18 Mar 2014

Michael Goldstein on the Anarchist Roots of Bitcoin

Bitcoin 37 Comments

Before any Rothbardian offers further commentary on Bitcoin, I highly encourage him or her to watch this short presentation. This is one of the things that really made me get off the fence regarding Bitcoin. (Note: I’m not saying Bitcoin will ever be the global money; it’s possible that governments keep it underground. I will write more on this, soon. But I’m saying I don’t think Bitcoin is a faddish bubble like tulips; Bitcoin–or a variation of it–is here to stay.)

For more, go to the Satoshi Nakamoto Institute.

37 Responses to “Michael Goldstein on the Anarchist Roots of Bitcoin”

  1. Major_Freedom says:

    Thanks for posting this for noobs like me. I need this kind of info

  2. Transformer says:

    This was a fascinating look at the background and history of the movement that BTC may be a part of.

    However I think BTC can also be seen as a brilliant business idea based upon using computer algorithms to meet market needs (just like Google).

    The market need: Secure anonymous electronic payments (paypal for drug dealers and tax evaders).

    The business idea: Produce a crypto-currency that can meet this market need. Use guerrilla -marketing to get it publicized . The higher the transaction volume the higher the value of BTC. The founders mine a % of BTC themselves. You can easily see how you could make billions of dollars totally anonymously this way.

    I’m not saying this makes BTC any less anarchist-friendly – just that its creation and success may have been based on business acumen and market-need as much as anarchist principals.

  3. Keshav Srinivasan says:

    Can someone explain what Goldstein is discussing starting at the 20 minute mark? Before this he was talking about how the weakness of Silk Road is that you need a trusted third party to mediate the exchange. But then he stays the weakness can be alleviated, yet the solution he describes seems to again involve a third party mediating the exchange. So what’s the difference? Is the only difference that the two parties can choose their own mediator, rather than the Silk Road only having one mediator?

    Is there any way to use cryptographic protocols to eliminate the need for a trusted third party in an exchange? (And is Goldstein describing such ways starting at the 20 minute mark?) Bob said in a previous post that the blockchain constitutes such a way. Is he right, or is the blockchain only about a one-way sending of funds, rather than a two-way exchange or contract?

    • Michael Goldstein says:

      “Is the only difference that the two parties can choose their own mediator, rather than the Silk Road only having one mediator?”

      No, even better. In the Silk Road, the money had to be placed in escrow in the hands of the Dread Pirate Roberts. This meant (1) he could run away with the money if he were dishonest, (2) a hacker could run away with the money if he were able to break in, or (3) a malicious party could coerce DPR to hand over the keys leading back to (2). With Lex Cryptographia, a third party arbiter is chosen, but the cryptographically secure contract only gives that arbiter the ability to process the transaction based on his verdict according to the programmable clauses of the contract. The third party cannot simply run off with the money. Worst case is one party colludes with the arbiter leading to an unjust decision. This is where reputation comes in (and remember both parties get to voluntarily choose the arbiter).

      You can read more about Lex Cryptographia here: http://bitcoinism.blogspot.com/2013/12/lex-cryptographia.html

      “Is there any way to use cryptographic protocols to eliminate the need for a trusted third party in an exchange?”

      The blockchain itself has the potential to enforce many contracts on its own, notably multisig, which I expect to gain a lot of traction this year. This reduces trust necessary for dispute resolution by locking away money in escrow through crypto rather than trust as described above. This is only needed, though, given you want a way to handle dispute resolution. Many exchanges perhaps don’t need a third party if the two parties exchanging are able to account for a sufficient number of potential disputes in the clauses of the smart contract.

      You can read more about Bitcoin contracts here: https://en.bitcoin.it/wiki/Contracts
      Mike Hearn had a good lecture here: https://www.youtube.com/watch?v=mD4L7xDNCmA
      I gave a talk on contracts here: https://www.youtube.com/watch?v=3t1jAsPVQ3g

      I’d also highly recommend Nick Szabo’s works on the topic, which you can find on the SNI website linked in Dr. Murphy’s post.

      Hope that helps!

      • Ken B says:

        “That is where reputation comes in”
        Nice to see we have done away with the trusted third party!

        It may be true the scheme mitigates the harm a TTP can do, but that wasn’t the claim at issue.

