FYI:CRYPTO:GOV - e$, Tet in Cypherspace

Eugene Leitl (
Sat, 18 Apr 1998 13:56:26 +0400 (MSD)

FringeWare News Network writes:
> Sent from: Robert Hettinga <>
> e$: Tet in Cypherspace
> Thursday, April 16, 1998
> Boston, Massachusetts
> So, it looks like the Clinton Administration, through its Commerce
> Department, woke up this Blue Wednesday and smelled the coffee on the issue
> of cryptographic prohibition.
> The fact that it happened on the day of the year when Uncle Fedster and his
> minions formally celebrate their confiscation of almost 50% of our
> collective income in federal, state and local taxes only made the victory
> sweeter for those of us who think freedom still matters.
> It's too soon to count coup, here, because the crypto war's not over, but I
> believe that the tide of this particular conflict has now officially turned.
> Tet came on April 15th this year.
> Think about it. We threw the "French" out of the cryptography market when
> the NSA figured out that they could never control asymetric cryptographic
> protocols in a world of freefalling semiconductor prices and ubiquitous
> internetworking. Like the French did with USA 40 years ago in Indochina, the
> NSA invited the FBI into a cryptographic "police action", to preserve
> totalitarian statist colonialism in the guise of propping up the wiretap
> domino.
> However, no matter how many editions of the 5 o'clock follies Mr. Freeh
> held, no matter how many imaginary bodies he counted, he couldn't quite win
> the hearts and minds of the internet, much less the American people.
> No amount of baleful hairy eyeballs cast in the general direction of the
> crypto "advocacy" community could shut them up, certainly, but even more
> important, it's the impending economic cost of Mr. Freeh's war that's
> causing the implosion of his plans to see everything we do, or buy, in
> "cypherspace", as Eric Hughes calls encrypted cyberspace.
> It's remarkable, really. It may even be better than the Tet offensive of
> 1968. It might actually be as if everyone understood, at the time of the
> Gulf of Tonkin resolution, that LBJ couldn't have the great society and the
> Viet Nam war at the same time, that they had all read Milton Freedman's
> monitarist papers somehow, and they could see in advance the devastating
> inflation of the 1970's that LBJ would cause with our Viet Nam adventure.
> The Gulf of Tonkin resolution fails. No war. More money for VISTA volunteers
> or at least moonshots.
> Actually, LBJ would have caused stagflation doing that "we owe it to
> ourselves" stuff anyway, but it's a nice pipedream. Nonetheless, money is
> always much more important than "policy". In spite of the most bloodthirsty
> actions of the most totalitarian statist -- say, the late Pol Pot -- it's
> money that creates law, and not the other way around.
> This presidency, more than any other in the history of this nation -- a
> nation where political corruption has been celebrated as fine art --
> understands this simple fact as a natural course of doing its lucretive
> business. And the irony that the most socialist president in American
> history is also the most attuned to income has never been lost on the people
> he's trying to tax and regulate out of business.
> However, Freidrich Hayek has been proven right once again where the Clintons
> have been concerned, though it's hard to figure out sometimes if Billary are
> outright totalitarians themselves or just Hayak's "useful idiots" in the
> now-dead cause of socialism. Fortunately, like any good parasites, Billary
> can't kill their host, as this latest "spinglage" on cryptography seems to
> show. That need for a market "host" for socialism to suck blood from, in the
> end, is what has saved our freedom again, if it can ever be said to be under
> any threat at all, cryptographic "advocacy" notwithstanding.
> And so, the Clinton administration now apparently understands that to kill
> strong cryptography is to kill financial cryptography, and thus digital
> commerce. It's pretty simple, really. One need only count the nine zeroes in
> the internet sales figures from individual companies like Cisco or Dell, and
> the unbelievably scary growth of commerce on the internet in the past three
> years, to understand its inexorable economic necessity.
> Someday, practically *all* economic activity will happen on the internet, or
> its decendants, and, if you think that strong financial cryptography is
> necessary now to keep your credit card number safe, wait until you see what
> is required for cash itself to be exchanged, using very strong cryptographic
> "bearer settlement" protocols.
> And cash *will* be used on the internet. Cash just like you think it is,
> anonymous and untraceable.
> Why will we use cash and other instantly settled digital bearer instruments?
> Because it will be cheaper. Cheaper than checks, which are already being
> digitized. Exponentially cheaper than encrypted credit card transactions,
> which force you to borrow money just to pay for things, not to mention tell
> everyone where you spend your money just to keep everyone honest about the
> fact that you paid them.
> More to the point, digital cash, using digital bearer settlement protocols,
> will be cheaper to use than paper cash or even coins. After all, you can't
> shove a nickle over a wire, and electrons are probably the only things which
> are cheaper than paper or base metal.
> These new forms of digital bills and coins will be safely "spendable" in
> larger -- and even more especially, smaller -- amounts, than we can spend
> with physical cash today.
> Large enough to clear and settle multi-billion dollar currency trades in the
> blink of an eye.
