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Today's article will take us back in time, once again, for another piece of history. What you'll read below is a very good cautionary tale for all of us and, most important, it certainly helped Satoshi in developing Bitcoin, by learning the mistakes made by others in the past.

Bitcoin had multiple ancestors, as Cypherpunks and other tech savvies were interested in creating digital forms of private money. However, only two such solution were put in practice: DigiCash and E-gold. DigiCash was invented by David Chaum, which can be named also as a grandfather of Cypherpunks. This solution was based on blind signatures and it was actually working, more than two decades earlier than Bitcoin. Some banks from Europe and US adopted DigiCash and the product got traction. The end came in 1998, when the company went bankrupt. Perhaps Chaum's invention was way ahead its time. Or maybe Chaum was not a very good businessman. But there are certain flaws the product had, although it was working, and which Bitcoin avoided repeating them: there was no decentralization, the trusted third party was a must and the design was protected by patents and copyright. Bitcoin is open source and free to use.

E-gold was another functional product which appeared before Bitcoin. It also got traction and, in 1999, mobile payments were already possible through E-gold. However, this solution implied the existence of exchanges, which are now one of greatest threats for bitcoiners and for Bitcoin's decentralization. And, in this case, the existence of exchanges turned actually against the developers. In 2007, more than a decade after the product was launched, the developers were accused of money laundering and operating money without a license. This also affected the users, which could not get their money back, since the exchanges were shut down. Although the people behind E-gold fought hard with the authorities, they lost everything. And although they actually tried to comply with the laws, because of the conviction they could not operate money. Fortunately, the clients received their money back a few years later. Similar to DigiCash, E-gold was also a centralized product and implied a trusted third party. Satoshi must have learned also from E-gold's story and managed to avoid their mistakes.

The material below contains the stories of DigiCash and E-gold, related in third part of the second chapter of Wendy McElroy's Satoshi Revolution: Cautionary Tales from Earlier Digital Cash. Enjoy the reading!

Section I: The Trusted Third Party Problem
Chapter 2: Monetary Theory
Part 3 - Cautionary Tales From Earlier Digital Cash



"There are 3 eras of currency: commodity based, politically based, and now, math based."
—Chris Dixon

Versions of digital cash and online transfer systems existed before Bitcoin. DigiCash and e-gold are among the better-known ones, but neither could shake the dogged trusted third party problem. Both lacked the essential vehicle of privacy and self-banking created by Satoshi Nakamoto: the blockchain. The early systems are useful as cautionary tales, however, and they spotlight the elegance of Bitcoin.

DigiCash

In 1983, the renowned cryptographer David Chaum introduced the idea of digital cash in a path-breaking research paper. In 1989, he founded an electronic money corporation named DigiCash, Inc. which in turn established the electronic payment system e-cash; the actual currency or “coin” was DigiCash. E-cash has been called “technically perfect.” It built upon an earlier system designed by Chaum: Blind Signature. This is a digital signature in which the content of a message from one person is disguised and so it is not seen by a second person who signs off on the message as authentic.

The process is often illustrated by an analogy. A voter wants his ballot to remain secret but, to be counted, it must be signed by an election official who verifies the voter’s eligibility. The solution: the voter writes his credentials on the outside of an envelope, wraps the marked ballot in carbon paper and places it inside the envelope. The official verifies the credentials and signs the envelope, thereby transferring his signature to the ballot inside; he verifies the ballot without knowing its contents. The voter puts the now-authorized ballot into a new unmarked envelope which is slipped into a box of ballots waiting to be counted. The vote counter verifies the validity of the signature and the vote is recorded. But the vote counter has no idea who cast that particular ballot. Neither the content of the vote nor the ballot itself can be linked back to the individual voter. This is the essence of a blind signature and its unlinkability.

In simplistic terms, the Chaumian e-cash uses blind signatures as follows: At a bank that handles e-cash, you have an account with $20 to which a password offers access. To withdraw e-cash in sums of $1 each, you use software to generate 20 unique, random numbers of sufficient length that makes it unlikely anyone else will also produce them. The problem: you need the bank to verify that each serial number is worth $1, but you don’t want the bank to know which $1 “coin” is which because then the coins could be tracked. If nothing else, the bank could match outgoing and incoming data. This would provide the bank with information about where you shop, what you buy, your lifestyle and other aspects of life that you wish to remain private.

You “blind” each request and serial number with a special kind of encryption. The bank then receives a scrambled request on which it signs off with a private key for $1 – which affirms both the value and the authenticity of each coin. (The bank has different keys for different amounts.) The addition of the bank’s stamp converts the serial number into a $1 coin that can be used only by you. It is anonymous; the bank knows how many $1 units it stamped for you, but it cannot distinguish between those units, nor can it recognize them from any other $1 coin it has ever authenticated.

You “unblind” or decrypt the serial number with the bank’s signature, which results in a valid signed message that can be verified by the bank’s public key. The $1 coins are stored on your computer, waiting to be sent to anyone who accepts e-cash. To do so, you send someone a decrypted, signed serial number and they take it to the bank. The signature is verified, the serial number is recorded, and the amount is redeemed. Recording the number allows the bank to reject any attempt at double-spending. The bank cannot connect the transaction to your account; the recipient of a $1 coin has no idea who you are unless you choose to reveal that information.

This process is as anonymous as cash. It stands in stark contrast to online credit-card use, which involves telling a credit-card company and a recipient who you are, where you are and what you are purchasing. DigiCash is also safe from malicious people who like to steal identities.

DigiCash had an extra advantage. Because it was highly divisible, it accommodated micro-payments – payments under $10 – for which transaction costs made credit cards impractical. E-cash was perfect for transferring e-quarters and e-nickels over the Internet.

DigiCash Inc. made quite an impact on the financial community. The first bank to implement e-cash was the Mark Twain Bank in St. Louis, Missouri, but others soon followed. By 1998, e-cash was available through Deutsche Bank in Germany, Credit Suisse in Switzerland, and several other powerful outlets. But in 1998, DigiCash Inc. filed for Chapter 11 bankruptcy and subsequently sold its assets, including patents.

What happened? Explanations vary, and all may be partially true.

In a 1999 interview, Chaum claimed DigiCash was an idea before its time because e-commerce had not been firmly established. Forbes (11/01/1999) offered another explanation: “A brave new currency for a brave new world, with only one problem: No one wanted it–not banks, not merchants and, most important, not consumers. Electronic commerce is flourishing, but it turns out Visa and MasterCard–not digital cash–are the currency of choice.” Governments are in the list of those who did not like the untraceable money. It could be used to avoid taxes and commit other “crimes” – victimless or not.

A fascinating anonymous article in Next! magazine advanced an entirely different theory. Cryptographers, it explained, are generally paranoid. And Chaum was a GREAT cryptographer. The inside workings of DigiCash Inc. depicted in the article sound like a psychiatric ward rather than a tech company. Apparently, Chaum was also an abysmal businessman. One example of the article’s many stories of commercial self-sabotage: “A little later ING Investment Management was interested. This deal was about twenty million guilders [$10 million US at the time]. The plans were all laid out. ING Barings together with Goldman Sachs would also bring DigiCash to the stockmarket [sic] within two years. ‘The day we were all set to sign, David didn’t want to’, tells Stofberg [the man responsible for DigiCash’s financial affairs until August 1996]. ‘He was so paranoid, that he always thought something was wrong. There were 8 people from ING, including the CEO, and David simply refused to sign‘!”

A more interesting approach than psychologizing is to look at flaws in the e-cash and DigiCash system which contributed to its failure, and then to contrast them with the success of bitcoin and blockchain.

• Chaum believed in patent and copyright – both of which he applied to his designs. This restricted access and co-operative development by a global community of brilliant minds. Putting a price-tag on the product hindered broad public acceptance. By contrast, Bitcoin is patent-free and open-source, which gives unrestricted access and allows development to sprint forward. There is no charge for its use.
• E-cash could not get around the trusted third party problem because it needed an authorizing blind signature from a financial institution. Peer-to-peer bitcoin eliminates trusted third parties because acceptance by the blockchain is the authorization and each participant is a self-banker.
• E-cash required a centralized issuer, such as a bank. Bitcoin is decentralized down to the individual level.
• E-cash preserved the existing banking system and currency. Peer-to-peer bitcoin renders the current system irrelevant, and it menaces the existing currency.
• E-cash was vulnerable to the personality flaws of one man. Bitcoin is haunted by internal conflicts, to be sure, but no one personality can rule or wreck it because no one owns it.
• E-cash was not designed for financial freedom. The essay, “Untraceable Electronic Cash,” co-authored by Chaum, stated, “Generating an electronic cash should be difficult for anyone, unless it is done in cooperation with the bank.” The anarchists and idealists who sculpted Bitcoin wanted to empower the individual against the state and needed no one’s permission to do so.

No wonder corporations showed immediate interest in e-cash, but only recently showed interest in Bitcoin, which they now hope to patent, dominate and tame for their own purposes.

Lessons Taught By Earlier Digital Cash: E-gold

E-gold was a digital gold currency that was operated between 1996 and 2009 by Gold & Silver Reserve, Inc. In 2000, G&SR restructured and a new company, e-gold Ltd., assumed the administration of e-metal issuance and transfers. The digital currency was linked to gold – with the typical unit of account being grams or troy ounces. Like early U.S. gold certificates, e-gold represented the units of gold for which it could be redeemed on demand from stored metal. Customers with accounts on the e-gold website could make instant transfers of precious metals to other accounts. It was one of the first payment systems to allow complex global exchanges outside the traditional banking system. A critic of fiat currency and conventional banking, co-founder and libertarian Douglas Jackson had a mission: he was determined to forge a private alternative to the financial mire caused by governments. In the book “A History of Digital Currency in the United States: New Technology in an Unregulated Market” (2016), the publisher of Digital Gold magazine, P. Carl Mullan, quoted Jackson as saying that such a “task required large-scale computational capacity, data storage and secure global means of communication.” The costs were prohibitive except for national governments. That is, they were until the Internet.

With the Internet, e-gold pioneered several breakthroughs. In 1999, for example, the company introduced wireless mobile payments using a web-enabled cellphone. This was seven years before PayPal offered a similar service. A less laudable innovation came in 2000 when the company required customers who wished to add value to their accounts to have a trusted and independent third party who would exchange e-gold for national fiat currencies and vice versa. Within a year, several dozen businesses and individuals filled that niche; a new industry was born.

According to e-gold Ltd., the number of accounts grew from 1 million in 2003 to 5 million in 2008. E-gold users had a variety of motives. Some were gold bugs who devoutly believed e-gold was superior to fiat. Others were economic anarchists who thought government had no proper role to play in money. Still others wanted to evade taxes or participate in other victimless crimes.

Many more were attracted by the emergence of High Yield Investment Programs, some of which used e-gold as a payment platform. These programs offered unrealistically high returns that could be maintained only by redirecting the wealth of new investors; these Ponzi schemes led to an e-gold rush on an international level. Fraud artists took advantage of e-gold features such as the fact that all transactions were final and never charged back, with no exceptions. The scammers opened e-gold accounts and urged prospective investors to do the same. Then they milked investors and buyers for all they could.

By this time, e-gold offered a wide range of services from online casinos and auctions to metals trading and donations to non-profits. The company was rife with possibilities for scams. Unfortunately, defrauded customers often made no distinction between e-gold itself and the individual scammers who ripped them off with faux investments or non-existent goods. Some disillusioned users complained to government authorities.

In 2007, the U.S. Federal Government accused e-gold of money laundering and of violating 18 U.S. Code § 1960, which prohibits businesses from transmitting money without a license. Several exchanges attached to e-gold were closed down. The publicity and disrupted exchanges caused a steep drop in the number of e-gold customers; the difficulty of exchanging e-gold for fiat caused potential recipients of e-gold to shy away. Many customers were trapped with accounts they could not liquidate.

E-gold vigorously fought the charges, to no avail. In April 2008, the judge in United States of America v. E-gold, Ltd. ruled against e-gold and, in doing so, dramatically increased the Treasury Department’s range of authority. The law now defined a “money transmitter” as a business that transferred any stored value from one person to another, whether or not the transfer involved cash or a national currency. The definition gave the Treasury Department a de facto blank check on future prosecutions.

The company’s three directors pled guilty and entered into an agreement by which e-gold would come into compliance with the legal requirements for a money-transmitting business, including obtaining a license. Jackson received 300 hours of community service, 3 years of supervision and a $200 fine. He could have received 20 years in prison and a $500,000 fine. The two other directors received the same sentence, with heavier fines.

Then came a bitter irony. The guilty pleas precluded the directors from acquiring a license anywhere in the U.S. This put all of e-gold in lock-down because returning money to customers would involve transmitting money without a license and violating the plea agreement. In 2010, the government finally allowed e-gold to return the monetized value of their accounts to customers.

The Treasury Department’s expanded and vague definition of “money transmitter” has clear implications for bitcoin. The success of e-gold, and the court case that quashed it, changed the way government handled online payment systems. And, now, it had the legal precedent to act against cryptocurrencies.

