Crypto Anarchy and Virtual Communities [TCMay]

grarpamp grarpamp at
Sun Sep 4 22:32:18 PDT 2022

Crypto Anarchy and Virtual Communities
Timothy C. May
December 1994
Extended Abstract

The combination of strong, unbreakable public key cryptography and
virtual network communities in cyberspace will produce interesting and
profound changes in the nature of economic and social systems. Crypto
anarchy is the cyberspatial realization of anarcho-capitalism,
transcending national boundaries and freeing individuals to make the
economic arrangements they wish to make consensually.

Strong cryptography, exemplified by RSA (a public key algorithm) and
PGP (Pretty Good Privacy), provides encryption that essentially cannot
be broken with all the computing power in the universe. This ensures
security and privacy. Public key cryptography is rightly considered to
be a revolution.

Digital mixes, or anonymous remailers, use crypto to create
untraceable e-mail, which has many uses. (Numerous anonymous
remailers, in several countries, are now operating. Message traffic is
growing exponentially.)

Digital pseudonyms, the creation of persistent network personas that
cannot be forged by others and yet which are unlinkable to the "true
names" of their owners, are finding major uses in ensuring free
speech, in allowing controversial opinions to be aired, and in
providing for economic transactions that cannot be blocked by local
governments. The technology being deployed by the Cypherpunks and
others, means their identities, nationalities, and even which
continents they are on are untraceable -- unless they choose to reveal
this information. This alters the conventional "relationship topology"
of the world, allowing diverse interactions without external
governmental regulation, taxation, or interference.

Digital cash, untraceable and anonymous (like real cash), is also
coming, though various technical and practical hurdles remain. "Swiss
banks in cyberspace" will make economic transactions much more liquid
and much less subject to local rules and regulations. Tax avoidance is
likely to be a major attraction for many. An example of local interest
to Monte Carlo might be the work underway to develop anonymous,
untraceable systems for "cyberspace casinos." While not as attractive
to many as elegant casinos, the popularity of "numbers games" and
bookies in general suggests a opportunity to pursue.

Data havens and information markets are already springing up, using
the methods described to make information retrievable anonymously and

Governments see their powers eroded by these technologies, and are
taking various well-known steps to try to limit the use of strong
crypto by their subjects. The U.S. has several well-publicized
efforts, including the Clipper chip, the Digital Telephony wiretap
law, and proposals for "voluntary" escrow of cryptographic keys.
Cypherpunks and others expect these efforts to be bypassed. Technology
has let the genie out of the bottle. Crypto anarchy is liberating
individuals from coercion by their physical neighbors—who cannot know
who they are on the Net—and from governments. For libertarians, strong
crypto provides the means by which government will be avoided.

The presentation will describe how several of these systems work,
briefly, and will outline the likely implications of this combination
of crypto anarchy and virtual cyberspace communities.
1. Introduction

This paper describes the combination of two major technologies:

    Strong Crypto: including encryption, digital signatures, digital
cash, digital mixes (remailers), and related technologies.
    Cyberspatial Virtual Communities: including networks, anonymous
communications, MUDs and MOOs, and "Multiverse"-type virtual

This paper describes the combination of two major technologies:

These areas have generally remained separate, at least in published
papers. Certainly the developers of cyberspace systems, such as MUDs,
MOOs, and Habitat-like systems, appreciate the importance of
cryptography for user authentication, overall security, and certainly
for (eventual) digital purchase of services. But for the most part the
combination of these two areas has been the province of the science
fiction writer, notably writers such as Vernor Vinge, William Gibson,
Bruce Sterling, and Orson Scott Card.

The "Cypherpunks" group, a loose, anarchic mailing list and group of
hackers, was formed by several of us in 1992 as a group to make
concrete some of the abstract ideas often presented at conferences.
We've had some successes, and some failures.[1] The Cypherpunks group
also appeared at a fortuitous time, as PGP was becoming popular, as
Wired magazine appeared (they featured us on the cover of their second
issue), and as the publicity (hype?) about the Information
Superhighway and the World Wide Web reached a crescendo.

