Timothy May is a cryptographer and cypherpunk who recently agreed to comment on the white paper of Bitcoin at the request of Coindesk. His reflections resulted in a 30-page document on the history of cryptocurrency, the role of the state, and the ideals of cryptography. What is known about Timothy May and what role he plays in the development of the cypherpunks movement is covered in our article.

The 90s. Men in Masks. Wired

In 1993, three masked men were posted on the cover of the January issue of Wired. They were Eric Hughes, a mathematician at the University of California at Berkeley, and the author of The Cypherpunk Manifesto, John Gilmore, a computer science specialist and one of the founders of the Electronic Frontier Foundation, and Timothy May, a technical and political writer who had previously worked as an electronics engineer at Intel, the creator of the cypherpunk mailing list and the author of the Crypto-Anarchist Manifesto. The article on Wired was called “Crypto-Rebels.”

In September 1992, Hughes, Gilmore, and May invited 20 close friends to the first meeting of the “physical cypherpunks” in Silicon Valley. Subsequently, the meetings became monthly. Participants met at Gilmore’s Cygnus Solutions and discussed programming and cryptography. The group itself received the name from one of its members, the hacker Jude Milhon: she combined the words “cipher” and “cyberpunk” (a science fiction genre).

“A Specter Is Haunting the Modern World, a Specter of Crypto Anarchy . . . ”

This is how the Crypto Anarchist Manifesto, written by May in 1988 and distributed among “techno anarchists” during the Crypto’88 and Hackers Conference conferences, begins. Later, May will read this manifesto at the first meeting of the encryption system.

“Computer technology is on the verge of providing the ability for individuals and groups to communicate and interact with each other in a totally anonymous manner. Two persons may exchange messages, conduct business, and negotiate electronic contracts without ever knowing the true name, or legal identity, of the other. Interactions over networks will be untraceable, via extensive re-routing of encrypted packets and tamper-proof boxes which implement cryptographic protocols with nearly perfect assurance against any tampering. Reputations will be of central importance, far more important in dealings than even the credit ratings of today,” May writes.

Everything that is now obvious in the crypto world, such as the position of regulators, privacy, accusations of using cryptocurrencies for illegal purchases and tax evasion were far from obvious in 1988, 20 years before the advent of Bitcoin. And yet, even then, May very accurately described the crypto reality in its current form. “These developments will completely alter the nature of government regulation, the ability to tax and control economic interactions, the ability to keep information secret, and even the nature of trust and reputation,” said May.

Indeed, regulators actively took up cryptocurrencies, and the desire to control the new industry arose simultaneously with the beginning of the “crypto fever,” when Bitcoin flowed from the hands of crypto banks, developers, and geeks into the hands of ordinary users. John Holmquist, the founder of Bitcoin Black Friday, called July 25, 2017, a “solemn day” when the U.S. Securities and Exchange Commission (SEC) “entered into the crypto space.” Then, the SEC published a report on the investigation of the hacking of the decentralized fund “The DAO” and recognized the DAO tokens as securities. “The report confirms that issuers of securities created on the blockchain are obliged to register offers and sales of such securities, except for cases covered by valid exemptions from registration . . . Whether a separate investment transaction includes the sale of securities . . . depends on specific facts and circumstances, including on the economic characteristics of the transaction,” says the official SEC website.

Since then, several Senate hearings on cryptocurrencies have been held, SEC Chairman Jay Clayton spoke to Princeton students, the SEC equated most ICO tokens to securities, demanding that the organizers comply with the law on traditional securities, and sent dozens of requests for information crypto to companies. It is so not only in the United States, as acts regulators everywhere are tirelessly warning crypto investors the about risks and introducing new rules and prohibitions.

Regarding taxation, the U.S. Internal Revenue Service (IRS) began to regulate cryptocurrencies in March 2014 and treats them as property, therefore taxing the purchase, sale, trading, and mining of cryptocurrencies. The struggle between taxpayers and the IRS continues, and the number of reporting crypto users is still small, but one of the big victories of the IRS was the partial issuance of user data by the Coinbase exchange, which the regulator achieved after a multi-month trial.

Cryptocurrency really helps in “keeping information secret,” as May predicted. Although Bitcoin here has obviously lost, some private altcoins justify the trust of their holders. For example, Monero passed a stress test last year, proving its privacy. Then, the law enforcement agencies could not figure out how many Monero coins the owner of the Darknet site AlphaBay had.

