society, people, economic entities, pieces of software, whatever, is geodesic: literally, the straightest line across a sphere, rather than hierarchical, through a chain of command, for instance. This seems like a very simple truth these days. A "motherhood", as people in American business like to say. But, once you start thinking about the world in the terms of geodesic networks versus hierarchical ones, the world changes. A Buckminster Fuller version of satori, if you will, though I'm sure Bucky didn't think of human society in geodesic terms, at least from what I've read of his work. His "World Game", for instance, is primarily about the hierarchical centralization and redistribution of resources in an industrial fashion. But, as it was, Bucky Fuller had discovered a geometric archtype which was deeper than even his capacious understanding of its implications had gotten him before. So in light of this observation, for fun, let's look at human history in a few paragraphs. :-). Humans first lived in small groups on the African savanna. An artifact of this life is the fact that most people can't have serious emotional relationships with more than about 12 people, depending on how you define serious. :-). Think of it as the carrying capacity of the human "switch", and things get interesting. These small groups communicated geodesically. When you wanted to talk to someone, you went up and talked to them. Then we developed agriculture and its resulting food surpluses, people tended to congregate at the crossroads of trade routes, and that's where the first cities began. Civilization means, literally, "life in cities", remember? Once we had large groups of people in a single place, we had lots of information to pass around, but we also had expensive humans "switching" that information who were only able to trust about 12 people at any time. So, we had to develop hierarchical "networks", social organizations in other words, to move that information around. Notice we finesse the whole trust problem by using the entire hierarchy as one entity in everyone's trusted-person list. That's why people die for king and country, for instance, instead of just their family hunter-gatherer clan. So, we can now see the ancient city-state as a hierarchy of power, economics, whatever. We can also see ancient empires as a hierarchies of city states, and so on. Notice that the size of any given hierarchy in geographic terms is determined by the *speed* of communications it posesses. Athenian triremes were very secure ways to move goods and information in a relatively lawless Agean. Roman roads and galleys didn't just haul goods quickly, they moved information as well. Staged Mongol riders could carry messages across their own short-lived empire from a capital near China to the gates of Warsaw in as little as 14 days. Napoleon invented his 10-mile-an-hour stagecoach and highway system for exactly the same reason, and could almost legitimately call himself an emperor for the feat alone. That brings us to the modern nation state, which, I claim, is entirely the result of industrial communications technology. That is, you have increasingly faster communications, from sailing ships to trains to telegraphy and finally telephony, but you still have humans switching information. That gives you larger and larger communication, and thus social, hierarchies. Up until the automation of telephone switching -- paradoxically brought about a demand for universal service in exchange for that ultimate industrial hierarchy, the US telephone monopoly -- things just kept getting bigger and bigger. One could even see the increasing size of government in this century as an "antihierarchy" funded by the forcible confiscation or political extortion of economic rents from the large industrial hierarchies where industrial society's money was being made in the first place. For a tasty little digression, Marxism then can be seen as simple anti-industrialism, and an intriguing validation of Bertrand Russell's comments about the similarity of Marxism and the feudal aristocracy it hated so much. Hegel can't come to Marx's rescue here at all, because, for all it's anarchistic pretensions, Marxism can now be seen as merely industrialism's hierarchical antithesis, and not something "beyond capitalism". Besides, trading has been around since the savana itself. It's hard to imagine something antithetical to trade -- and have the result be human, anyway. :-). Okay. Now let's look at the future, shall we? Oddly enough, the "future" starts with the grant of telephone monopoly to AT&T in the 1920's in exchange for universal telephone service. When AT&T figured out that a majority of people would have to be telephone operators for that to happen, it started to automate switching, from electricomechanical, to electronic (the transistor was invented at Ball