The site has a number of essays and files,
including crypto files, in the directory pub/cypherpunks. I have also
written/ compiled a very large 1.3 MB FAQ on these issues, the
Cyphernomicon, available at various sites, including my ftp directory,, in the directory pub/tc/tcmay.

The Cypherpunks group is also a pretty good example of a "virtual
community." Scattered around the world, communicating electronically
in matters of minutes, and seeming oblivious to local laws, the
Cypherpunks are indeed a community, and a virtual one. Many members
use pseudonyms, and use anonymous remailers to communicate with the
list. The list itself thus behaves as a "message pool," a place where
information of all sort may be anonymous deposited—and anonymous
received (since everyone sees the entire list, like a newspaper, the
intended recipient is anonymized).

Legal Caveat: Consult your local laws before applying any of the
methods described here. In some jurisdictions, it may be illegal to
even read papers like this (seriously). In particular, I generally
won't be giving ftp site addresses for copies of PGP, remailer access,
digital cash systems, etc. These are well-covered in more current
forums, e.g., sci.crypt or talk.politics.crypto, and there are some
unresolved issues about whether giving the address of such sites
constitutes (or "aids and abets") violation of various export and
munitions laws (crypto is considered a munition in the U.S. and
probably elsewhere....some nations consider a laser printer to be a
munitions item!).
2. Modern Cryptography

The past two decades have produced a revolution in cryptography
(crypto, for short) the science of the making of ciphers and codes.
Beyond just simple ciphers, useful mainly for keeping communications
secret, modern crypto includes diverse tools for authentication of
messages, for digital timestamping of documents, for hiding messages
in other documents (steganography), and even for schemes for digital

Public key cryptography, the creation of Diffie and Hellman, has
dramatically altered the role of crypto. Coming at the same time as
the wholesale conversion to computer networks and worldwide
communications, it has been a key element of security, confidence, and
success. The role of crypto will only become more important over the
coming decades.

Pretty Good Privacy, PGP, is a popular version of the algorithm
developed by Rivest, Shamir, and Adleman, known of course as RSA. The
RSA algorithm was given a patent in the U.S., though not in any
European countries, and is licensed commercially.[2]

These tools are described in detail in various texts and Conference
proceedings, and are not the subject of this paper.[3] The focus here
is on the implications of strong crypto for cyberspace, especially on
virtual communities.

Mention should be made of the role of David Chaum in defining the key
concepts here. In several seminal papers (for example,[4][5]), Chaum
introduced the ideas of using public key cryptography methods for
anonymous, untraceable electronic mail, for digital money systems in
which spender identity is not revealed, and in schemes related to
these. (I make no claims of course that Chaum agrees with my
conclusions about the political and socioeconomic implications of
these results.)
3. Virtual Communities

Notes: cyberspace, Habitat, VR, Vinge, etc. Crypto holds up the
"walls" of these cyberspatial realities. Access control, access
rights, modification privileges.

Virtual communities are the networks of individuals or groups which
are not necessarily closely-connected geographically. The "virtual" is
meant to imply a non-physical linking, but should not be taken to mean
that these are any less community-like than are conventional physical

Examples include churches, service organizations, clubs, criminal
gangs, cartels, fan groups, etc. The Catholic Church and the Boy
Scouts are both examples of virtual communities which span the globe,
transcend national borders, and create a sense of allegiance, of
belonging, and a sense of "community." Likewise, the Mafia is a
virtual community (with its enforcement mechanisms, its own
extra-legal rules, etc.) Lots of other examples: Masons, Triads, Red
Cross, Interpol, Islam, Judaism, Mormons, Sindero Luminoso, the IRA,
drug cartels, terrorist groups, Aryan Nation, Greenpeace, the Animal
Liberation Front, and so on. There are undoubtedly many more such
virtual communities than there are nation-states, and the ties that
bind them are for the most part much stronger than are the chauvinist
nationalism emotions. Any group in which the common interests of the
group, be it a shared ideology or a particular interest, are enough to
create a cohesive community.

