FYI

The same reason why property rights generally do not apply in the digital realm is the same reason why any discussion of “social justice” within the same is ludicrous. Where there is no scarcity, there is no injustice…

Advertisements

The FBI Pwns You

A few hours ago Wired published details of the FBI’s rebuttal to the previously filed Ross Ulbricht defense motion that proffered the State’s case necessarily rested on evidence obtained from illegal searches(read: NSA dragnetting). The gist:

In the latest filing, however, former FBI agent Christopher Tarbell counters Ulbricht’s defense by describing just how he and another FBI agent located the Silk Road server in June of last year without any sophisticated intrusion: Instead, he says, they found a misconfiguration in an element of the Silk Road login page, which revealed its internet protocol (IP) address and thus its physical location.

As they typed “miscellaneous” strings of characters into the login page’s entry fields, Tarbell writes that they noticed an IP address associated with some data returned by the site didn’t match any known Tor “nodes,” the computers that bounce information through Tor’s anonymity network to obscure its true source. And when they entered that IP address directly into a browser, the Silk Road’s CAPTCHA prompt appeared, the garbled-letter image designed to prevent spam bots from entering the site.

The actual technical claim: Arbitrary HTTP Posts to the login form action leaked the Server’s Internet Protocol Address in the Response Headers and/or data payload.

Probability of said claim: Assuming Ulbricht(and the chain of ownership that preceded him) not to be idiots of the first order, ~0. The only likely “misconfiguration” would be the typical default configuration, which is to “leak” the web server and OS type/version in the response headers.

If we assume the FBI letter to be a half-truth, which frankly is not necessarily a reasonable presumption to make(as opposed to, say, the outright lie), we can ascertain a more accurate technical translation:

We sent a malicious string in the request body of a login submission to inject an executable code payload, $ curl http://laundry.forensics.fbi.gov, which essentially allowed to us to perform a remote drive-by phone home on the target.

Now, if we assume the half-truthiness of the FBI in this matter, we can thusly deduce a methodology of counter-attack by US intel organs against network obfuscation techniques–namely directly attacking the target at the application layer. In other words, the use of buffer overflow exploits(maybe zero-day or not) on the target itself to perform drive-by phone homes, or in a more sophisticated attack, to install a wiretap implementation.

Going forward, one has to assume that the use of “cyber-hacking” as means to facilitate a court-approved wiretap will be deemed legal in much the same way breaking into your property to install the old-fashioned wiretaps was deemed legally proper. Of course, I would be remiss not to point out that the legal sanctification of State hacking by organs of the justice department provides a very convenient laundromat for laundering the legality of any data collected by the 3-hop graphical dragnet(read: NSA).

Finally, it should be noted that it’s not surprising the State would eventually seize on this vector of attack. Since 1988(the infamous morris worm), it is been well-known that the weakness of the internet was not in the layered protocol design itself but in the client-server software implementation of the protocol standards. In particular, the c and c++ languages are susceptible to memory violations in string operations against arbitrary data length, resulting in access violations that can produce malicious results if the violating data is carefully formatted to do exactly that. In a sense, it is enough a problem that it could have killed the internet from the start if not for a sort of spontaneous, heuristic security best practices regime that arose that limited the problem of rogue actors to a tolerable one.

But if the heuristic law saved the internet, it is the “rule of law” that will surely kill it(in terms of being a utopian instrument). For it is the latter which turns software vulnerabilities into a primary means of both wiretapping targets and laundering graphical dragnets, reminding us, once again, that the State is indeed its own agency and its preservation best executed by a type of competitive agency of invasion of the body snatchers.

Desperately Rent Seeking Servitude

A recurring theme of this blog is that politics can be rationally modeled. This view leads one to dispense with the oft repeated exasperations regarding irrational policies. A prime example would be the drug war. No the drug war is not insane. Nor irrational. Instead we treat it as something that can be rationally predicted. In the context of social and political science this means we attempt to ascribe a consistent rational method or choice to agency action to derive predictable patterns of behavior. Rationality in this context does not mean “a” should be preferred to “b” or “b” preferred to “a.” That is, rationality is not assigned to preferences. Instead it is assigned to the pattern. So what would be irrational is a pattern that, say, gives us “a” > “b” AND “b” > “a.”

