Many of the technological advances we take for granted everyday, were in their beginnings humble, improbable and seemingly destined for a modest or obscure success at most. Its founders viewed the Internet as a network that would be used by government agencies and educational institutions. The personal computer was considered the domain of the geek minded hobbyists. The idea that these machines would be on almost everyone’s desk at work and at home seemed very far-fetched. The World Wide Web sits atop both the personal computer and Internet infrastructures. In March 1989, Tim Berners-Lee’s boss at CERN described it as “vague but interesting” (Berners-Lee). Looking back on all these innovations, they have in some ways come to seem inevitable, especially for those of us who’ve grown up with them.
Identifying major innovations closer to their beginnings is a much more challenging task. This paper seeks to make the case that the very, very geeky technical backwater of cryptography has produced a major innovative breakthrough–the solution to the Byzantine generals’ problem. That innovation, coupled with the previous inventions of public-key cryptography and digital signatures, allowed for the establishment of a decentralized secure public ledger; we’ll see why this is important later. I will lay out the reasoning behind why, as improbable as it may seem today, this innovation has the possibility of being world changing. There are many reasons to believe that in the not-too-distant future all of our lives will in some way be touched by this technology.
I’m more concerned with the social and institutional consequences of this technology. This is not the place for an overly technical discussion. But because how the technology works has important implications for how its applications promise to be so disruptive, I will provide a basic explanation of how parts of the technology function.
The power of decentralized networks
how they have changed and will continue to change our world
The Internet is said to be the answer to the question: what kind of network do we need that will survive a nuclear attack? The topology of the network eventually settled on was distributed as opposed to a typically centralized network. This idea was put forth and developed by Paul Baran, a researcher at RAND Corporation in the early 60’s (Baran).
In a centralized network communication from point A to B would go through a centralized hub.
Creative Commons: Andrew Fogg
A distributed network looks more like a fishing net than a wheel with spokes and a hub. Rather than going through a centralized hub, any node on network can hand off its communication to its next nearest neighbor–who does the same until the communication reaches its destination. This brilliant solution relieves any single node from being a single point of failure. If a single node or any part of the network is unavailable, the message is routed to the new nearest neighbor and is repeated until the message is delivered. There is no fixed path from A to B in a distributed network.
Creative Commons: Dainis Matisons
A second question that was an important to early researchers was how to garner the participation of the various small research networks existing at the time and scale them up to something much larger. The answer to that question was a network that was based on an open architecture plan. To join you would need no special permission or equipment, just be able to follow the published network protocol.
The distributed nature of the Internet and the Web and its permissionless participation was instrumental in its worldwide growth (Internet users in the world). The Internet has proven to be a gigantic real-world experiment in, and subsequent validation of the power of these two principles.
These principles prove to be useful to many processes and projects built on top of the basic Internet infrastructure. Crowdsourcing, social bookmarking, photo sharing, open source software projects, wiki’s, citizen science, and social networking are all examples of these principles in action.
Clay Shirky asked in his 2005 TED talk, Institutions vs. Collaboration, “how do groups get anything done?” Shirky does a great job outlining the differences between the two approaches (institutions vs. collaboration). He points out that up until recently an institution was really the only way to get a group of people to get something done. In 2005, he had more of a case to make on the practicality of using collaborative networks to get things done. Wikipedia and the open source operating system Linux are always discussed, as they should be, but in the 10 years since his talk, as he predicted, the process has only continued and accelerated. Companies like Uber, AirbNb, and phenomenon like crowdsourcing are all examples of the continuing trend. It’s inevitable that all institutions will be tested against this new model. Some of these attempts will succeed and some won’t, but all will be challenged.