“The State will, of course, try to slow or halt the spread of this technology, citing national security concerns, use of the technology by drug dealers and tax evaders, and fears of societal disintegration. Many of these concerns will be valid; crypto anarchy will allow national secrets to be traded freely and will allow illicit and stolen materials to be traded. An anonymous computerized market will even make possible abhorrent markets for assassinations and extortion. Various criminal and foreign elements will be active users of CryptoNet. But this will not halt the spread of crypto anarchy,” writes May. Drug trafficking, the sponsorship of the IG (banned in Russia), extortion. Bitcoin really opened the way to many illegal activities, and the darkest platform “Silk Road” became the loudest precedent. As May predicted, however, this does not stop the crypto machine.

May also caught one of the main characteristics of future cryptocurrencies, namely, they will interfere with banks, because they will be faster, cheaper, and more reliable due to the lack of mediation. “Just as the technology of printing altered and reduced the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and of government interference in economic transactions. Combined with emerging information markets, crypto anarchy will create a liquid market for any and all material which can be put into words and pictures. And just as a seemingly minor invention like barbed wire made possible the fencing-off of vast ranches and farms, thus altering forever the concepts of land and property rights in the frontier West, so too will the seemingly minor discovery out of an arcane branch of mathematics come to be the wire clippers which dismantle the barbed wire around intellectual property.”

“Arise, you have nothing to lose but your barbed wire fences!” This is how the May manifesto ends.

1988−2018: May about Cryptocurrencies 30 Years Later

May wrote a lot about cryptography, privacy, and “crypto anarchy” from the late 80s to 2003. By the decade of the white paper of Bitcoin (subscribers of the Metzdowd cryptographers received a message from Satoshi containing a link to the description of Bitcoin on October 31, 2008), Coindesk asked May to write his thoughts about this paper.

May said that he had been following the situation around Bitcoin and other cryptocurrencies for the last 10 years “with a little interest, a little pleasure, and great disappointment.”

May assigns Bitcoin one of the leading positions in a series of financial achievements, calling it “perhaps the most important event since the invention of the double entry in accounting.” He notes that in some aspects, Bitcoin fits its original description. You can buy it or fix it, you can quickly send it with a small commission, it is publicly available (the so-called permissionless system), does not require centralized intermediaries, and the parties to the transaction do not even should trust each other. And despite this, May calls cryptocurrencies “a tsunami that swept away the financial world and left a lot of confusion and sacrifice.” “What I see is the loss of hundreds of millions due to code errors, theft, fraud, and ICOs, all based on strange ideas, strange programming, and too few talented people to realize ambitious plans . . . Satoshi did a wonderful thing, but the story is far from over. She or he or it even acknowledged that the 2008 version of Bitcoin was not the final answer received from the gods.”

At the same time, May noted the tragic differences of the system with the original idea of ​​Bitcoin: “I can’t say what Satoshi intended [to do], but I definitely don’t think it included the Bitcoin exchange with draconian requirements for KYC and AML, with passports, freezing of accounts, and laws on reporting “suspicious activity” to the secret police. There is a possibility that all this noise around “management,” “regulation,” and “blockchain” will actually create a state of informing. I think Satoshi would be sick . . . We can end up regulating money and transfers, which [represent] practically the same thing as regulating [freedom] of speech. Is this an achievement? If Alice is forbidden to say “I will gladly pay you a dollar next week for a cheeseburger today,” isn’t this a restriction on freedom of speech? “Know your customer” (KYC) can just as easily be applied to books and prints: ‘know your reader,’” This is how May appreciates the modern way of “regulatory transparency” and compliance, on which many crypto space participants have embarked.

May also refers to a broader historical context, trying to analyze the national characteristics of countries and what forms it can take in a new crypto era: “For some, it is tempting to think that legal protection and judicial review will stop abuses . . . at least [so they think] in the U.S.A. and several other countries. At the same time, we know that even the United States has observed draconian behavior (cleansing Mormons, killing and death marches for Native Americans, illegal imprisonment of suspects of Japanese origin). What will China and Iran do with “know their writers” (what will inevitably lead to “know your client”)?”

Why Bitcoin?

May believes that the main characteristic that attracted his initial audience to Bitcoin was its lack of control over power. “If the project were about something ‘compliant with regulatory requirements,’ ‘banking friendly,’ the interest would be small,” writes May, citing as an example the project SET Secure Electronic Transfer, which was unnoticed and “brain-numbingly boring.” It, too, was devoted to electronic transfers, but at the same time was “99 percent legally compliant.” Bitcoin was able to attract cypherpunks and, of course, a criminal audience, which, regardless of the high ideals of Ross Ulbricht, swarmed on his “Silk Road.”