The application of Rational Choice to the patterns of politics and government is usually credited to the Chicago and Virginia schools associated with classical liberalism. Both schools apply the model of methodological individualism to political and state actors that is similar in treatment to actors in the economic arena. In this sense, Rational Choice gives us no such thing as the State itself. A minor hetereodoxy is Bryan Caplan’s “Rational Irrationality” that shifts the agency responsible for patterns of government to the individual voter. Caplan’s motivation in part was to explain the failure of the standard treatment to reliably produce a rational pattern. But to accept Caplan’s method would be equivalent to saying there is no such thing as the politician or the bureaucrat.

Frankly, Rational Choice would offer an unreliable model of government if not for the possibility of a third alternative. This alternative says, by golly, there is such a thing as the State. If we assume the State1, then how then could we expect this thing to rationally behave(in the sense outlined above)? Anthony de Jasay should be credited as a pioneer in this third alternative. He gives a ready rational pattern of this thing, the State: a Firm that maximizes discretionary power.

It can’t be over-emphasized how much our third alternative is a radical departure from the standard treatment. We are dispensing with the methodological individualism of individual actors(like politicians, bureaucrats and lobbyists) usually assumed to be maximizing their own utility by a method entailing calculating the benefits against costs. Instead, the fundamental unit actor is The Firm. And our maximand quantity–the power to be used at one’s discretion–defies the usual neoclassical treatment of profit or Von Neumann utility.

If you are familiar with mathematical or computer science concepts, the third alternative more or less forces you to adopt an entirely different schema(meta constructs) to model(or make sense of) the patterns in the world. Hence, you avoid referring to such things as the banning of pressure cookers as irrational or stupid. No doubt, it would be stupid under the standard schema of neoclassical economics. But not under our alternative schema. Under this, it follows a rational and predictable pattern.

In de Jasay’s model, the discretionary power eventually dissipates into the “security of maintenance,” which means the use of power to simply stay in power. Writes de Jasay:

“Like the firm in the perfectly competitive industry that makes no profit, the state ultimately achieves only its own survival, and no one is satisfied by this relatively pointless result.”

I have dubbed this type of model by the shorthand name, “The Firm.” The extent of the departure of the political economy of The Firm from standard, neoclassical treatment requires an alternative vocabulary to adequately convey the schema at play. Things like “regulation” do not mean in The Firm what they mean in the neoclassical model. Public Choice concepts like “regulatory capture” are almost nonsensical when translated over to the model of The Firm. To see this, consider the neoclassical meaning of regulation: to internalize negative externalities so as to promote a regular functioning market. The public choice meaning of regulatory capture is to produce regulations that capture artificial rents by creating barriers of entry to competition. But the more appropos term when translating over to The Firm would be something like “docility,” which means something more along the lines of “yielding to submission.” Indeed, we can propose the following model translation:

regulation ————> docility
regulatory agencies —-> docility agencies
regulators ————> docilitators(we’re inventing a noun)

Under this language, the nonsensical nature of regulatory capture, translated to “docility capture,” becomes more readily apparent. It makes little sense. It seems to imply rent-seeking not as a power act but rather as an act of subservience. But nonetheless there is a rational pattern being hypothesized: any power accrued from rent-seeking docility rules will be dissipated via the “security of maintenance.” And there appears to be a bitter irony at play first noted by Orwell in his tract, “The Theory and Practice of Oligarchical Collectivism.” Oligarchical Collectivism produces a de facto peace. Following de Jasay, it may also produce a similar de facto end to the rent-seeking State.

Perhaps it would be instructive if we play a little language game with our model translation and apply it to this recent Reason article on Bitcoin authored by Jerry Brito, a senior fellow specializing in technology policy at Mercatus. Brito provides us with the classical rational choice defense for Bitcoin regulation. Ostensibly, he is treating the rationality of regulator in the standard way. This apparently leads him to formulate a dual struggle between an intransigent old guard of early adopters vs a dynamic new guard entrepreneurial class willing to bargain with regulators in order to launch a next gen Bitcoin application platform.

