Wendy McElroy: In a Stateless Society Crypto is Law and Justice

The Satoshi Revolution: A Revolution of Rising Expectations
Section 5: Saving the World Through Anarchism
Chapter 11, Part 5
In a Stateless Society, Crypto is Law and Justice

The economic analysis of crime starts with one simple assumption: Criminals are rational. A mugger is a mugger…because that profession makes him better off, by his own standards, than any other alternative available to him…. If muggers are rational, we do not have to make mugging impossible in order to prevent it, merely unprofitable….If little old ladies start carrying pistols in their purses, so that one mugging in ten puts the mugger in the hospital or the morgue, the number of muggers will decrease drastically–not because they have all been shot but because most will have switched to safer ways of making a living. If mugging becomes sufficiently unprofitable, nobody will do it.

-David Friedman, “Rational Criminals and Profit-Maximizing Police”

The specter of aggression haunts every society. Crimes against person and property cannot be eradicated, unfortunately, because violent impulses are part of human nature, and crime can be profitable. The desire for safety and peaceful exchange is also part of human nature, however. It creates a market demand for the protection of individual “rights.”

How can society minimize and redress the violation of rights? This reduces to how individuals can address crime within an otherwise peaceful society.

Overwhelmingly, the crime against which crypto users must protect and seek redress is theft—not murder, not rape, not battery, not victimless crime, or crime against the state. Theft.

Focusing on one area of crime simplifies the problem enormously. Some argue that crypto’s remedy for theft is contained within the definition of crypto anarchism itself: the use of encryption and technology to achieve personal freedom by enabling privacy, autonomy, and self-empowerment. Encryption and technology. Most of crypto’s features provide specific protections to individuals, including irreversibility, transparency, pseudonymity, time-stamping, and private wallets.

But the protection is primarily against the state, especially against its trusted third party arm—the central banking system. Crypto anarchism needs to address private crime, the crimes individuals commit against each other. Those crimes occur at points of intersection, at points where people access or exchange with each other. Again, the solution is the free market. Safety and the redress of crime are both services, like insuring a car or retaining a lawyer. In a real sense, people realize this. They pay for the service of safety and redress through the collective bill of taxation that funds police and court systems.

Many people discuss the inadequacies of these services. But only anarchists claim the problem is that the services come from the state. People simply take it as a given: the state supervises violence. It is such a deep assumption that protecting against violence is the first and last argument the state uses to justify its existence. Without my presence, the state declares, the street would run red with blood and enemy armies would surge across the border. Odd. It is widely acknowledged that every other service required by society can be provided privately, but security cannot be addressed or redressed through voluntary exchange.

Anarchists disagree. They object to the grave mistake of granting the state a monopoly over a basic human need, which destroys the very possibility of a free society. They understand: private money and self-banking cannot co-exist in narrow parallel with central banking because the state attacks any threat to its authority. This is happening already. The state is playing catch-up in order to rein in the crypto that flows outside its control. The spread of “wild crypto” is irreversible, however, in much the same manner as the black markets that thrive despite or due to repression.

The monetary systems run in parallel only by maintaining a sharp separation. The state is a money and banking monopoly with the goal of social control; crypto is its antithesis. In close proximity, one will destroy the other. The same would be true of any free-market institution that serviced the human need for safety. The state would try to control or destroy it as a threat to its own monopoly. The state and society are either-or. Crypto anarchist and security expert Pavol Luptak explains the schism. “Personally, I don’t like black & white plots, but it seems we will live either in a digitally free society or digital dictatorship. Even now, we can see an intense polarization of society splitting into the government’s controlled dictatorship and parallel free crypto societies at the same time. Unfortunately, I don’t think there is a place for some other alternatives.”

To grasp the depth of this either-or choice, it is useful to sketch a broader context for the conflict.

The State’s Monopoly of Self-Defense Leads to Totalitarianism

A society that robs an individual of the product of his effort, or enslaves him, or attempts to limit the freedom of his mind, or compels him to act against his own rational judgment—a society that sets up a conflict between its edicts and the requirements of man’s nature—is not strictly speaking a society but a mob held together by institutional gang rule.

—Ayn Rand, “The Nature of Government”

Free exchange is natural to the institutions that comprise society, including family, the marketplace, education, and art. These systems evolve spontaneously in response to human needs and desires. They are the reason why individuals band together in the first place, instead of living in isolation. Through natural networks, individuals enrich themselves, fulfilling requirements that are both physical and psychological.

The extent to which violence intrudes into natural institutions is the extent to which the institutions become their own mirror opposites. This is true of the intrusion of private crime. Domestic violence converts a home from a place of safety into one of danger. Fraud transforms a business from a place of mutual exchange into one of victimization.

