Bitcoin and the End of History

This is the final installment in Reason's four-part documentary series, "Cypherpunks Write Code." Watch Part 1, Part 2, and Part 3.

"The fall of the Berlin Wall was important to me," said Zooko Wilcox, who was 15 in 1989. It seemed like "the end of history"—a reference to the political scientist Francis Fukuyama's influential 1989 essay—and a time when "national borders would cease being the walls of prisons," he recalled. When Wilcox discovered the internet a few years later, he saw it as "part of this pattern where borders and distance stop being barriers to people."

Wilcox, who today is the founder and CEO of a company that oversees the development of the cryptocurrency Zcash, was an early participant in the "cypherpunks email list." The list, which launched in 1992, became a gathering place for a global community interested in using cryptography to allow individuals to communicate and transact on the internet privately and without interference from a central authority. The cypherpunk movement more broadly would go on to influence WikiLeaks (Julian Assange was a participant on the email list), BitTorrent, Tor, and bitcoin, among other freedom-oriented technologies and initiatives.

Wilcox dropped out of college to work at David Chaum's startup DigiCash, an attempt to build a privacy-preserving payment network on the internet based on a series of groundbreaking papers that the legendary cryptography had published in the 1980s.

"Because of the cypherpunks and because of the science papers of David Chaum," Wilcox told Reason, "economic freedom" seemed inevitable. Humans will "no longer [be] constrained by national borders and distance from cooperating and sharing resources and helping each other."

Three decades later, we're a long way from realizing the economic freedom and online privacy that Wilcox and other early cypherpunks anticipated, but since the invention of bitcoin and the launch of the cryptocurrency industry, a new generation of cypherpunks has emerged who are convinced that it's now possible to make good on the movement's original vision.

There was also a divide within the original cypherpunk community over whether cryptographic tools would lead to more individual freedom, free trade, and the spread of democracy, or the collapse of government altogether. The cypherpunk movement's most influential figure was the physicist and intellectual provocateur Tim May, who coined the phrase "crypto anarchy." He saw the fall of the Berlin Wall as evidence that the societal institutions we take for granted could collapse in short order, just as they had in the Middle Ages. (May passed away in 2018 at the age of 66.)

"We saw the little principalities, the monarchies, the religious, the papal states—we saw those collapse probably as a result of … printing," May told Reason,

May penned a one-page summary explaining how cryptography would upend society titled "The Crypto Anarchist Manifesto."

"So I just sat down at my little Macintosh and loosely patterned this after the Communist Manifesto," he told Reason. "Just as the technology of printing altered and reduced the power of medieval guilds and the social power structure," he wrote, "so too will cryptologic methods fundamentally alter the nature of corporations and of government interference in economic transactions."

The idea that excited May and many other cypherpunks, according to the novelist and writer Paul Rosenberg, author of the Free–Man's Perspective newsletter, was that "we can be protected from anything without—from the observers, from the watchers, from the imposers of the past upon the future that we're trying to create."

May was skeptical of the idea that humanity was witnessing "an unabashed victory of economic and political liberalism," as Fukuyama wrote in his famous essay (later expanded into a book)—or that it was possible to overcome tyranny through collective action. He embraced a technology-based theory of historic change that was summed up by the movement's tagline, "cypherpunks write code," a line from the mathematician Eric Hughes' 1993 essay, "A Cypherpunk's Manifesto."

"What Eric meant by 'cypherpunks write code' was, 'Don't be one of those guys who goes to a Libertarian Party conference and sits about getting somebody elected to the Los Gatos City Council,'" May told Reason. "That way lies madness."

"Whereas the interesting things that had happened had been technological changes, the telephone, copy machine, the VCR."

"The thing I really got interested in is that you don't just go and ask the regulator, 'Oh, we need more privacy online.' We go fix it," said the cryptographer Adam Back, an influential participant on the cypherpunks list, whose system Hashcash was later incorporated into the design of bitcoin. "Arguing and complaining and lobbying and politics have nominal effects, and what changes the world is technology adoption and society moving, shifting its viewpoints."

For crypto-anarchists like May, writing code meant building systems for anonymous transactions on the internet that made the arbitrary divisions of the political world irrelevant. "National borders are just speed bumps on the information superhighway," he quipped.

Online cryptographic networks would be structured like a geodesic dome, a form hailed by the counter-cultural technologists of the 1970s for being in harmony with nature and highly resistant to external attack. "Networks with no owners with many interconnecting nodes," May told Reason, and it "would be basically unstoppable." In a geodesic market, "economics will no longer be the handmaiden of politics," the cypherpunk writer Robert Hettinga wrote in a 1998 essay.