Writes Brito:

If the message wan’t clear enough, the Bitcoin Foundation—which helps organize Bitcoin’s development on the same model as the Linux Foundation—announced that it would be hiring a full time lawyer in Washington to represent the community’s interests. The thinking is that Bitcoin businesses and users are going to be regulated even if the protocol itself can’t be, so it’s time to engage the regulators and policy makers before they make any hasty moves.

This willingness to lobby and work with regulators, however, was not well received by many of the old guard. As one exasperated Foundation member tweeted, “I got into Bitcoin to improve this miserable planet and ESCAPE the iron grip of privileged moneyed interests, not JOIN THEM!”

But the fact is that Bitcoin is growing up. Its revolutionary potential is greater than most have yet understood. Entrepreneurs and venture capitalists are seeking to professionalize and legitimizing the network, and to do that regulators will have to understand and accept it.

It’s true that Bitcoin could continue to operate even if it was outlawed outright, but then it would only serve as an underworld currency, and its development would not doubt be hampered. The more subversive path may well be to let regulators create their rules for what at base is an uncontrollable system.

Translated into the model language of the Firm:

If the message wan’t clear enough, the Bitcoin Foundation—which originally organized Bitcoin’s development on the same model as the Linux Foundation—announced that it would now forego that model in favor of one predicated on hiring a full time lawyer in Washington to represent the Bitcoin Foundation’s interests. The thinking is that Bitcoin businesses and users are going to be docilely compliant even if the protocol itself can’t be, so it’s time to engage the docilitators before they make any hasty moves.

This willingness to be subservient to docilitators, however, was not well received by those who reject docile compliance. As one exasperated Foundation member tweeted, “I got into Bitcoin to improve this miserable planet and ESCAPE the iron grip of privileged moneyed interests, not JOIN THEM!”

But the fact is that Bitcoin needs to outgrow any revolutionary potential before it becomes widely understood. Thus Entrepreneurs and venture capitalists are seeking to create a professionally compliant network that can be easily understood and accepted by the docilitators.

It’s true that Bitcoin could continue to operate even if it was outlawed outright, but then it would only serve as an underworld currency, and its subservience would not doubt be hampered. The more subversive path, in contrast to the subservient one, may well be to let docilitators create their rules for what at base is an uncontrollable system.

Of course, the likes of Brito would read my translated version as satire. Fair enough. But I read his version as satire. The indisputable facts that even Brito would have to concede is that Bitcoin “regulation” has nothing at all to do with “regulation” and everything to do with compliance to an existing power authority. So what we have is a bargaining game between an open rent-seeking agency and an agency representing the maintenance and continuance of a power authority. But this type of bargaining is not actually in the standard rational choice/public choice literature. Remember, the standard treatment assume methodological individualism on the part of our regulators. There is no agency or agency representation of power on their end. Otherwise, we would be admitting the State or its agency thereof.

Interestingly, it would be well to point out that an agency like a “Bitcoin Community” is voided in the standard public choice literature, too. There are individual players, each competing for rents. Any coalition, at best, is temporary(straight from the bible of Public Choice, “The Calculus of Consent”). “Sticky” coalitions, to remain within the explanatory model of standard theory, can only persist by resorting to drastic inefficiencies/opaqueness in the rent-seeking technology(straight from the Encyclopedia of Public Choice)2. But this thing with Bitcoin is far too transparent. Rent-seeking coalitions do not host open forums as an evangelist platform. For someone like Gordon Tullock, this would be the monkey wrench of all monkey wrenches.

So, to be clear, what I am pointing out is that Jerry Brito’s commentary at Reason regarding Bitcoin has no substantiating theory of political economy. It is purely a language game relying on buzz words to convey a rational argument. Words like “new guard,” “old guard,” “dynamic entrepreneurial class,” and “revolutionary application platform” don’t mean a damn thing in and of themselves. If pressed, Brito will almost certainly reduce his argument to something like it is rational to be subservient in order to have a legal market for a potentially revolutionary platform. But that’s just a premise begging for a rational method to justify the conclusion. And Brito has no method. Instead the very premise plays into de Jasay’s rational method of the State as a firm. The conclusion from this method is simply the maintenance and continuation of State power.

