True to their motto of “Agora! Anarchy! Action!” agorists specifically, and CypherPunks in general, have been furiously creating secure, resilient, pseudonymous (and even anonymous) communications and transactions systems. Assets and messages traveling through these systems are untraceable and, therefore, untaxable, and it's already starting to worry government cheerleaders.
Although encrypted communications and digital transfers are nothing new, several new projects are coming together with the promise of making their use more widespread.
Since 1992, the Cypherpunks have been predicting a “crypto-anarchy” (a phrase coined by Timothy C. May in Cyphernomicon) and, more importantly, have continually worked on the tools to bring this radical evolution in privacy and freedom to fruition through strong public-key cryptography. A favorite project of the Cypherpunks has always been the development of mechanisms for anonymous, encrypted payment and asset transfers.
As with any evolutionary process, different ways of accomplishing the goals have been tried, each with their own strengths and weaknesses, and successive projects have retained the good while trying new techniques to solve some common problems:
Traceability " there are plenty of payment processing and banking services that are linked into the banking system, and thus every transaction is linked to one or more account holders. Users of any alternate system are, by definition, seeking anonymity (or, at least pseudonymity where transactions are linked to an account, but the account is not linked to the user). This is not just a technical problem, but also one of trust.
Scalability " beyond the technological problems of fielding an Internet application, there are real costs associated with hosting and storage. Many projects and secure networks are hosted on volunteer hardware unless and until they can be made profitable enough to purchase dedicated hosting and storage. This can become a Catch 22, where hardware and network connectivity cannot be upgraded until there are more paying users, but the current infrastructure cannot support more users.
Resiliency " Internet services must be able to withstand both network and physical attacks from malicious government and non-government actors. Practically, this involves not just hardware, network,and storage redundancy, but also automatic recovery in the event of a successful attack. Resiliency is not cheap and certainly not easy, especially when physical assets must be securely stored yet publicly auditable.
Interoperability " as various projects take different approaches to solving these problems, an unfortunate side effect is that the services become closed systems where assets and messages cannot even be traded between servers running the same service, let alone other services. This requires users to commit to using one, and only one, service with a particular set of assets.
User Experience " user interfaces to date have been created largely as after-thoughts and almost wholly as a product of the team developing the various projects. As a result, form has been sacrificed for function, making the UIs confusing and difficult to use. This leaves many users wanting to participate, but functionally unable.
The experiences of Napster, E-Gold, and Neteller are all educational in their own way. All three were able to be brought down by malicious actors due to multiple instances of the identified problems. Just as decentralized peer-to-peer bitorrents solved some of the problems of Napster, the new transactions and accounting applications promise to solve some of the problems of E-Gold and Neteller. Other complimentary services will, for the first time, allow the Cypherpunks to solve all of the problems at once.
One of the exciting new pieces is Bitcoin, a digital peer-to-peer currency. There is nothing physical about Bitcoin; it cannot be touched, printed, devalued, forged, or backed by any other asset. To the extent that Bitcoins can be said to exist, they are in the form of long chains of data containing the ownership information that are continuously factored and refactored by participant computers in the Bitcoin P2P network.
Although Bitcoin is seeing accelerating usage as a human-used currency to pay for various goods and services, its two most promising uses are just beginning to be realized. The first use can be seen in Bitcoin itself " participants are rewarded (in Bitcoin, of course) for their participation in the Bitcoin network, processing all those long chains.
Similarly, Bitcoin is ideally suited to paying fees for using the processing, networking, and storage in secure, anonymized networks such as Freenet and I2P. This elevates the various nodes in these networks from volunteer to paid, providing an economic incentive for these networks to be extended. In turn, that makes those networks faster and more secure. Using Bitcoin in this way goes a long way toward solving a big chunk of the scalability Catch 22.
