A letter to Brad Sherman

Dear Congressman,

I am a veteran, a patriot, and a Bitcoiner. Yesterday, you called for legislation to ban cryptocurrencies in the United States. This would not only be a strategic disaster for our foreign and economic policy, but more importantly, it would cut directly against the laws and values that have propelled our great nation to its unique position in the first place.

The Bitcoin Network, like the U.S. federal government, is a system of checks and balances. It relies on freedom of choice, individual incentives, and transparency to achieve this new form of value. In the same way that our Constitution allowed the people to break free from the centralized control of monarchy, Bitcoin leverages modern communications and cryptography to grant people the power to choose their own forms of value.

The goal of Bitcoin is to build a new form of money, one that can be protected from unwarranted surveillance and seizure by any entity. This is deeply American idea, enshrined in our 4th Amendment protections under the bill of rights. Bitcoin does not disrupt the rule of law, it only helps ensure that law enforcement living up to its obligations of due process before depriving anyone of their rights. We are blessed with a legal system that is far more just than in many other parts of the world, but we can always do better. I agree that Bitcoin represents a major problem for governments that are more concerned with controlling their citizens than protecting their rights, but that is not the America that I know.

The founders said “Life, Liberty, and the Pursuit of Happiness” was the goal of the American project. With life and liberty secured, Americans are free to ask “Why Not?”, and our history is filled with innovators who thrive on a culture that encourages pushing the envelope.

Chuck Yaegar strapped himself to a rocket, lit the fuse over the Mojave desert, and broke the sound barrier, setting the stage for America’s leadership in aviation and space exploration for decades to come.

In 1958, Chuck Berry picked up his Gibson guitar and brought an entirely new energy to American music. Johnny B. Goode brought Rock and Roll to the masses, and has shaped nearly a century of pop culture around the world. 

This spirit of innovation is uniquely American. It why our institutions from Hollywood to Wall Street dominate their competitors overseas. It is even deeply rooted in our military, where a German WWII commander in lamented that Americans were so hard to fight because we routinely ignore our own doctrine.

Bitcoin is a global project, but its values are the same ones that built this country. If we ban it, we will be sending a signal to our adversaries that we fear its power, while at the same time ceding our technical leadership to the totalitarians. More importantly though, we will stifle the creative spirit of innovation that has gotten us where we are today. In America, we don’t believe that anything should be decided by government fiat alone. Why should money be any different?

Very Respectfully,

Hector S. Rosekrans

Bitcoin is a Weapon

One of my most vivid memories from active duty is standing in the middle of the command center on my billion dollar warship, watching a Somali pirate take a piss in grainy infrared. It was around 4AM, I was sipping coffee in dark room lit by a few dozen radar screens, and counting his sleeping colleagues that my team would need to detain at first light.

Through its command of high tech violence, the U.S. Navy can influence anything on, under, above, or near the sea. As a Surface Warfare Officer, my job was the day-to-day maintenance of American hegemony, that power that has ensured free trade and capitalism dominates the global economy. Our closest competitor, China, is at best decades behind.

At the same time, in Iraq and Afghanistan my brothers and sisters were struggling against an enemy who could leverage the power of low tech distributed violence, enabled by the AK-47 and the improvised explosive device. America had forgotten the lessons of Vietnam and was re-learning them in the streets of Fallujah, the Somali pirates were just the latest group to tap into this trend.

The Navy was a practical education in global economics, distributed systems, and high stakes game theory. It taught me that civilization is shaped by the powers that master commerce. Today, that power is the carrier strike group. Tomorrow it will be a Bitcoin node.

The Fleet

Everything you hear about the Navy is true. Sailors like to drink when they hit a port and we aren’t overly picky. Yet about halfway through my first deployment I had developed a taste for Newcastle, thanks to the English-style pubs my fellow officers managed to find in every port from Bahrain to Hong Kong. I was literally following in the staggering footsteps of Royal Navy officers who carried the British Empire around the world centuries before. The Brits were never known for their cuisine however, and fortunately most nights ended with a late night stop at McDonalds. In 10,000 years, archeologists will probably use the Super Value Menu as their Rosetta Stone to unlock the mysteries of 21st century language.

Brits do pubs, Americans do burgers, and it’s no accident that you can find both in every major port around the world. For a few centuries, the ships flying the Union Jack let that tiny island mold the entire world in its image. And they weren’t the first. Spanish galleons ensured that Catholic missionaries sailed to the Americas, and Aztec gold sailed them back. The lesson is simple – control of the commons means control of the commerce, and there is no greater commons than the high seas.

Naval power lies in its connection to trade. An army can take and hold important resources, but its reach is limited by the constraints of geography. A fleet on the other hand can establish blockades, occupy choke points, and interdict smugglers around the world. It can rapidly project power across time and space, linger indefinitely, and retreat without cost. The British used these tools to build their empire. McDonalds, Apple, Hollywood, and the rest of American-style capitalism ride in the wake of carrier strike groups today.