Corporations are another prime example of a virtual community, having
scattered sites, private communication channels (generally
inaccessible to the outside world, including the authorities), and
their own goals and methods. In fact, many "cyberpunk" (not
cypherpunk) fiction authors make a mistake, I think, in assuming the
future world will be dominated by transnational megacorporate
"states." In fact, corporations are just one example—of many—of such
virtual communities which will be effectively on a par with
nation-states. (Note especially that any laws designed to limit use of
crypto cause immediate and profound problems for
corporations-countries like France and the Philippines, which have
attempted to limit the use of crypto, have mostly been ignored by
corporations. Any attempts to outlaw crypto will produce a surge of
sudden "incorporations," thus gaining for the new corporate members
the aegis of corporate privacy.)

In an academic setting, "invisible colleges" are the communities of researchers.

These virtual communities typically are "opaque" to outsiders.
Attempts to gain access to the internals of these communities are
rarely successful. Law enforcement and intelligence agencies (such as
the NSA in the U.S., Chobetsu in Japan, SDECE in France, and so on, in
every country) may infiltrate such groups and use electronic
surveillance (ELINT) to monitor these virtual communities. Not
surprisingly, these communities are early adopters of encryption
technology, ranging from scrambled cellphones to full-blown PGP

The use of encryption by "evil" groups, such as child pornographers,
terrorists, abortionists, abortion protestors, etc., is cited by those
who wish to limit civilian access to crypto tools. We call these the
"Four Horseman of the Infocalypse," as they are so often cited as the
reason why ordinary citizen-units of the nation-state are not to have
access to crypto.

This is clearly a dangerous argument to make, for various good
reasons. The basic right of free speech is the right to speak in a
language one's neighbors or governing leaders may not find
comprehensible: encrypted speech. There's not enough space here to go
into the many good arguments against a limit on access to privacy,
communications tools, and crypto.

The advent of full-featured communications systems for
computer-mediated virtual communities will have even more profound
implications. MUDs and MOOs (multi-user domains, etc.) and 3D virtual
realities are one avenue, and text-centric Net communications are
another. (Someday, soon, they'll merge, as described in Vernor Vinge's
prophetic 1980 novella, True Names.)
4. Observability and Surveillance

An interesting way to view issues of network visibility is in terms of
the "transparency" of nodes and links between nodes. Transparent means
visible to outsiders, perhaps those in law enforcement or the
intelligence community. Opaque mean not transparent, not visible. A
postcard is transparent, a sealed letter is opaque. PGP inventor Phil
Zimmermann has likened the requirement for transparency to being
ordered to use postcards for all correspondence, with encryption the
equivalent of an opaque envelope (envelopes can be opened, of course,
and long have been).

Transparent links and nodes are the norm in a police state, such as
the U.S.S.R., Iraq, China, and so forth. Communications channels are
tapped, and private use of computers is restricted. (This is becoming
increasingly hard to do, even for police states; many cite the spread
of communications options as a proximate cause of the collapse of
communism in recent years.)

There are interesting "chemistries" or "algebras" of transparent vs.
opaque links and nodes. What happens if links must be transparent, but
nodes are allowed to be opaque? (The answer: the result is as if
opaque links and nodes were allowed, i.e., full implications of strong
crypto. Hence, any attempt to ban communications crypto while still
allowing private CPUs to exist....)

If Alice and Bob are free to communicate, and to choose routing paths,
then Alice can use "crypto arbitrage" (a variation on the term,
"regulatory arbitrage," the term Eric Hughes uses to capture this idea
of moving transactions to other jurisdictions) to communicate with
sites—perhaps in other countries—that will perform as she wishes. This
can mean remailing, mixing, etc. As an example, Canadian citizens who
are told they cannot access information on the Homolka-Teale murder
case (a controversial case in which the judge has ordered the media in
Canada, and entering Canada, not to discuss the gory details)
nevertheless have a vast array of options, including using telnet,
gopher, ftp, the Web, etc., to access sites in many other
countries--or even in no country in particular.

