Introduction: Warning: This is a HUGE post, and if you reply to it and quote it, Smooth will likely delete your post. Please don't do this!
As you may know, I didn't exactly roll a natural 18 under the Arithmatic stat:
https://np.reddit.com/r/Bitcoin/comments/3fgrk5/how_long_would_we_have_to_use_bitcoin_before_we/ctomj9y However, I have other talents, very analog ones. Among my tomb-raiding today, I found an old link to a massive document about cryptography created in 1994. This was a time when the brightest minds on the planet trying to figure out how to implement cryptography into every day life. It was
also the year before the infamous "Violence @ NBC" video where the hilarious inept Today Show hosts didn't even understand an email address - much less the greater internet (
https://youtu.be/95-yZ-31j9A).
So these were the Internet Middle Ages; bronze and steel had been invented, but we were still learning how to shape it into useful things. Now imagine my shock to find an
incredible amount of prophecy written in this document about not just the eventual emergence of Bitcoin, but also Monero as well. Along with some other zany Nostradamous-level call outs, there are the occasional claims that "digital coins may be impossible" which we can only look back 20 years and smile on, knowing that the future solves all problems. In fact, I hope the author of this document is still around today: perhaps his 1994 self would be both horrified and relieved to know that
true digital cash is eventually invented; it just takes two decades for it to happen.
I'm only going to cover a few highly relevant sections here. Currently this entire piece of history is available in full over on
https://cpunks.wordpress.com/cypherpunks-faq/ The Heavily-Abridged Cyphernomicon:
5.4.4
+ Digital Cash
- focus: privacy in transactions, purchases
- unlinkable credentials
- blinded notes
- "digital coins" may not be possible
5.5.9
+ can a "digital coin" be made?
- this is formally similar to the idea of an active agent
that is unforgeable, in the sense that the agent or coin
is "standalone"
+ bits can always be duplicated (unless tied to hardware,
as with TRMs), so must look elsewhere
+ could tie the bits to a specific location, so that
duplication would be obvious or useless
- the idea is vaguely that an agent could be placed in
some location...duplications would be both detectable
and irrelevant (same bits, same behavior,
unmodifiable because of digital signature)
This fills me with happiness that back then we were wondering if the idea of a digital coin were even possible... and yet here we are. We did it... humanity achieved the impossible.
10.8.5. "Why might digital cash and related techologies take hold
early in illegal markets? That is, will the Mob be an early
adopter?"
- untraceability needed
- and reputations matter to them
- they've shown in the past that they will try new
approaches, a la the money movements of the drug cartels,
novel methods for security, etc.
Basically exactly what happened. As with all new technology, the criminals quickly latched onto it.
10.8.6. "Electronic cash...will it have to comply with laws, and
how?"
- Concerns will be raised about the anonymity aspects, the
usefulness for evading taxes and reporting requirements,
etc.
- a messy issue, sure to be debated and legislated about for
many years
+ split the cash into many pieces...is this "structuring"? is
it legal?
- some rules indicate the structuring per se is not
illegal, only tax evasion or currency control evasion
- what then of systems which _automatically_, as a basic
feature, split the cash up into multiple pieces and move
them?
We know the answer now. The key to anonymity is to mix the coins together automatically on a protocol level, "splitting" the amounts up. The secret to creating the first true digital coin was to stop thinking of them as 'coins' at all: if a bit can be copied freely, then don't resist that - embrace it to the maximal limit. *If everyone has a copy, then no one has a copy*
10.8.7. Currency controls, flight capital regulations, boycotts,
asset seizures, etc.
- all are pressures to find alternate ways for capital to
flow
- all add to the lack of confidence, which, paradoxically to
lawmakers, makes capital flight all the more likely
10.8.8. "Will banking regulators allow digital cash?"
- Not easily, that's for sure. The maze of regulations,
restrictions, tax laws, and legal rulings is daunting. Eric
Hughes spent a lot of time reading up on the laws regarding
banks, commercial paper, taxes, etc., and concluded much
the same. I'm not saying it's impossible--indeed, I believe
it will someday happen, in some form--but the obstacles are
formidable.
+ Some issues:
+ Will such an operation be allowed to be centered or based
in the U.S.?
- What states? What laws? Bank vs. Savings and Loan vs.
Credit Union vs. Securities Broker vs. something else?
+ Will customers be able to access such entities offshore,
outside the U.S.?
- strong crypto makes communication possible, but it may
be difficult, not part of the business fabric, etc.