It is also true of violence that is entrenched within society, as with a state. A key difference? New institutions are created by the state in order to circumvent the human instinct to defend against violence, if only by avoiding where or how it happens. These new and artificial institutions are often monopolies that displace their free-market counterparts. The extent to which such artificial institutions intrude upon society is the extent to which the benefits of society are destroyed. Taxation reduces the benefit of productivity. Central banks introduce third-party theft into commerce. Police use guns and threats to preserve the peace.

The freedom level of a society can be measured by the ratio of its artificial to natural institutions. When there are few to none, the society is called “free”;  the individuals within it receive immense benefits from interacting. When artificial institutions dominate, the society is called “totalitarian”; the individuals within suffer and face unnatural choices. They can live in quiet and obedient despair. They can risk becoming outlaws on the economic or intellectual black market. They can become thugs and join with those who administer the violence. Or they can flee to a place with less entrenched violence. When these are the choices individuals confront, civil society is dead.

Those are the stakes in play on how a society deals with safety: nothing less than freedom versus the state. As long as the state can convince people that its monopoly on the use of violence is necessary to guarantee safety, then the state can justify its existence. Once the state has that monopoly, it has everything.

Crypto “solved” the embedded violence of central banking. It did so through a stunningly brilliant insight and application of political theory: the trusted third party problem. Central banks forced individuals who wished to function in modern commerce to use them as an intermediary and so to participate in the fiat money and fiat banking that defrauded them at every turn. The banks reported personal and financial data to an umbrella trusted third party—the state. Layer after layer of intermediary institutions killed not only personal freedom but also the freedom and benefits of society. Until bitcoin sidestepped the institutional violence.

Equally, crypto needs to develop ways of handling private criminals who rob, extort (ransomware), and defraud. The strategies used on state violence will not work. Bypassing trusted third parties will not work on private crimes that are peer-to-peer. What would work?

Crypto’s Greatest Political Challenge

Private crime is the Achilles Heel of crypto. Users who view crypto merely as a way to make money, rather than as a promise of freedom, want state involvement to ensure a safe haven that is modeled on central banks. Every high-profile case of private crime is used as a reason to call for regulation. The Satoshi Revolution‘s final challenge is to suggest free-market methods by which the community can address private violence. The focus is not on the unpredictable breakthroughs in technology that are destined to change how crypto deals with crime. (Prevention has been discussed previously.) The focus is on the make-up of the institutions and methods through which crypto can minimize crime and provide remedies when it occurs.

Technology is able to adapt in a snap. But this means that economic and social patterns evolve as quickly. Crypto, the blockchain, 3-D printing, and robotics are among the game-changing technologies that are reshaping the world in their own images. And this evolution will only accelerate. The transformation of politics will be extreme. It is about time. Today’s political system emerged from the Industrial Revolution and it grew over centuries of war after war. The state’s characteristics include massive bureaucracy, extreme centralization, nationalism, and crony capitalism. But a new revolution is in town. Crypto’s characteristics include peer-to-peer exchange, decentralization, a flow without borders, and the lack of governmental privilege. Politics has already changed, whether politicians know it or not.

Anarchism, liberty, does not tell you a thing about how free people will behave or what arrangements they will make. It simply says the people have the capacity to make the arrangements. Anarchism is not normative. It does not say how to be free. It says only that freedom, liberty, can exist.

—Karl Hess, “Anarchism without Hyphens”

How will crypto prevent and remedy private crime? It is difficult to say, for many reasons, including the unpredictability of technological advances. Some of the obstacles:

• The state regulates or bans any threat to its authority. This is especially true of law enforcement and the use of force, which are mother’s milk. One result: few anti-crime institutions exist that have not been defined by their need to comply with laws of the state. Even private police forces mimic state ones.
• People base their assumptions on what they are taught and what they have seen. If they had been taught that the food supply requires a centralized coordination by the state and they had seen nothing else, then they would laugh at the very idea of the free-market spontaneously coordinating agriculture, transportation, canning factories, and grocery stores. The same is true of the free market coordinating safety.
• The state does not encourage research and development into alternative forms of justice that are outside of its control. 3D-printed guns are an example. 3-D guns allow individuals to defend themselves without surrendering their privacy to authorities. The state’s response? The pioneer of 3-D weaponry, Cody Wilson, has been arrested on what appear to be “set-up” charges.
• The entrenched assumptions of the public are against crypto solutions. The assumptions include: one law must cover everyone in a geographical territory, not a mosaic that reflects personal choice; and, the primary purpose of law is punishment, not restitution.

Armed with caveats, the next step is to explore a practical method by which crypto anarchy can deal with private crime. Like crypto itself, the method has to be individualistic, decentralized, transparent, and entirely private. The best place to begin is with an analogy that has already been drawn: car insurance.

[To be continued next week.]

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