The parallels between Bitcoin and e-gold are also clear. E-gold was highly divisible and allowed micropayments as tiny as one ten-thousandth of a gram. It maintained an open ledger in which daily transactions were published live and in transparent form. Like bitcoin, e-gold was not a complementary currency – at least not to begin with. A complementary currency is one that supplements a national currency without competing with it; an example would be private “money” issued by a business to customers as a promotion. E-gold was intended as a replacement for fiat and for the banking system, with the added advantage of hedging against inflation.

The differences between bitcoin and e-gold are as important as the parallels:

• E-gold embodied the trusted third party problem, as the customers stranded by legal proceedings found out. It is difficult to blame e-gold for the circumstances, of course, but dishonesty or inefficiency are not the only risks of trusting others with your money. Again, Bitcoin eliminates this problem.
• Arguably, e-gold introduced a trusted-fourth-party problem when it insisted customers use exchanges to convert into and out of fiat.
• E-gold and the exchanges were points of centralization that were easy targets for regulation or prohibition. They were also choke points at which to gather customer information. When e-gold restructured in 2000, OmniPay was formed as the company’s exchange system. In his previously mentioned book, Mullan explained, “OmniPay quickly became the largest e-gold exchange in the world. It served as the primary dealer exclusively working between the issuer, e-gold Ltd., and all other third-party independent exchange agents around the world.” OmniPay used three methods to verify the identities of customers: universal postal verification; payment by bank wire only; and, safeguards to detect incoming third-party payments. In e-gold’s plea agreement years later, the government almost certainly gained access to that information. Peer-to-peer bitcoin is pseudonymous.
• E-gold’s insistence on “membership for use” restricted the spread of its services. Bitcoin is open to all.

The riskiness of a trusted-third-party exchange like OmniPay is a warning bell in the night to bitcoin users. A centralized exchange is usually the first target of government regulation because it is visible and vulnerable, and because it comprises a cache of valuable data on individual users who are otherwise elusive. Exchange owners are likely to comply with government demands because non-compliance means being closed down, imprisoned, or both. In short, centralization encourages third parties to obey laws and regulations, such as I.D. verification – which harm customers.

At every financial turn, the trusted third party problem works for government control and against personal freedom. It would still be that way, only worse, if lightbulbs had not gone off in Satoshi Nakamoto’s brain.

Reference materials: The Satoshi Revolution

[This discussion will continue soon…]

After so many stories from the past, which were very useful for better understanding Bitcoin and the political context from the moment of its creation, the time has come to talk also about his inventor, Satoshi Nakamoto. I won't debate if he was a man, a woman or a group of people; nor about his age, location or other such details. What I believe it's more interesting is the reason for which he created Bitcoin; what was Satoshi's ideology?; what drove him at that point in time?

And, for dotting the I, the most important question is: Was Satoshi a Libertarian and Anarchist? -- and this is also the name of the fourth part of the second chapter from Wendy McElroy's Satoshi Revolution. The writer gathered an impressive list of reasons for which we should believe that Satoshi's vision was a libertarian and anarchic one. After an extensive research, we are presented some posts made by Satoshi in the past which reveal his mindset. Bitcoin itself has some features which share libertarianism and anarchism, such as its privacy, its decentralization or its anti-banking approach.

But what determined me the most to believe that Satoshi was driven by a libertarian and anarchic mindset is the message he placed in Bitcoin's Genesis block: "Chancellor on brink of second bailout for banks...

What are your thoughts about Satoshi's ideology?

Section I: The Trusted Third Party Problem
Chapter 2: Monetary Theory
Part 4 - Was Satoshi a Libertarian and Anarchist?



"I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party [...] We very, very much need such a system, but the way I understand your proposal, it does not seem to scale to the required size.  For transferable proof of work tokens to have value, they must have monetary value.  To have monetary value, they must be transferred within a very large network – for example a file trading network akin to bittorrent.  To detect and reject a double spending event in a timely manner, one must have most past transactions of the coins in the transaction, which, naively implemented, requires each peer to have most past transactions, or most past transactions that occurred recently.  If hundreds of millions of people are doing transactions, that is a lot of bandwidth [...]"
—Satoshi Nakamoto

Was Satoshi a Libertarian and Anarchist?

On October 31, 2008, Satoshi Nakamoto published a White Paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” on the Cryptography Mailing List at metzdowd.com. It spelled out the reasoning behind bitcoin and the design of bitcoin’s instrument of implementation: the blockchain. The White Paper also solved a problem that had haunted cryptocurrency: double spending. Satoshi’s brief explanation is a defining document of our century.

It is all the more remarkable, therefore, that no one seems to know Satoshi’s identity or even whether he is an individual or a team of programmers. Clearly, he coded from a love of the technology rather from than a desire for fame. Since the code was open source, unpatented and offered widely to all, acquiring wealth does not appear to be the driving goal either. By process of elimination, political motivation becomes more probable. But arriving at that conclusion requires an examination of the evidence and background surrounding Bitcoin.

Let There Be Blocks…

Satoshi began writing Bitcoin code in 2007. When he published the White Paper on the Cryptograpy mailing list in 2008, it was also available on a website he created, named bitcoin.org. — both sites function to this day.

The mailing list consisted of experts in math, statistics and cryptography who immediately argued against the viability of Bitcoin. It will not scale, they claimed; it requires too many resources to work well. Moreover, “bad” nodes could control most CPU power on the network, and so generate a longer chain than “honest” nodes; this means attackers could control the blockchain. Satoshi’s patient and polite responses gradually convinced them that Bitcoin might just work.

Developments quickly followed. Specific highlights include:

• January 9, 2009, version 0.1 of bitcoin software is released on Sourceforge.
• January 12,2009, the first bitcoin transaction occurs.
• January 3, 2009, the first block, called the Genesis Block, is mined.
• October 5, 2009, an exchange rate of $1 US = 1,309.03 BTC is established.
• October 12, 2009, the #bitcoin-dev channel is registered for open source development communities.
• December 16, 2009, version 0.2 is released.
• March 6, 2010, dwdollar establishes a Bitcoin currency exchange.
• May 22, 2010, first real-world transaction occurs when a pizza is purchased for 10,000 bitcoins.
• July 7, 2010, version 0.3 is released.
• October 16, 2010, the first escrow transaction occurs.

In mid-2010, Satoshi transferred bitcoin.org to Gavin Andresen. Andresen explained, “I started to submit code to Satoshi to improve the core system. Over time he trusted my judgment on the code I wrote. And eventually, he pulled a fast one on me because he asked me if it’d be OK if he put my email address on the bitcoin homepage, and I said yes, not realizing that when he put my email address there, he’d take his away. I was the person everyone would email when they wanted to know about bitcoin. Satoshi started stepping back as leader of [the] project and pushing me forward…”

In 2010, Satoshi went silent.

Listening to Evidence of Satoshi’s Political Motives

Great debate revolves around Satoshi’s drive for designing Bitcoin, with many people seeming to project their own motives for using Bitcoin onto Satoshi. In fairness, the programmer offered only indications of a political motivation rather than an explicit statement. As indications mount, however, it becomes very probable that Satoshi was a libertarian or an anarchist, or both.

Evidence of Satoshi’s political slant dates back to the Genesis block. It contained a message: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” January 3, 2009 was the blockchain’s birthday. The message was a headline from the front page of The Times, a UK newspaper. But why did Satoshi choose those words?

Some people think the wording was randomly plucked from the January 3rd, 2009 issue of the Times for the sole purpose of authenticating the date. They claim the message could as easily have been “ten sex workers arrested in Soho sting.” That contention defies credibility. Satoshi was a methodical programmer who went directly to the heart of matters, without frivolity or caprice. He was releasing a masterpiece of coding and it is not plausible that he would slap a random message onto the Genesis block.

An entirely different scenario is likely. Imagine Satoshi at his computer, preparing to drop the first block like a seed on the wind. He knows its power and he wants people to know its purpose. He has just read the morning paper with its continuing news of financial turpitude on the part of elites acting for their own benefit. Aha, there is a perfect snippet about the two agencies responsible for the economic rape of average people: government and the banking system. Eight words capture the collusion between them. Satoshi carefully types, “Chancellor on brink of second bailout for banks,” and embeds this message to send to the world. The intent is anti-Chancellor, anti-bank, anti-bailout. The digital currency and payment system to which the message is attached are the antidote to the corruption of governments and banks. From Bitcoin’s first words, it returned power to the people.

A key reason why debate on Satoshi’s political intention continues is because his White Paper is politically neutral. It even states that a system of financial institutions consisting of trusted third parties “works well enough for most transactions”. The Paper states only practical objections to the existing banking system; for example, reversible transactions and the inevitability of fraud resulting in high processing costs. In short, the White Paper does not read like a political manifesto. Nor should it.

A white paper is technical. It is an authoritive explanation of an idea or an experiment and of results or conclusions presented to experts in the same field of study. Its purpose is to explain a concept, to solve a problem or to present a finding. Beliefs and politics are most definitely not appropriate in a White Paper; if they are included, then the paper is called “gray” and it is much more likely to be dismissed. Rather than express the author’s opinion, the goal is to elicit reactions from others.

The list where Satoshi posted the White Paper was composed of experts in math, statistics and cryptography who wanted the bare technical facts, not the politics surrounding them. Moreover, members of the Cryptography Mailing List undoubtedly held a variety of political views, and they might have stumbled over ones with which they disagreed, and it was not the time, it was not the place to be political.

The White Paper, however, makes at least one indirect political reference. Footnote [1] gives a nod of approval to the 1998 b-money proposal developed by cypherpunk Wei Dai with whom Satoshi had a history of exchanging email. The b-money proposal opens, “I am fascinated by Tim May’s crypto-anarchy. Unlike the communities traditionally associated with the word ‘anarchy’, in a crypto-anarchy the government is not temporarily destroyed but permanently forbidden and permanently unnecessary. It’s a community where the threat of violence is impotent because violence is impossible, and violence is impossible because its participants cannot be linked to their true names or physical locations.”

To further assess Satoshi’s motives in creating Bitcoin, it is useful to listen to his voice in venues that invite political expression and to consider choices that express his political preferences. These venues include the features embedded in Bitcoin, Satoshi’s posts on forums, and his personal associations.

The features of Bitcoin directly express libertarian and anarchist sentiments:

• Decentralization. “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” Bitcoin operates without leaders, without a position of power beyond that of the individual.
• Privacy. “As an additional firewall, a new key pair should be used for each transaction to keep them from being linked to a common owner.” Bitcoin is pseudonymous. While it does not provide perfect privacy, the anonymity is far more effective than other forms of online payment that rely on trusted third parties.
• Pro-capitalism. The White Paper stresses Bitcoin’s advantages to commerce and merchants as a free-enterprise payment system. Peer-to-peer transfer is a pure expression of the free market, with no intervention.
• Anti-government. Although government is not mentioned in the White Paper, Bitcoin usurps a “vital” governmental function which has been badly corrupted and misused. Perhaps it is significant that Satoshi does not mention government in discussing an area that is deemed to be its bailiwick.
• Anti-banking. The entire purpose of Bitcoin is “online payments…without going through a financial institution.” Banks are rendered irrelevant.
• Anti-inflation. “Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.”

The foregoing is economic anarchism.

It is generally recognized as such. A CoinJournal article entitled “Op-Ed: Satoshi Nakamoto is Clearly an Anarchist” refers to a 2014 presentation by Daniel Krawisz of the Satoshi Nakamoto Institute. Krawisz stated, “Someone who promotes bitcoin who is not an anarchist is a crypto-anarchist because bitcoin is inherently anarchistic.”

Satoshi’s forum posts are further evidence of his politics. The remarks are anti-banking and critical of government while acknowledging Bitcoin’s appeal to libertarians:

• Anti-banking. “Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with hardly a fraction in reserve.
• Anti-government: “Yes, [we will not find a solution to political problems in cryptography,] but we can win a major battle in the arms race and gain a new territory of freedom for several years. Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.”
• Pro-libertarian. “[Bitcoin is] very attractive to the libertarian viewpoint if we can explain it properly. I’m better with code than with words though.”
  And, finally, Satoshi’s personal associations also indicate his political slant. First and foremost is Hal Finney. A developer for the PGP Corporation, Finney was the first recipient of a bitcoin transaction when Satoshi sent a payment to him on January 12, 2009. Obviously, Finney co-operated closely with Satoshi, which makes his political views of interest. In the early 1990s, Finney contributed regularly to the cypherpunk’s listserv. He stated, “Naturally, in today’s society, with power allocated so disproportionately, such ideas are a threat to large organizations. Balancing power would mean a net loss of power for them. So no institution is going to pick up and champion Chaum’s ideas. It’s going to have to be a grass-roots activity, one in which individuals first learn of how much power they can have, and then demand it.”

Significantly, Satoshi posted a link to his White Paper on the P2P Foundation’s cypherpunk website, probably because he was a list member. When a 2014 Newsweek cover story “outed” Dorian S. Nakatomo of Temple City, California as the inventor of Bitcoin, the real Satoshi posted 5 words on a P2P Foundation page; “I am not Dorian Nakamoto.” The Foundation confirmed that the White Paper post had originated from the same email account, but it is widely believed that the account had been hacked.