Finally, I would be remiss not to point out the pessimistic implications de Jasay’s method for the prospects of anarchism. Unlike classical liberalism, anarchism/libertarianism typically does not dispense with the agency of the State as some sort of fiction. However, the “standard class model” usually views the raison d’être of this agency as means to procurement of artificial rents. The State is the means and the “rents,” and the power resulting thereof, are the ends. So if we have a political economy, in this case a digital economy, where the marginal cost of digital goods approaches zero, the State is viewed as some inevitable dying order because its enforcement agency is doomed to obsolescence.

However, if we have a rational method that seems inclined toward the State as both means and ends, and our maximand quantity of this thing turns out to be simply discretionary power, then the thing that is supposed to kill it poses the possibility of being its eternal fountain of youth. The obvious weakness of “the internet as liberator” is that it is not a “decentralized network.” Rather it is a small network that follows a power law distribution. The very property that allows it to be a distribution channel approaching a zero marginal cost of digital goods3 also allows it to be a perpetual channel for social control. Rather than undermining the State, revolutionary ideas in digital economy, to the extent that a rational method entails them to rent seek subservience, is the very thing that persists the modern liberal state. Revolutionary opportunities follow a rent-seeking pattern that dissipate into a security of maintenance.

We should be reminded that in Orwell’s version of things, Big Brother wins. de Jasay’s rational method of political economy gives us the equally sorry prospect of the Entrepreneur as Emmanuel Goldstein.

1 IMHO, the State as a Firm can actually be micro-economically derived by introducing frictional waste into rent-seeking.

2 The industry of rent-seeking does not refer to the industry itself, that is, to the actual production of the widget or service, but rather to the industry of seeking special privileges for the production of the widget or service. So inefficient rent-seeking technology does not mean the production of the widget or service is deliberately made inefficient; rather, it means the process by which special privileges can be obtained is deliberately made inefficient. This then can explain the barrier of entry to others competing for the special privileges. Remember, the constraint or boundary condition of the Standard Theory is that outlays >= rents.

3 The efficiency of the internet is a product of a great deal of centralized coordination of standards(manufacturing and protocol) up and down the stack. It is not a spontaneous order. The more accurate description would be an efficient Hayekian Hybrid Constructivist Order as a sort of unintentional consequence of “planned competition.” The neoclassical consequence is a major unbalancing of the equation between marginal cost and marginal labor. Zero marginal cost should imply an end to wage labor. But it is an entirely unjustified assumption to think that the n degrees of standardized informal compliance, and in some cases, formal compliance, would persist if everyone became their own firm. If not, there goes your small network and with it, this zero marginal cost manufacturing base. If you think interoperability between windows and mac, or even different versions of windows is a drain of your modern life, you might want to rethink the degree of connectedness you would have if we had an unplanned shift that equilibrated marginal cost to the marginal product of labor. The point being made here is that you can’t assume the small network in anarchist pronouncements of technological triumphalism. If we are to assume the persistence of the small network, a more rational conclusion might be the expropriation of this “Hayekian Constructionist Order” for a more dystopian end than typically envisioned.

The Copyright Alert System Now Being Rolled Out at Major ISPs

In the next two months, AT&T, Time Warner, Verizon and Comcast will implement the The Copyright Alert System program developed by The Center for Copyright Information. Of course, The Center for Copyright Information is a RIAA and MPPA front. The monitoring system that will be used will rely on the MarkMonitor service that has been in place for a numbers of years now. The “monitors” will be The Center for Copyright Information, i.e., RIAA and MPAA. Once again, these entities have been monitoring bitTorrent traffic for years. Indeed, a recently presented Security Research Paper concludes that you can expect to be tracked within 3 hours of firing up a torrent client.

The primary change is that in lieu of direct legal action(which can be frictional), the RIAA/MPAA, using the aforementioned ISPs as agents, can now engage in a relatively frictionless enforcement operation. And this is where the data analytics begin to kick in. Large-scale users will still be subject to the same modis operandi legal action but the voluminous data that has been collected over the years by the likes of MarkMonitor will now be used as a queryable data repository against which the new data will be used–according to whatever algorithm employed–to trigger the Copyright Alert Notifications to end users via that user’s ISP(serving an agency role of a Sheriff, more or less).