> And small enough for your computer to purchase what it needs from the net in
> terms of information, even bandwidth, as it is used, on a pay-as-you-go
> basis. After all, we pay for what we use on the internet now, but we buy it
> in advance, in fixed monthly fees, and usually with a check after someone
> sends us a bill. At the very least, we pay indirectly, when we purchase an
> advertised product.
> Believe it or not, most of that money you spend on internet service goes
> down an administrative rathole.
> If we had the ablity to purchase internet resources in cash, the cost of
> accounting for those resources, that is, the billing and payment for those
> resources using offsetting debits and credits in your checking and credit
> card accounts -- and, by extension, the accounts of every entity on the
> network -- would effectively dissapear. Money would change hands where it's
> cheapest to move it, in secure transactions on the cheap and insecure public
> network, instead of the way it now does, using insecure transactions on
> expensive private secure financial networks.
> The savings, particularly in the human resources needed to manage all those
> accounts, all those triplicate septennially-archived double-entry debits and
> credits, would be enourmous compared to the other so-called "book-entry"
> forms of transaction settlement we all use today.
> And simple internet service isn't the only place where these strong
> cryptographic financial "protocols" would change how business is done. For
> instance, the actual cost of delivering a phone call, excluding marketing,
> and especially accounting costs, is less than 5% of the cost of that call,
> and probably smaller. Especially if you took away the resource allocation
> decisions of where to put switches, lines, etc., which all now have to be
> arrived at manually, and replaced them with automatic market-based ones. We
> won't even think about the cost of regulation and taxes. At least for the
> time being.
> If, however, switches were able to accept digital cash bits at the time of a
> telephone call's execution, the billing cost for that call would just
> dissapear. So too would the marketing of the call, because, with cash
> settlement, telephone switching becomes what's called a fungible commodity,
> like grain, and would be priced and graded by quality of bandwidth, just
> like so much rice. Remember, at the grain elevator, there is no "branding"
> by whose farm the grain came from, it's all just grain. Finally, the human
> decisions about where to build switches themselves would go away, because
> the switches which made the most money would save enough cash out of
> operations to quite literally buy better -- or probably just more -- copies
> of themselves.
> You can do this with just about anything. Take electricity. The British have
> done experiments about sending internet service down power lines, so paying
> digital cash for electricity on the same line you use it from is completely
> possible, especially in a world of hypercompetitive, deregulated
> electricity.
> You can do this with roads. Just use cheap little chips in the road, each
> one collecting micro-tolls as a car rolls past, and, of course, raising the
> price as traffic builds up. A brave new world indeed. Except, of course,
> with privacy.
> Fungible-service pricing in instantaneous cash-settled auction markets will
> probably destroy our entire concept of "natural" monopoly. And, as Moore's
> law continues to heat up financial transaction settlement, creating a new,
> geodesic economy, great hunks of that industrial economic glacier we're all
> familiar with will start calving off to float off and melt into an ocean of
> real-time information, financial and otherwise.
> And, yes, Virginia, you can do every financial transaction we now have with
> these digital bearer settlement protocols as well; stocks, bonds, and every
> exotic derivitive thereof you can imagine.
> We won't even talk about what it will do to the ultimate "natural" monopoly,
> the monopoly modern nation states have on force. Besides, if everything's
> paid for in cash on the net in perfect anonymity, how are they going to beat
> taxes out of us? So much for Blue Wednesday.
> Which, of course, brings us back to the modern era's General William
> Westmoreland, FBI Director Louis Freeh, a man who made his "bones"
> wiretapping mafiosi in the "pizza connection" heroin case.
> Frankly, if Mr. Freeh knew how bad it really was going to be for his "army"
> someday, maybe even just a few decades away, I bet he'd even be more
> energetic in his fight to listen in to everyone's phone calls, or read our
> email, or even, with such ludicrous totalitarian schemes like key "escrow",
> pretend to be us to our own banks and take our money should we try to hide
> >from him with better cryptography than he can crack. All of this with the
> click of a mouse.
> Fortunately for us, Mr. Freeh, like General Westmoreland, has been too busy
> making up bodycount numbers, or at least sightings of "the four horsemen of
> the infocalypse" (pedophiles, terrorists, drug dealers and money launderers,
> all using cryptography the FBI can't break) for what he hopes will be the
> next 5 o'clock follies, thinking Tet was just another holiday for the
> natives.
> Well, until yesterday, anyway.
> Cheers,
> Bob Hettinga
> Version: PGP for Personal Privacy 5.0
> Charset: noconv
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> chUeEEEKeNdWOANDuJSI/f+NdGgK0X5FI7ja1tVp1WbTL/5DjgjvD2wxXZKqyIO8
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> =GTXu
> -----------------
> Robert Hettinga (, Philodox
> e$, 44 Farquhar Street, Boston, MA 02131 USA
> "... however it may deserve respect for its usefulness and antiquity,
> [predicting the end of the world] has not been found agreeable to
> experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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