Nathaniel Popper’s book Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money described the journey of Martti Malmi to Bitcoin. Popper wrote:

A student at the Helsinki University of Technology, Martti enthused about Bitcoin on anti-state.org, a forum dedicated to the possibility of an anarchist society organized only by the market. Using the screen name Trickster, Martti gave a brief description of the Bitcoin idea and asked for thoughts.

When he reached out to Satoshi, Martti included the link to his post. “What do you think about this?” he asked Satoshi. “I’m really excited about the thought of something practical that could truly bring us closer to freedom in our lifetime. :-)”

Satoshi replied, “Your understanding of Bitcoin is spot on.”

Satoshi also realized how revolutionary his system would be. This is evidenced by his response to Wikileaks when it enabled bitcoin donations as a way to side step an ongoing bank blockage. This propelled Bitcoin to a new level of popularity. Satoshi posted, “It would have been nice to get this attention in any other context. WikiLeaks has kicked the hornet’s nest, and the swarm is headed towards us.” He pled with Wikileaks not to spotlight Bitcoin because the project was young enough for governments to destroy it. Indeed, Satoshi’s decision to stay anonymous testifies to his understanding of Bitcoin’s power and attendant danger; the danger was government which had prosecuted earlier creators of digital money as money launderers.

The preceding argument does not prove definitively that Satoshi was either a libertarian or an anarchist, but it comes close. It becomes far more plausible to call him “libertarian” than to deny the label.

Next, let the White Paper speak for itself.

Reference materials: The Satoshi Revolution

[This discussion will continue soon…]

A Brief Tour of the Basics

(Note: “money” here is used as a synonym for “currency” because that is money’s most important function. The other functions — acting as a store of value or a unit of account — are consequences of its primary role as currency.)

Goods and services are exchanged within every society because exchange is a human need. It is the engine of economic life. It is a wellspring of prosperity because exchange is not a zero-sum game, as some economists argue. That is to say, if a person trades a fish for a loaf of bread, it is not because the value of a fish is one loaf of bread with each trader’s gain and loss equaly balancing the other’s. The exchange occurs because one person values the bread more than the fish and vice versa; each profits from the exchange or it would not occur. As a by-product of trading, the parties also establish cooperation and perhaps a level of good will, which means exchange may be the basis of civil society as well.

Human beings are so diverse that the skills within even a small set of individuals can vary dramatically; trading these skills, and the resulting goods, increases the odds of survival both for the group and for each member. But direct exchange or barter is severely flawed, as Rothbard explains. “The two basic problems are ‘indivisibility’ and ‘lack of coincidence of wants’.” Indivisibility means it is difficult or impossible to divide many barter items, like a plow, in order to trade for several different things with multiple people. So no trade occurs. A lack of coincidence of wants means Smith has eggs and Jones has shoes but Smith wants to trade for butter. So no trade occurs.

Indirect exchange solves the barter problem…to a degree. Smith trades with Jones for a marketable good he doesn’t want but which can be traded to a third person for something he does want. A remarkable by-product spontaneously emerges: money. Indirect trading naturally encourages a medium of exchange to appear. Why? Those who buy a good to trade it will favor a highly marketable one that exchanges widely, easily and well. Highly marketable goods tend to share characteristics such as divisibility, durability, fungibility and transportability; it is no coincidence that these same characteristics are often used to describe good money.

In the beginning, the marketable good is generally desired due to its use value. Rothbard lists some goods that went on to become currencies: “tobacco in colonial Virginia, sugar in the West Indies, salt in Abyssinia, cattle in ancient Greece, nails in Scotland, copper in ancient Egypt, and grain, beads, tea, cowrie shells, and fishhooks.” The demand for the good soon generates a “reinforcing spiral: more marketability causes wider use as a medium which causes more marketability, etc. Eventually, one or two commodities are used as general media–in almost all exchanges—and these are called money.” On this basis, Rothbard would have rejected bitcoin as currency, insisting it did not originate in or constitute a “useful commodity.” A rebuttal of this position occurs earlier in this chapter.

Commonly-accepted currencies eliminate the need for indirect exchanges that can be clumsy, time consuming and geographically limited. Eventually, currency created a complex free-market that allowed millions of people to consume products from around the world. Prosperity ensued. In short, money catapulted human beings from survival and into circumstances with time to think, to be artistic, to pursue relationships, to invent, to waste time. In other words, money permitted civilization. Mark Twain was correct in revising the old expression to read, “the lack of money is the root of all evil.”

Enter government. Currency had played a defining role in freeing and civilizing human beings but now it would be used to enslave and debase them.

Inflation, the Greatest Theft of All

Unlike individuals, government does not trade goods and services for money in a voluntary exchange. Instead, government expropriates wealth from productive people by forcing them to pay for its ‘goods’ and ‘services’ whether or not they want to or benefit from them. Taxation is the most visible form of theft but a myriad of others exist, from monopolizing goods like postage stamps to licensing cars.

The most powerful tool of expropriation is the government’s monopoly on issuing money or fiat. Rothbard explains, “The emergence of money, while a boon to the human race, also opened a more subtle route for governmental expropriation of resources [...] If government can find ways to engage in counterfeiting—the creation of new money out of thin air—it can quickly produce its own money without taking the trouble to sell services or mine gold. It can then appropriate resources slyly and almost unnoticed, without rousing the hostility touched off by taxation.”

Everyone understands taxation because it comes with forms to fill out, a need to write checks or to pay a visible premium at the checkout. No wonder tax resistance and rebellions have been common themes through U.S. history since the American Revolution. But inflation is too subtle and complex to create enraged mobs…that is, until it goes badly out of control and then it is too late. If taxation is a gun, then inflation is like a cat burglar. This makes it all the more important to understand.

Inflation is an increase in the supply of money and credit. It is usually associated with government, and with good cause, but it can occur with free-market money as well. For example, the supply of gold could increase for various reasons. But a crucial difference exists between government and free-market inflation. Gold fulfills many non-monetary uses and those employments would increase as the cost of gold fell. This means an inflation in gold is a social good for the other uses even if the inflation temporarily reduces its monetary value. The increased demand for non-monetary uses both absorbs the “excess” supply and drives the monetary value back up. In short, the inflation tends to be self-adjusting, temporary and is accompanied by a social benefit. Moreover, a fall in gold will drive up the value of competing currencies, such as silver.

By contrast, government fiat’s only use value is as currency which means there is no self-adjusting mechanism. World markets may react negatively and devalue the egregious fiat – that is, if their fiats are not as bad or worse. If so, the offending government can crank up the printing press and create a vicious circle of further increasing the money supply. The average person has little choice but to live with the inflation because legal-tender laws forbid competing currencies. In short, fiat inflation has no social benefit or escape route, only social devastation and entrapment.

The word “inflation” is often used as a synonym for “a rise in prices” but the rise is a consequence of inflation, not its cause. The cause is an increase in the supply of money and credit. The difference between these two usages is more than semantic. Viewing inflation as rising prices misses much of the great harm it inflicts. For example, inflation redistributes wealth from average people upward to the ruling classes. This happens because freshly-printed fiat is initially valued at the same rate as all other units of it in existence. Doubling the money supply overnight eventually collapses the buying power of each unit, but the first users enjoy the pre-inflation value because the increase has not trickled through the economy. The first users are typically government, banks, financial institutions or businesses that are offered favorable loans. The end user receives fiat that has gradually diluted in buying power as it has spread throughout the economy. This user is the average person who bears the full brunt of inflation by having the value of his income sink while prices around him soar.

With legal-tender laws and the elimination of the gold standard, there is little to check government from pumping up money and credit at will, using interest rates for fine tuning. The incentives are all on the side of inflation. It is hugely profitable to government and mostly invisible to the average person, especially in its early stages. The economic villain of free-market advocates, John Maynard Keynes, knew this well. His pivotal book “The Economic Consequences of Peace” (1919) states, “By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

The harms of inflation scroll on and on. Rothbard highlights a less-discussed one. “It distorts that keystone of our economy: business calculation. Since prices do not all change uniformly and at the same speed, it becomes very difficult for business to separate the lasting from the transitional, and gauge truly the demands of consumers or the cost of their operations. For example, accounting practice enters the ‘cost’ of an asset at the amount the business has paid for it. But if inflation intervenes, the cost of replacing the asset when it wears out will be far greater than that recorded on the books. As a result, business accounting will seriously overstate their profits during inflation—and may even consume capital while presumably increasing their investments.”

The Central Bank bears massive blame for the theft and market distortion of inflation. In the United States, the Federal Reserve System is sometimes called “private.” For one thing, the regional Reserve Banks are private corporations that are owned by their member banks. The label is illusory. The Federal Reserve was established by an act of Congress (1913) and derives its core power from a government-granted monopoly to issue money. The system may mimic a private agency in some ways but, as Rothbard explains, the system of banks are “always directed by government-appointed officials, and serve as arms of the government.”

The Federal Reserve consistently acts in a manner that enables inflation. It does so in two ways: removing checks on inflation and directing inflation itself. Rothbard offers an example of the first tactic. “[T]he Federal Reserve Act compels the banks to keep the minimum ratio of reserves to deposits and, since 1917, these reserves could only consist of deposits at the Federal Reserve Bank. Gold could no longer be part of a bank’s legal reserves; it had to be deposited in the Federal Reserve Bank.” He illustrates the second: “By controlling the banks’ ‘reserves’—their deposit accounts at the Central Bank. Banks tend to keep a certain ratio of reserves to their total deposit liabilities, and in the United States government control is made easier by imposing a legal minimum ratio on the bank. The Central Bank can stimulate inflation, then, by pouring reserves into the banking system, and also by lowering the reserve ratio, thus permitting a nationwide bank credit-expansion.”

Fiat inflation destroys the free-market which is its antithesis. The extent to which government tightens its grip on money is the extent to which the free exchange upon which liberty and civilization rests is weakened. Traditional private money confronts the government in an admirable David-Goliath fashion but it does not remove the statist loophole that allows inflation – the need for a trusted third party. Not until the blockchain sidesteps government and obviates trust does currency regain its status as a vehicle for freedom and civilization.

Reference materials: The Satoshi Revolution

[This discussion will continue soon…]

Perhaps a term caught the attention of some readers in the previous articles -- Cypherpunks. The subject was not detailed too much until now, but the right moment came. We'll learn today about the crypto wars, which represents a period of rebellion of tech savvies and cryptographs against government's policies of surveilling its citizen and of banning public access to cryptography.

While reading, maybe some of you will call this article as a bohemian story, nice to read, but those which fought in these wars really put their lives in jeopardy by fighting with the government and one of its most powerful agency: NSA. We will see how the crypto rebels invented the public key cryptography, RSA encryption algorithm and PGP encryption; and how they managed to offer these powerful tools to regular people.

And, perhaps, you'll be fascinated by reading some parts of Tim May's manifesto, which was written by him more than three decades ago and which envisioned inventions which we can use now for our benefit: cryptographic protocols empowering people, web of trust and reputation systems. One remarkable journalist, named Stephen Levy, wrote a must-read article in Wired: Crypto Rebels. If the article will get your attention, you may also try to read some of Levy's books. I totally recommend Hackers: Heroes of the Computer Revolution and Crypto.

The following material is the second part of Chapter 2 from Wendy McElroy's Satoshi Revolution: Technology Meets Anarchy. Both Profit and it tells us the story of Cypherpunks and early cryptographs. It is a really amazing piece of history which may make you feel thrilled after reading these!

Section I: The Trusted Third Party Problem
Chapter 2: Monetary Theory
Part 2 - Technology Meets Anarchy. Both Profit



"Bitcoin is the catalyst for peaceful anarchy and freedom. It was built as a reaction against corrupt governments and financial institutions. It was not solely created for the sake of improving financial technology. But some people adulterate this truth. In reality, Bitcoin was meant to function as a monetary weapon, as a cryptocurrency poised to undermine authority. Now it is whitewashed. It is seen as a polite and unassuming technology in order to appease politicians, banksters, and soccer moms. Its purpose is sometimes concealed in order to make the tech palatable to the unwashed masses and power elite. However, no one should forget or deny why the protocol was written."
—Sterlin Lujan

Cryptocurrency was not created to make money; the blockchain was not forged to render banking more efficient. The core developers did not use open source or eschew patents because they were proprietary or wanted to reap a fortune. They wanted privacy and freedom to be available without cost to all. Anyone who believes Bitcoin was designed for financial gain knows nothing about its history or the idealism built into its algorithms. Profiting from cryptocurrency and using blockchains to economic advantage are laudable by-products, but Bitcoin was conceived as a vehicle for creating political and social change by empowering individuals and weakening government. The developers were revolutionaries. Bitcoin was a blast of rebellion.

It came not a moment too soon. The galloping growth of the Internet gave government an incredible weapon against which individuals would have had scant protection without cryptography, the art of secret communication.

The Radical History of Bitcoin

Before Satoshi, there was the engineer and scientist Timothy C. May to whom Bitcoin is sometimes traced. May’s “Crypto Anarchist Manifesto” (1988) first appeared when it was distributed to a few techno-anarchists at the Crypto ’88 conference. The six-paragraph manifesto called for a computer technology based on cryptographic protocols which would “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….But only recently have computer networks and personal computers attained sufficient speed to make the ideas practically realizable.”