Most of the consequences described here arise from this chemistry of
links and nodes: unless nearly all node and links are forced to be
transparent, including links to other nations and the nodes in those
nations, then the result is that private communication can still
occur. Crypto anarchy results.
5. Crypto Anarchy

"The Net is an anarchy." This truism is the core of crypto anarchy. No
central control, no ruler, no leader (except by example, reputation),
no "laws." No single nation controls the Net, no administrative body
sets policy. The Ayatollah in Iran is as powerless to stop a
newsgroup—alt.wanted.moslem.women or come to
mind—he doesn't like as the President of France is as powerless to
stop, say, the abuse of French in soc.culture.french. Likewise, the
CIA can't stop newsgroups, or sites, or Web pages, which give away
their secrets. At least not in terms of the Net itself...what non-Net
steps might be taken is left as an exercise for the paranoid and the

This essential anarchy is much more common than many think.
Anarchy—the absence of a ruler telling one what to do—is common in
many walks of life: choice of books to read, movies to see, friends to
socialize with, etc. Anarchy does not mean complete freedom—one can,
after all, only read the books which someone has written and had
published—but it does mean freedom from external coercion. Anarchy as
a concept, though, has been tainted by other associations.

First, the "anarchy" here is not the anarchy of popular conception:
lawlessness, disorder, chaos, and "anarchy." Nor is it the
bomb-throwing anarchy of the 19th century "black" anarchists, usually
associated with Russia and labor movements. Nor is it the "black flag"
anarchy of anarcho-syndicalism and writers such as Proudhon. Rather,
the anarchy being spoken of here is the anarchy of "absence of
government" (literally, "an arch," without a chief or head).

This is the same sense of anarchy used in "anarchocapitalism," the
libertarian free market ideology which promotes voluntary, uncoerced
economic transactions.[7] I devised the term crypto anarchy as a pun
on crypto, meaning "hidden," on the use of "crypto" in combination
with political views (as in Gore Vidal's famous charge to William F.
Buckley: "You crypto fascist!"), and of course because the technology
of crypto makes this form of anarchy possible. The first presentation
of this was in a 1988 "Manifesto," whimsically patterned after another
famous manifesto.[8] Perhaps a more popularly understandable term,
such as "cyber liberty," might have some advantages, but crypto
anarchy has its own charm, I think.

And anarchy in this sense does not mean local hierarchies don't exist,
nor does it mean that no rulers exist. Groups outside the direct
control of local governmental authorities may still have leaders,
rulers, club presidents, elected bodies, etc. Many will not, though.

Politically, virtual communities outside the scope of local
governmental control may present problems of law enforcement and tax
collection. (Some of us like this aspect.) Avoidance of coerced
transactions can mean avoidance of taxes, avoidance of laws saying who
one can sell to and who one can't, and so forth. It is likely that
many will be unhappy that some are using cryptography to avoid laws
designed to control behavior.

National borders are becoming more transparent than ever to data. A
flood of bits crosses the borders of most developed countries—phone
lines, cables, fibers, satellite up/downlinks, and millions of
diskettes, tapes, CDs, etc. Stopping data at the borders is less than

Finally, the ability to move data around the world at will, the
ability to communicate to remote sites at will, means that a kind of
"regulatory arbitrage" can be used to avoid legal roadblocks. For
example, remailing into the U.S. from a site in the
Netherlands...whose laws apply? (If one thinks that U.S. laws should
apply to sites in the Netherlands, does Iraqi law apply in the U.S.?
And so on.)

This regulatory arbitrage is also useful for avoiding the welter of
laws and regulations which operations in one country may face,
including the "deep pockets" lawsuits so many in the U.S. face. Moving
operations on the Net outside a litigious jurisdiction is one step to
reduce this business liability. Like Swiss banks, but different.
6. True Names and Anonymous Systems

Something needs to be said about the role of anonymity and digital
pseudonyms. This is a topic for an essay unto itself, of course.

Are true names really needed? Why are they asked for? Does the
nation-state have any valid reason to demand they be used?

People want to know who they are dealing with, for
psychological/evolutionary reasons and to better ensure traceability
should they need to locate a person to enforce the terms of a
transaction. The purely anonymous person is perhaps justifiably viewed
with suspicion.

And yet pseudonyms are successful in many cases. And we rarely know
whether someone who presents himself by some name is "actually" that
person. Authors, artists, performers, etc., often use pseudonyms. What
matters is persistence, and nonforgeability. Crypto provides this.

On the Cypherpunks list, well-respected digital pseudonyms have
appeared and are thought of no less highly than their "real"
colleagues are.