(and hence not so useful--if one has to send PGP-
encrypted instructions to one's banker, and can't use
the clearing infrastructure....)
+ Tax collection, money-laundering laws, disclosure laws,
"know your customer" laws....all are areas where a
"digital bank" could be shut down forthwith. Any bank not
filling out the proper forms (including mandatory
reporting of transactions of certain amounts and types,
and the Social Security/Taxpayer Number of customers)
faces huge fines, penalties, and regulatory sanctions.
- and the existing players in the banking and securities
business will not sit idly by while newcomers enter
their market; they will seek to force newcomers to jump
through the same hoops they had to (studies indicate
large corporations actually _like_ red tape, as it
helps them relative to smaller companies)
Basically describes NY's BitLicense and other nonsense to a tee. Yes, in order to make crypto "play nice" with the relics of the past there is a shit ton of regulation to wade through first.
- Concluson: Digital banks will not be "launched" without a
*lot* of work by lawyers, accountants, tax experts,
lobbyists, etc. "Lemonade stand digital banks" (TM) will
not survive for long. Kids, don't try this at home!
Blink and you'll miss it. This hombre just issued a warning to Mark Karples and Mt. Gox a decade and a half before it even existed!!!
- (Many new industries we are familiar with--software,
microcomputers--had very little regulation, rightly so. But
the effect is that many of us are unprepared to understand
the massive amount of red tape which businesses in other
areas, notably banking, face.)
10.8.9. Legal obstacles to digital money. If governments don't want
anonymous cash, they can make things tough.
+ As both Perry Metzger and Eric Hughes have said many times,
regulations can make life very difficult. Compliance with
laws is a major cost of doing business.
- ~"The cost of compliance in a typical USA bank is 14% of
operating costs."~ [Eric Hughes, citing an "American
Banker" article, 1994-08-30]
+ The maze of regulations is navigable by larger
institutions, with staffs of lawyers, accountants, tax
specialists, etc., but is essentially beyond the
capabilities of very small institutions, at least in the
U.S.
- this may or may not remain the case, as computers
proliferate. A "bank-in-a-box" program might help. My
suspicion is that a certain size of staff is needed just
to handle the face-to-face meetings and hoop-jumping.
As is discussed later, too much regulation early on can be absolutely fatal. We are almost past that danger zone though (bitcoin is well past it), and I think once the under-the-hood work is complete and the GUI is out next year we will finally move past that precipice.
+ "New World Order"
- U.S. urging other countries to "play ball" on banking
secrecy, on tax evasion extradition, on immigration, etc.
- this is closing off the former loopholes and escape
hatches that allowed people to escape repressive
taxation...the implications for digital money banks are
unclear, but worrisome.
This is the safety blanket for those who are afraid of the United States losing its dominance in an eventual crypto dominated world. If one world government is inevitable, far better to usher in its creation and own a major slice of it rather than resist it and find ourselves as the new North Korea. This way we can control who participates vs. being spectators. For example, the internet was always going to exist; it was only a question of who created it first.
10.9. Legality of Digital Banks and Digital Cash?
10.9.1. In terms of banking laws, cash reporting regulations, money
laundering statutes, and the welter of laws connected with
financial transactions of all sorts, the Cypherpunks themes
and ideas are basically _illegal_. Illegal in the sense that
anyone trying to set up his own bank, or alternative currency
system, or the like would be shut down quickly. As an
informal, unnoticed _experiment_, such things are reasonably
safe...until they get noticed.
10.9.2. The operative word here is "launch," in my opinion. The
"launch" of the BankAmericard (now VISA) in the 1960s was not
done lightly or casually...it required armies of lawyers,
accountants, and other bureacrats to make the launch both
legal and successful. The mere 'idea" of a credit card was
not enough...that was essentially the easiest part of it all.
(Anyone contemplating the launch of a digital cash system
would do well to study BankAmericard as an example...and
several other examples also.)
10.9.3. The same will be true of any digital cash or similar system
which intends to operate more or less openly, to interface
with existing financial institutions, and which is not
explicity intended to be a Cypherpunkish underground
activity.
This perfectly encapsulates the themes of the successful cryptocurrencies that we have seen. Start small, and slowly build. Don't draw *too* much attention to yourself too quickly, and for fuck's sake keep a low profile. Once things seem to be going well, take a small risk to grow. Keep taking these risks and look for key opportune moments to strike at rivals and decimate them completely, absorbing their.... hey, wait. Are we talking about cryptocurrency or a successful agar.io strategy?
The universe is full of so many delicious coincidences.
