Cypherpunks write code. We know that someone has to write software to defend privacy, and we're going to write it.— Eric Hughes （The Cypherpunk's Manifesto, 1993）
In 1992, three Bay Area computer scientists launched a new mailing list for discussing cryptography, mathematics, politics, and philosophy. They called the members of this mailing list the cypherpunks: a portmanteau of cyberpunk, a genre of dystopian sci-fi, and ciphers, a staple of cryptography.
The cypherpunks were an eclectic crew, but they all shared a core conviction: that the Internet would soon become an important battleground for human freedom.
Rebels with a cause
Back in the early 90s, cyberspace was still the domain of hobbyists and hackers. But the cypherpunks believed that it was only a matter of time before the Internet would become central to society. Once governments understood the Internet's importance, they would move to co-opt, monitor, and censor it.
May/June 1993 cover of Wired. Credit: Wired
Long before Facebook, long before the Great Firewall of China, long before the Snowden revelations, the cypherpunks saw it coming. They foretold a regime of online censorship and surveillance that would eclipse the open Internet. And according to the cypherpunks, there was only one tool that could ensure the Internet's freedom: cryptography.
Cryptography is the mathematics of codes and codebreaking. Prior to the 1970s, cryptography was a relatively arcane field, practiced only by the military and by spy agencies. At the time, strong encryption (anything more than 40 bits of security) was considered to be a military munition and therefore illegal to export from the US.
But the cypherpunks believed cryptography was critical to a sovereign Internet. The inventions of Diffie-Hellman, RSA, and PGP presaged an age when individuals could have true freedom and privacy in their digital speech. Encryption was the best way to wrest power away from governments back toward individuals.
An early cypherpunk named Adam Back (who we'll be visiting again in this course) made his email signature the RSA encryption algorithm, written in five lines of Perl. Due to restrictions on the export of encryption algorithms, this was an illegal act of civil disobedience. He encouraged others on the mailing list to copy it in in solidarity.
Over time, the combination of legal victories by people like Peter Junger, Phil Zimmerman, and Daniel Bernstein, the development of SSL and HTTPS by companies like Netscape, the practical availability of encryption software outside the US, and the degree to which lack of encryption was hampering e-commerce ended up winning the argument. Internet advocates won the First Crypto Wars, as export controls on encryption were liberalized.
But the cypherpunks knew that encryption alone would not be enough to liberate cyberspace. To build a truly free digital commons, you needed a completely sovereign economy. In other words, you needed a digitally native form of money.
It's important to understand the cypherpunk take on economic philosophy. The cypherpunks were deeply suspicious of central banks and their control over monetary policy after the end of Bretton Woods. Many years later, their suspicions were arguably justified after the financial crisis of 2008, when central banks created massive amounts of money to bail out failing banks.
It's worth taking a brief excursion here. In general, governments have two ways to finance their operations.
The first is taxation, where a government directly transfers money from citizens into its coffers. The second way is by printing money, traditionally known as seigniorage, which also transfers money to the government, but is a little more subtle to analyze. When a government prints money, the government obviously acquires currency, but citizens often find that the value of their currency holdings has depreciated, since there's now more money chasing the same set of real assets.
Taxation and seigniorage are roughly economically equivalent, but taxation generally requires the assent of citizens, whereas printing money can be done unilaterally. The cypherpunks thus saw money printing as a form of theft from the holders of currency.
The cypherpunks believed that to have a form of money truly native to cyberspace, it would have to be free from government intervention. After all, the Internet itself was already borderless and international! An Internet-native currency ought to put everyone, regardless of nationality, on a level playing field. Tying a digital economy to a singular fiat currency would subjugate it to the whims of a single country's central bank.
Furthermore, such a system should not have a central party capable of surveilling it. Otherwise that central party would be tempted to censor the system or manipulate the currency. After witnessing the many financial crises and hyperinflations in the 20th century, the cypherpunks believed that the soundest economic system was one that no one could manipulate.
Thus, cyberspace could not be truly free unless it had its own form of money. This they could agree on. But creating digital money had a technical problem that no one had yet been able to crack: the double spend problem.