"This idea of a many-to-many connection was clearly going to happen," May told Reason. But it was much easier to build a functional network for cooperation and trade when you can rely on a central authority to enforce the rules. Jim McCoy, a software developer and early cypherpunk, who was the co-founder of the peer-to-peer file-sharing network Mojo Nation (where Wilcox and the inventor of BitTorrent, Bram Cohen, worked as software engineers), recalls that there were many discussions on the cypherpunks email list centered around the challenges of building decentralized economic systems.

"How could we use this weird crypto technique to solve this strange, esoteric little problem that in the real world you just solve because, 'Oh, I know what your social security number is,' or you have to have your government-issued ID…"

The economist David D. Friedman, author of The Machinery of Freedom: Guide to a Radical Capitalism, originally published in 1973, told Reason that May "stole" some of his ideas about "the ways in which people might provide the equivalent of what government does in a decentralized fashion," and "then I stole them back!"

A function of government that was particularly hard to replicate using cryptography was the issuance of money. The cypherpunks attempted to build a borderless, internet currency system as anonymous as cash, and that, like gold, held its value without the backing of a central bank.

"Gold makes very good money because nobody can manufacture more of it very readily, to put it mildly," said cryptographer Whitfield Diffie, famous for co-discoverering the concept on which all modern encryption is based. "Whereas bits are perfectly copyable, turning bits into good money is quite difficult."

"Tim May and many others considered electronic cash to be the holy grail because it completed the picture," said Back.

A private and decentralized monetary system, May argued, was a key component in constructing a new borderless world where the activities and assets of individuals would be resistant to government control and confiscation. "You don't physically meet the person if you don't even know what continent they're on [and] you can't coerce them," May said.

But there was another group within the cypherpunk movement that rejected May's vision of cordoning off a new world in cyberspace. Dubbed the "High-Tech Hayekians" by the economist Don Lavoie, this group included the computer scientists E. Dean Tribble, Mark S. Miller, Chip Morningstar, and the entrepreneur and economist Phil Salin. (For more on this faction of the movement, watch Part 1 of Reason's documentary series on the cypherpunks.)

They were focused on designing secure computing systems based on economic insights, particularly those of the Austrian-born Nobel Prize winner Friedrich Hayek. Instead of building a new virtual world shielded from government interference, the High-Tech Hayekians sought to use technology to demolish walls and divisions within the existing world. They imagined that introducing new tools for human coordination would gradually erode the government's ability to impinge on our freedoms.

"We did lots and lots of fantasizing about how the world could be different, but we saw this as emerging from inside the world," Miller told Reason.

Cryptography was a tool for porting economic concepts and legal structures onto the internet, but the aim was to foster new forms of peer-to-peer commerce and knowledge sharing. And the High-Tech Hayekians believed that even imperfect systems can transform society gradually from within.

"The overall arc of world history is toward rule of law, toward less corruptible systems," Miller told Reason. "If the emergence of the world of crypto commerce creates systems that are vastly less corruptible, but under a whole mix of different mechanisms and governance regimes such that they're not always everywhere incorruptible, I think that's fine."

"There's a lot of power in providing people tools such that they can successfully start to act more like you would like them to," Tribble told Reason. "As opposed to, 'You've got to come over here where it's really hard edge encrypted and it works exactly the way we want.' No, no, let's raise people's levels incrementally, and that's an improvement in the world."

For many cypherpunks, the darker side of crypto anarchy was epitomized by the writings of the chemist and electrical engineer Jim Bell, a participant on the email list, who in his multi-part essay, "Assassination Politics," compared aggression by the state to that of "muggers, rapists, robbers, and murderers," and posited a cryptographically protected marketplace in which anonymous individuals could, in effect, pay to have government employees killed with the goal of destroying the state.

In 1997, Bell was arrested and went to prison for, among other things, dropping a stink bomb on a government building. May distanced himself from Bell's writings and activities while maintaining that marketplaces for assassination like the one Bell had described, might be both inevitable and desirable.

"Can evil be done with this technology? Not just the internet, but especially the crypto part of it? Yes," May told Reason. "Deal with it." According to May, Phil Zimmermann, the creator of the encrypted messaging system Pretty Good Privacy (PGP) once told him that "he sometimes regretted ever introducing PGP to the world because it could be used by Al Qaeda or the Taliban or whatnot. I say, so what? I'm not morally responsible. It would have happened whether we had existed or not."

"People want to do what they want to do," he continued. "I mean, they want free shit. They want freedom to do things. Even if they say that it should be regulated, they'll often make the conscious decision to copy music, copy videotapes they want to see."