12.3.8. "Can a "digital coin" be made?"
- The answer appears to be "no"
+ Software is infinitely copyable, which means a software
representation of digital money could be replicated many
times
- this is not to say it could be _spent_ many times,
depending on the clearing process...but then this is not
a "coin" in the sense we mean
- Software is trivially replicable, unlike gold or silver
coins, or even paper currency. If and when paper currency
becomes trivially replicable (and color copiers have almost
gotten there), expect changes in the nature of cash.
(Speculation: cash will be replaced by smart cards,
probably not of the anonymous sort we favor.)
+ bits can always be duplicated (unless tied to hardware, as
with TRMs), so must look elsewhere
+ could tie the bits to a specific location, so that
duplication would be obvious or useless
- the idea is vaguely that an agent could be placed in
some location...duplications would be both detectable
and irrelevant (same bits, same behavior, unmodifiable
because of digital signature)
- (this is formally similar to the idea of an active agent
that is unforgeable, in the sense that the agent or coin is
"standalone")
Again, the answer was always to stop thinking about it as a coin and think about it as a ledger. When forces in life challenge you and your desires, it is far better to properly direct their energies vs. struggling against them. You will find that many eastern philosophers discovered this tennant long ago and used it to great success for thousands of years. When the nature of digital information resists being made precious - do the exact opposite: make a successful digital cash system with the information as ubiquitous. When AmericanPegasus won't shut the fuck up about whatever-he's-posting today, don't continue to fight a losing battle: at least direct his efforts towards something worthwhile.
12.3.9. "What is the 'granularity' of digital cash?"
+ fine granularity, e.g., sub-cent amounts
- useful for many online transactions
- inside computers
- add-on fees by interemediaries
- very small purchases
+ medium granularity
- a few cents, up to a dollar (for example)
- also useful for many small purchases
- close equivalent to "loose change" or small bills, and
probably useful for the same purposes
- tolls, fees, etc.
- This is roughly the level many DigiCash protocols are
aimed at
+ large granularity
- multiple dollars
- more like a "conventional" online transaction
- the transaction costs are crucial; online vs. offline
clearing
- Digital Silk Road is a proposal by Dean Tribble and Norm
Hardy to reduce transaction costs
Nigga *what*. It wasn't mentioned in the vein of an online illegal market place, but this is still the earliest mention of a 'Silk Road' that I can find on the internet in relation to digital currency.
12.7.2. "What are some motivations for anonymous digital cash?"
+ Payments that are unlinkable to identity, especially for
things like highway tolls, bridge tolls, etc.
- where linkablity would imply position tracking
- (Why not use coins? This idea is for "smart card"-type
payment systems, involving wireless communication.
Singapore planned (and perhaps has implemented) such a
system, except there were no privacy considerations.)
+ Pay for things while using pseudonyms
- no point in having a pseudonym if the payment system
reveals one's identity
+ Tax avoidance
- this is the one the digicash proponents don't like to
talk about too loudly, but it's obviously a time-honored
concern of all taxpayers
+ Because there is no compelling reason why money should be
linked to personal identity
- a general point, subsuming others
We can see resistance to Bitcoin's pseudo-anonymous "solutions" even now. As I always have said, Bitcoin was the first true digital decentralized collectible but it was *not* true e-cash. Privacy and fungibility go hand in hand.
12.8.4. Nick Szabo:
- "Internet commercialization in itself is a _huge_ issue
full of pitfall and opportunity: Mom & Pop BBS's,
commercial MUDs, data banks, for-profit pirate and porn
boards, etc. are springing up everywhere like weeds,
opening a vast array of both needs of privacy and ways to
abuse privacy. Remailers, digital cash, etc. won't become
part of this Internet commerce way of life unless they are
deployed soon, theoretical flaws and all, instead of
waiting until The Perfect System comes along. Crypto-
anarchy in the real world will be messy, "nature red in
tooth and claw", not all nice and clean like it says in the
math books. Most of thedebugging will be done not in any
ivory tower, but by the bankruptcy of businesses who
violate their customer's privacy, the confiscation of BBS
operators who stray outside the laws of some jurisdication
and screw up their privacy arrangements, etc. Anybody who
thinks they can flesh out a protocol in secret and then
deploy it, full-blown and working, is in for a world of
hurt. For those who get their Pretty Good systems out
there and used, there is vast potential for business growth
-- think of the $trillions confiscated every year by
governments around the world, for example." [Nick Szabo,
1993-8-23]
Got-damn. It's the mother-fuckin
Tupac of Cryptography. "I wrote this text file a long time ago.... way back in '94"
https://youtu.be/zDdbn0eTDpA?t=29s 15.8.2. Absent laws which ban strong crypto (and such laws are
themselves nearly unenforceable), it will be essentially
impossible to stop anonymous transactions and purely
reputation-based systems.
