This series, adapted from Resistance Money, uncovers Bitcoin’s anti-authoritarian roots, contrasts it with other digital money, and shows how it makes good on the dream — not of digital money, but digital cash — by doing away with monetary middlemen.
Authors: Andrew Bailey, Bradley Rettler and Craig Warmke
Judith Milhon was a force of nature. She had issues with authority. Indeed, she was a criminal, arrested several times for organizing and participating in the 1960s civil rights protests. When St. Jude (as she was known) set her mind to a task, few could dissuade her. And if there wasn’t a way, she made one.
As a self-taught programmer, St. Jude became an early and powerful advocate for women in computing and hacking. “Girls need modems,” she often said. In the emerging digital world, St. Jude’s rebellious spirit found fresh expression. Like the do-it-yourself hippies of the 1970s, hackers in St. Jude’s mold wouldn’t rely on legacy institutions to accomplish their goals. They would do it themselves – and pay little heed to any rules and rulers in the way.
St. Jude’s advocacy and attitude were prescient.
In the 1980s and 90s, cyberpunk stories like Neuromancer, Blade Runner, and Snow Crash depicted a grim future where society has cut an unholy deal with digital autocrats. The autocrats supply channels for communication and commerce, ways to send and receive messages and money. Then, as we use their channels, the autocrats collect our personal information for power and profit. They can also kick us to the curb – at any time and for any reason. Many self-censor in both talk and trade to prevent the digital autocrats from censoring them first. Sound familiar? It’s reality for many worldwide.
To counter these forces, some turn to politicians. They hope for regulatory solutions. They vote for a better world. They might even run for office. Others – the Unabomber types – resort to violence. And some retreat, hoping to find peace elsewhere. Senator, menace, or monk. Until recently, such were the posts in the nascent war against digital authoritarianism.
Those in St. Jude’s mold forged another path. Decades before the iPhone, they began to meet regularly in the California Bay Area to discuss how they could avoid a world of digital autocrats with terrifying new powers. They thought cryptography could turn computers into engines of freedom rather than oppression. They didn’t primarily rely on politicians, projectiles, or prayer.
Instead, they wrote code. St. Jude dubbed them cypherpunks.
The cypherpunks didn’t just write code; they wrote a lot of code. You may have heard about some of it. The cypherpunks were responsible for Pretty Good Privacy, aka “PGP” (Philip Zimmermann and Hal Finney). BitTorrent (Bram Cohen), and Wikileaks (Julian Assange), to start. Their work made possible the end-to-end encrypted messaging you might use in Signal or WhatsApp and anonymous internet browsing through Tor. The cypherpunks created pathways for private and secure communication, tore down the walls of intellectual property, fought for civil liberties, and revealed surveillance programs and war crimes to the world. But in our view, perhaps the most important cypherpunk creation is Bitcoin.
We use money to express our values and preferences. Our transactions encode our dreams and desires. Money shapes the world. And as the world digitizes, so, too, does the money that makes it go ’round. Since digital money flows through financial institutions, they see every transaction and can stop any one of them. The digital money of banks and payment processors enables the dystopian future the cypherpunks feared.
To protect our privacy and autonomy, we need digital cash – money in the digital world that works like cash in the physical world. Physical cash resists surveillance and control. Unlike the digital money we more often use, physical cash requires no trusted intermediaries to hold and transfer funds. With cash, one party simply hands some bills over to the other. In software speak, cash is “peer-to-peer.” So if you’d like to spy on a cash transaction in Chicago, you need eyes in Chicago. Or if you’d like to block one in Singapore, you must prevent the exchange in Singapore. The cypherpunks dreamed of a digital instrument with similar features – digital cash. Digital cash would preserve our privacy and autonomy even as we transact over the internet.
Serious obstacles stood in the way. The big one was the double-spending problem. Anyone would love to spend one and the same dollar bill twice – much like we’d love to have our cake and eat it too. But we can’t for a couple reasons. First, we don’t have a cheap and effective replicator. At least for now, we can’t shove a dollar bill in a black box and then, for pennies, withdraw several perfect copies. Second, the Treasury’s rules state that more than 50% of a bill must remain in exchange for new currency. So thanks to the laws of physics and the power of a central authority, we can’t expand the money supply with the cunning use of scissors.
Digital US dollars work differently, of course. We can’t double-spend them because banks and other holders of digital money keep detailed financial records of who has which amounts. And like anyone who counterfeits physical dollars, anyone who cooks the digital books would face severe consequences. So we avoid dollar double-spends, whether physical or digital, with the help of central authorities.
The digital dollars in our bank accounts aren’t digital cash because digital dollars aren’t peer-to-peer. Truly digital cash, without central authorities, poses a major challenge. Digital cash would be, of course, digital – the sort of thing that inhabits computers. But digital things are easy to copy and paste – just press CTRL+C/CTRL+V. That’s a cheap and effective replicator in the digital realm. Few would use your digital trinkets as money if any 10-year-old could increase the supply with a few keystrokes. The marginal price of such a trinket would rapidly drop to zero.
To protect against digital counterfeiting, we might introduce a central authority to keep a ledger that tracks the ownership of each digital coin. Such an authority could block any attempt to spend one and the same coin twice. The authority could even provide significant privacy assurances. Thanks to advances in cryptography, the authority could block attempted double-spends without knowing the amounts or the parties involved. But such designs reintroduce a trusted party, making the money much less cash-like and easier to block. Indeed, the system as a whole would have a single point of failure, the central ledger tracking all transactions. It would resemble traditional digital money more than digital cash.
Prior to Bitcoin, digital seemed incompatible with cash. In Digital Cash, Finn Brunton captures the apparent paradox:
The work of making cash digital means creating an object that is trivial to transact over networked computers and easy to verify – to prove that it is what it appears to be – but impossible to forge or duplicate, and that can carry the information about what it is and what it is worth, without generating any information about how it is used or by whom.
This is a set of seemingly paradoxical and impossible demands: it must be available but scarce, unique and anonymous but identifiable and reliable, and easy to transmit but impossible to copy. It must have all these attributes in the context of technologies that were designed and built to make copies in their very functioning – costlessly, immediately, and perfectly.
For several years and across various meetups and mailing lists, cypherpunks and their allies plugged away. Perry Metzger, one of the most prolific writers on the cypherpunk mailing list and a moderator of its successor, the cryptography mailing list, says that discussions about digital cash “percolated in the mailing lists more or less constantly for over 15 years.” Most attempts to make digital cash never launched. The ones that did, failed.
And then there was Bitcoin.
Keep reading - Link to Part 2