The whole area of digitally-authenticated reputations, and the
"reputation capital" that accumulates or is affected by the opinions
of others, is an area that combines economics, game theory,
psychology, and expectations. A lot more study is needed.

It is unclear if governments will move to a system of demanding
"Information Highway Driver's Licenses," figuratively speaking, or how
systems like this could ever be enforced. (The chemistry of opaque
nodes and links, again.)
7. Examples and Uses

It surprises many people that some of these uses are already being
intensively explored. Anonymous remailers are used by tens of
thousands of persons-and perhaps abused.[9] And of course encryption,
via RSA, PGP, etc., is very common in some communities. (Hackers, Net
users, freedom fighters, white separatists, etc....I make no moral
judgments here about those using these methods).

Remailers are a good example to look at in more detail. There are two
current main flavors of remailers:

    "Cypherpunk"-style remailers, which process text messages to
redirect mail to another sites, using a command syntax that allows
arbitrary nesting of remailing (as many sites as one wishes), with PGP
encryption at each level of nesting.

    "Julf"-style remailer(s), based on the original work of Karl
Kleinpaste and operated/maintained by Julf Helsingius, in Finland. No
encryption, and only one such site at present. (This system has been
used extensively for messages posted to the Usenet, and is basically
successful. The model is based on operator trustworthiness, and his
location in Finland, beyond the reach of court orders and subpoenas
from most countries.)

The Cypherpunks remailers currently number about 20, with more being
added every month. There is no reason not to expect hundreds of such
remailers in a few years.

One experimental "information market" is BlackNet, a system which
appeared in 1993 and which allows fully-anonymous, two-way exchanges
of information of all sorts. There are reports that U.S. authorities
have investigated this because of its presence on networks at Defense
Department research labs. Not much they can do about it, of course,
and more such entities are expected.

(The implications for espionage are profound, and largely unstoppable.
Anyone with a home computer and access to the Net or Web, in various
forms, can use these methods to communicate securely, anonymously or
pseudonymously, and with little fear of detection. "Digital dead
drops" can be used to post information obtained, far more securely
than the old physical dead more messages left in Coke cans
at the bases of trees on remote roads.)

Whistleblowing is another growing use of anonymous remailers, with
folks fearing retaliation using remailers to publicly post
information. (Of course, there's a fine line between whistleblowing,
revenge, and espionage.)

Data havens, for the storage and marketing of controversial
information is another area of likely future growth. Nearly any kind
of information, medical, religious, chemical, etc., is illegal or
proscribed in one or more countries, so those seeking this illegal
information will turn to anonymous messaging systems to access—and
perhaps purchase, with anonymous digital cash—this information. This
might include credit data bases, deadbeat renter files, organ bank
markets, etc. (These are all things which have various restrictions on
them in the U.S., for cannot compile credit data bases,
or lists of deadbeat renters, without meeting various restrictions. A
good reason to move them into cyberspace, or at least outside the
U.S., and then sell access through remailers.)

Matching buyers and sellers of organs is another such market. A huge
demand (life and death), but various laws tightly controlling such

Digital cash efforts. A lot has been written about digital cash.[10]
[11] David Chaum's company, DigiCash, has the most interesting
technology, and has recently begun market testing. Stefan Brands may
or may not have a competing system which gets around some of Chaum's
patents. (The attitude crypto anarchists might take about patents is
another topic for discussion. Suffice it to say that patents and other
intellectual property issues continue to have relevance in the
practical world, despite erosion by technological trends.)

Credit card-based systems, such as the First Virtual system, are not
exactly digital cash, in the Chaumian sense of blinded notes, but
offer some advantages the market may find useful until more advanced
systems are available.

I expect to see many more such experiments over the next several
years, and some of them will likely be market successes.
8. Commerce and Colonization of Cyberspace

How will these ideas affect the development of cyberspace?

"You can't eat cyberspace" is a criticism often levelled at argument
about the role of cyberspace in everyday life. The argument made is
that money and resources "accumulated" in some future (or near-future)
cyberspatial system will not be able to be "laundered" into the real
world. Even such a prescient thinker as Neal Stephenson, in Snow
Crash, had his protagonist a vastly wealthy man in "The Multiverse,"
but a near-pauper in the physical world.