The manifesto ended with a cry to arms, “Arise, you have nothing to lose but your barbed wire fences!” The “barbed wire” reference is quintessentially American. It evokes images of land out West being sectioned off by sharp fences that were snipped apart by cowboys who demanded an open landscape.

Even in 1988, May could draw upon crypto-history. In the mid-1970s, cryptography ceased to be the nearly-exclusive domain of military and intelligence agencies who operated in secrecy. The academic research that surged forward was openly shared. One event in particular broke government’s grip on the field. In 1975, computer guru Whitfield Diffie and electrical engineering professor Martin Hellman invented public-key encryption and published their results the next year in the essay “New Directions in Cryptography.” (Arguably, the public key was a re-invention as the British had developed “nonsecret encryption” in 1973 but chose to be silent on the subject, as governments generally do.) In 1977, cryptographers Ron Rivest, Adi Shamir and Leonard Adleman created the RSA encryption algorithm, which was one of the first practical public-key systems.

Public-key encryption hit the computer community like an explosion. It is brilliant in its simplicity. Every user has two keys – a public and a private one – both of which are unique. The public key scrambles the text of a message which can be unscrambled only by the private key. The public key can be thrown to the wind but the private one is closely guarded. The result is close to impenetrable privacy.

Diffie had been inspired by the trusted third party problem. The book “High Noon on the Electronic Frontier: Conceptual Issues in Cyberspace” (1996) quoted him as saying, “You may have protected files, but if a subpoena was served to the system manager, it wouldn’t do you any good. The administrators would sell you out, because they’d have no interest in going to jail.” His solution: a decentralized network with each individual possessing the mathematical key to his own privacy – the right most threatened by a digital society.  It obliterated the problem by removing any need for trust. At the same time, public-key encryption also removed the contradiction of sending secure information over insecure channels. It excluded “Eve” – the name cryptographers called unwanted eavesdroppers. And, importantly, public-key encryption was free to all because revolution required participation.

Government was displeased. The National Security Agency (NSA) could no longer eavesdrop at will and its domestic monopoly on encryption was suddenly thrown open to all comers. The journalist Steven Levy commented in a Wired article, “In 1979, Inman [then-head of the NSA] gave an address that came to be known as ‘the sky is falling‘ speech, warning that ‘non- governmental cryptologic activity and publication [...] poses clear risks to the national security’.”

The Cypherpunk response was captured by a later statement by cryptographer John Gilmore. “Show us. Show the public how your ability to violate the privacy of any citizen has prevented a major disaster. They’re abridging the freedom and privacy of all citizens – to defend us against a bogeyman that they will not explain. The decision to literally trade away our privacy is one that must be made by the whole society, not made unilaterally by a military spy agency.”

The first crypto war erupted with the NSA strenuously trying to curtail the circulation of Diffie’s and Hellman’s ideas. The agency went so far as to inform publishers that the two rebels and whoever published them could face jail time for violating laws restricting the export of military weapons. The Institute of Electrical and Electronics Engineers, one of Hellman’s outlets, received a letter that read, in part, “I have noticed in the past months that various IEEE Groups have been publishing and exporting technical articles on encryption and cryptology—a technical field which is covered by Federal Regulations, viz: ITAR (International Traffic in Arms Regulations, 22 CFR 121-128).” Gag orders were issued. Legislation was proposed. The NSA attempted to control funding to crypto research. Inman gave the agency’s first public interview to Science magazine in order to explain his position. NSA also considered requiring people to “escrow” their private keys with a third party who would be vulnerable to a judge’s order or to the police; of course, this would have returned the trusted third party problem which public key encryption was intended to solve. In response, Electronic Frontier Foundation co-founder John Perry Barlow declared, “You can have my encryption algorithm…when you pry my cold dead fingers from my private key.”

The NSA’s efforts failed. Powerful crypto was now a public good.

Arise Cypherpunks!

In the late 1980s, “Cypherpunks” emerged as something akin to a movement. The deliberately humorous label was coined by hacker Judith Milhon who blended “cipher” with “cyberpunk.” The Cypherpunks wanted to use cryptography to defend against surveillance and censorship by the state. They were also determined to build a counter-economic society that offered an alternative to existing bank and financial systems.

Their vision was inspired by the pioneering work of computer scientist David Chaum, nicknamed the “Houdini of crypto.” Three of his papers were particularly influential.

• “Untraceable Electronic Mail, Return Addresses, and Digital Pseudonyms” (1981) laid the groundwork for research into and the development of anonymous communications based on public-key cryptography.
• “Blind Signatures for Untraceable Payments” (1983) stated, “Automation of the way we pay for goods and services is already underway [...] The ultimate structure of the new electronic payments system may have a substantial impact on personal privacy as well as on the nature and extent of criminal use of payments. Ideally a new payments system should address both of these seemingly conflicting sets of concerns.” The essay called for digital cash.
• “Security without Identification: Transaction Systems to Make Big Brother Obsolete” (1985) further described anonymous digital cash and pseudonymous reputation systems.

A typical cypherpunk distrusted and disliked government, especially the federal variety; the NSA’s near-hysteria over unclassified encryption only heightened this response. Most cypherpunks embraced the counterculture with its stress on free speech, sexual liberation and freedom to use drugs. In short, they were civil libertarians. One of the earliest portraits of the coding radicals was Levy’s Wired article, mentioned above, which appeared in the magazine’s second issue (May 1993).  Levy called them “techie-cum-civil libertarians.” They were idealists who “hope for a world where an individual’s informational footprints – everything from an opinion on abortion to the medical record of an actual abortion – can be traced only if the individual involved chooses to reveal them; a world where coherent messages shoot around the globe by network and microwave, but intruders and feds trying to pluck them out of the vapor find only gibberish; a world where the tools of prying are transformed into the instruments of privacy.”

Levy understood the stakes. “The outcome of this struggle may determine the amount of freedom our society will grant us in the 21st century.” The spread of personal computers, the rise of the modern Internet and the titillating label of “outlaw” were an irresistible combination.

Then, in 1991, Phil Zimmermann developed PGP, or Pretty Good Privacy, the world’s most popular email encryption software. He viewed it as a human rights tool and believed in it so deeply that he missed five mortgage payments and almost lost his house while designing it. The first version was called “a web of trust” which described the protocol by which the authenticity of the link between a public key and its owner was established.  Zimmermann described the protocol in the manual for PGP version 2.0:

“As time goes on, you will accumulate keys from other people that you may want to designate as trusted introducers. Everyone else will each choose their own trusted introducers. And everyone will gradually accumulate and distribute with their key a collection of certifying signatures from other people, with the expectation that anyone receiving it will trust at least one or two of the signatures. This will cause the emergence of a decentralized fault-tolerant web of confidence for all public keys.”

PGP was initially given away by being posted on computer bulletin boards. Zimmermann commented, “[l]ike thousands of dandelion seeds blowing in the wind” PGP spread around the globe. Government noticed. Zimmermann was targeted in a three-year criminal investigation based on the possible violation of US export restrictions for cryptographic software.

Fast forward to 1992. May, Milhon, Gilmore and Eric Hughes formed a small group of coding zealots who met every Saturday in a small office in San Francisco. A Christian Science Monitor article described the group as “all united by that unique Bay Area blend: passionate about technology, steeped in counterculture, and unswervingly libertarian.”

The group’s size grew rapidly. The List, an electronic posting forum, became the most active aspect with the “people’s algorithms” drawing staunch support from the likes of Julian Assange and Zimmermann. The Christian Science Monitor article commented, “Radical libertarians dominated the list, along with ‘some anarcho-capitalists and even a few socialists’. Many had a technical background from working with computers; some were political scientists, classical scholars, or lawyers.” Eric Hughes contributed another manifesto: “A Cypherpunk’s Manifesto” that opened, “Privacy is necessary for an open society in the electronic age.” But , it continued, “[f]or privacy to be widespread it must be part of a social contract. People must come and together deploy these systems for the common good. Privacy only extends so far as the cooperation of one’s fellows in society.”

The group quickly encountered an objection that later became a dominant thrust of government’s attack on private encryption: “bad actors” would use anonymity to get away with crimes. During a 1992 interview, a skeptic confronted May. “Seems like the perfect thing for ransom notes, extortion threats, bribes, blackmail, insider trading and terrorism,” he challenged. May calmly replied, “Well, what about selling information that isn’t viewed as legal, say about pot-growing, do-it-yourself abortion? What about the anonymity wanted for whistleblowers, confessionals, and dating personals?”

Cypherpunks believed public-key encryption made society less dangerous because it removed the two major sources of violence. First, anonymity neutralized governments, which consisted of “men with guns.” Shutting governments out removed those guns from exchanges. If financial exchanges were invisible, for example, the violence of taxation would be impossible. Second, public-key encryption reduced the risks associated with victim-less crimes, such as drug use. Ordering drugs online, for example, was safer than buying them in a back alley of a shoddy neighborhood. Admittedly, public-key encryption could shield activities that violated rights. A common Cypherpunk response was to view the prospect as irrelevant. Encryption was a reality and it would spread in spite of unpleasant side effects. Perhaps cypherpunks believed a technological or community solution to real online crimes would evolve.

The Crypto Wars Continue

One incident captures the core of crypto wars between the Cypherpunks and government, especially the NSA. Gilmore was determined to rescue the information from documents that the NSA was attempting to suppress. His first major victory was to distribute a paper by a cryptographer employed by Xerox, which the NSA had persuaded Xerox to suppress. Gilmore posted it on the Internet and it went viral.

Then, in 1992, Gilmore further enraged the NSA. He filed a Freedom of Information Act (FOIA) request to acquire the declassified parts of a four-volume work by William Friedman who is often called the father of American cryptography; the manuals were decades old. Gilmore also requested the declassification of Friedman’s other books.

While the NSA dragged out its response before refusing Gilmore, he heard from a Cypherpunk friend. Friedman’s personal papers had been donated to a library after his death, and they included the annotated manuscript of one still-classified book Gilmore sought. The friend simply took it off the shelf and Xeroxed it. Then, another of Friedman’s still-classified books was found on microfilm at Boston University; a copy of it was also turned over to Gilmore. He notified the judge, who was hearing what had turned into a FOIA appeal, that the “classified” documents were publicly available in libraries. Before he did so, however, Gilmore made several copies and hid them in obscure places, including an abandoned building.

The NSA reacted with extreme prejudice. They raided libraries and reclassified documents that used to be publicly available. The Justice Department called  Gilmore’s lawyer to say that his client was close to violating the Espionage Act, which could bring a prison term of ten years. The violation: he showed people a library book. Gilmore informed the judge of the latest development, but he also contacted technology reporters in the press.

NSA feared publicity, and the Cypherpunks knew it. Articles began to flow, including one in the San Francisco Examiner. Two days later, the New York Times stated, “The National Security Agency, the nation’s secretive electronic spy agency, has abruptly retreated from a confrontation with an independent researcher over secret technical manuals he found in a public library several weeks ago [...]It said that the manuals were no longer secret and that the researcher could keep them.” The Aegean Park Press, a California publisher, quickly printed the books in question.

The early Cypherpunks were prototypes who set the attitude, technology and political context in which the next generation of cryptocurrency zealots operated. The goals were disobedience, disruption of the system through cryptography, personal freedom, and counter-economics. They set and lit the stage for Satoshi Nakamoto.

Reference materials: The Satoshi Revolution

[This discussion will continue soon…]

How many of you ever thought deep about money? But not about how to make more money or how to pay a particular bill... How many of you thought about the reason of money's existence? There were places where trades occurred for a long time without the need of money. Even nowadays there are such places. Did you know that in a mental institution the cigarette may be the "local currency"?

And then why do we feel sometimes that the money we earn are simply not enough anymore from a month to next one, although our financial habits remained the same (e.g. we did not buy anything more than usual, we did not make any excess and so on). In this case, the answer is inflation. And so many people have no idea what exactly this inflation is or how it affects them. We can call inflation as being one of the oldest scam of the government. Taxation is so direct and we all feel it. We all know that we have to pay taxes for incomes (why?), taxes for profit (again, why?), taxes for imports, for exports etc. Maybe we don't know why but we know we have to do it. With many occasions raising the taxes led to rebellions, revolutions and violent reaction from citizen. But the government has also a secret weapon: the inflation. And it uses this weapon whenever the State feels that citizen won't accept another tax or another raise of taxation. Inflation is not felt directly, unlike taxation and this is the main reason for which many don't understand it or do not realize its effect on their finances. However, the outcome is the same for both inflation and taxation: the government, the banks and the elites get more money from the people.

In second chapter of Satoshi Revolution the author explains Money Theory. One allegation which caught my attention referred to the theft we have to live everyday when dealing with the State: "Unlike individuals, government does not trade goods and services for money in a voluntary exchange. Instead, government expropriates wealth from productive people by forcing them to pay for its ‘goods’ and ‘services’ whether or not they want to or benefit from them.". And this reminded me, once more, of Ayn Rand's Atlas Shrugged, which is a fascinating book which depicts in great detail how the State simply tries to take all your wealth, which you obtained with your honest work...