      • Ks says:

        I guess my fund

      • Keshav Srinivasan says:

        “Worst case is one party colludes with the arbiter leading to an unjust decision.” This is my fundamental question: is there any way to handle dispute resolution so that it does not rely on trusting a third party to make a fair decision?

        • Michael Goldstein says:

          Only insofar as you can design smart contracts that can handle a sufficient amount of cases of dispute. Otherwise, if you want to decrease the risk of problems, you agree to a third party arbiter ahead of time, voluntarily, with the person you are trading with. This has been the general solution across humanity since forever. You can read more about it from a free market perspective in Dr. Murphy’s Chaos Theory or Bruce Benson’s The Enterprise of Law.

          What cryptography is doing is giving this a better security model. If a third party is needed, we can use cryptography to reduce the risks involved. It does so by reducing what the third party even has access to (as in, the ability broadcast a decision but less to no actual property). This brings more certainty to trade because we can expect math to work more fairly than people.

          Is there no trusted third party at all? Well, there’s no such thing as perfect security. We have to trust that the protocol is designed well. I can’t debug every piece of software and hardware I use in my life. Focus on the risk analysis instead. In the case of cryptography, the risk of being vulnerable to a trusted third party is mitigated an incredible amount. Compared to any legal system I am aware of, cryptographic smart contracts amount to “no trusted third party”.

          • Keshav Srinivasan says:

            “Only insofar as you can design smart contracts that can handle a sufficient amount of cases of dispute.” OK, then is what I’m asking about: how can a smart contract handle a dispute without involving a third-party mediator?

            • Major_Freedom says:

              Am I the only one who is finding the pro-state Keshav’s line of questioning interesting? To be pro-state means to be compelled to obey, and not just presented with as one option among other options, a monopolistic third party, and yet Keshav is so unsure of third party trustworthiness that he is asking a Bitcoin expert if there is any way NOT to involve third party arbitrators at all.

              It is like reading Krugman asking someone if there is a way he could use gold as money without being taxed or detected.

              • Keshav Srinivasan says:

                Major_Freedom, I’m just asking questions as a matter of intellectual curiosity, not because I actually support this “crypto-anarchy” that Goldstein is talking about.

              • Major_Freedom says:

                Yes but there is a reason you’re “just asking questions”.


                Wish you were that curious with security and protection services.

              • Major_Freedom says:

                I wouldn’t be surprised that you don’t “support” crypto currencies. After all, it’s anarchistic. Then we have to think about third party arbitration and distrust them all and hope to abolish arbitration.

                But if it were controlled by the state, then you could cease being curious. You can go to bed. Mommy and daddy are home to protect you.

                You don’t like bitcoins? The best thing about it, is that thugs who “don’t advocate for it” can’t stop it even if they tried.

              • Keshav Srinivasan says:

                Major_Freedom, I am curious about Rothbardian anarcho-capitalism, that’s one of the reasons I read Bob’s blog. That doesn’t mean that I’m remotely supportive of anarcho-capitalism, any more than I’m supportive of the vision that Goldstein is outlining. But both are interesting to me as a purely intellectual matter.

              • guest says:

                Keshav Srinivasan,

                I think what you’re trying to find out is if anarcho-capitalists have a response to the seeming contradiction of sometimes requiring an arbitrator.

                Part of the confusion comes from the anarchist’s failure to recognize that arbitration is a form of government.

                Another part comes from a failure on the part of the believer in state government to correctly identify from where legitimate authority comes.

                I concede that arbitration is a form of government; I don’t have a problem with government, per se.

                The problem is when the arbitrator believes himself to have authority that was not delegated to him by the parties seeking his services.

                So, if two people delegate to the arbitrator the authority to settle a dispute, it would be wrong for the arbitrator to assume that he had jurisdiction over the lands on which their properties lay such that people had to pay property taxes.

                The arbitrator is the agent of only those who have voluntarily paid for it, and since neither party owns the others’ property, neither party can legitimately delegate authority to the arbitrator over someone else’s property.

                As well, in the case of unowned land, the arbitrator doesn’t own it, and neither do either of the two parties, so the arbitrator can’t claim it as “public property” and then prevent others from homesteading it.

                What follows from these points is that in a free market, you might get screwed by an arbitrator, but you could stop using that one, and the better arbitrators would stay in business while the sucky ones failed.

                Whereas with a state government, the arbitrator is claiming authority that can’t be delegated to it, and is therefore violating others’ rights.