This is implausible for several reasons. First, we routinely see
transfers of wealth from the abstract world of stock tips, arcane
consulting knowledge, etc., to the real world. "Consulting" is the
operative word. Second, a variety of means of laundering money, via
phony invoices, uncollected loans, art objects, etc., are well-known
to those who launder money...these methods, and more advanced ones to
come, are likely to be used by those who wish their cyberspace profits
moved into the real world.

(Doing this anonymously, untraceably, is another complication. There
may be methods of doing this--proposals have looked pretty solid, but
more work is needed.)

The World Wide Web is growing at an explosive pace. Combined with
cryptographically-protected communication and digital cash of some
form (and there are several being tried), this should produce the
long-awaited colonization of cyberspace.

Most Net and Web users already pay little attention to the putative
laws of their local regions or nations, apparently seeing themselves
more as members of various virtual communities than as members of
locally-governed entities. This trend is accelerating.

Most importantly, information can be bought and sold (anonymously,
too) and then used in the real world. There is no reason to expect
that this won't be a major reason to move into cyberspace.
9. Implications

I've touched on the implications in several places. Many thoughtful
people are worried about some of the possibilities made apparent by
strong crypto and anonymous communication systems. Some are proposing
restrictions on access to crypto tools. The recent debate in the U.S.
over "Clipper" and other key escrow systems shows the strength of
emotions on this issue.

Abhorrent markets may arise. For example, anonymous systems and
untraceable digital cash have some obvious implications for the
arranging of contract killings and such. (The greatest risk in
arranging such hits is that physical meetings expose the buyers and
sellers of such services to stings. Crypto anarchy lessens, or even
eliminates, this risk, thus lowering transaction costs. The risks to
the actual triggermen are not lessened, but this is a risk the buyers
need not worry about. Think of anonymous escrow services which hold
the digital money until the deed is done. Lots of issues here. It is
unfortunate that this area is so little-discussed....people seem to
have an aversion for exploring the logical consequences in such

The implications for corporate and national espionage have already
been touched upon. Combined with liquid markets in information, this
may make secrets much harder to keep. (Imagine a "Digital Jane's,"
after the military weapons handbooks, anonymously compiled and sold
for digital money, beyond the reach of various governments which don't
want their secrets told.)

New money-laundering approaches are of course another area to explore.

Something that is inevitable is the increased role of individuals,
leading to a new kind of elitism. Those who are comfortable with the
tools described here can avoid the restrictions and taxes that others
cannot. If local laws can be bypassed technologically, the
implications are pretty clear.

The implications for personal liberty are of course profound. No
longer can nation-states tell their citizen-units what they can have
access to, not if these citizens can access the cyberspace world
through anonymous systems.
10. How Likely?

I am making no bold predictions that these changes will sweep the
world anytime soon. Most people are ignorant of these methods, and the
methods themselves are still under development. A wholesale conversion
to "living in cyberspace" is just not in the cards, at least not in
the next few decades.

But to an increasingly large group, the Net is reality. It is where
friends are made, where business is negotiated, where intellectual
stimulation is found. And many of these people are using crypto
anarchy tools. Anonymous remailers, message pools, information
markets. Consulting via pseudonyms has begun to appear, and should
grow. (As usual, the lack of a robust digital cash system is slowing
things down.

Can crypto anarchy be stopped? Although the future evolution in
unclear, as the future almost always is, it seems unlikely that
present trends can be reversed:

    Dramatic increases in bandwidth and local, privately-owned computer power.
    Exponential increase in number of Net users.
    Explosion in "degrees of freedom" in personal choices, tastes,
wishes, goals.
    Inability of central governments to control economies, cultural
trends, etc.[12]

The Net is integrally tied to economic transactions, and no country
can afford to "disconnect" itself from it. (The U.S.S.R. couldn't do
it, and they were light-years behind the U.S., European, and Asian
countries. And in a few more years, no hope of limiting these tools at
all, something the U.S. F.B.I. has acknowledged.[13]

Technological Inevitability: These tools are already in widespread
use, and only draconian steps to limit access to computers and
communications channels could significantly impact further use.
(Scenarios for restrictions on private use of crypto.)