Regulation

“There will inevitably be some kind of contract with the legal systems of the United States or the rest of the world. Slogans like “code is law” are more idealistic than truthful. [But] Bitcoin itself is largely independent of the law. Payments, due to the nature of Bitcoin, are not subject to revocation of the type “I want to cancel this transaction” and other legal issues. This may change. But in today’s system, in general, it is not known who participates in the transaction, in what jurisdiction they are located, even what laws apply to them . . . I think almost all technologies allowed ways of use that someone did not like. Gutenberg’s printing press, of course, did not like the Catholic Church. But does this mean that printing presses must be licensed or regulated?” as May writes.

Two Roads

Today, a number of consortia, combining banks and large financial institutions, are working on exclusive (permissioned), private corporate blockchains. May, in principle, does not recognize this type of decision, considering the general accessibility (permissionless) to be one of the basic characteristics of decentralized systems. “The tension between private (or anonymous) and KYC approaches is a key issue. These are “decentralization, anarchy, and peer to peer” against “centralization, exclusivity (permissioned), and a backdoor” (part of the algorithm that allows a developer to gain unauthorized access to data and control the system) . . . There are two ways: freedom vs. exclusive, and centralized systems. This ramification of the road was discussed in detail about 25 years ago. The government and law enforcement agencies were not really against it, but they saw the separation approaching.”

Bitcoin Is Not a Second PayPal

May notes that the emphasis was on technology for a long time, resulting in too little attention paid to the “ideological positioning” of cryptocurrencies, their place in the financial system: “Most academic cryptographers focused on cryptology mathematics, as their view was not particularly turned towards financial aspects . . . Many of us are not very interested in Bitcoin simply becoming another system for bank transfers. What is really exciting is the bypass of control, huge commissions, intermediaries who decide whether donations will reach WikiLeaks. Attempts to be “friendly to the regulator” will probably kill most cryptocurrency applications that are NOT just “another PayPal or Visa.” The excitement around Bitcoin began mostly because of the circumvention of control, because of the possibility of new, exotic ways of using the Silk Road type. It was cool and hot, not another PayPal.”

Altcoins

Despite the fact that Bitcoin, in May’s opinion, did not become an accurate, pure embodiment of Satoshi’s ideas, “basically it does what he planned: money can be transferred, stored, even used as a speculative tool.” The situation is worse with “dozens of large [cryptocurrencies] and hundreds of smaller ones, for which it is difficult to find a clear, understandable use case.” “Take ‘reputation tokens,’ ‘attention tokens,’ ‘charitable tokens’ all of them seem to me ill considered. And none of them took off like a Bitcoin.”

According to May, an excessive amount of marketing around alternative cryptocurrencies will not accelerate their adoption: he believes that people do not have the resources to perceive this amount of information: “I think greed, hype, and chatter around “that to the moon” and “hodl” are the biggest hype I saw. It is definitely more than what we saw in the dot com era. Too much attention is paid to speeches at conferences, white papers, and press releases. There is a lot of “selling.” A huge number of small companies, large consortia, alternative cryptocurrencies, ICO, conferences, expo, forks, new protocols create a lot of fuss, and new conferences are held about every week,” writes May, opposing this process advertising and imposing the emergence of credit cards and Bitcoin itself, which quite simply entered life without needing a large scale PR campaign. People cannot spend mental energy on reading technical documents that appear after weekly announcements and noisy debates. The cost of “mental transactions” is too high.”

Final Thoughts

“Do not use something simply because it sounds cool. Use it only if it really solves a problem (at the moment, cryptocurrencies solve the problems of a few people, at least in the first world). ”

“Most of the things that we think of as problems are not solved with the help of cryptocurrencies or any other similar technology (nonsense about “more convenient donation systems” is not what most people are interested in).”

“If someone engages in a dangerous transaction — [associated] with drugs, abortions — use intensive ‘safety operations.’ Remember how Ross Ulbricht was caught.”

“Mathematics is not a law.”

“Cryptos remain very far from being used by ordinary people (and even people with a technical background).”

“Be interested in the freedom of transactions and the word to return to the original motivation. Do not waste time trying to make regulatory appropriate financial alternatives. ”

“Remember that there are many tyrants.”

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