Evasion tactics? Well forget about things like Tor. Tor works over the tcp protocol(and can’t handle the load of p2p file sharing to begin with). bitTorrent these days works over udp. Sophisticated encryption techniques like mse/pe to me are more about thwarting ISP throttling, but in this case it is not the ISPs who are the monitoring agent. The best evasion technique is to use a udp proxy. But I imagine that a reliable service with tolerable speed is going to cost money which begs the question a bit of why not simply spend the money on a paid download music service. That was basically my decision around 6 years ago when the opportunity costs of evasion(when the monitoring really began to pick up) well exceeded the monthly subscription cost of a paid service.

Of course, the Copyright Alert System is just harbinger of things to come. These types of arrangements up and down the IT stack will increase by orders of magnitude under the formal adoption of whatever “cybersecurity act” that eventually passes(once again, because the basic top-level rules will be enacted via fiat, i.e, executive decision, the subsequent proposal and adoption of a legislative act is an absolute certainty). And this, of course, just exposes the silliness of the “network neutrality debate” because “network traffic” should always be understood to mean “authorized network traffic.” The arbitration between “authorized” and “unauthorized” traffic will be subject to the most relentless data analytics imaginable.

I will also offer a brief comment on unjustified triumphalism that thinks these issues can be magically skirted around. This belief is based on a fundamental mischaracterization of the internet as a horizontal, decentralized type of network. But it is not that. Rather, the internet is a type of scale-free, small network that follows a power law distribution. The network properties of scale-free invariance is much a product of quite a bit of centralized coordination. Simply, it is a mistake to think that technology alone can overcome the problem of political economy. Instead a necessary condition to be able to “route around the damage” is jurisdictional differentiation in political economy. I’ve been harping this point for a couple of years in my posts about Wikileaks. If the jurisdictional differentiation melts away then feel free to proceed straight to the outright pessimism of Evgeny Morozov and Richard Stallman who have given up on the anarchic promise of the internet. The alternative is a platform that turns out to be very well suited for tight control by Corporation and State. The evidence for this latter pessimism is the degree of rent-seeking in data analytics this little platform of ours affords(which makes the actions of State agency very much “rational” and hardly stupid in this space). The game is up when the cyber-security and “data czars” come rolling down the pike.

Finally, The Copyright Alert System is once again immediate evidence of a “Commercialist” anomaly with regard to political economic agency. Methodological individualism is hard pressed to explain ISPs acting as a Sheriff Agency (on behalf of the RIAA/MPAA) against their own customers. The model of The Firm, however, explains it quite well.

Technology is not Freedom

“Copyright bots” are a new “innovation” in data-analytics. The reliability of the data recognition(the content signature) by these distributed platforms, however, is still quite faulty. Wired recently published some of the embarrassing false positives generating by these platform censors which resulted in termination outages on high-profile content providers. Content that has recently been blocked included Michelle Obama’s speech on Youtube, NASA’s broadcast of the Curiosity Rover on Youtube and the Hugo Awards on UStream.

The more interesting point of the story was buried a bit: all major content platform providers are embedding these spy platforms into their infrastructure. This is not an actual legal requirement but it is following a law of political economy.

I browsed over to the website of one of the major players in this field. The tagline of the website reads: “Powering the Internet Video Economy.” The home page splash presentation trumpets the company’s partnership with Hollywood, Professional Sports, and China. I looked at its application platform, a platform, of course that’s patent pending(patenting the enforcement of patents and copyrights). The jargon reads “Rights Management, Content Filtering and Monetization, Business Analytics, Automatic Content Recognition, Search Recommendations.” In plain terms this means they are spying on you to both restrict access to unauthorized access to content and to monetize your viewing habits for “authorized content.” Frankly, why wouldn’t a censoring platform with access to your viewing habits take advantage of it to monetize your preferences to “legitimate” content providers. Its called Capitalism, right?