Near the end of his talk, Shirky predicts:
"50 years in which loosely coordinated groups are going to be given increasingly high leverage, and the more those groups forego traditional institutional imperatives–like deciding in advance what’s going to happen, or the profit motive–the more leverage they’ll get. And institutions are going to come under an increasing degree of pressure, and the more rigidly managed, and the more they rely on information monopolies, the greater the pressure is going to be. And that’s going to happen one arena at a time, one institution at a time. The forces are general, but the results are going to be specific. (Shirky)"
It is not only institutions and industries that are under pressure. Technologist and writer, Jaron Lanier talks about a class of creative people who at one time made a living from their creative works, that are no longer able to do so. He views parts of the collaborative commons as a type of pernicious digital collectivism and the individual creative act as being at risk to sacrifice and undermining by what he calls the hive mind. Lanier has done a great service in breaking the rosy trance surrounding the idea that everyone can make a living by giving away his or her creative work for free. He points out a few are able to make that strategy work, but not the many.
Where Clay Shirky sees the dissolution of information monopolies of the past and present, Lanier sees the establishment of a new form of information monopoly that he refers to as the Siren Server.
"A Siren Server, as I will refer to such a thing, is an elite computer, or a coordinated collection of computers. It is characterized by narcissism, hyper-amplified risk aversion, and extreme information asymmetry. It is the winner of an all-or-nothing contest, and it inflicts small all-or-nothing contests on those who interact with it. Siren Servers gather data from the network, often without having to pay for it. The data is analyzed using the most powerful available computers, run by the very best available technical people. The result of the analysis are kept secret, but are used to manipulate the rest of the world to advantage (Lanier 2013, pg. 49)."
The companies that run these top of the food-chain servers are of course household names: Google, Apple, Amazon, Facebook and Microsoft. If you include the companies that control the backbone infrastructure of the Internet and the NSA, you have an almost complete information asymmetry in favor of those with the largest servers and the best technology.
Lanier does see a way forward by returning to the vision of Ted Nelson, who is an information technology visionary who coined the terms hypertext and hypermedia. Lanier goes on to quote in his book, Who owns the future?
“A core technical difference between a Nelsonian network and what we have become familiar with online is that Ted’s network links were two-way instead of one-way. In a network with two-way links, each node knows what other nodes are linked to it. Two-way linking would preserve context. It’s a small simple change in how online information should be stored that couldn’t have vaster implications for culture and the economy (Lanier 2013, pg. 218).”
Because two-way hyperlinks would maintain context, it is then be possible to implement a system of automated micro-payments. Any time content is used, remixed, accessed or referenced; a small, automated micro-payment would be made to the content creator.
It is interesting to compare and contrast Lanier’s perspective with that of economic and social theorist Jeremy Rifkin’s. Where Lanier sees the cost of formerly scarce products and services being driven to near zero by the work of digital collectivism and an information free naïveté, Rifkin sees a counterintuitive inherent contradiction at the heart of free market economic theory. They agree that it’s happening, and that digital networks are major enablers of the trend.
Jeremy Rifkin’s writes in The zero marginal cost society.
"… suppose we carry these guiding assumptions of capitalist economic theory to their logical conclusion. Imagine a scenario in which the operating logic of the capitalist system succeeds beyond anyone’s wildest expectations and the competitive process leads to “extreme productivity” and what economists call the “optimum general welfare”—an endgame in which intense competition forces the introduction of ever-leaner technology, boosting productivity to the optimum point in which each additional unit introduced for sale approaches “near zero” marginal cost. In other words, the cost of actually producing each additional unit—if fixed costs are not counted—becomes essentially zero, making the product nearly free. If that were to happen, profit, the lifeblood of capitalism, would dry up (Rifkin)."
The implications of the zero marginal cost society are far-reaching and disruptive, so much so that they are anxiety provoking for most. Anything that can be digitized and therefore propagated on the gigantic copy and distribution machine we call the Internet, quickly achieves Rifkin’s zero marginal cost. Up until now schemes to stop this march in the digital realm, such as copy protection and paywalls, have been bumps in the road rather than true impediments. Both SOPA and PIPA were attempts to gain control over the problem through top-down means by blocking access to perceived offending websites through the Domain Name System (DNS), a hierarchical distributed list of human readable names that are mapped to the IP addresses of websites (SOPA, PIPA: What you need to know). These attempts have been temporarily defeated but once again it shows the vulnerability of any centralized system. There are initiatives that seek to provide a decentralized DNS system. Only time will tell if it is necessary and/or successful. As we’ve seen, the idea of decentralization and open access has been built into the Internet from the beginning, but in subsequent years it’s been driven home again and again to developers–they must decentralize or risk being co-opted by top-down institutions.