              • Keshav Srinivasan says:

                “I think what you’re trying to find out is if anarcho-capitalists have a response to the seeming contradiction of sometimes requiring an arbitrator.” No, that’s not what I’m trying to find out. I don’t even see any “seeming contradiction” concerning requiring an arbitrator. My question was just what Goldstein is describing (smart contracts and the like) provides a way to resolve at least some disputes without involving a third-party arbitrator, not whether the notion of a third-party arbitrator contradicts anarcho-capitalism.

              • Keshav Srinivasan says:

                just whether what*

  4. guest says:

    “Money is a formal token of delayed reciprocol altruism”

    Notice the words “token” and “reciprocol”. This is merely the “social contract” theory of money.

    Money isn’t an IOU for something, such that one is defrauded if they have a ton of money and no one wants to accept it in trade.

    A money is money because it has actual use-value to someone – someone is able to fulfill real, subjective, preferences with it.

    • Major_Freedom says:

      Altruism isn’t prseumed as an IOU in the stated definition.

      • guest says:

        I’m probably ruining a perfectly good joke, but …

        Altruism factors into the use of a token as the medium of exchange, in the Social Contract theory of money.

        The token being a contract, it must be controlled by the State.

        It’s the idea behind a national currency.

        The token is the IOU, in my response. The quote presumes that money is a contract.

        • guest says:

          Here’s an example of the Social Contract theory of money:

          Money Is A Social Contract

          Thousands of years ago, people realized that monies and currencies could be a more efficient method to conduct commerce and measure wealth. But like all new ideas and inventions; money was a double edged sword.

          With all the convenience and benefits of using money to conduct commerce and measure wealth, came an obligation and duty to those, that in affect agreed to accept and honor any currency , a requirement to support the governments, institutions or agencies in their efforts to maintain the value of the currency. True, people can and will argue forever on how best this can be accomplished, wether it be by Keynesian economics, so called Free market, Communal concepts, Trickle-down, etc. But the bottom line. MONEY IS A SOCIAL CONTRACT.

          Ultimately though, the value of any currency is based on the willingness of the people, wether it be a democracy or a dictatorship, to continue to accept a currency as legal tender.

          There’s nothing obligatory or reciprocol about sound money. This is why the words “token” and “reciprocol” caught my eye.

  5. Peter Šurda says:

    Stupid me, I should have gone to the conference.

  6. joe says:

    People who hold Bitcoins are trying to convince others to buy Bitcoins. Funny how people who supposedly believe in markets will actually take the word of someone who has invested in Bitcoin.

    • Bob Murphy says:

      And if you somehow knew that people singing the praises of Bitcoin didn’t own any themselves, joe, you would say, “Ha ha people getting paid to push Bitcoin who don’t even own any of it. Hucksters.”

  7. Bob Murphy says:

    Michael Goldstein hang on buddy, you are getting way ahead of yourself here. When I was saying Bitcoin gets rid of the need for a trusted third party, I was just summarizing your talk. [EDIT: I didn’t remember the context of my earlier remark.] Your talk isn’t about smart contracts, it’s about a peer-to-peer network validating the transfer of pieces of a digital currency, i.e. pure Bitcoin.

    Commercial banks, Visa, paypal, and e-gold all require a trusted third party. I can’t send dollars via Paypal to someone in Canada without trusting Paypal. In contrast, I can send BTC to someone in Canada without being at the mercy of a single person or institution.

    So yes, that is a qualitative improvement, and so above when Keshav is asking you about this, you should probably spell this out before moving on to more esoteric issues.

    • Keshav Srinivasan says:

      Bob, I was referring to the remarks you made in this post, where you said that even if you believe that digital currencies are useless, the technology used in Bitcoin is still valuable for the purpose of contract enforcement without trusted third parties:


      And Michael Goldstein does talk about smart contracts in his talk; look at the portion of the video starting at the 20 minute mark, where he’s talking about Open Transactions and Lex Cryptographica.

      • Bob Murphy says:

        Yikes sorry Keshav! I still think Michael needs to start more slowly but yep I see now what you were referring to, sorry about that.

        • Keshav Srinivasan says:

          That’s OK, sorry for the confusion. By the way, did you see the part of the video I was referring to, which is about enforcement of contracts rather than just one-way transfer of Bitcoin?