Labs, remember), to, finally, semiconducting microprocessors. Which, Huber noted, brought us Moore's Law, and, finally, that mother of all geodesic networks, the internet. So, seen this way, using the hierarchy-to-geodesy synthesis (speaking of Hegel :-)), a lot of things jump out right at us. Let's look at financial operations, for example. One can see, for instance, that the thing we call disintermediation in the capital markets is in fact a process leading to something I call *micro*intermediation, where large human decision hierarchies, like the New York Stock Exchange, or money center banks, are being outcompeted by large integrated proprietary computer networks, like the NASDAQ interbrokerage network, or Fidelity Investments here in Boston. Yet, these financial versions of big dumb bulletin boards, which still need humans to operate them on behalf of the customer, will themselves be replaced someday by smaller, more specialized and automated entities operating in increasingly smaller market niches, and, we aren't just talking about financial "shovelware", with database-driven web forms, either. Someday, for instance, a couple of portfolio managers from Fidelity could strike out on their own peculiar investment specialty, and set up a web server to handle their investor relations, but in a way that financial operations people thought was obsolete decades ago. Using financial cryptgraphy like David Chaum's blind signature protocol, our portfolio managers could just issue digital *bearer* certificates, right over the net to their customers, representing shares in the portfolio they manage, rather than keep track of all a given client's transactions in a database for posterity. Even more fun, using the digital bearer *cash* they get from the sale of those certificates, they could turn right around and instantly buy debt, equity, or any derivative thereof, in digital bearer form, of course, without waiting for any transactions to settle through a clearinghouse of any kind. Why? Because knowing that you've digitally signed a unique blop of bits and honoring the promises those various outstanding blops represent is a whole lot easier, faster, and, of course, cheaper than keeping track of every transaction you make for seven years, or whatever your friendly nation state says you have to do so they can send somebody to jail if that person lies to you. And, of course, digital bearer settlement is *much* faster than waiting for all those book-entries to percolate through various clearinghouses, banks, brokerages, and other financial intermediaries in order for a trade to clear and settle. Financial cryptography is a direct consequence of Moore's Law. You can't do it without computers, and, more important, lots of cheap computers on a network. But, you can do a lot of very neat things with it, as we've seen above. In fact, the protocols of financial cryptography will be the glue which holds a geodesic economy, if you will, together. And, of course, as Deke Slayton put it, "No bucks, no Buck Rogers." No geodesic economy, no geodesic society. I joke about VISA being replaced someday by an innumerable swarm of very small underwriting 'bots' whose job it is to form an ad hoc syndicate which buys the personal digital bearer bond issue you floated for today's lunch. In a geodesic market, the one-to-many relationships of hierarchical book-entry-settled industrial finance, like checks and credit cards, becomes to the many-to-one relationship of the geodesic digital-bearer-settled cash and the personal bond syndicate. But, what, you ask, do I do when someone defrauds me? The neat thing about using financial cryptography on public networks is that you can use the much cheaper early-industrial trust models that went away because you couldn't shove a paper bearer bond down a telegraph wire. In short, reputation becomes everything. Like J. Pierpont Morgan said 90 years ago, "...Character. I wouldn't buy anything from a man with no character if he offered me all the bonds in Christendom." In a geodesic market, if someone commits fraud, everyone knows it. Instantly. And, something much worse than incarceration happens to that person. That person's reputation "capital" disappears. They cease to exist financially. Financial cryptographers jokingly call it reputation capital punishment. :-). The miscreant has to start all over with a new digital signature, and have to pay through the nose until that signature's reputation's established. A very long and expensive process, as anyone who's gone bankrupt will testify to. So, you don't need biometric identity to stop non-repudiation. Translated, that means that since you're moving secure digital bearer certificates over an insecure private network like the internet, and not moving insecure debits and credits over a secure private network like the SWIFT system, you don't need audit trails to send someone to jail