Here is an outline some of the main problems discussed in the previous sections.
• The ability of unfettered copying
• The cost of anything that can be easily copy falls to zero.
• The asymmetry of information sharing and access between individuals and institutions
• The need for individual privacy and institutional transparency
• How to efficiently and securely handle online micro-payments
• How to establish and verify content ownership
• The on-going struggle between centralized and decentralized systems
Recent cryptographic innovations throw a new light on all these problems. We will see how in the following sections.
What is cryptography?
Cryptography is the study and application of techniques for secure communication in the presence of adversarial third parties. As long as there has been written language, there has been a need to hide communications content and meaning from distrusted third parties. The basic idea is for the communication to go through some transformational process. The intended recipient, knowing the transformational process, can reverse it to retrieve the original message. The Greeks and Romans used codes. Caesar used a very simple scheme of shifting all the letters in the message over by a certain amount. Therefore if we shifted the message by three places all A’s would be D’s; all B’s would be E’s and so forth. Of course another part of cryptography is crypto-analysis, the ability to analyze and crack codes. There has been an interesting cat and mouse game through the ages between the code makers in the code breakers. Codes have had obvious military significance. Many credit the British breaking of the German code as being a significant factor in the Allies victory in WWII (Factsheets : War of Secrets: Cryptology in WWII).
Cryptography’s recent history
Our story begins with the invention in the mid-70s of public key encryption methods. Up until this point, if you wanted to decrypt an encrypted message you needed to know how the message was encrypted (possess the key). This posed problems if the key had not been agreed upon person-to-person before hand, as communicating the key in any kind of message suffered from the same vulnerabilities–the possibility of falling into adversarial hands.
Creative Commons image
Public key encryption gets around this vulnerability by generating two keys, one public and one private. The two keys are mathematically linked – the public key needs the private key as input to be created. The public key can only encrypt a message; only a private can decrypt it. Therefore, public keys can be distributed in any way necessary without fear of compromising the security of the encrypted message.
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What changed in the 70s was the emergence of open academic research into cryptography. It took it out of the sole purview of national security agencies and military. Working in the 80s and 90s researcher and inventor David Chaum solved many thorny problems using cryptographic methods: prevention of double spending using virtual currency, anonymous communications, and identity and document verification. He came to hold 17 patents, all based on cryptographic methods. In 1990, he founded the company DigiCash, and although he had success, he never had the world changing success he and many others thought possible for the technology. It seems that DigiCash’s failure had more to do with Chaum’s lack of emotional intelligence, rather than his IQ or the lack of a truly world changing technology (How DigiCash Blew Everything).
There is a very interesting article written by Steven Levyfor Wired Magazine, published in 1994,(Levy). He features an interview with David Chaum talking about various DigiCash projects, and more importantly, he surveys the state of digital money in the mid-90’s. In the article he asks important questions that need to be answered for digital money to succeed. Here are some the questions he posed:
1. Who is going to create the monetary value? In other words, who will back up the money, assuring trust? Will it be the government, banks, VISA, or The New York City Transit Authority?
2. What security features will be included? How will these systems protect against fraud? Can they be hacked or counterfeited? What will be the trade-offs between ease-of-use and security?
3. Who is going to regulate electronic money?
4. Who is going to pay for it?
From our vantage point in 2014 the surprise is how radical the answers to questions one, and four are–where it concerns Bitcoin technology, more on this later.
Two things can easily be said about David Chaum. First he is a brilliant cryptographer and inventor. Secondly, the main motivation for his inventions was his perception of an arising online privacy dystopia–one that would only be exacerbated by the online payment systems available, or the one that would likely to be developed.
"Current developments in applying technology are rendering hollow both the remaining safeguards on privacy and the right to access and correct personal data. If these developments continue, their enormous surveillance potential will leave individuals lives vulnerable to an unprecedented concentration of scrutiny and authority. …We are fast approaching a moment of crucial and perhaps irreversible decision, not merely between two kinds of technological systems, but between two kinds of society (Chaum)."