  8. Keshav Srinivasan says:

    I think I’ve found an answer to my question, at the 35 minute mark of another talk by Michael Goldstein:

    He talks about an external state contract, where certain disputes that are about objective features of the world can be resolved automatically by a computer program rather than a third-party arbitrator, so that the protocol will just follow a procedure specified in the contract (like consulting sports game records to see who won a bet) and transfer the funds accordingly.

    • Keshav Srinivasan says:

      One issue with this occurs to me: even if you specify the code for the computer program in advance in the contract, who runs the program? If one of the two parties runs the program, what if they misrepresent the output of the program? Akin to how transfers of Bitcoins are verified, can you use the blockchain and proof-of-work protocols to verify that the output of a code was really what it was claimed to be? In other words, could you have miners that each run the code on their computer and see what the output of it is, and then have a proof-of-work protocol to show that they really did run the code and are accurately reporting the output of it?

  9. Scott Morgan says:

    Great job Michael. You did a good job, I will make sure to share the link with others.

  10. Smiling Dave says:

    “You know, if only I had a libertarian fairy godmother. She would be anti statist, and all the Rothbardians would love her.”

    “Dave, fairy godmothers don’t exist.”

    “But she is so pro freedom, so buzzword buzzword buzzword, you don’t grasp how awesome it would be for the cause of truth, justice, liberty, freedom, and the American way, if only she existed.”

    “Dave, fairy godmothers cannot exist by Mises’s regression theorem.”

    “Well, I have an alternate theory about what money is. It’s delayed reciprocal altruism, that’s what it is. So there.”

    “Dave, as a blogger, you have a responsibility to your readers not to fill their minds with fairy tales about how great it would be if something impossible existed, and the use wishful thinking to assert the impossible is possible.”

    “But I love bitcoin. It’s so pro freedom!”

    “Freedom to get taken in yet another Ponzi scheme. That’s the freedom yo will get from bitcoin.”

    “What is your proof that, although bitcoins would be so lovely if they ever left Mother Goose’s world, that they never will?”

    “My humble blog. See Bitcoin All in One Place.”

    “Dave, there is nothing either good or bad but wishful thinking makes it so.”

    “Tell that to Bernie Madoff’s clients.”

    “But Dave, Bob denies that a medium of exchange has to be in wide demand.”

    “Yes, that is his key blunder, as shown in my blog from first principles.”

  11. Smiling Dave says:

    My eyes have been opened to what should have been obvious. Here is a fourth theoretical argument [see my blog for three others] why bitcoin is doomed. In syllogism form:

    1. Bitcoin was and is being touted as a competitor for govt money. [That’s the whole point of Bob’s video].

    2. The govt always deals with its competitors by crushing them like a bug. [Read any history of anything].

    3. Therefore, bitcoin will be crushed like a bug by the world’s govts.

    And sure enough, govts around the world are crushing it like a bug. Taxing it. Making it illegal. Closing bank accounts. This is the tip of the iceberg, guys. Soon, I predict, possession of bitcoin will be deemed a terrorist act.

    Maybe Bob is right. Maybe bitcoin is the wave of the future. [Here Dave stifles a scoff]. But for the present, the battle lines have been drawn. Owning a bitcoin is no longer, if it ever was, an “investment”. It is at best a sacrifice in a war, like sending your kids to fight in Vietnam. So if you want to sacrifice your money for the cause of freedom in a meaningless useless way, buy bitcoins. Tell ’em Bob sent you.

    • Dan says:

      You sure do love to come here and pimp your site and talk about yourself in the third person.

      • Smiling Dave says:

        OK, direct q to you, no websites, no nothing.

        Can you kindly explain why bitcoin has lost 50% of its value in a continuous 3 month slide? Why did it always start an upward climb back within 24 hours after every other setback, but this time we’re waiting 3 months and nothing but downhill?

        My guess, and it’s only that, is that people were really really spooked by mtgox taking the money and running. Then they were hit with the news that they will be taxed on any gains bitcoin makes. Then Australia and China declared was on bitcoin.

        In other words, all that scary news has woken people up. How do I know bitcoin will not just drop to zero, they ask themselves. I don’t need bitcoin to buy anything, really; paypal and the like will do fine. So why risk everything on a “stock” that fails every test of the “fundamentals”? Once again, I have learned there is no magic genie in a bitcoin, waiting to grant me three wishes. Best cut my losses and dump my bitcoins.

        Once a bubble like that bursts, it rarely rises again.

        At any rate, I’d be glad to hear your opinion on this matter.

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