The difference between us knowing the rats out of the bag and EVERYONE knowing. Clipper-type strategies reflect a certain peculiar view about the nature of communications in the global marketplace. It is one thing to suppose that the United States government be free to intercept all communications between its citizens, but what happens when those citizens work for corporations based in other countries, or when US corporations communicate with corporations in other countries. For example, suppose that Smith works for a Japanese auto manufacturer here in the United States. Is it appropriate that the US government be able to spy on the communications between Smith and Smith's employer, particularly if the information being exchanged included valuable trade secrets which might be of value to US auto makers? Or what if the sales office of a German auto maker wants to communicate sales info to its home office in Stuttgart. Is it appropriate that the US government be able to eavesdrop on those communications? The questions need to be seriously considered, lest we lapse into a certain sort of myopic thinking about our own interests in a global marketplace filled with competing interests. The discussion thus far has merely taken up some of the obvious benefits and problems attributed to the use of encryption technologies, but it is arguable that there are some more far- reaching consequences to consider. Technologically it is possible not only to encrypt simple messages, but to effectively digitize and encrypt our financial transactions as well (see the reading from Chaum). So, for example, it is possible to set up an electronic bank somewhere on the internet (the exact location could be protected by an anonymous remailer), which could pay "info credits" to other accounts upon receiving an encrypted order from the payers account. In effect, we could have a network of financial transactions taking place entirely in encrypted communications with a bank of unknown location. It is interesting to speculate on the consequences of such a banking arrangement. One immediate consequence might be the emergence of underground black market economies engaged in the swapping of proprietary information (see the Timothy May readings one such hypothetical network, "blacknet"). Are such scenarios utopian or anti-utopian? That is an issue which is apparently subject to debate (May himself seems to take the former view). But there are even more far-reaching possibilities that the mere emergence of black market economies (which will always be with us to some degree in any case). Some of the cypherpunks have hypothesized that the emergence of encrypted banking may eventually lead to the death of the nation state. According to this line of thinking, as more and more transactions take place in the underground banking networks, more and more money will escape traditional attempts at taxation. As this happens the nation states will lose more power or be forced to impose higher taxes, forcing even more corporations into the underground economy. Are predictions about the death of the nation state just speculative science fiction? Not necessarily. If my business is information intensive, there is no reason I cannot conduct my business from an underground computer account, trade with underground partners, and use underground banks (all via encrypted communications). At times, I will need to buy tangible goods, and these will transactions will certainly be visible to the government, but why would the government need to know about the rest of my transactions? It is inevitable that there will be future information barons who amass billion dollar fortunes, and who conduct their business using underground banks on the internet. This does not make for a mere billion dollar underground economy, however. The underground electronic bank will potentially invest in other ventures, thus expanding the monetary supply in the underground economy. At a certain crucial threshold, enough money could escape the taxation net of the nation-state so that its abilities to operate effectively will erode. If the nation-state chooses to raise taxes, more businesses will slip into the electronic underground, further eroding the viability of the national government. Taxes, contrary to what some of the cypherpunks seem to think, are still inevitable. New underground trading confederations would probably require new security arrangements (hacker defense, etc.), and those will of course have to be paid for. So the future does not promise to be tax free. Nevertheless, there will be a radical restructuring of taxation authority, none of it corresponding to traditional nation-state boundaries. The import? The cypherpunks may not be too far off base when the prophesize the end of the nation state. So far this is just an observation, not a judgement, and we might well recoil in horror at such scenarios. In any case it is probably time to take such possibilities seriously and ask ourselves the following questions. Will encryption technologies hasten the demise of national governments as we know them? Is this a bad thing, or a good thing? If it is a bad thing, is there anything that can prevent it happening? If it is a good thing, what can be done to speed matters along?