The Rise of the Cypherpunks: A Cypherpunk Manifesto
The cypherpunks-founding members included Tim May, Eric Hughes and John Gilmore. Although they were inspired by David Chaum’s work, there was much more of an activist bent to the group. Its main vehicle was an online mailing list whose membership was by invitation only. There was quite a range of viewpoints in the group, including at its most radical Tim May’s crypto-anarchy.
Probably the best document summing up their philosophy is Eric’s Hughes, Cypherpunk manifesto (Hughes). Here are some quotes from the document:
“Privacy is necessary for an open society in the electronic age.”
“Privacy in an open society requires anonymous transaction systems.”
“Privacy in an open society also requires cryptography.”
“Cypherpunks write code. We know that someone has to write software to defend privacy, and since we can’t get privacy unless we all do, we’re going to write it. We publish our code so that our fellow Cypherpunks may practice and play with it. Our code is free for all to use, worldwide. We don’t much care if you don’t approve of the software we write. We know that software can’t be destroyed and that a widely dispersed system can’t be shut down (Hughes).”
In November 2008 the stage is now set for the introduction of Satoshi Nakamoto’s Bitcoin protocol.
Bitcoin’s history might strain a reader’s credulity if you base a work of fiction on the way it was introduced to the world.
Someone working under the synonymous name Satoshi Nakamoto posted a paper to the Cryptography mailing list in November 2008. He released the open source software based on his original paper in 2009 (Nakamoto). He also founded and participated in his own Bitcoin online forum from November 19, 2009 to his last post in December 13, 2010. After interacting and cultivating the open source development community that grew up around Bitcoin during this period, he handed over the few keys he personally possessed, such as the password to the Bitcoin alert network, and completely vanished into the shadows in the spring of 2011 (Bustillos).
Nakamoto seems to be a much more laid back and mild mannered individual than the Cypherpunks. He pointed out that Bitcoin should be very compatible with a libertarian point of view, but counseled against being associated with WikiLeaks or pushing Bitcoin as anonymous cash. He thought it would bring unwanted scrutiny from the powers that be and possibly harm its adoption (Satoshi Nakamoto Quotes).
Bitcoin is public distributed ledger available to anyone with an Internet connection. Buying into the ledger requires you to exchange cash, products or services for bitcoin. The ledger is a series of transactions that records and timestamps how much is being exchanged, and the from-and-to Bitcoin addresses. Bitcoin is a new form of payment system.
What about those Byzantine generals we were talking about? The Byzantine generals’ problem is a narrative reframing of a classic cryptographic problem in the form that a layperson can understand.
The set up is a group of generals geographically separated and only able to communicate via messenger. Their adversary can be defeated only if they can agree to a common plan and time of attack. Adding to the difficulty is that any general can put forth a plan but the length of time for the messenger to deliver the plan to the other generals is unknown. How can they reach a consensus on their plan of attack?
Before we finish with the generals, lets talk about Bitcoin mining and miners. Miners are extremely important participants in the Bitcoin network. Miners are the way that Bitcoin transactions blocks are verified and added to the public ledger (blockchain). Miners that are successful in verifying and adding a transaction block to the ledger are rewarded with a bounty of newly created bitcoins (hence the colorful metaphor of mining). One last thing that might not be obvious but that is supremely important– each miner has a complete copy of the Bitcoin public ledger. So now we can see that the Byzantine generals and the Bitcoin miners have a similar problem. How can the Bitcoin miners make sure they’re all working with the same copy of the public ledger, when all have the possibility of adding transactions, and there is an unknown variable time for that new ledger entry to propagate through the entire network? In November 2008 a solution was found to the problem of a distributed consensus in a network that prevented double-spending transactions (the Byzantine generals’ problem). It is called proof-of-work.
