Because of the Internet, our lives are significantly different. Writings on any topic, no matter how obscure, can be found with a quick Google search. Citizens can challenge powerful authority figures such as the police by publishing videos of their misdeeds. Remote workers can participate fully in company life, and relatives can video chat each other cheaply from nearly anywhere in the world.
Yet, these innovations are only a fraction of what the adopters of the early Internet hoped to accomplish. Google searches and blog posts are innovations of a particular type: innovations in communication. That is, the rise of the Internet has revolutionized publishing. Anyone can be a creator and distributor of content, and anyone can access and read it. However, a subset of early Internet adopters (who go by many names: cypherpunks, crypto anarchists, and Internet Exceptionalists, to name a few) thought the Internet would go further. They thought we would have an Internet revolution in economics and in law.
Instead of relying on government-issued money, we would have digital cash, the ability to pay any person on the Internet instantly and anonymously. Instead of being regulated by our brick-and-mortar governments, we, the new settlers of the Electronic Frontier, would make our own rules.
These were the expectations of the Internet as of 1994 or so. What happened? Life has changed, certainly, but in the United States, we still use US dollars and US law. Perhaps these ideas were only fantasies.
But maybe these ideas were merely ahead of their time. By building on advances in cryptography and distributed systems, blockchain technology promises a future with globally available digital cash, tamper-proof property records, auto-enforced commitments, and even private law. In this piece, I’ll explore these hopes for the Internet, the attempts that failed, and the future possibilities of blockchain technology.
Crypto Anarchists Declare the Independence of Cyberspace
In 1996, John Perry Barlow, co-founder of the Electronic Frontier Foundation and lyricist for the Grateful Dead, wrote a grandiose declaration of independence. “Governments of the Industrial World,” he wrote, “you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind.”
He argued that cyberspace represents a new frontier, a place separate from where our bodies live. Moreover, on the Internet, geographic borders (the usual markers of where government power begins and ends) don’t exist. In Barlow’s view, the citizens of cyberspace are subject to “increasingly hostile and colonial measures [that] place us in the same position as those previous lovers of freedom and self-determination who had to reject the authorities of distant, uninformed powers.” His solution? “We will create a civilization of the Mind in Cyberspace,” he proclaimed. “May it be more humane and fair than the world your governments have made before.”
Barlow’s declaration had its detractors. As David Bennahum put it, “I’m wondering what it means to form a social contract in cyberspace, one with the kind of authenticity and authority of a constitution. It sounds great in theory, but I don’t actually live in cyberspace: I live in New York City, in the state of New York, in the United States of America. I guess I’m taking things too literally. Apparently my mind lives in cyberspace, and that’s what counts. It’s my vestigial meat package, also known as my body, that lives in New York. Government, geography, my body: all are obsolete now thanks to ‘cyberspace, that new home of mind’” (Bennahum 2001).
Less snarkily, Harvard law professor Jack Goldsmith argued that cyberspace is “no different than real space” because many other communication technologies also involve people making transactions across borders. “To this extent,” he explained, “activity in cyberspace is functionally identical to transnational activity mediated by other means, such as mail or telephone or smoke signal” (Goldsmith 1998). In other words, the Internet is nothing more than a smoke signal with a better tech team. No legal changes are necessary.
The Internet is Fundamentally Different
Yet, there is a real truth to the arguments of the crypto anarchists: the Internet is fundamentally different. Unlike a telephone call, the Internet persists even after a person signs off. And unlike a letter sent in the mail, an Internet posting can affect thousands of people in other countries without giving any indication that borders will be crossed. With the telephone or the mail, recipients must be selected and the communication must be paid for, the cost increasing with each new recipient. However, a post on the Internet can be freely available to all. No prior form of communication creates this kind of virtual space.
Renowned cyberlaw1 legal theorists such as Jack Goldsmith, Timothy Wu, David Johnson, David Post, and Lawrence Lessig spent much of the 90s arguing this point. Goldsmith and Wu occupied the pro-regulation, “Internet is merely communications technology” camp, whereas Johnson and Post represented the Internet Exceptionalists, arguing that cyberspace should govern itself. (Lessig is harder to pin down.) In 1996, Johnson and Post presciently claimed that the Internet would throw “law into disarray by creating entirely new phenomena that need to become the subject of clear legal rules but that cannot be governed, satisfactorily, by any current territorial sovereign.”