The other underutilized value of Bitcoin is as a universal solvent for other currencies. Because Bitcoins are so useful for paying and receiving network fees, they will always have the liquidity to translate transactions involving multiple physical currencies. For example, if you prefer to use silver for transactions, you no longer have to find a seller of a good or service that accepts silver. Your silver can purchase Bitcoins and those Bitcoins can be used to purchase the gold, dollars, or chickens the seller demands as payment.
As a universal solvent, Bitcoins are also the natural choice for transferring assets from one server or service to another.
Another piece, which is not new but is being newly implemented, is the awareness that using computers for double-entry book keeping is neither efficient nor desirable. Because computers are capable of authenticating and signing receipts automatically, they are more suited to triple-entry book keeping where balances are constructed on the fly from the source documents (the receipts) rather than as compiled ledgers.
An implementation of “receipt is the transaction book keeping” can be seen in Bill St. Clair's TruLedger. TruLedger maintains only account balances which are mutually agreed upon by the server and user whenever a transaction occurs. In other words, there is no transaction history to discover, even if the system were somehow compromised.
Also, because massive databases of transaction histories are not kept, disaster (natural or man-made) recovery is a simple matter of submitting the last mutually-signed receipt. The server verifies the signatures and that the receipt has not be altered since it was signed, and (with no evidence to the contrary) accepts it at face value.
Another type of transaction processor is implemented by Alex Wied in PorcLoom, an “anonymous digital trading system intended for liberty activists in New Hampshire.” Unlike TruLedger, PorcLoom maintains a full transaction history database, but obscures ownership information by hiding it within a massive “grid” within the database.
Bringing all these pieces together is FellowTraveler's Open Transactions (OT). At first glance, OT seems to be just another implementation of a transaction processor. However, it brings much more to the table, including anonymous digital cash, digital cheques, fully-functional stock markets, and the introduction of basket currencies backed not just by one physical asset, but multiple physical assets.
Most importantly, though, OT provides a native application programming interface (API) that allows developers of client applications to create simple yet powerful user interfaces for trading stocks, making and accepting online payments, or using the anonymous digital cash. FellowTraveler has developed a client called Moneychanger to demonstrate interoperability with OT servers as well as PorcLoom and TruLedger.
Although still in Alpha testing, OT opens up multiple possibilities, including the network fees using Bitcoin discussed earlier. It is almost inevitable that peer-to-peer clients will be created, allowing automatic currency trades to be handled separately from any OT server, and thus avoiding any transaction fees.
At that point, and this is key, traditional retailers will have an economic incentive to accept payments from Open Transactions (or a similar service) without even having to participate in alternative currency markets. Imagine just one transaction:
Standing in line at a convenience store far from home, you grab a fountain soda and ask for 10 gallons of gas on pump 4. On the 2” by 2” screen on the counter, a 2D barcode flashes up, which you scan with your Android phone. The barcode has all the information the OT client on your phone needs to pay the retailer in her preferred currency, Canadian dollars.
As you prefer to pay in labor hours, though, you select that on your screen, which, through a secure, anonymous network, prompts your employer's client to search for sellers of Canadian dollars for its preferred currency, silver. Finding none, it instead trades silver for bitcoins, then bitcoins for Canadian dollars, assigns ownership of that asset to the retailer and makes a note that you owe the company two hours of labor.
The OT server notifies the retailer of successful payment, and you're off to fill up your tank with current gas paid for with future labor. Each party to the transaction, from the retailer, to your employer, to owners of the secure network nodes and the OT server tacked on a little transaction fee as compensation for your use " a total most likely comparable with credit card fees on the same transaction.
The difference is, rather than going to a TARP-accepting, Federal Reserve-using, big bank, the fees you paid go to the enablers of the transaction who share your need for privacy and security. Each can report that fee as income to the extent they feel compelled. With no record of the transaction having occurred, who's to say it did?
That's the kind of thing that should keep IRS agents up at night, and it's all due to Agorists' affinity for direct counter-economic action!