Eventually this situation led to the need of private money and debates on this subject started decades before the invention of Bitcoin or even before the existence of Cypherpunks. The remarkable Austrian economists talked generously about this theft and Murray Rothbard was one such iconic figure. However, most of the proposals were supposed to work also with the principle of the trusted third party. The existent trusted third party -- government's money -- was supposed to be changed with another one, but this one would also need trust.

Fourteen years ago a real solution appeared for each of us: Bitcoin. And, together with its blockchain, the trusted third party is finally no longer needed. All we need to do now is to embrace it. The following content is first part of Satoshi Revolution's second chapter: Currency Creates Freedom and Civilization… Or Oppression. And it explains how we are robbed every single day.

Section I: The Trusted Third Party Problem
Chapter 2: Monetary Theory
Part 1 - Currency Creates Freedom and Civilization… Or Oppression



"Historically, money was one of the first things controlled by government, and the free-market ‘revolution’ of the eighteenth and nineteenth centuries made very little dent in the monetary sphere. So it is high time that we turn fundamental attention to the life-blood of our economy—money."
—Murray Rothbard, What Has Government Done to Our Money?

I was seven years old when I realized my parents did not understand some of the most important dynamics of life. I was riding in the back seat of the car with a bag of candy purchased from a roadside store which was supposed to keep me quiet. It didn’t work. A thought tumbled out of my mouth. “Why do we pay for anything?” I asked. “Why don’t people just go into stores and take what they need?”

My mother replied, “It is wrong to steal.”

I explained, “I don’t mean stealing. I mean why do we give people money instead of sharing everything?” My parents fell silent.

When I asked again, my mother shot back over her shoulder, “Don’t ask stupid questions!”

They didn’t know the answer; I recognized this immediately. And their inability to explain why we needed money disturbed me because they discussed money constantly. How to make more, was there enough to repair the car, could they afford to replace the roof, someone needed dental work, what was the spending cap on Christmas? Concern about money ran through every aspect of their lives and, yet, my parents didn’t know how to answer the basic question of why we need it.

“Money is simply how the world works,” they finally explained, “because it lets people buy the things they need to live.” This was a non-answer because it returned me to the question of why we buy the things in the first place instead of sharing. Why do we trade paper for stuff, and why do people give us stuff for paper? At a childish level, I was trying to understand monetary theory and I’ve been struggling with it ever since.

Nothing has been more valuable in that quest than the short book “What Has Government Done to Our Money?” by Murray Rothbard. He does not use the term “trusted third party” or its equivalent in the book nor did he use such a term elsewhere in writing or conversation, as far as I know. Murray was a friend and mentor; I suspect he would have viewed the need to trust a financial intermediary as not being a problem at all, because private banks could offer guarantees such as reputation, redemption in gold and audits. To him, the dilemma of modern money began with government and ended with the free-market that allowed individuals to issue money; Murray named his own hypothetical currency “the Rothbard.”

These were the pre-Bitcoin decades. Money radicals solved the trusted-third-party problem by demanding free-market money and banking; they did this because the only third party on which they focused was government. The solution did not go far enough because free-market alternatives also rested on trust and, any time trust is required, betrayals will occur. But privatization was the best solution possible at the time; the blockchain had not surfaced to allow people to become self-bankers.

“What Has Government Done to Our Money?” belongs to the pre-Bitcoin years but it has significant contributions to offer the cryptocurrency world. There, Rothbard explains the origins of money as well as its pivotal importance to freedom and civilization. Free-market money is rooted deep within the needs of human nature, which makes a lie of the argument that regulating bitcoin is no big deal or even beneficial. If freedom and civilization depend on a free-market money, then unregulated cryptocurrency is essential to human welfare. Rothbard next sketches the catastrophic impact of government on money; namely, it destroys freedom and reverses the progress of civilization. These are the stakes of the game. Rothbard provides a context in which to appreciate the immense liberation that is the blockchain and the immense oppression that is modern monetary policy.

The book is a deceptively simple exposition of the world’s greatest swindle: inflation. The scam was possible because people needed a trusted third party in currency and government legally usurped that role, especially through central banking systems. The scam is no longer inevitable, however, because an intermediary is no longer necessary.

To understand the devastation of inflation, it is necessary to grasp the nature and power of money. Monetary theory needs to be laid out in simplistic terms because an intentional haze of complexity has ensured that people like my parents are left speechless and puzzled when confronted by easy questions. The confusion is intentional because it could be easily avoided. Schools could teach commonsense economics; government and financial institutions could be transparent rather than presenting a brick wall, as the Federal Reserve does about being audited; fiscal policy could be presented in English rather than bureaucratized with impenetrable statistics. It won’t happen. The lack of public awareness benefits government in tightening its grip on money.

A Brief Tour of the Basics

(Note: “money” here is used as a synonym for “currency” because that is money’s most important function. The other functions — acting as a store of value or a unit of account — are consequences of its primary role as currency.)

Goods and services are exchanged within every society because exchange is a human need. It is the engine of economic life. It is a wellspring of prosperity because exchange is not a zero-sum game, as some economists argue. That is to say, if a person trades a fish for a loaf of bread, it is not because the value of a fish is one loaf of bread with each trader’s gain and loss equaly balancing the other’s. The exchange occurs because one person values the bread more than the fish and vice versa; each profits from the exchange or it would not occur. As a by-product of trading, the parties also establish cooperation and perhaps a level of good will, which means exchange may be the basis of civil society as well.

Human beings are so diverse that the skills within even a small set of individuals can vary dramatically; trading these skills, and the resulting goods, increases the odds of survival both for the group and for each member. But direct exchange or barter is severely flawed, as Rothbard explains. “The two basic problems are ‘indivisibility’ and ‘lack of coincidence of wants’.” Indivisibility means it is difficult or impossible to divide many barter items, like a plow, in order to trade for several different things with multiple people. So no trade occurs. A lack of coincidence of wants means Smith has eggs and Jones has shoes but Smith wants to trade for butter. So no trade occurs.

Indirect exchange solves the barter problem…to a degree. Smith trades with Jones for a marketable good he doesn’t want but which can be traded to a third person for something he does want. A remarkable by-product spontaneously emerges: money. Indirect trading naturally encourages a medium of exchange to appear. Why? Those who buy a good to trade it will favor a highly marketable one that exchanges widely, easily and well. Highly marketable goods tend to share characteristics such as divisibility, durability, fungibility and transportability; it is no coincidence that these same characteristics are often used to describe good money.

In the beginning, the marketable good is generally desired due to its use value. Rothbard lists some goods that went on to become currencies: “tobacco in colonial Virginia, sugar in the West Indies, salt in Abyssinia, cattle in ancient Greece, nails in Scotland, copper in ancient Egypt, and grain, beads, tea, cowrie shells, and fishhooks.” The demand for the good soon generates a “reinforcing spiral: more marketability causes wider use as a medium which causes more marketability, etc. Eventually, one or two commodities are used as general media–in almost all exchanges—and these are called money.” On this basis, Rothbard would have rejected bitcoin as currency, insisting it did not originate in or constitute a “useful commodity.” A rebuttal of this position occurs earlier in this chapter.

Commonly-accepted currencies eliminate the need for indirect exchanges that can be clumsy, time consuming and geographically limited. Eventually, currency created a complex free-market that allowed millions of people to consume products from around the world. Prosperity ensued. In short, money catapulted human beings from survival and into circumstances with time to think, to be artistic, to pursue relationships, to invent, to waste time. In other words, money permitted civilization. Mark Twain was correct in revising the old expression to read, “the lack of money is the root of all evil.”

Enter government. Currency had played a defining role in freeing and civilizing human beings but now it would be used to enslave and debase them.

Inflation, the Greatest Theft of All

Unlike individuals, government does not trade goods and services for money in a voluntary exchange. Instead, government expropriates wealth from productive people by forcing them to pay for its ‘goods’ and ‘services’ whether or not they want to or benefit from them. Taxation is the most visible form of theft but a myriad of others exist, from monopolizing goods like postage stamps to licensing cars.

The most powerful tool of expropriation is the government’s monopoly on issuing money or fiat. Rothbard explains, “The emergence of money, while a boon to the human race, also opened a more subtle route for governmental expropriation of resources [...] If government can find ways to engage in counterfeiting—the creation of new money out of thin air—it can quickly produce its own money without taking the trouble to sell services or mine gold. It can then appropriate resources slyly and almost unnoticed, without rousing the hostility touched off by taxation.”

Everyone understands taxation because it comes with forms to fill out, a need to write checks or to pay a visible premium at the checkout. No wonder tax resistance and rebellions have been common themes through U.S. history since the American Revolution. But inflation is too subtle and complex to create enraged mobs…that is, until it goes badly out of control and then it is too late. If taxation is a gun, then inflation is like a cat burglar. This makes it all the more important to understand.

Inflation is an increase in the supply of money and credit. It is usually associated with government, and with good cause, but it can occur with free-market money as well. For example, the supply of gold could increase for various reasons. But a crucial difference exists between government and free-market inflation. Gold fulfills many non-monetary uses and those employments would increase as the cost of gold fell. This means an inflation in gold is a social good for the other uses even if the inflation temporarily reduces its monetary value. The increased demand for non-monetary uses both absorbs the “excess” supply and drives the monetary value back up. In short, the inflation tends to be self-adjusting, temporary and is accompanied by a social benefit. Moreover, a fall in gold will drive up the value of competing currencies, such as silver.

By contrast, government fiat’s only use value is as currency which means there is no self-adjusting mechanism. World markets may react negatively and devalue the egregious fiat – that is, if their fiats are not as bad or worse. If so, the offending government can crank up the printing press and create a vicious circle of further increasing the money supply. The average person has little choice but to live with the inflation because legal-tender laws forbid competing currencies. In short, fiat inflation has no social benefit or escape route, only social devastation and entrapment.

The word “inflation” is often used as a synonym for “a rise in prices” but the rise is a consequence of inflation, not its cause. The cause is an increase in the supply of money and credit. The difference between these two usages is more than semantic. Viewing inflation as rising prices misses much of the great harm it inflicts. For example, inflation redistributes wealth from average people upward to the ruling classes. This happens because freshly-printed fiat is initially valued at the same rate as all other units of it in existence. Doubling the money supply overnight eventually collapses the buying power of each unit, but the first users enjoy the pre-inflation value because the increase has not trickled through the economy. The first users are typically government, banks, financial institutions or businesses that are offered favorable loans. The end user receives fiat that has gradually diluted in buying power as it has spread throughout the economy. This user is the average person who bears the full brunt of inflation by having the value of his income sink while prices around him soar.

With legal-tender laws and the elimination of the gold standard, there is little to check government from pumping up money and credit at will, using interest rates for fine tuning. The incentives are all on the side of inflation. It is hugely profitable to government and mostly invisible to the average person, especially in its early stages. The economic villain of free-market advocates, John Maynard Keynes, knew this well. His pivotal book “The Economic Consequences of Peace” (1919) states, “By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

The harms of inflation scroll on and on. Rothbard highlights a less-discussed one. “It distorts that keystone of our economy: business calculation. Since prices do not all change uniformly and at the same speed, it becomes very difficult for business to separate the lasting from the transitional, and gauge truly the demands of consumers or the cost of their operations. For example, accounting practice enters the ‘cost’ of an asset at the amount the business has paid for it. But if inflation intervenes, the cost of replacing the asset when it wears out will be far greater than that recorded on the books. As a result, business accounting will seriously overstate their profits during inflation—and may even consume capital while presumably increasing their investments.”

The Central Bank bears massive blame for the theft and market distortion of inflation. In the United States, the Federal Reserve System is sometimes called “private.” For one thing, the regional Reserve Banks are private corporations that are owned by their member banks. The label is illusory. The Federal Reserve was established by an act of Congress (1913) and derives its core power from a government-granted monopoly to issue money. The system may mimic a private agency in some ways but, as Rothbard explains, the system of banks are “always directed by government-appointed officials, and serve as arms of the government.”

The Federal Reserve consistently acts in a manner that enables inflation. It does so in two ways: removing checks on inflation and directing inflation itself. Rothbard offers an example of the first tactic. “[T]he Federal Reserve Act compels the banks to keep the minimum ratio of reserves to deposits and, since 1917, these reserves could only consist of deposits at the Federal Reserve Bank. Gold could no longer be part of a bank’s legal reserves; it had to be deposited in the Federal Reserve Bank.” He illustrates the second: “By controlling the banks’ ‘reserves’—their deposit accounts at the Central Bank. Banks tend to keep a certain ratio of reserves to their total deposit liabilities, and in the United States government control is made easier by imposing a legal minimum ratio on the bank. The Central Bank can stimulate inflation, then, by pouring reserves into the banking system, and also by lowering the reserve ratio, thus permitting a nationwide bank credit-expansion.”

Fiat inflation destroys the free-market which is its antithesis. The extent to which government tightens its grip on money is the extent to which the free exchange upon which liberty and civilization rests is weakened. Traditional private money confronts the government in an admirable David-Goliath fashion but it does not remove the statist loophole that allows inflation – the need for a trusted third party. Not until the blockchain sidesteps government and obviates trust does currency regain its status as a vehicle for freedom and civilization.