Proof-of-work is one of those ideas that are counterintuitive. It doesn’t seem like it should work–but it does. All the miners in the network are given a cryptographic puzzle to solve. This puzzle is partially base on a cryptographic address associated with the last transaction block. This is important because it is what ties the transaction blocks together. This series of linked transaction blocks is called the “blockchain”. The blockchain is the complete record of unforgeable Bitcoin transactions, and is traceable to the very first transaction. As soon as a miner has a solution to the puzzle, they have the right to broadcast their solution to the network. The rule is–miners are always to use the longest chain available. A situation can arise where two miners solve the puzzle at exactly the same time — which would seem disastrous and is not. Even if half the network adopts one miner’s solution and the other half adopts the other, the tie will be broken in one of the next cycles puzzle solving. Eventually one of the competing chains will be longer than the other, in which case because of the network rule– it will adopt the longest chain. The shorter chain is discarded. Transactions in those blocks will return to the pending transaction pile and will eventually be processed.
Why is this important?
It’s hard to imagine a world where you can confidently enter into a financial transaction with anyone, anywhere, without the need of a trusted third-party or institution of any kind. We may spend the rest of our lives dealing with the repercussions of such ability. The Bitcoin protocol cuts the cord to any centralized issuing or maintenance entity. Even David Chaum’s DigiCash needed an institution to issue it.
As powerful as distributed permissionless networks are, there are some industries that are immune to their disruptive powers. The financial industry until recently is a prime example. Peer-to-peer financial transactions are providing possibilities for unprecedented innovation. Banks, stock markets, exchanges, legal documents and voting will be challenged by these cryptographic breakthroughs.
Let’s revisit some of our problems discussed earlier.
The ability of unfettered copying. Cryptography allows for uncopyable digital objects.
How can we establish and verify digital content ownership? Digital signatures can prove authorship and that the document has not been forged or altered.
How to effectively and securely handle online micro-payment? Bitcoin is divisible up to the eighth decimal place, and has an extremely low and sometimes zero transaction fees. It is also a digital currency that makes it perfect for online micro-payments. This possibility has already allowed content owners to set up a public Bitcoin address on their sites as a sort of tip jar for people who think their content worthy of a donation.
The cost of anything that can easily be copied falls to near zero. It is yet to be seen whether a credible economic ecosystem can be developed and maintained on voluntary micro-payments, but it seems possible. Also the existence of small micro-payments as a charge for reading an article or consuming any kind of digital content, for example, is now also a possible avenue for exploration, fulfilling at least part of Ted Nelson’s vision.
A creative and entrepreneurial tsunami has been unleashed in the last several years. Tens of thousands of programmers, designers, entrepreneurs and businessmen are working on Bitcoin or other crypto-currency projects. It is hard not to be reminded of the Internet in the early 90s. Bitcoin is still geeky, we are not exactly sure what it’s good for, and you have to go out of your way to use it. On the other hand there is a group of people enthused by the possibilities of Bitcoin technology who are building applications and businesses as fast as they can. Hundreds of millions of venture capital has already flowed into crypto-currency projects in the last year (Bitcoin: venture capital investments).
Even if Bitcoin currency were to fail, Bitcoin the technology will continue on. Thousands of crypto-currencies are already created, some of which have been moderately successful in their own right. Currency is only the first and most obvious application of this technology. Smart contracts, user-defined assets, digitally secured voting and distributed autonomous companies (DAC) are some of the applications feverishly being pursued.
We can double down on Shirky’s prediction of a long-term struggle between centralized and decentralized systems. Even though the Internet allows for decentralization, it does not guarantee it. In theory cryptography has many of the answers to these issues. The question is: can these technologies be implemented in a way that can garner mass adoption? And can they overcome the inevitable blockades used by centralized institutions seeking to maintain their current business models? In the mean time, we can expect to see more ecosystems of self-managed networks–no Siren Server or centralized institution needed (Magical Internet Currency). In the very long term, some predict that whatever can be decentralized, will be decentralized. This struggle is certainly one of the most important issues of our time and cryptography is set to play a major role in its unfolding.
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Imogen Cunningham - Merce Cuningham
Painted lady: Women with extensive tattoos, such as this one, were often to be found in travelling circuses during the 1920s