As John Gilmore has noted, "the Net tends to interpret censorship as
damage, and routes around it." This applies as well to attempts to
legislate behavior on the Net. (The utter impossibility of regulating
the worldwide Net, with entry points in more than a hundred nations,
with millions of machines, is not yet fully recognized by most
national governments. They still speak in terms of "controlling" the
Net, when in fact the laws of one nation generally have little use in
other countries.)

Digital money in its various forms is probably the weakest link at
this point. Most of the other pieces are operational, at least in
basic forms, but digital cash is (understandably) harder to deploy.
Hobbyist or "toy" experiments have been cumbersome, and the "toy"
nature is painfully obvious. It is not easy to use digital cash
systems at this time ("To use Magic Money, first create a client..."),
especially as compared to the easily understood alternatives.[14]
People are understandably reluctant to entrust actual money to such
systems. And it's not yet clear what can be bought with digital cash
(a chicken or egg dilemma, likely to be resolved in the next several

And digital cash, digital banks, etc., are a likely target for
legislative moves to limit the deployment of crypto anarchy and
digital economies. Whether through banking regulation or tax laws, it
is not likely that digital money will be deployed easily. "Kids, don't
try this at home!" Some of the current schemes may also incorporate
methods for reporting transactions to the tax authorities, and may
include "software key escrow" features which make transactions fully
or partly visible to authorities.
11. Conclusions

Strong crypto provides new levels of personal privacy, all the more
important in an era of increased surveillance, monitoring, and the
temptation to demand proofs of identity and permission slips. Some of
the "credentials without identity" work of Chaum and others may lessen
this move toward a surveillance society.

The implications are, as I see it, that the power of nation-states
will be lessened, tax collection policies will have to be changed, and
economic interactions will be based more on personal calculations of
value than on societal mandates.

Is this a Good Thing? Mostly yes. Crypto anarchy has some messy
aspects, of this there can be little doubt. From relatively
unimportant things like price-fixing and insider trading to more
serious things like economic espionage, the undermining of corporate
knowledge ownership, to extremely dark things like anonymous markets
for killings.

But let's not forget that nation-states have, under the guise of
protecting us from others, killed more than 100 million people in this
century alone. Mao, Stalin, Hitler, and Pol Pot, just to name the most
extreme examples. It is hard to imagine any level of digital contract
killings ever coming close to nationstate barbarism. (But I agree that
this is something we cannot accurately speak about; I don't think we
have much of a choice in embracing crypto anarchy or not, so I choose
to focus on the bright side.)

It is hard to argue that the risks of anonymous markets and tax
evasion are justification for worldwide suppression of communications
and encryption tools. People have always killed each other, and
governments have not stopped this (arguably, they make the problem
much worse, as the wars of this century have shown).

Also, there are various steps that can be taken to lessen the risks of
crypto anarchy impinging on personal safety.[15]

Strong crypto provides a technological means of ensuring the practical
freedom to read and write what one wishes to. (Albeit perhaps not in
one's true name, as the nation-state-democracy will likely still try
to control behavior through majority votes on what can be said, not
said, read, not read, etc.) And of course if speech is free, so are
many classes of economic interaction that are essentially tied to free

A phase change is coming. Virtual communities are in their ascendancy,
displacing conventional notions of nationhood. Geographic proximity is
no longer as important as it once was.

A lot of work remains. Technical cryptography still hasn't solved all
problems, the role of reputations (both positive and negative) needs
further study, and the practical issues surrounding many of these
areas have barely been explored.