- For example, Pr0duct Cypher and Sue D. Nym will be able to
use private channels of their own choosing (possibly using
anonymous pools, etc.) to communicate and arrange deals.
If some form of digital cash exists, they will even be able to
transfer this cash. (If not, barter of informations,
whatever.)
- So, the issues raised by Hal Finney and others, expressing
doubts about the adequacy of reputation capital as a
building block (and good concerns they are, by the way),
become moot. Society cannot stop willing participants from
using reputation and anonymity. This is a major theme of
crypto anarchy: the bypassing of convention by willing
participants.
+ If Alice and Bob don't care that their physical identies
are unknown to each other, why should we care? That is, why
should society step in and try to ban this arrangement?
- they won't be using "our" court systems, so that's not an
issue (and longer term, PPLs will take the place of
courts, many of us feel)
- only if Alice and Bob are counting on society, on third
parties to the transaction, to do certain things, can
society make a claim to be involved
- (A main reason to try to ban anonymity will be to stop
"bad" activities, which is a separate issue; banning of
"bad" activity is usually pointless, and leads to
repressive states. But I digress.)
15.8.3. Part of the "phase change": people opt out of the permission-
slip society via strong crypto, making their own decisions on
who to trust, who to deal with, who to make financial
arrangements with
+ example: credit rating agencies that are not traceable, not
prosecutable in any court...people deal with them only if
they think they are getting value for their money
- no silly rules that credit rating data can "only" go back
some arbitrary number of years (7, in U.S.)...no silly
rules about how certain bankruptcies "can't" be
considered, how one's record is to be "cleared" if
conditions are met, etc.
- rather, all data are considered....customer decides how
to weight the data...(if a customer is too persnickety
about past lapsed bills, or a bad debt many years in the
past, he'll find himself never lending any money, so the
"invisible hand" of the free market will tend to correct
such overzealousnesses)
Got to get that Hal Finney SHOUT OUT. While NWA was in Detroit causing fans to rush the stage, Hal Finney was straight outta Coalinga changing the world in other ways.
Also, in this section pay attention to the text,
it's important because it gives us insight into what's next,
in the 2020's after the rise of digital money,
Cryptography based reputation systems are gonna,
rise up, like this bottle of Berry Ciroc,
left from the Halloween videos so let's wrap it up.
16.16.3. Doug Cutrell summarized the concerns of many when he wrote:
- "...the availability of truly secure anonymity, strong
encryption, and untraceable digital cash could allow
contract killing to be an openly conducted business. For
example, an anonymous news post announces a public key
which is to be used to encode a contract kill order, along
with a digital cash payment. The person placing the
contract need only anonymously place the encrypted message
in alt.test. Perhaps it is even possible to make it
impossible to tell that the message was encrypted with the
contract killer's public key (the killer would have to
attempt decryption of all similarly encoded messages on
alt.test, but that might be quite feasible). Thus it could
be completely risk free for anyone to place a contract on
anyone else." [Doug Cutrell, 1994-09-09]
16.16.4. Abhorrent markets
- contract killings
- can collect money anonymously to have someone
whacked...nearly anyone who is controversial can generate
enough "contributions"
- kidnapping, extortion
16.16.5. Dealing with Such Things:
+ never link physical ID with pseudonyms! (they won't kill
you if they don't know who you are)
- and even if one pseudonym is linked, make sure your
financial records are not linkable
- trust no one
- increased physical security...make the effort of killing
much more potentially dangerous
- flooding attacks..tell extortionists to "get in line"
behind all the other extortionists
+ announce to world that one does not pay extortionists...set
up protocol to ensure this
- yes, some will die as a result of this
- console yourself with the fact that though some may die,
fewer are dying as a result of state-sponsored wars and
terrorism (historically a bigger killer than contract
killings!)
.....or not. In the scariest part of this entire article we find the truly horrifying ramifications of what anonymous communications and anonymous currency will do. Don't resist it, because it will happen whether we want it to or not. So what to do? Prepare for it and anticipate. Law enforcement should be ready to catch an entirely new class of criminal in the future, and we should all be prepared to protect ourselves (especially non-anon dumbasses like me - but I'll tell y'all what, I don't/won't negotiate with bad guys because it only encourages them, and as soon as this shit gets 'real' imma hire some 'real' security)
16.29.3. "What is the "crypto phase change"?"