Reference materials: The Satoshi Revolution

[This discussion will continue soon…]

Perhaps a term caught the attention of some readers in the previous articles -- Cypherpunks. The subject was not detailed too much until now, but the right moment came. We'll learn today about the crypto wars, which represents a period of rebellion of tech savvies and cryptographs against government's policies of surveilling its citizen and of banning public access to cryptography.

While reading, maybe some of you will call this article as a bohemian story, nice to read, but those which fought in these wars really put their lives in jeopardy by fighting with the government and one of its most powerful agency: NSA. We will see how the crypto rebels invented the public key cryptography, RSA encryption algorithm and PGP encryption; and how they managed to offer these powerful tools to regular people.

And, perhaps, you'll be fascinated by reading some parts of Tim May's manifesto, which was written by him more than three decades ago and which envisioned inventions which we can use now for our benefit: cryptographic protocols empowering people, web of trust and reputation systems. One remarkable journalist, named Stephen Levy, wrote a must-read article in Wired: Crypto Rebels. If the article will get your attention, you may also try to read some of Levy's books. I totally recommend Hackers: Heroes of the Computer Revolution and Crypto.

The following material is the second part of Chapter 2 from Wendy McElroy's Satoshi Revolution: Technology Meets Anarchy. Both Profit and it tells us the story of Cypherpunks and early cryptographs. It is a really amazing piece of history which may make you feel thrilled after reading these!

Section I: The Trusted Third Party Problem
Chapter 2: Monetary Theory
Part 2 - Technology Meets Anarchy. Both Profit



"Bitcoin is the catalyst for peaceful anarchy and freedom. It was built as a reaction against corrupt governments and financial institutions. It was not solely created for the sake of improving financial technology. But some people adulterate this truth. In reality, Bitcoin was meant to function as a monetary weapon, as a cryptocurrency poised to undermine authority. Now it is whitewashed. It is seen as a polite and unassuming technology in order to appease politicians, banksters, and soccer moms. Its purpose is sometimes concealed in order to make the tech palatable to the unwashed masses and power elite. However, no one should forget or deny why the protocol was written."
—Sterlin Lujan

Cryptocurrency was not created to make money; the blockchain was not forged to render banking more efficient. The core developers did not use open source or eschew patents because they were proprietary or wanted to reap a fortune. They wanted privacy and freedom to be available without cost to all. Anyone who believes Bitcoin was designed for financial gain knows nothing about its history or the idealism built into its algorithms. Profiting from cryptocurrency and using blockchains to economic advantage are laudable by-products, but Bitcoin was conceived as a vehicle for creating political and social change by empowering individuals and weakening government. The developers were revolutionaries. Bitcoin was a blast of rebellion.

It came not a moment too soon. The galloping growth of the Internet gave government an incredible weapon against which individuals would have had scant protection without cryptography, the art of secret communication.

The Radical History of Bitcoin

Before Satoshi, there was the engineer and scientist Timothy C. May to whom Bitcoin is sometimes traced. May’s “Crypto Anarchist Manifesto” (1988) first appeared when it was distributed to a few techno-anarchists at the Crypto ’88 conference. The six-paragraph manifesto called for a computer technology based on cryptographic protocols which would “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….But only recently have computer networks and personal computers attained sufficient speed to make the ideas practically realizable.”

The manifesto ended with a cry to arms, “Arise, you have nothing to lose but your barbed wire fences!” The “barbed wire” reference is quintessentially American. It evokes images of land out West being sectioned off by sharp fences that were snipped apart by cowboys who demanded an open landscape.

Even in 1988, May could draw upon crypto-history. In the mid-1970s, cryptography ceased to be the nearly-exclusive domain of military and intelligence agencies who operated in secrecy. The academic research that surged forward was openly shared. One event in particular broke government’s grip on the field. In 1975, computer guru Whitfield Diffie and electrical engineering professor Martin Hellman invented public-key encryption and published their results the next year in the essay “New Directions in Cryptography.” (Arguably, the public key was a re-invention as the British had developed “nonsecret encryption” in 1973 but chose to be silent on the subject, as governments generally do.) In 1977, cryptographers Ron Rivest, Adi Shamir and Leonard Adleman created the RSA encryption algorithm, which was one of the first practical public-key systems.

Public-key encryption hit the computer community like an explosion. It is brilliant in its simplicity. Every user has two keys – a public and a private one – both of which are unique. The public key scrambles the text of a message which can be unscrambled only by the private key. The public key can be thrown to the wind but the private one is closely guarded. The result is close to impenetrable privacy.

Diffie had been inspired by the trusted third party problem. The book “High Noon on the Electronic Frontier: Conceptual Issues in Cyberspace” (1996) quoted him as saying, “You may have protected files, but if a subpoena was served to the system manager, it wouldn’t do you any good. The administrators would sell you out, because they’d have no interest in going to jail.” His solution: a decentralized network with each individual possessing the mathematical key to his own privacy – the right most threatened by a digital society.  It obliterated the problem by removing any need for trust. At the same time, public-key encryption also removed the contradiction of sending secure information over insecure channels. It excluded “Eve” – the name cryptographers called unwanted eavesdroppers. And, importantly, public-key encryption was free to all because revolution required participation.

Government was displeased. The National Security Agency (NSA) could no longer eavesdrop at will and its domestic monopoly on encryption was suddenly thrown open to all comers. The journalist Steven Levy commented in a Wired article, “In 1979, Inman [then-head of the NSA] gave an address that came to be known as ‘the sky is falling‘ speech, warning that ‘non- governmental cryptologic activity and publication [...] poses clear risks to the national security’.”

The Cypherpunk response was captured by a later statement by cryptographer John Gilmore. “Show us. Show the public how your ability to violate the privacy of any citizen has prevented a major disaster. They’re abridging the freedom and privacy of all citizens – to defend us against a bogeyman that they will not explain. The decision to literally trade away our privacy is one that must be made by the whole society, not made unilaterally by a military spy agency.”

The first crypto war erupted with the NSA strenuously trying to curtail the circulation of Diffie’s and Hellman’s ideas. The agency went so far as to inform publishers that the two rebels and whoever published them could face jail time for violating laws restricting the export of military weapons. The Institute of Electrical and Electronics Engineers, one of Hellman’s outlets, received a letter that read, in part, “I have noticed in the past months that various IEEE Groups have been publishing and exporting technical articles on encryption and cryptology—a technical field which is covered by Federal Regulations, viz: ITAR (International Traffic in Arms Regulations, 22 CFR 121-128).” Gag orders were issued. Legislation was proposed. The NSA attempted to control funding to crypto research. Inman gave the agency’s first public interview to Science magazine in order to explain his position. NSA also considered requiring people to “escrow” their private keys with a third party who would be vulnerable to a judge’s order or to the police; of course, this would have returned the trusted third party problem which public key encryption was intended to solve. In response, Electronic Frontier Foundation co-founder John Perry Barlow declared, “You can have my encryption algorithm…when you pry my cold dead fingers from my private key.”

The NSA’s efforts failed. Powerful crypto was now a public good.

Arise Cypherpunks!

In the late 1980s, “Cypherpunks” emerged as something akin to a movement. The deliberately humorous label was coined by hacker Judith Milhon who blended “cipher” with “cyberpunk.” The Cypherpunks wanted to use cryptography to defend against surveillance and censorship by the state. They were also determined to build a counter-economic society that offered an alternative to existing bank and financial systems.

Their vision was inspired by the pioneering work of computer scientist David Chaum, nicknamed the “Houdini of crypto.” Three of his papers were particularly influential.

• “Untraceable Electronic Mail, Return Addresses, and Digital Pseudonyms” (1981) laid the groundwork for research into and the development of anonymous communications based on public-key cryptography.
• “Blind Signatures for Untraceable Payments” (1983) stated, “Automation of the way we pay for goods and services is already underway [...] The ultimate structure of the new electronic payments system may have a substantial impact on personal privacy as well as on the nature and extent of criminal use of payments. Ideally a new payments system should address both of these seemingly conflicting sets of concerns.” The essay called for digital cash.
• “Security without Identification: Transaction Systems to Make Big Brother Obsolete” (1985) further described anonymous digital cash and pseudonymous reputation systems.

A typical cypherpunk distrusted and disliked government, especially the federal variety; the NSA’s near-hysteria over unclassified encryption only heightened this response. Most cypherpunks embraced the counterculture with its stress on free speech, sexual liberation and freedom to use drugs. In short, they were civil libertarians. One of the earliest portraits of the coding radicals was Levy’s Wired article, mentioned above, which appeared in the magazine’s second issue (May 1993).  Levy called them “techie-cum-civil libertarians.” They were idealists who “hope for a world where an individual’s informational footprints – everything from an opinion on abortion to the medical record of an actual abortion – can be traced only if the individual involved chooses to reveal them; a world where coherent messages shoot around the globe by network and microwave, but intruders and feds trying to pluck them out of the vapor find only gibberish; a world where the tools of prying are transformed into the instruments of privacy.”

Levy understood the stakes. “The outcome of this struggle may determine the amount of freedom our society will grant us in the 21st century.” The spread of personal computers, the rise of the modern Internet and the titillating label of “outlaw” were an irresistible combination.

Then, in 1991, Phil Zimmermann developed PGP, or Pretty Good Privacy, the world’s most popular email encryption software. He viewed it as a human rights tool and believed in it so deeply that he missed five mortgage payments and almost lost his house while designing it. The first version was called “a web of trust” which described the protocol by which the authenticity of the link between a public key and its owner was established.  Zimmermann described the protocol in the manual for PGP version 2.0:

“As time goes on, you will accumulate keys from other people that you may want to designate as trusted introducers. Everyone else will each choose their own trusted introducers. And everyone will gradually accumulate and distribute with their key a collection of certifying signatures from other people, with the expectation that anyone receiving it will trust at least one or two of the signatures. This will cause the emergence of a decentralized fault-tolerant web of confidence for all public keys.”

PGP was initially given away by being posted on computer bulletin boards. Zimmermann commented, “[l]ike thousands of dandelion seeds blowing in the wind” PGP spread around the globe. Government noticed. Zimmermann was targeted in a three-year criminal investigation based on the possible violation of US export restrictions for cryptographic software.

Fast forward to 1992. May, Milhon, Gilmore and Eric Hughes formed a small group of coding zealots who met every Saturday in a small office in San Francisco. A Christian Science Monitor article described the group as “all united by that unique Bay Area blend: passionate about technology, steeped in counterculture, and unswervingly libertarian.”

The group’s size grew rapidly. The List, an electronic posting forum, became the most active aspect with the “people’s algorithms” drawing staunch support from the likes of Julian Assange and Zimmermann. The Christian Science Monitor article commented, “Radical libertarians dominated the list, along with ‘some anarcho-capitalists and even a few socialists’. Many had a technical background from working with computers; some were political scientists, classical scholars, or lawyers.” Eric Hughes contributed another manifesto: “A Cypherpunk’s Manifesto” that opened, “Privacy is necessary for an open society in the electronic age.” But , it continued, “[f]or privacy to be widespread it must be part of a social contract. People must come and together deploy these systems for the common good. Privacy only extends so far as the cooperation of one’s fellows in society.”

The group quickly encountered an objection that later became a dominant thrust of government’s attack on private encryption: “bad actors” would use anonymity to get away with crimes. During a 1992 interview, a skeptic confronted May. “Seems like the perfect thing for ransom notes, extortion threats, bribes, blackmail, insider trading and terrorism,” he challenged. May calmly replied, “Well, what about selling information that isn’t viewed as legal, say about pot-growing, do-it-yourself abortion? What about the anonymity wanted for whistleblowers, confessionals, and dating personals?”

Cypherpunks believed public-key encryption made society less dangerous because it removed the two major sources of violence. First, anonymity neutralized governments, which consisted of “men with guns.” Shutting governments out removed those guns from exchanges. If financial exchanges were invisible, for example, the violence of taxation would be impossible. Second, public-key encryption reduced the risks associated with victim-less crimes, such as drug use. Ordering drugs online, for example, was safer than buying them in a back alley of a shoddy neighborhood. Admittedly, public-key encryption could shield activities that violated rights. A common Cypherpunk response was to view the prospect as irrelevant. Encryption was a reality and it would spread in spite of unpleasant side effects. Perhaps cypherpunks believed a technological or community solution to real online crimes would evolve.

The Crypto Wars Continue

One incident captures the core of crypto wars between the Cypherpunks and government, especially the NSA. Gilmore was determined to rescue the information from documents that the NSA was attempting to suppress. His first major victory was to distribute a paper by a cryptographer employed by Xerox, which the NSA had persuaded Xerox to suppress. Gilmore posted it on the Internet and it went viral.

Then, in 1992, Gilmore further enraged the NSA. He filed a Freedom of Information Act (FOIA) request to acquire the declassified parts of a four-volume work by William Friedman who is often called the father of American cryptography; the manuals were decades old. Gilmore also requested the declassification of Friedman’s other books.