We will be the colonizers of cyberspace.
12. Acknowledgments

My thanks to my colleagues in the Cypherpunks group, all 700 of them,
past or present. Well over 100 megabytes of list traffic has passed
through he Cypherpunks mailing list, so there have been a lot of
stimulating ideas. But especially my appreciation goes to Eric Hughes,
Sandy Sandfort, Duncan Frissell, Hal Finney, Perry Metzger, Nick
Szabo, John Gilmore, Whit Diffie, Carl Ellison, Bill Stewart, and
Harry Bartholomew. Thanks as well to Robin Hanson, Ted Kaehler, Keith
Henson, Chip Morningstar, Eric Dean Tribble, Mark Miller, Bob Fleming,
Cherie Kushner, Michael Korns, George Gottlieb, Jim Bennett, Dave
Ross, Gayle Pergamit, and—especially—the late Phil Salin. Finally,
thanks for valuable discussions, sometimes brief, sometimes long, with
Vernor Vinge, David Friedman, Rudy Rucker, David Chaum, Kevin Kelly,
and Steven Levy.
13. References and Notes

    The Cypherpunks group was mainly formed by Eric Hughes, Tim May,
and John Gilmore. It began both physical meetings, in the Bay Area and
elsewhere, and virtual meetings on an unmoderated mailing list. The
name was provided by Judith Milhon, as a play on the "cyberpunk" genre
and the British spelling of cipher. The mailing list can be subscribed
to by sending the single message subscribe cypherpunks in the body of
a message to majordomo at Expect at least 50 messages a day.
About 600 subscribers in many countries are presently on the list.
Some are pseudonyms. ↩

    RSA Data Security Inc., Redwood Shores, California, is the license
administrator. Contact them for details. ↩

    Many crypto texts exist. A good introduction is Bruce Schneier's
Applied Cryptography, John Wiley and Sons, 1994. This text includes
pointers to many other sources. The "Crypto" Proceedings (Advances in
Cryptology, Springer-Verlag, annually) are essential references. The
annual Crypto conference in Santa Barbara, and the Eurocrypt and
Auscrypt conferences, are where most crypto results are presented. ↩

    David Chaum, "Untraceable Electronic Mail, Return Addresses, and
Digital Pseudonyms," Comm. ACM 24, 2, February 1981, pp. 84-88.
Cypherpunks-style remailers are a form of Chaum's "digital mixes,"
albeit far from ideal. ↩

    David Chaum, "Security without Identification: Transaction Systems
to make Big Brother Obsolete," Comm. ACM 28, 10, October 1985. This is
an early paper on digital sure to consult more recent
papers. ↩

    The political opposition in Myan Mar—formerly Burma—is using
Pretty Good Privacy running on DOS laptops in the jungles for
communications amongst the rebels, according to Phil Zimmermann,
author of PGP. This life-and-death usage underscores the role of
crypto. ↩

    David Friedman, The Machinery of Freedom, 2nd edition. A leading
theoretician of anarcho-capitalism. (Hayek was another.) ↩

    Tim May, The Crypto Anarchist Manifesto, July 1988, distributed on
the Usenet and on various mailing lists. ↩

    Abuse, according to some views, of remailers is already occurring.
A Cypherpunks-type remailer was used to post a proprietary hash
function of RSA Data Security, Inc. to the Usenet. (Let me hasten to
add that it was not a remailer I operate, or have control over, etc.)

    article on digital cash, The Economist, 26 November 1994. pp. 21-23. ↩

    article on digital cash, Steven Levy, Wired. December 1994. ↩

    See Kevin Kelly's Out of Control, 1994, for a discussion of how
central control is failing, and how the modern paradigm is one of
market mechanisms, personal choice, and technological empowerment. ↩

    During the "Digital Telephony Bill" debate, an FBI official said
that failure to mandate wiretap capabilities within the next 18 months
would make it all moot, as the cost would rise beyond any reasonable
budget (currently $500 million for retrofit costs). ↩

    "Magic Money" was an experimental implementation of Chaum's
digital cash system. It was coded by "Pr0duct Cypher," a pseudonymous
member of the Cypherpunks list—none of us knows his real identity, as
he used remailers to communicate with the list, and digitally signed
his posts. Many of us found it too difficult to use, which is more a
measure of the deep issues involved in using digital analogs (no pun
intended) to real, physical money. ↩

    Robin Hanson and David Friedman have written extensively about
scenarios for dealing with the threats of extortionists, would-be
assassins, etc. I am hoping some of their work gets published someday.
(Much of the discussion was in 1992-3, on the "Extropians" mailing
list.) ↩

Timothy C. May
535 Monterey Drive
Aptos, CA 95003 U.S.A.
tcmay at
December, 1994

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