- I'm normally skeptical of claims that a "singularity" is
coming (nanotechnology being the usual place this is
claimed, a la Vinge), but "phase changes" are more
plausible. The effect of cheap printing was one such phase
change, altering the connectivity of society and the
dispersion of knowledge in a way that can best be described
as a phase change. The effects of strong crypto, and the
related ideas of digital cash, anonymous markets, etc., are
likely to be similar.
- transition
- tipping factors, disgust by populace, runaway taxation
+ "leverage effect"
- what Kelly called "the fax effect"
- crypto use spreads, made more popular by common use
- can nucleate in a small group...doesn't need mass
acceptance
16.29.4. "Can crypto anarchy be stopped?"
+ A goal is to get crypto widely enough deployed that it
cannot then be stopped
- to the point of no return, where the cost of withdrawing
or banning a technology is simply too high (not always a
guaranteee)
Yes, a phase change is coming. In it, we are going to see borders reduced and a 'world currency' standard established. It's going to be absolutely epic.... in both good and bad ways. Some will opt out, but those will quickly find themselves stuck in the stone age as more and more of the first world opts-*in*. Eventually, nations that try to wall themselves off from the coming phase shift will end up as the next North Korea's.... laughing stock wastelands. I think the United States and most of Europe is smart enough not to let this happen. My only worry is for Russia and I hope they find the light soon enough that they don't become a third world country.
17.3.1. "Why have most of the things Cypherpunks talk about *not*
happened?"
+ Except for remailers and basic crypto, few of the main
ideas talked about for so long have actually seen any kind
of realization. There are many reasons:
A. Difficult to achieve. Both Karl Kleinpaste and Eric
Hughes implemented simple first-generation remailers in a
matter of _days_, but "digital cash" and "aptical
foddering," for example, are not quite so
straightforward. (I am of course not taking anything away
from Kleinpaste, Hughes, Helsingius, Finney, etc., just
noting that redirecting mail messages--and even
implementing PGP and things like delay, batching, etc.,
into remailers--is a lot easier conceptually than DC-Nets
and the like.
...It took a long, long time to make it.... through the hard times and the good....
17.13.4. "When will it all happen? When will strong crypto really
begin to have a major effect on the economy?"
+ Stages:
- The Prehistoric Era. Prior to 1975. NSA and other
intelligence agencies controlled most crypto work.
Cryptography seen as a hobby. DES just starting to be
deployed by banks and financial institutions.
- The Research Era. 1975-1992. Intense interest in public
key discovery, in various protocols. Start of several
"Crypto" conferences. Work on digital money, DC-Nets,
timestamping, etc.
- The Activism Era. 1992--?? (probably 1998). PGP 2.0
released. Cypherpunks formed. Clipper announced--meets
firestorm of protest. EFF, CPSR, EPIC, other groups.
"Wired" starts publication. Digital Telelphony, other
bills. Several attempts to start crypto businesses are
made...most founder.
- The Transition Era. After about 1999. Businesses start.
Digital cash needed for Net transactions. Networks and
computers fast enough to allow more robust protocols. Tax
havens flourish. "New Underworld Order" (credit to Claire
Sterling) flourishes.
Then I wonder what they would call us in our era? The Age of Enlightenment? No, that comes next. First is the great shift.... where the greatest wealth transfer in the history of mankind takes place.
Conclusions
After reading through this document I can see that not only was cryptocurrency not a random mistake, but even
Monero was a dream long sought after by the greatest minds on the planet. What does that mean? It means to get ready, because this thing is slowly coming together in a big way. And Monero is no alt-coin. This is the first valid implementation of Cryptonote, and from everything I can see will eventually serve as the private ledger for our entire fucking planet. I'm not talking $2,000 Moneros.... I'm talking $300,000 Moneros by 2030. And the more I ponder
how it will happen, the more I realize that we are somewhere on an S-curve of adoption. And perhaps no one really knows where that vertical part of that S-curve is, but when it hits, you'll know. You will see Monero users go from 10 million to 1 billion very, very quickly. The price will skyrocket and we will see the vast majority of humanity's wealth transfer into it.
At least, that's what this bottle of Ciroc is telling me will happen. But then again, you shouldn't believe anything I say: I sometimes have trouble with even simple math.
Have a good weekend everyone.
Anyways congrats Chennan!