While the NSA dragged out its response before refusing Gilmore, he heard from a Cypherpunk friend. Friedman’s personal papers had been donated to a library after his death, and they included the annotated manuscript of one still-classified book Gilmore sought. The friend simply took it off the shelf and Xeroxed it. Then, another of Friedman’s still-classified books was found on microfilm at Boston University; a copy of it was also turned over to Gilmore. He notified the judge, who was hearing what had turned into a FOIA appeal, that the “classified” documents were publicly available in libraries. Before he did so, however, Gilmore made several copies and hid them in obscure places, including an abandoned building.

The NSA reacted with extreme prejudice. They raided libraries and reclassified documents that used to be publicly available. The Justice Department called  Gilmore’s lawyer to say that his client was close to violating the Espionage Act, which could bring a prison term of ten years. The violation: he showed people a library book. Gilmore informed the judge of the latest development, but he also contacted technology reporters in the press.

NSA feared publicity, and the Cypherpunks knew it. Articles began to flow, including one in the San Francisco Examiner. Two days later, the New York Times stated, “The National Security Agency, the nation’s secretive electronic spy agency, has abruptly retreated from a confrontation with an independent researcher over secret technical manuals he found in a public library several weeks ago [...]It said that the manuals were no longer secret and that the researcher could keep them.” The Aegean Park Press, a California publisher, quickly printed the books in question.

The early Cypherpunks were prototypes who set the attitude, technology and political context in which the next generation of cryptocurrency zealots operated. The goals were disobedience, disruption of the system through cryptography, personal freedom, and counter-economics. They set and lit the stage for Satoshi Nakamoto.

Reference materials: The Satoshi Revolution

[This discussion will continue soon…]

Pilipinas: https://bitcointalksearch.org/topic/tlsannbanned-mixer-coinjoin-crypto-mixer-iyong-anonymity-ang-aming-uunahin-5456981.
Arabic: Kavelj22

Allow me to express my opinion. I believe that it does not matter how many days (weeks, etc.) later you publish your articles. I believe that the quality of the material you submit is far more important than the frequency at which it appears. I think so.

IMHO, an article per week is already good but I do also agree with lightwarrior that it should be quality over quantity for which it isn't an issue to you guys since you've just produced quality articles.
Anyway, there could be some gaps or missed weeks or days that you may not be able to publish articles for some reasons and that's totally fine. The topics that you've been are interesting and also a nice way of introducing Unijoin to the readers and you've proven that with a lot of followers on your medium account. 

I personally want quality over quantity and I'm sure UniJoin team knows way better than us how to approach the journalism department and when to publish their articles.

Sure , they could do it daily if they wanted to but then again , it will be a hot topic every day ? it will be a must reading every day ? No. Because making a quality article takes time , dedication , information , research , and so on. So from my view , they are doing a great job by publishing important hot articles as soon as they are ready and not rushing it.

I was saying in our previous post that "[...] Governments of United States also act with so much hypocrisy against Bitcoin, when they know that their country was actually built on private money!". And we started exploring a bit the history of private money in US. Today's article bring (a lot of) more light on this subject. For many of you what you'll read will sound shocking or it will be, at least, a huge (unpleasant) surprise for what government does.

Decades passed yet governments' habits about private money did not change. They refused the idea of private money although, with so much hypocrisy (as we'll learn from today's article) sometimes they actually used private money to pay their debts but they banned that money afterward! This is so incredible! If history were not written down perhaps such actions would not be believed... Yet they happened. Pieces of history also explain how some privately minted coins were more pure than the ones issued by the State, yet the State banned them.

And why? All these happen nowadays too. With Bitcoin and other cryptocurrencies. The State wants complete monopoly over money. It needs complete monopoly over money, in order to be able to fully control the citizens. This is the reason for which almost all states try to ban Bitcoin or try to centralize it. They think that, if they can't stop it, at least they should control and centralize it.

Some countries went that far that issued (or plan to issue) an abonimation named CDBC -- Central Bank Digital Currency -- hoping to lure citizen which do not have enough knowledge. They try to lure people that they will offer them State-issued cryptocurrencies, but such thing does not exist. But we'll talk later about CDBCs. For today let's enjoy Wendy McElroy's second part of first chapter of Satoshi Revolution: How and Why Government Outlawed Private Money.

Section I: The Trusted Third Party Problem
Chapter 1: Listening to the Past
Part 2 - How and Why Government Outlawed Private Money



How did ratification of the United States Constitution in 1788 affect private money?

People assume the United States Constitution grants Congress a monopoly ‘right’ to issue money. The assumption comes from Article 1, Section 8, Clause 5 of the Constitution which delegates to Congress the power “[t]o coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” People are incorrect.

In his pamphlet, “Unconstitutionality of the Laws of Congress Prohibiting Private Mails” (1844), the legal scholar and private money advocate Lysander Spooner (1808-1887) explained,

“[T]he powers of Congress…’to coin money’, are in reality exclusive, only as against the State governments….The constitutional prohibition upon individuals, to coin money, extends no farther than to prohibitions upon ‘counterfeiting the securities and current coin of the United States’. Provided individuals do not ‘counterfeit’ or imitate ‘the securities or current coin of the United States’, they have a perfect right, and Congress has no power to prohibit them, to weigh and assay pieces of gold and silver, mark upon them their weight and fineness, and sell them for whatever they will bring, in competition with the coin of the United States.”

The Constitution addresses the regulation of “foreign coin” because another coin demonstrates why private issue remained so popular in early America: the Bechtler.

The 19th century saw a wave of gold rushes. In the late 1820s, both Georgia and North Carolina experienced a huge gold rush and an accompanying dilemma. There were no government mints in the area. Shipping gold to the main mint in Philadelphia was problematic because it cost a great deal to ship and insure the gold which risked being stolen. A local paper explained the miner’s plight:

“Since the State Bank has limited her issues and is drawing into her vaults the notes which have been loaned to our citizens, in the settlement of her outstanding accounts, great inconvenience has been let in business transactions with the Bank, and also for the common purposes of commerce. How far this scheme [having a private mint] will succeed in effecting these objects, we have yet to learn. The risk and expense of sending gold to the [Philadelphia] mint is such that the owners of the mines often find it difficult to dispose of the products of the mines at a fair value, as things now are. The urgent petition to Congress for the establishment of a branch of the US Mint in the ‘gold region’ having failed, and the gold produced being in a fair way to entirely disappear from the country and fall into the rusting hoards of Europe, this scheme has been resorted to…”

Gold miners approached the well-respected watchmaker and goldsmith Christopher Bechtler Sr. (1782-1843) for a private solution. Because he was also a metallurgist and an honest man, Bechtler was a perfect candidate to strike coins. The first Bechtler gold coin issued in 1831, followed by advertisements declaring that Bechtler would mint any miner’s gold for 2 ½ percent of the bullion.

Government’s reaction to competition can be gauged by the fact that the United States Treasury lost little time in testing the new coins, probably in the hope of discrediting them. Alas, for the Treasury, the Bechtlers were purer than government issue. Indeed, the Federal Mint bought $294,000 worth of Bechtlers and used them to pay debts and for trade with Europe. Suddenly, the government was motivated to open its own Federal mint in Charlotte, North Carolina which was about 80 miles from the Bechtler one; it began to produce gold coins in 1838.

Considerably more than one million Bechtlers circulated widely, especially in the southeast. When the Bechtler Sr. died, however, the relatives who assumed the business were less than conscientious or perhaps dishonest. Consistency and purity declined and the market responded. The mint closed a few years later.

But the original Bechtlers continued to circulate. They were so popular that, during the American Civil War (1861-1865), the monetary obligations of the Confederacy were specified as being payable in Bechtler gold, not Confederate or any other government-issued currency.

The Bechtler coin is both an inspiring and a cautionary tale. It speaks to the consequences of integrity and of debasement, both of which are non-issues with bitcoin because it is trustless and cannot be altered. The Bechtler story also demonstrates how the free market outperforms government in terms of moving swiftly into an empty niche and in the quality of goods and services it delivers. Just as today, free-market currencies outcompete government issue, especially with current inflation; if they cease to do so, the currency fails. Just as today, the government uses the currency while trying to undercut the competition it represents.

Government resistance to competition did not begin or end with the Bechtlers. In his essay “Hard Money in the Voluntaryist Tradition,”  historian Carl Watner traced the course of a mint in San Francisco during the California gold rush: Moffat & Co. Watner wrote, “Moffat & Co. was apparently the most responsible of the private concerns minting money,” for when, “the businesses of San Francisco placed an embargo on all private gold coinage except issues by Moffat. The remainder of the private issues were soon sent to the U. S. Assay Office to be melted down or else were passed only for their bullion content in trade.”

Initially, the firm issued gold ingots in direct competition with the U.S. Assay Office; no state Assay Office then existed. According to the reference site Coinfacts, “The official government assay of these ingots proved them to be worth more than the amount stamped on them.” In other words, Moffat outcompeted the government.

The ingots’ denomination was too large for normal trade, however, and merchants demanded smaller coins. Moffat & Co., which contracted with the U.S Assay Office, asked for the authority to strike coins as well. When permission was not forthcoming, Moffat began minting coins under its own mark and authority in 1849. The firm’s high reputation and its policy of redeeming coins at face value allowed their issue to become a norm in circulating currency.

Government obstruction did not stop with a refusal to authorize coinage. On April 20, 1850, the State Assayer, Melter, and Refiner of Gold of California was established by law. A companion bill was passed at the same time with the goal of reining in private minters. Along with an earlier measure on April 8th, the bill represented a compromise. Coinfacts explained the original position the government had taken toward minters such as Moffat. “It was during the first part of 1850 that there was serious agitation against private coinage. The California Legislature considered a bill… which would have branded private coiners as counterfeiters, and which urged subjecting ‘the makers or passers of such coin to the penalty imposed upon coiners and counterfeiters’. The bill would also have forced the private mints to redeem their coins in ‘lawful money’. The Alta California printed the proposed bill along with a supportive editorial. The editor further pointed out the inability to use private coins in payment of customs.”

The next day, the Alta California ran an open letter from Moffat through which he appealed to the people of San Francisco. He acknowledged that the state could not legally issue coins due to Constitutional restrictions, but private individuals had no similar constraint. He pointed to the Bechtler mint which continued to strike coins even though the business was only 80 miles from the federal government’s Charlotte branch. Moffat powerfully reminded San Francisco that no one had ever been defrauded by purchasing or accepting his coins.

The first compromise bill of early April prohibited the private issuance of gold pieces weighing less than four troy ounces. This was an awkward size for normal commerce and almost guaranteed a limited circulation. By contrast, the state Assay Office was allowed to cast gold ingots of two troy ounces. Coinfacts observed, “The State Assay Office of California was a unique institution in our nation’s history. It was the only mint to operate in this country under the authority of a state, after 1789. Its issues (though never challenged in the courts) may have been illegal under the United States Constitution, which forbade any state to issue coins or currency.” The state used the sleight-of-hand of striking ingots which were not mentioned in the Constitution but which circulated as the equivalent of coins.

The April 20^th companion bill further hobbled private minters by requiring them to redeem their coins at face value for government issue upon demand.

A complicated back-and-forth between Moffat and both the state and federal assay offices ensued. Moffat received a coining contract with the state and sought federal permission to strike smaller coins, which was denied. Eventually, Moffat resumed issuing its own coins in smaller denominations whereupon the government granted permission to issue official $10 and $20 coins for the Assay Office.

The federal government changed tactics in 1852 when the U.S. Customs House suddenly refused to accept Moffat’s $50 ingots even though they had been issued under the direct authority of the U.S. Assay Office. Paying customs was a primary use of the ingots, but federal law now required duties to be paid in coins of 900/1000 fineness rather than the California standard of 884/ to 887/1000. The Treasury Department took the remarkable step of refusing to accept coins issued by its own Assay Office, thereby invalidating its own coinage.

The history of Moffat & Co. lays bare the government’s resolve to eliminate competition in currency and the basic tactics it uses to do so. One strategy is to prohibit the currency by criminalizing it as the California legislature attempted to do through the accusation of counterfeiting. Another is to absorb and control the competition as the Assay Office did by contracting with Moffat. A third strategy is to place huge obstacles in the path of free market currencies which amounts to a de facto ban or, at least, a decided advantage handed to government money.

It worked. Watner explained, “By October 1856, the Federal mint was apparently able to meet all demands for coins in domestic circulation and for export, so that private issues of gold coin quietly passed out of existence. There is no record of any further private minting in California after this time.”

The history of private minting in early America is deep, pervasive and intimately tied to the nation’s economic success. Fraud was certain present but so, too, was meticulous honesty. The mints with high reputations and good business sense not only succeeded but also outperformed their government counterparts, which were reduced to using force in the form of law to gain the upper hand. Government did not act on behalf of the public. If it had, it would not have attacked honest firms that provided desperately need services to miners, merchants and purchasers. Government acts on its own behalf to line its pockets and strengthen its power.

On June 8, 1864, Congress passed An Act to punish and prevent the Counterfeiting of Coin of the United States. It read, in whole, “That if any person or persons, except now authorized by law, shall hereafter make, or cause to be made, or shall utter or pass, or attempt to utter or pass, any coins of gold or silver, or other metals or alloys of metal, intended for the use and purpose of current money, whether in the resemblance of the coin of the United States or foreign countries, or of original design, every person so offending shall, on conviction thereof, be punished by fine not exceeding three thousand dollars, or by imprisonment for a term not exceeding five years, or both, at the discretion of the court, according to the aggravation of the offence.”