Content Identification and Data Signature Analysis is an “industry” in its infancy. There is plenty of innovation to be had in the pursuit of economic rents in this sector of political economy. But I would cite as an easy example of how technological innovation is not necessarily going to improve your life and make you more free. In fact, as in this case, its likely to make you substantially less free. This was a point I tried to make in my recent two-part “Internet Freedom” posts. And as I noted, the business of data analytics was at the heart of Peter Thiel’s recent critique of Google CEO Eric Schmidt.

Fine, you say. Just don’t watch your content online. No one is forcing you to log on to Google to watch content. But it won’t end there. Currently, all major online content providers are busy integrating content spyware into their infrastructure and platforms. But the same law of political economy driving this will steer a “spy regulatory platform” to the network provider layer, too.

Although it is not a major news or blogosphere focus, the “cybersecurity” executive order publicly contemplated by Barack Obama is quietly moving through The Firm’s channels for executive implementation. A legislative reinforcement will follow eventually. The law of political economy–rent-seeking– predicts the legislative addendum/follow-up to a CEO decree because of competing players(rent-seeking agency) fighting over the specific compliance (rules) regime of the contest.

The broad structure of the contest is defined by the top-level rule:

immunity from liability with respect to network traffic in exchange for compliance

Obama’s CEO Executive Decree will “legally” establish the broad stroke of the top level rule. Namely:

(i) the rule that network providers are, Ab initio, liable for the content payload of traffic over their network infrastructure(more specifically, liable for not filtering/blocking/counteracting “illegal/bad” traffic)

(ii) ex tempore immunity from all liability by following/implementing the rules of the compliance regime

The political economic competition in any “CyberSecurity Act” will be over the compliance rules for ex tempore immunity. Of course, any such “Bill” will be presented as ostensibly resolving the regulatory and legal burdens of network providers interfacing/info sharing with the extensive federal agency framework regarding “cyber attacks.” Every critical piece of infrastructure is plugged into the “public network” so we need a uniform, efficient regulatory framework to deal with the realities of the 21st century. It will even be presented with a “libertarian spin,” a pro-business slant, “reducing the regulatory burdens” on business.

Of course, the current reality of the 21st century is that the primary government agency responsible for coordinating cyber attacks is the United States government. The only agency actually capable of crippling the public network is the United States government.

The other pertinent reality of the 21st century is the inevitability of cloud computing. By “cloud computing,” I mean every computer resource imaginable delivered as a service. These resources include software, storage, platform, infrastructure, security and data. All tied together by a stack of interoperable APIs. It is in this environment where the contest over data analytics will play out. And you really can’t defect from this. More precisely, I would equate any attempt at defection as a “retreat to the woods.” Sans going “Jeremiah Johnson,” you will not be able to escape the data analytics of the cloud.

The ubiquity of cloud computing is inevitable because the internet is a small network. The cloud is much more efficient. A “free market” over a small network almost certainly delivers a cloud computing platform. Simply because that’s where the economic rents are. However, the data-analytics regime over the cloud is going to follow the structure of the rent-seeking contest. According to contest structure I outlined above, the contest will follow a rent-seeking compliance of the panopticon.

Obey the panopticon or starve. That’s not freedom…

Chuck Schumer’s New War on Bitcoin

New York Senator Chuck Schumer probably occupies a top place in the libertarian axis of evil. A bigot, a religious fanatic, a nanny-state totalitarian and a crook, Schumer epitomizes the libertarian critique against political authority. This is a man who is accustomed to barking orders at a servile populace, a man who counts intimidation and threats to be among his preferred methods of executing governance. So this video and story of Schumer’s outrage over Silk Road and Bitcoin, likely facilitated by a recent Gawker article, is vintage Chuck. Conjure moral outrage, summon the TV cameras, bark orders…

But, unfortunately for Chuck, this ain’t Four Loco. Ordering the Feds to shutdown the website and “seize the domain” was comedic display of Mussolini buffoonery. I suppose it’s sad that no one in the press corp had the technical wherewithal to challenge Schumer’s stupidity, but it’s amusing that Schumer’s aide, the one that set up the TOR client to access the site, didn’t have the cojones to prevent Chuck from looking like a moron. But then again, I suppose it’s probably career suicide to stand between Schumer’s moral outrage and a TV camera.