Over twenty years later, the Internet Exceptionalists were finally proven right. One of the major dreams of the 90s, digital cash, has been implemented. Cryptocurrencies definitively show that the Internet is more than the sum of its parts, more than a leap in communications technology. Instead of making transfers from one centralized ledger to another (which Goldsmith correctly observes could be done over a telephone) cryptocurrency ledgers are stored and updated simultaneously on thousands of computers at once. This radical decentralization gives digital currencies an emergent property—the feeling that they are native to the Internet, more than transfers of data from one physical place to another.
The Empire Strikes Back
Historically, territorial governments have been very successful in their attempts to force multinational Internet companies to comply with their demands. In an early cyberlaw case, France effectively banned Nazi paraphernalia on Yahoo’s auction sites, even though Yahoo’s servers were in the US. It was enough that the sites were accessible in France, and that Yahoo had French assets that could be seized and French interests that could be thwarted (Goldsmith and Wu 2008, 8). More sinisterly, China has forced search engines to censor their results, removing anti-government and pro-democracy sentiments (Waddell 2016).
Despite Barlow’s declaration of independence, governments have been reluctant to loosen their grip, leaving website owners effectively subject to all legal jurisdictions in which their assets could be seized.
As Goldsmith and Wu explain,
There’s an old European joke that captures the problem. In heaven, the joke goes, you find French cooks, English government, Swiss trains, and Italian lovers. In Hell, by contrast, you find French government, Italian trains, English chefs, and Swiss lovers. Territorial control of the Internet seemed to promise a parallel version of legal hell: a world of Singaporean free speech, American tort law, Russian commercial regulation, and Chinese civil rights.”
These territorial governments, Barlow’s “distant, uninformed powers”, cling to the belief that they are providing a needed service. After all, how else will order be created, if not with government? This argument sounds an awful lot like Hobbesian legal centralism, the belief that government is the “wellspring of social order” (Ellickson 1991, 10). However, whether the government can provide social order and whether only the government can provide social order are two different claims, and the arguments for regulation usually depend on the latter.
Goldsmith and Wu illustrate this line of thinking when they explain how eBay dealt with fraud. At first, eBay was a small community and social norms against fraud sufficed—people could be presumed to be well-intentioned. But it became apparent that extra measures were necessary.
…eBay quickly learned that to prevent fraud, enforce its contracts, and ensure stability in its auction services, it would depend critically on government coercion and the rule of law provided by a stable country like the United States,” Goldsmith and Wu argue. “These are a few of the many complex benefits that only territorial sovereigns can bring, and without which most aspects of the Internet that we love and cherish would not exist” (2008, 129).
Blockchains as a Tool for Private Ordering
At the time, eBay may have required government coercion, but the idea that “only territorial sovereigns” can prevent fraud is false. Law and economics scholars such as Robert Ellickson have shown that people can often find ways to trust each other without the state. Furthermore, blockchain technology and smart contracts offer a different solution.
For instance, OpenBazaar, an online marketplace that uses cryptocurrencies as payment, allows users to use very simple smart contracts (actually, 2-of-3 multisig addresses) to prevent fraud. As OpenBazaar describes it, “When a buyer wants to purchase a listing, instead of sending the funds directly to the seller, he will send the funds to the multisig account. The three people who control this account are the buyer, the seller, and a trusted third party selected beforehand.”
In the simplest case, the transaction goes smoothly, but if there is a dispute, the trusted third party decides whether to release the funds to the buyer or seller. Importantly, no one has control over the transaction apart from the buyer and seller (and only in the case of a dispute, their arbitrator), preventing fraud and making government seizure not only unwelcome but impossible.
This approach may seem bizarre, but this sort of private arbitration is used widely to resolve disputes in commercial agreements. It also has historical precedent: in medieval times, merchants who engaged in international trade, frustrated with the inadequacy of local courts to enforce contracts, created their own rules and their own courts. Rather than having to travel to the court of a