Vacuums and Violence

On the opposite end of the economic spectrum, the pirates got started as disgruntled fishermen. Somalia’s government collapsed in 1991 and the coast guard packed up and went home, leaving the rich local fisheries open for foreign factory trawlers. The stocks were decimated, and the local economies that relied on them collapsed.

In response to this, a few enterprising fishermen realized that while they didn’t have fish, there were plenty of guns around. They built a naval militia and would board trawlers to demand payment for the stolen fish. Their plan worked far better than expected, ransom money began pouring in, and the pirates expanded their operations to the narrow commercial shipping packed with ships heading to Europe, Asia, and the Middle East.

Best of all, no one really cared.

The Gulf of Aden runs from the southern tip of the Red Sea to the western Indian Ocean. It connects oil from the Persian Gulf and electronics from Asia to ports on the Black Sea, the Mediterranean, and Europe’s Atlantic seaboard. A few million dollar insurance payouts is a drop in the ocean against a quarter of all global trade. Voyage insurance premiums didn’t even move until the media picked up the story, and Lloyd’s of London realized they could make a quick buck on the attention.

On top of this, the U.S. Navy isn’t built for small scale operations. Pirates might get press coverage, but the Pentagon cares a lot more about Chinese submarines and Russian bombers.

Kalashnikovonomics

The real problems started when other groups began to capitalize on Somalia’s collapse. Al Qaeda’s East African offshoot Al Shabbab was building a foothold in anarchy, and started pressuring the pirates for tribute to boost their own revenue. Ten million dollars of ransom money might not mean much to the global economy, but it will buy a lot of guns for the holy war.

Forget nukes. The AK-47 was the most important weapon of the 20th century and shows no signs of giving up that crown in the 21st. It is rugged, user-friendly, and will kill you just as dead as a stealth bomber.

The reason is straightforward – death is a fixed cost for the individual. Complex weapon systems are expensive to build and difficult to operate. A single bomb might cost $25,000, but that doesn’t include the plane that carries it, the larger plane that refuels that plane, the pilots that fly them, the maintenance crews that repair them, the HR department that manages training, payroll, and career advancement. The list keeps going. The U.S. military is extremely capable but not very flexible, and everything costs an arm and a leg.

Rifles on the other hand are cheap, effective, and highly distributed. Anyone with standard issue human equipment can learn to operate one in an afternoon, and basic infantry tactics aren’t rocket science. The AK-47 is to warfare what the iPhone is to computers – user friendly power in the hands of the people. This kind of scalability allowed rice farmers and goat herders to defeat the world’s two most powerful militaries in the 1970s and 1980s. Vietnam and Russia’s war in Afghanistan are classic studies of low-end disruption.

AK = RSA

Cheap and scalable can defeat large and centralized when the conditions are right. Diffe and Hellman took Kalashnikov’s ideas to information warfare.

Prior to asymmetric cryptography, the business of secure communications was a massive headache. Key management for large organizations was so complex that it was only practical for massive bureaucracies with an existential need for secrecy. This excluded everyone outside of the military and intelligence services. Even when you have those kinds of resources, security is never guaranteed, just ask Admiral Yamamoto.

RSA changed everything. The simple idea that certain math problems are hard to solve but easy to check (think a jigsaw puzzle) meant that anyone with a computer could communicate securely at a trivial cost.

Of course, a motivated adversary can still hack your laptop if they really want to, most likely by applying a wrench to your skull until you provide your private keys. That wrench-wielder however needs to be motivated, compensated, and willing and able to keep a secret. They are certainly a threat to any one individual, but at scale the dynamics change. One whistle-blower or viral video and the political benefit of this type of coercion can be swamped by blowback.

Asymmetric Money

Cypherpunks have been building tools for individual liberty, freedom to communicate, and the right to privacy for decades, but the rest of the world moved faster. Netscape and Oracle built the new digital commons, Google and Facebook mastered it. They poured in capital until their product could dominate network choke points, and now any would-be competitor is better off joining their regime than competing. As long as commercial power was in the hands of centralized entities, the digital commons would function much like the maritime commons – dominated by monopolists who had the up-front capital to win early.

The problem for incumbents is that the terrain isn’t fixed. Digital scarcity is a tectonic shift for the architecture of the internet, and a potential threat to business models that make their money curating infinite reams data.

Digital commons are like the sea. They move ideas across borders seamlessly, and expose us to the best (and the worst) that the world has to offer. With the rise of Bitcoin, real economic value is beginning to run through these pipes as well. No one can occupy any one position for long. Choke points spring up, flourish briefly, and die out as traffic finds a better route.

Unlike at sea however, the balance of power in the digital realm is shifting to individuals. The power of asymmetric cryptography is similar to asymmetric warfare. State cyber security organizations are incredibly capable and well funded, but like the militaries of the 20th century they cannot match the scale of new technologies with their inherent centralization.

Alfred Thayer Mahan was the naval equivalent of Sun Tzu, and he developed the core idea that the goal of any navy should be to control of the commons. Control of the commons means controlling commerce, and the gears of commerce move the world.

Satoshi built all of humanity a weapon to take that power for ourselves.