Silk Road is running as a TOR hidden service on the TOR P2P tunneling network. This means it’s being run from someone’s anonymous box that generally can’t be identified. It can be anywhere in the world. Anyone who downloads the TOR software can setup a hidden service. There’s no “domain name” to seize here and the only way to stop this sort of thing (at least until the “Internet Kill Switch Bill” is enacted) is to ban the TOR protocol outright, which would counter the government’s interests because: (i) it would cast the US in a bad authoritarian light (ii) more importantly, it’s used by US intelligence organs as a secure communications tunneling network with international assets. After all, it was the US government that originally developed it, and it was released into the wild because it’s useless, like any other P2P network, without a robust number of nodes. In particular, here, a TOR network of nodes consisting of just the spies, informants and US bureaucrats would be “stick out like a sore thumb” tunnel; these tunnels need lots of “noise,” that is, lots and lots of other tunnels to be effective. Also, of course, if the software was “classified,” there would be an obvious distribution problem of getting the software into the hands of the intelligence assets, a vulnerability(which could be exploited, because the acquisition method of the software could be compromised and tracked) that, combined with the “stick out like a sore thumb” intelligence-only tunnels, would make TOR useless. And this is why the US government released TOR into the wild.

Chuck hasn’t gotten the memo on TOR yet, but I imagine he will get the intelligence organ “sit down” on that. It’s not TOR that’s the threat, it’s Bitcoin. Schumer called Bitcoin a “money laundering mechanism;” certainly he is ready to take the lead in Senate hearings to foster drafting new legislation that would outlaw any unauthorized crypto-currency. However, the government, particularly the intelligence organs, is a bit ahead of Schumer in that the CIA is sponsoring a presentation by the Bitcoin lead developer.

Hitherto, the problem of crypto-currencies, in terms of being any threat to the State, was the need of a central authority to regulate against fraud. Anyone can define an electronic coin as a ledger/chain of digital signatures. One obvious problem is how to prevent Agent A, who is wishing to transfer ownership of the coin for a good/service, to simultaneously use the same coin to buy something from Agent B and Agent C, that is, more or less simultaneously digitally sign over the coin to Agent B and Agent C. This problem would seem to require a central authority to referee between A’s transaction with B and A’s transaction with C.

The Bitcoin algorithm, from I gather reading the technical whitepaper, solves the problem of transaction verification by incentivizing every node in the Bitcoin network to race for verification of outstanding transactions. In other words, every node is in competition to serve as the clearinghouse for the current existing block of unverified transactions. The verification is done by timestamp. All transactions are broadcast to all nodes, but in a P2P network, Node X’s timestamp for the current unverified transactions may be differ than Node Y’s timestamp for the same. The timestamp verification that wins out, that is the node that wins the clearinghouse game, depends on that node solving a “proof of work concept” that is able to solve a difficult mathematical problem of converting a hash representation of it’s own block into a required leading zero-bit format. The winning node then broadcasts it’s time stamp block to all nodes that readjust accordingly. The winning node is awarded a certain amount of bitcoins which serves as the first transaction in the next block of unverified transactions that will need to be verified.

Bitcoin is able to use competition to resolve the clearinghouse problem(clearinghouse nodes are incentivized by new coin creation). It ingeniously self-corrects for the introduction of cpu power by making the mathematical work of proof problem geometrically more difficult. This allows scalability without monopoly capture, but it does create a division of labor scenario where clearinghouse nodes invest in GPU cycles over CPU cycles(the investment in GPU cycles allows the system to handle the clearinghouse needs of an expanding system). However, the system constraints cap the total coin creation which means that clearinghouse nodes will eventually only compete over transaction fees.

The question concerning Bitcoin is two-fold: (i) can it survive a coordinated hacker attack (ii) can it survive government censorship/banning. We are probably about to find out about (ii). The thing about the US is that it is not a hard censorship regime; it’s a soft censorship regime. An actual honest-to-god crypto currency, however, is it’s worst nightmare. The US government will release something like TOR into the wild, but it would never release something like Bitcoin into the wild.