textfiles/internet/anarchy

Crypto Anarchy and Virtual Communities



Timothy C. May

535 Monterey Drive

Aptos, CA 95003 U.S.A.

tcmay@netcom.com


Extended Abstract

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

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

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

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

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

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

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

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

1.Introduction

This paper describes the combination of two major 
technologies:

<EFBFBD>.Strong Crypto: including encryption, digi-
tal signatures, digital cash, digital mixes (re-
mailers), and related technologies.

<EFBFBD>.Cyberspatial Virtual Communities: includ-
ing networks, anonymous communications, 
MUDs and MOOs, and "Multiverse"-type vir-
tual realities.

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

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

The site ftp.csua.berkeley.edu has a number of es-
says and files, including crypto files, in the directo-
ry pub/cypherpunks. I have also written/
compiled a very large 1.3 MB FAQ on these issues, 
the Cyphernomicon, available at various sites, in-
cluding my ftp directory, ftp.netcom.com, in the di-
rectory pub/tc/tcmay. 

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

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

2.Modern Cryptography

The past two decades have produced a revolution 
in cryptography (crypto, for short) the science of 
the making of ciphers and codes. Beyond just sim-
ple ciphers, useful mainly for keeping communica-
tions secret, modern crypto includes diverse tools 
for authentication of messages, for digital time-
stamping of documents, for hiding messages in 
other documents (steganography), and even for 
schemes for digital cash.

Public key cryptography, the creation of Diffie and 
Hellman, has dramatically altered the role of cryp-
to. Coming at the same time as the wholesale con-
version to computer networks and worldwide 
communications, it has been a key element of secu-
rity, confidence, and success. The role of crypto will 
only become more important over the coming de-
cades.

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

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

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

3.Virtual Communities

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

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

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

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

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

These virtual communities typically are "opaque" 
to outsiders. Attempts to gain access to the internals 
of these communities are rarely successful. Law en-
forcement and intelligence agencies (such as the 
NSA in the U.S., Chobetsu in Japan, SDECE in 
France, and so on, in every country) may infiltrate 
such groups and use electronic surveillance 
(ELINT) to monitor these virtual communities. Not 
surprisingly, these communities are early adopters 
of encryption technology, ranging from scrambled 
cellphones to full-blown PGP encryption. [8]

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

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

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

4.Observability and Surveil-
lance

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

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

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

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

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

5.Crypto Anarchy

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

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

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

This is the same sense of anarchy used in "anarcho-
capitalism," the libertarian free market ideology 
which promotes voluntary, uncoerced economic 
transactions. [6] I devised the term crypto anarchy as 
a pun on crypto, meaning "hidden," on the use of 
"crypto" in combination with political views (as in 
Gore Vidal's famous charge to William F. Buckley: 
"You crypto fascist!"), and of course because the 
technology of crypto makes this form of anarchy 
possible. The first presentation of this was in a 1988 
"Manifesto," whimsically patterned after another 
famous manifesto. [7] Perhaps a more popularly 
understandable term, such as "cyber liberty," might 
have some advantages, but crypto anarchy has its 
own charm, I think.

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

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

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

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

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

6.True Names and Anonymous 
Systems

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

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

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

And yet pseudonyms are successful in many cases. 
And we rarely know whether someone who pre-
sents himself by some name is "actually" that per-
son. Authors, artists, performers, etc., often use 
pseudonyms. What matters is persistence, and non-
forgeability. Crypto provides this. 

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

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

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

7.Examples and Uses

It surprises many people that some of these uses are 
already being intensively explored. Anonymous re-
mailers are used by tens of thousands of persons--
and perhaps abused. [13] And of course encryption, 
via RSA, PGP, etc., is very common in some com-
munities. (Hackers, Net users, freedom fighters, 
white separatists, etc....I make no moral judgments 
here about those using these methods).

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

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

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

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

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

(The implications for espionage are profound, and 
largely unstoppable. Anyone with a home comput-
er and access to the Net or Web, in various forms, 
can use these methods to communicate securely, 
anonymously or pseudonymously, and with little 
fear of detection. "Digital dead drops" can be used 
to post information obtained, far more securely 
than the old physical dead drops...no more messag-
es left in Coke cans at the bases of trees on remote 
roads.)

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

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

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

Digital cash efforts. A lot has been written about 
digital cash. [14] [15] David Chaum's company, 
DigiCash, has the most interesting technology, and 
has recently begun market testing. Stefan Brands 
may or may not have a competing system which 
gets around some of Chaum's patents. (The attitude 
crypto anarchists might take about patents is anoth-
er topic for discussion. Suffice it to say that patents 
and other intellectual property issues continue to 
have relevance in the practical world, despite ero-
sion by technological trends.)

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

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

8.Commerce and Colonization 
of Cyberspace

How will these ideas affect the development of cy-
berspace?

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

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

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

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

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

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

9.Implications

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

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

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

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

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

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

10.How Likely?

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

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

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

<EFBFBD>.Dramatic increases in bandwidth and local, 
privately-owned computer power.

<EFBFBD>.Exponential increase in number of Net us-
ers.

<EFBFBD>.Explosion in "degrees of freedom" in per-
sonal choices, tastes, wishes, goals.

<EFBFBD>.Inability of central governments to control 
economies, cultural trends, etc. [9]

<EFBFBD>.The Net is integrally tied to economic 
transactions, and no country can afford to "dis-
connect" itself from it. (The U.S.S.R. couldn't do 
it, and they were light-years behind the U.S., 
European, and Asian countries. And in a few 
more years, no hope of limiting these tools at 
all, something the U.S. F.B.I. has acknowl-
edged. [11]

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

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

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

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

11.Conclusions

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

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

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

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

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

Also, there are various steps that can be taken to 
lessen the risks of crypto anarchy impinging on 
personal safety. [10]

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

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

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

We will be the colonizers of cyberspace. 

12.Acknowledgments

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

13.References and Notes

1.The Cypherpunks group was mainly formed 
by Eric Hughes, Tim May, and John Gilmore. It be-
gan both physical meetings, in the Bay Area and 
elsewhere, and virtual meetings on an unmoderat-
ed mailing list. The name was provided by Judith 
Milhon, as a play on the "cyberpunk" genre and the 
British spelling of cipher. The mailing list can be 
subscribed to by sending the single message sub-
scribe cypherpunks in the body of a message to major-
domo@toad.com. Expect at least 50 messages a day. 
About 600 subscribers in many countries are pres-
ently on the list. Some are pseudonyms.

2. RSA Data Security Inc., Redwood Shores, Cal-
ifornia, is the license administrator. Contact them 
for details.

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

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

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

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

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

8.The political opposition in Myan Mar--former-
ly Burma--is using Pretty Good Privacy running on 
DOS laptops in the jungles for communications 
amongst the rebels, according to Phil Zimmer-
mann, author of PGP. This life-and-death usage un-
derscores the role of crypto.

9.See Kevin Kelly's Out of Control, 1994, for a dis-
cussion of how central control is failing, and how 
the modern paradigm is one of market mecha-
nisms, personal choice, and technological empow-
erment.

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

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

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

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

14.article on digital cash, The Economist, 26 No-
vember 1994. pp. 21-23.

15. article on digital cash, Steven Levy, Wired. De-
cember 1994.