The private minting of currency ceased in America

The Act was undoubtedly sold as necessary to protect the public from fraud. There is no question that fraud in the form of ‘light’ coins was a constant worry with both private and government mints; without excusing the fraud or suggesting it not be punished, caveat emptor applies. An entire category of business should not be criminalized because some participants are dishonest.

The claim of preventing fraud is disingenuous on its face. It does not explain why the government went after coins and companies it knew to be reputable, like Moffat & Co. And why did the government itself preferred to use private coins on occasion? Nor does the Act acknowledge that many private miners went into business at the behest of a public whose needs were ignored by the Treasury Department. Only one explanation makes sense; the government wanted to eliminate the competition not because it was fraudulent but because it could win.

Mark Twain reputedly said, “History does not repeat itself, but it rhymes.” To some, private coinage in early America may seem to have little in common with cryptocurrencies but there is a common theme. Government is threatened and wants monopoly. Cryptocurrencies and their advocates can expect the same treatment from governments around the world: a mixture of banning, obstacles, absorption and punishment. History is beginning to rhyme loudly.

Reference materials: The Satoshi Revolution

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Have you ever wondered how our world would look like if it were fully centralized? How it would look like if all people, during entire history, would have only listened to governments and other elites, would have only obeyed to these elites? If such thing happened then, most likely, we were all just puppets now, in government's hands. We are still not far from there. I would not bet that Orwell's vision from Nineteen Eighty-Four won't happen in the future.

But, fortunately, some think outside the box. Some took or take risks which may be seen as insanity, yet their actions changed the world. Some of these people were the Cypherpunks, which fought for being able to offer private communication methods and free cryptography to people, despite government's intense efforts to not allow regular citizen to use (or learn) cryptography. Thanks to some like these Cypherpunks we are now able to communicate privately, to use PGP and, of course, Bitcoin.

History contains a lot of revolutionary minds which tried to change the mindset, which tried to help people through decentralized ideas, which tried to help us be free. Our freedom from today may seem not enough; yet, without such iconic figures of the past we would have been in an even deeper slavery.

We'll learn today about one of the most important decentralized event of history: Gutenberg’s printing press. How would have gone Martin Luther's Reformation from 1517 without the existence of printing press? We will never know that. What we know though is that printing press helped people translate, print and spread ideas, writings and valuable manuscripts all around the world. If until the apparition of printing press only elites (governments, the Church etc.) had access to documents, to write them and publish them, after that moment this power came to people. And elites saw themselves stripped from a power which they used as a monopoly until then.

500 years later we see Bitcoin making a similar revolutionary change: it helps us gain back our freedom, our control over finances, our privacy, our dignity. Elites are once again stripped from a terrible power they had for thousands of years: the power to control people's money. In an instant, the world changed in a way that not many ever hoped. Let's enjoy this piece of history by reading third part of Wendy McElroy's first chapter of Satoshi Revolution: Politics Versus Ideology.

Section I: The Trusted Third Party Problem
Chapter 1: Listening to the Past
Part 3 - Politics Versus Ideology



"A lot of people automatically dismiss e-currency as a lost cause because of all the companies that failed since the 1990’s.  I hope it’s obvious it was only the centrally controlled nature of those systems that doomed them.  I think this is the first time we’re trying a decentralized, non-trust-based system."
—Satoshi Nakamoto

Bitcoin Avoids the Lethal Problems of Earlier Private Currencies

(Caveat: I do not mean to credit Satoshi Nakamoto for all good things within cryptocurrency, as I may seem to be doing. Visionaries came before him and forged new paths. For example, Timothy C. May’s “Crypto Anarchist Manifesto” was published in 1988 and opened with the remarkable sentence, “A specter is haunting the modern world, the specter of crypto anarchy.” The genius of Nakamoto was twofold. He produced an elegant, original technology that rivals the Gutenberg printing press and allows the implementation of economic crypto anarchy; and he saw clearly its broad political, revolutionary significance. As much as anything, Nakamoto is a symbol and an aegis for others who have done or are doing fine work.)

Part of the Satoshi Revolution’s brilliance lies in the fact that it is profoundly political without being ideological. Most people see little difference between the political and the ideological or, if they do make a distinction, they believe ideology is the set of beliefs that determine the specific political positions a person takes. In many cases, they are correct. But not in all cases. Sometimes politics and ideology are distinct.

Bitcoin is political in the same sense as the Gutenberg printing press (1448).
Although his press was not the first one, Johannes Gutenberg (c.1400-1468) pioneered innovations that were almost as creative as those of Nakamoto. For example, he used a durable oil-based ink rather than water-based ones that did not last well. He used a strong alloy to create close to 300 separate type bits that could be quickly assembled into uniform templates; prior printers used fragile wooden bits or carved the letters of each page into a wooden block to be inked. Then Gutenberg. Opened a world of information and ideas to the average person who no longer needed to rely on authorities for ‘truth’. The printing press decentralized knowledge from the hands of authorities to those of the common man, and knowledge is power. This made it not only a technical marvel, but also an agent of social change and revolution.

Those who ruled would have prevented the shift in power by plugging the flood of opinions and ideas, if they could have, because an illiterate, uninformed public is easier to control. A literate, informed public serves the goals of populists and reformers who threaten the status quo which is the main reason state censorship existed then and now. Unfortunately for the ruling class, literacy increased and more people judged for themselves which religious and political beliefs resonated inside of them as real.

One example of social upheaval: without Gutenberg’s printing press, the Protestant Reformation is difficult to imagine. When Martin Luther launched the Reformation in 1517 by nailing his Ninety-Five Theses to the door of a German church, the document was rapidly translated from Latin into German, copied and reprinted. Luther, the man, could reach only those within the range of his voice. Luther, the mass-produced author, spread ideas across Europe in months. Within three years, hundreds of thousands of copies of his Theses had been cranked off hundreds of printing presses. The Catholic Church responded by excommunicating Luther and prompting him to flee into hiding. But ideas do not respond to hellfire, nor do they flee.

The Gutenberg printing press was a powerful, political tool which sparked movements and revolutions. But the printing press itself was not ideological because any idea could be assembled in templates and printed en masse for people to read: Catholicism or Protestantism, individualism or socialism, Karl Marx or Ayn Rand. The machine itself was neutral. The printing press had strong ideological implications, it could be argued, because it did empower the individual and the masses. In other words, it was a populist force. But authorities also used the new technology to their own statist advantage. As magnificent as the printing press was, it was a tool to produce good or ill, depending on the purpose of the user.

Bitcoin is similar. It empowers the individual which is a profoundly political act. But that empowerment makes everyone freer to choose whatever ideology they wish. Bitcoin itself has no settled ideological slant. That’s why individualists, anarchists and socialists alike can use it as a way to pursue their own goals, whatever those goals may be. Amir Taaki, a developer of the Darkmarket/Openbazaar and Dark Wallet, is an aggressive left-anarchist. He spent time in Rojava [Syrian Kurdistan] helping to found a People’s Republic through the introduction of Bitcoin. Rojava was “under embargo, so there’s no way to move money in or out,” he explained. “So we have to actually create our own bitcoin economies. Now we have a technological tool for people to freely organise outside [the] state system. Because it is a currency not controlled by central banks.”

Bitcoin is a mechanism that can achieve a galloping diversity of goals. This is a great strength.

Why?

The answer lies in history and requires a bit of background.

A key difference between the radical, individualist movements of the 19th and 20th centuries is that the earlier one focused intensely on the importance of private money and private banking to achieve personal freedom. The radicals placed a primal emphasis on the right of every individual to create their own currency and to function as their own bank. It was a natural right every bit as important as freedom of speech or freedom of religion.

Some 20th-century advocates of private money, such as Rothbard or Hayek, took a similar approach. Rothbard wrote, “Let us first ask ourselves the question: Can money be organized under the freedom principle? Can we have a free market in money as well as in other goods and services? What would be the shape of such a market? And what are the effects of various governmental controls? If we favor the free market in other directions, if we wish to eliminate government invasion of person and property, we have no more important task than to explore the ways and means of a free market in money.” Most modern advocates, however, argue in utilitarian or public-policy terms instead of civil liberties.

Their 19th-century counterparts were more consistently accurate in placing monetary theory at the core of all freedoms. The pivotal individualist-anarchist Benjamin Tucker believed the right to issue private currency was so important that it could destroy the State all by itself. The money monopoly was the means by which the State sustained itself and robbed the average person not merely of money but also of economic opportunity by controlling credit. Nothing was more important than to destroy the money monopoly.

Two specific events sculpted the approach of individualist anarchists to the banking monopoly and private currency. James J. Martin commented on one of them:

“Few instances in American history have created as much curiosity concerning economic and financial matters among amateurs and members of the general citizenry as the panic of 1837…Banking abuses came under concentrated scrutiny and gave rise to many proposed radical remedies.”

The other event was the Civil War in which the North used the Legal Tender Acts and the National Banking Act of 1863 to finance its side of the conflict. Through these measures, Congress guaranteed the notes of authorized bankers and legally protected them from liability for debt. The act also established a national tax of 10 percent for all money not authorized by Congress.

Fresh with a knowledge that private currency not only could work but had been working well for well over a century, the 19th-century radicals responded. They did not merely theorize; they vigorously issued private currency and experimented with new economic models. Their efforts are fascinating to review but they are also cautionary tales as to some pitfalls that private money should avoid.

A major problem for 19th century individualist anarchism in America was the movement’s determination to link private money to the labor theory of value. The theory states that the economic value of a good or service is based upon the amount of labor required to produce it rather than upon what a capitalist wants to charge or what a purchaser is willing to pay. Radical individualists back then generally rejected profit from the capital because it constituted value in excess of the labor invested in a good or service. They rejected excess profit in three forms: interest on money, rent, and profit in exchange – all of which were called “usury.” If the main political goal of 19th century radical individuals was the abolition of the State, then their main economic goal was the abolition of the “money monopoly.” By the term “money monopoly,” they referred to three different but interacting forms of monopoly: banking, the charging of interest, and the privileged issuance of currency. In short, unlike Gutenberg’s printing press and Bitcoin, their private monies were grounded in ideology and a badly flawed ideology, to boot. This greatly reduced the social value of their currencies as a tool. For one thing, when the labor theory of value became less popular, the currencies seemed to be discredited.

Josiah Warren provides a real-world example of the problem of attaching an ideology to money. Warren, who is credited with being the first American anarchist, based his political thought on two concepts, both which were common within the 19th-century radical individualist movement. The first was “Sovereignty of the Individual,” which meant every human being was a self-owner with jurisdiction over his or her peaceful actions. The second was “Cost is the Limit of Price” or the labor theory of value.

Warren tested his specific solution to the money monopoly and to the “inequity” of interest through a Time Store from which he issued Labor Notes. In 1827, the business opened with $300 worth of groceries and dry goods that were offered at a 7 percent markup from Warren’s own cost in order to cover expenses such as overhead. This was before groceries were pre-packaged, pre-weighed and it was common for buyers to bargain with the shopkeeper rather than pay a posted price. One of Warren’s innovations was to post prices for goods which drove prices even lower because transactions consumed less of his time. The customer paid in traditional money for the good and, then, compensated Warren for his time through a Labor Note which obliged the customer to provide Warren with an equivalent amount of the buyer’s time. If the buyer were a plumber, for example, the Labor Note committed him to render his services to Warren for “X” units of time in plumbing work. The Labor Notes were circulated and traded. Warren’s goal was to establish an economy in which profit was based solely on the exchange of time and labor.

To some degree, he succeeded. People travelled from a hundred miles away to avail themselves of Warren’s low prices. After a few years, Warren declared the experiment to be a success and closed the store’s doors. Whether the store was a success is questionable, however. And, if it was a success, it was probably due more to low prices than to the Notes that came close to being a barter system. Whichever is true, it is difficult to see how this novel currency could have functioned in dense populations where people were not acquainted with each other, or for commerce on a grander scale. And exchangers still had to trust other people.

Some might state the lesson of attaching an ideology to an instrument for political liberation as “get the damned ideology correct this time.” I believe this is the wrong lesson. The point of empowering people is to give them the tools to decide on ideas and life for themselves, not to deliver a predigested message. That’s the lesson of Gutenberg and Bitcoin.

It is also a reason to stand hard behind the original vision of Bitcoin, because the power Nakamoto produced can be used well or badly depending on the intentions of the user.

And, now, Satoshi?

To paraphrase George Bernard Shaw, I hear the future knocking on my door. And as I throw it open, I see Satoshi Nakamoto standing at my threshold with a grin on his face, asking to come in. Just as I begin to wave him through, however, Murray Rothbard appears and shoves him aside with the words “Not so fast there, Saschik, I have something to say to her first!” And, if for nothing more than the fact that he infused the modern freedom movement with Austrian economics, my old friend and mentor deserves to take the next step.

Reference materials: The Satoshi Revolution

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