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Out of Control
Chapter 12: E-MONEY

The nature of e-money -- invisible, lightning quick, cheap, globally penetrating -- is likely to produce indelible underground economies, a worry way beyond mere laundering of drug money. In the net-world, where a global economy is rooted in distributed knowledge and decentralized control, e-money is not an option but a necessity. Para-currencies will flourish as the network culture flourishes. An electronic matrix is destined to be an outback of hardy underwire economies. The Net is so amicable to electronic cash that once established interstitially in the Net's links, e-money is probably ineradicable.

In fact, the legality of anonymous digital cash is in limbo from the start. There are now strict limits to the size of transactions U.S. citizens can make with physical cash; try depositing $10,000 in greenbacks in a bank. At what amount will the government limit anonymous digital cash? The drift of all governments is to demand fuller and fuller disclosures of financial transactions (to make sure they get their cut of tax) and to halt unlawful transactions (as in the War on Drugs). The prospect of allowing untraceable commerce to bloom on a federally subsidized network would probably have the U.S. government seriously worried if they were thinking about it. But they aren't. A cashless society smells like stale science-fiction, and the notion reminds every bureaucrat drowning in paper of the unfulfilled predictions of a paperless society. Eric Hughes, maintainer of the cypherpunks' mailing list, says, "The Really Big Question is, how large can the flow of money on the nets get before the government requires reporting of every small transaction? Because if the flows can get large enough, past some threshold, then there might be enough aggregate money to provide an economic incentive for a transnational service to issue money, and it wouldn't matter what one government does."

Hughes envisions multiple outlets for electronic money springing up all over the global net. The vendors would act like traveler's check companies. They would issue e-money for, say, a 1 percent surcharge. You could then spend Internet Express Checks wherever anyone accepts them. But somewhere on the global Net, underwire economies would dawn, perhaps sponsored by the governments of struggling developing countries. Like the Swiss banks of old, these digital banks would offer unreported transactions. Paying in online Nigerian nairas from a house in Connecticut would be no more difficult than using U.S. dollars. "The interesting market experiment," Hughes says, "is to see what the difference in the charge for anonymous money is, once the market equalizes. I bet it'll be on the order of 1-3 percent higher, with an upper limit of about 10 percent. That amount will be the first real measure of what financial privacy is worth. It might also be the case that anonymous money will be the only kind of money. "

Usable electronic money may be the most important outcome of a sudden grassroots takeover of the formerly esoteric and forbidden field of codes and ciphers. Everyday e-money is one novel use for encryption that never would have occurred to the military. There are certainly many potential uses of encryption that the cypherpunks' own ideological leanings blind them to, and that will have to wait until encryption technology enters the mainstream -- as it certainly will.

To date encryption has birthed the following: digital signatures, blind credentials (you have a diploma that says, yes, you have a Ph.D., yet no one can link that diploma with the other diploma in your name from traffic school), anonymous e-mail, and electronic money. These species of disconnection thrive as networks thrive.

Encryption wins because it is the necessary counterforce to the Net's runaway tendency to link. Left to itself, the Net will connect everyone to everyone, everything to everything. The Net says, "Just connect." The cipher, in contrast, says, "Disconnect." Without some force of disconnection, the world would freeze up in an overloaded tangle of unprivate connections and unfiltered information.

I'm listening to the cypherpunks not because I think that anarchy is a solution to anything but because it seems to me that encryption technology civilizes the grid-locking avalanche of knowledge and data that networked systems generate. Without this taming spirit, the Net becomes a web that snares its own life. It strangles itself by its own prolific connections. A cipher is the yin for the network's yang, a tiny hidden force that is able to tame the explosive interconnections born of decentralized, distributed systems.

Encryption permits the requisite out-of-controllness that a hive culture demands in order to keep nimble and quick as it evolves into a deepening tangle.