"BlackNet is a negative consequence," Tribble, a member of the High Tech Hayekians, told Reason, "[and] I'm not interested in creating that. When you build technology to solve problems … there are consequences that we try to think ahead of … that's responsible development. And we certainly engaged in that. And talking with Tim May and putting on that 'What if I was a black hat' kind of thing was certainly a useful foil for working through those kinds of ideas, but that's absolutely not what cypherpunks were."

Thirty years after its launch, how well does the cypherpunk movement's vision of the future comport with reality? Over the next quarter-century, the internet would make possible an explosion of individual freedom and information sharing, just as Salin had predicted in 1991. But it would also grow into a surveillance apparatus that bore out the dystopian vision of journalist David Burnham and his 1983 book, The Rise of the Computer State.

"Facebook collects information that the East German Stasi would have killed for," said McCoy, who (after Mojo Nation failed) went on to work at the social media giant from 2011 to 2016. "I think that most people are quite happy to hand people all of the information about them online in return for a few pics of your high school friends, kids, or whatever."

By the mid-2000s, it seemed the cypherpunk movement had mostly failed. Then came the global financial crisis followed by massive bailouts by central banks. On October 31, 2008, a pseudonymous inventor named Satoshi Nakamoto shared a white paper describing a peer-to-peer non-governmental monetary system, pulling together technical and philosophical concepts developed on the cypherpunks' email list. Thanks to bitcoin, within a few years, the movement was reborn with a new generation committed to enhancing personal freedom and privacy with cryptographic tools.

"It's like discovering an oasis when you're lost in the desert," Wilcox told Reason. "It's bitcoin that is single-handedly responsible for the current wave of cypherpunk activity."

"It's always messier than visionaries can anticipate because reality is bigger than any one head," said Miller. "We're still on the road in the quest to build architectures that amplify human freedoms and protect us from the dynamics in the other direction."

Written, shot, edited, narrated, and graphics by Jim Epstein; opening and closing graphics and peer-to-peer computer graphics by Lex Villena; audio production by Ian Keyser; archival research by Regan Taylor; feature image by Lex Villena

Music: "Daemones" by Kai Engel used under Creative Commons

Photos: playing with Amiga 1000 by Blake Patterson, Creative Commons, Attribution 2.0 Generic; people climbing the Berlin Wall at Brandenburg Gate, imageBROKER/Jürgen Schwarz/Newscom; people from East and West Berlin climbing on the wall, imageBROKER/Norbert Michalke/Newscom; demonstrator pounds away at the Berlin Wall, STR/REUTERS/Newscom; Regan and Gorbachev, Steve Gottlieb Stock Connection Worldwide/Newscom; people climbing the Berlin Wall, imageBROKER/Jürgen Schwarz/Newscom; Berlin Wall, Getty Archives; David Chaum, Associated Press; East German border guards seen through a gap, AP Images; Francis Fukuyama, John Troha BlackStar Photos/Newscom; Prague 1989, Abaca/Newscom / CreditAbaca/Newscom; Buckminster Fuller and the geodesic dome, C. Y. Yu/SCMP/Newscom; IRS agent, David Royal/ZUMAPRESS/Newscom; chiselling pieces off the wall, imageBROKER/Norbert Michalke/Newscom; Mark Zuckerberg, THIEL CHRISTIAN/SIPA/Newscom; Brin, Page, and Schmidt, Minneapolis Star Tribune/ZUMAPRESS/Newscom; Jeff Bezos, Lisa Qui ones BlackStar Photos/Newscom; Snowden protests, BONESS/IPON/SIPA CreditBONESS/IPON/SIPA/Newscom and David Von Blohn CreditDavid Von Blohn/ZUMA Press/Newscom; Mark Zuckerberg, CHRISTIAN/SIPA CreditTHIEL CHRISTIAN/SIPA/Newscom; George W. Bush, Chuck Kennedy/MCT/Newscom; End the Fed 1, Mehdi Taamallah/Newscom; End the Fed, hardtopeel, Creative Commons, Attribution-ShareAlike 2.0 Generic; End the Fed!!!, Martha Heinemann Bixby, Attribution-NonCommercial 2.0 Generic; End the Fed, Mehdi Taamallah/Newscom; Bitcoin conferences, Aleksandr Zykov, Creative Commons, Attribution 2.0 Generic; Institute of Cryptoanarchy, Michal Dolezal/ZUMA Press/Newscom; John Gilmore at Burning Man 2005, Creative Commons, Attribution 2.0 Generic.