The Early Cypherpunks and the Enduring Crypto Fad

It’s easy to think of crypto as a fad. It seems to ebb and flow on a tabloid-like news cycle. It doesn’t help that the recent history of crypto is filled with high-profile scams and a backdrop of regulators questioning the overall utility of permissionless digital assets.

Depending on the context, the emergence of cryptocurrencies is either having a moment in the sun or withering in the shade.

Sometimes it feels like it’s both at the same time.

But, in reality, crypto is more than just the hype of the last bull market — or even the one before that. The ability to securely own and custody digital assets are actually part of a movement that has been unfolding in parallel with the evolution and maturity of the consumer internet.

I recently re-read Steven Levy’s 1993 Wired Magazine article about the early days of Cypherpunks and their obsession with developing technologies to protect the privacy rights of everyday people on the internet.

Here’s a summary from Levy about the importance of the Cypherpunks — a group of technologists and activists who created an underground movement focused on digital privacy and access. It was out of this movement that Bitcoin would eventually be born.

“Ultimately, the lessons taught by the Cypherpunks, as well as the tools they produce, are designed to help shape a world where cryptography runs free—a Pac-Man-like societal maneuver in which the digital technology that previously snatched our privacy is used, via cryptography, to snatch it back.”

The article talks about the development of public key cryptography, which is the innovation that makes decentralized cryptocurrencies possible.

As early as the 1970s, the early, early days of the internet, cryptography was recognized as strategically significant. So much so that, at the time, the federal government considered the ability for people to send and receive encrypted messages on the same level as weapons-grade technology.

Seems crazy now, but the idea then was that only government entities should be able to encode and decode digital messages as a matter of national security.

What’s so interesting about the early days of releasing cryptographically-protected technologies on the public internet is how the vision then matches with reality now. Here’s another quote from Levy’s story about Whitfield Diffie, the developer of early public key cryptography.

“Diffie also foresaw the day when people would be not only communicating electronically, but conducting business that way as well. They would need the digital equivalent of contracts and notarized statements. But how could this 'digital signature,' etched not in paper but in easily duplicated blocks of ones and zeros, possibly work?”

Played out, this idea from the 1970s would eventually lead to smart contract-based innovations like Ethereum and then NFTs and DeFi.

Why isn’t the role or importance of privacy talked about more?

It’s important to understand that there are a lot of reasons why crypto exists. Most of the focus by bitcoin bulls with big audiences is on the economics and the need for a purely digital deflationary asset that is code-based, out of the hands of politicians, bureaucrats, or corporations.

Other proponents of crypto talk about creating a new kind of tech stack that is more user-centric in that it allows people to have more access and ownership of things that they weren’t able to before, like easy-to-use credit or the ability to send money fast and cheap, or the ability to have more control over the valuable data and content we produce on the internet.

But before all that, and even before the launch of the Bitcoin Network, which was the first decentralized cryptocurrency network, or before the buildout of the consumer internet, people were working on how to get powerful cryptography into the hands of everyday people.

An internet with no privacy is like living in a house with no curtains.

Here’s Levy quoting product documentation written by early digital privacy pioneer Phil Zimmerman:

“You may be planning a political campaign, discussing your taxes, or having an illicit affair. Or you may be doing something that you feel shouldn't be illegal, but is. Whatever it is, you don't want your private electronic mail or confidential documents read by anyone else. There's nothing wrong with asserting your privacy. Privacy is as apple- pie as the Constitution.”

Part of the reason that privacy seems to have taken a back seat as cryptocurrencies become more and more mainstream is that digital privacy is a complex issue that not many people think about on a day-to-day basis.

It’s easier to focus on the get-rich-quick attributes of crypto or position these new currencies in the context of global financial markets or macroeconomics.

But privacy considerations and the strength of encrypted protocols relative to the computational power and wherewithal of digital bad guys are not something that is easy to market or get people excited about.

Nonetheless, when lawmakers and thought leaders start to question the need or utility for cryptographically secured permissionless digital assets, it might serve to look back at the past — at the work of the early Cypherpunks — and use those lessons to help think through the inevitability of what the future of digital money will look like.

And to think through why digital privacy will only become increasingly more important.

Or, as Levy wrote in 1993:

“What if everyone believed that law-abiding citizens should use postcards for their mail? If some brave soul tried to assert his privacy by using an envelope for his mail, it would draw suspicion. Perhaps the authorities would open his mail to see what he's hiding. Fortunately, we don't live in that kind of world, because everyone protects most of their mail with envelopes. So no one draws suspicion by asserting their privacy with an envelope. There's safety in numbers. Analogously, it would be nice if everyone routinely used encryption for all their e- mail, innocent or not, so that no one drew suspicion by asserting their e-mail privacy with encryption. Think of it as a form of solidarity.”

Also published here.