if they make the wrong book entry. Instead, you trust the issuer of a given piece of digital bearer cash, say, and not the person who gave it to you, just like you trust the issuer of a given currency today. Biometric identity is orthogonal to reputation in, um, "cypherspace". And, of course, a financial intermediary like the above issuer of digital bearer cash is not about to destroy its reputation for the sake of a very small transaction like the one you're doing, any more than the Fed would demand 6 one dollar bills in exchange for one five dollar bill just to make an extra buck. Well, not since they started listening to Friedman, anyway. :-) Microintermediation means what it says. Financial intermediaries never go away. You can't have markets, much less efficient ones, without financial intermediaries buying things low and selling them high. Renting their reputations to ensure transaction liquidity, in other words. This is at the essense of Von Mises' "Calculation Argument" against planned economies, and the defunct economy of the ex-Soviet Union is mute testament to that particular economic truth. Moore's Law, I like to say, operates like a surfactant of information, breaking great globs of concentrated information fractally into smaller and smaller bits, like so much grease in soapy dishwater. Capital, for the most part, can now be converted into information and instantantly bought or sold, or, more to the point, instantly settled and cleared in digital bearer form, in increasingly smaller and smaller bits, by smaller and smaller and increasingly more automated financial intermediaries. Microintermediated, in other words. What we get is a world where anything which can be digitized and sent down a wire will be auctioned off in real-time in cash-settled markets. Stuff like capital we've seen, but lots of other things, which are not immediately intuitive. Machine instructions -- teleoperated or not. Software of all kinds including entertainment and art. Bandwidth; I talk about a router saving enough micromoney out of switching income to buy a copy of itself. Maybe even adjudication and physical force, someday. After all, who says we have to buy violence from the local force monopolies we now call nation states, especially if we can get it cheaper and better -- and possibly in smaller amounts -- in a competitive auction market? Curioser and curioser, as Alice used to say... I mean, the nation-state's just another hierarchical artifact of industrial communication technology, right? Besides, If everyone's paying for things in cash and no book entry taxes can be collected because there aren't any book entries, then, as someone said on a Harvard Law School list a few years ago, "What happens when taxes become a tip"? Of course, there are various cypherpunks out there who say things like "Write softare, not laws.", which should make those folks on Mass Ave in Cambridge more than a little nervous themselves. So, welcome to the geodesic future. Not hoping to attract the wrath of the famous curse, isn't it an, um, interesting place? Cheers, Bob Hettinga -----BEGIN PGP SIGNATURE----- Version: PGP for Personal Privacy 5.5.3 iQEVAwUBNOvB0cUCGwxmWcHhAQHVUAgAgYFUDcKLcsTNnevVmPaTp7lXxLo59oMI qChTR7TmeEi0W6SgSn4nUd5zlJiBkx1ut6n2tIasvfpXgd3OaLqkPo9ZNSrMQZE7 8C1d5dI42/VgN36fDPgB/zVxNrqxDNIFYdOf9aH1A7u4TYUJTe9PSSQdfKxzMyTf FQ+IfAzJjC3PFfxh566ghtHea7n235djGvAd8oHpr0SKBaSfu7jQjGUeecMDcTlg ZzQf7V51MFcgKd/UPi2dybzYZoK8bIb7aJ9cazGc5k1chUOeVOykpW4EIvXZrBs7 Z0oRQfxwU/u+oLpA8Vt7xdK0qCTRLdxnsTzEFLUjTH/70ep3YNcgRA== =9Xak -----END PGP SIGNATURE----- ----------------- Robert Hettinga (rah@shipwright.com), Philodox e$, 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' The e$ Home Page: http://www.shipwright.com/ Ask me about FC98 in Anguilla!: <http://www.fc98.ai/> --- end forwarded text ----------------- Robert Hettinga (rah@shipwright.com), Philodox e$, 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' The e$ Home Page: http://www.shipwright.com/ Ask me about FC98 in Anguilla!: <http://www.fc98.ai/> ---------------------------------------------------------------------- Where people, networks and money come together: Consult Hyperion http://www.hyperion.co.uk/ info@hyperion.co.uk ---------------------------------------------------------------------- Full-Strength Cryptographic Solutions for Worldwide Electronic Commerce http://www.c2.net/ stronghold@c2.net ---------------------------------------------------------------------- Like e$? Help pay for it! For e$/e$pam sponsorship or donations, <mailto:rah@shipwright.com> ---------------------------------------------------------------------- --- end forwarded text ----------------- Robert Hettinga (rah@shipwright.com), Philodox e$, 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' The e$ Home Page: http://www.shipwright.com/ Ask me about FC98 in Anguilla!: <http://www.fc98.ai/>