Economist Friedrich Hayek inspired an early foray into electronic cash.

featureThe1990s | Illustration: Joanna Andreasson

The Austrian economist Friedrich Hayek wanted to denationalize money. David Chaum, an innovator in the field of cryptography and electronic cash, wanted to shield it from surveillance. Their goals were not the same, but they each inspired the same man.

Max O’Connor grew up in the British city of Bristol in the 1960s and ’70s. Telling his life story to Wired in 1994, he explained how he had always dreamed of a future where humanity expanded its potential in science-fictional ways, a world where people would possess X-ray vision, carry disintegrator guns, or walk straight through walls.

By his teenage years, O’Connor had acquired an interest in the occult. He thought the key to realizing superhuman potential could perhaps be found in the same domain as astral projection, dowsing rods, and reincarnation. But he began to realize there was no compelling evidence that any of these mystical practices actually worked. Human progress, he soon decided, was best served not by the supernatural but by science and logic.

He was a keen student, and especially interested in subjects concerning social organization. By age 23, he’d earned his degree in philosophy, politics, and economics from St. Anne’s College, Oxford.

The fresh Oxford graduate aspired to be a writer, but the old university town with its wet climate, dark winters, and traditional British values wasn’t providing the energy or inspiration he was looking for. It was time to go somewhere new—somewhere exciting. In 1987, he was awarded a fellowship to a Ph.D. program in philosophy at the University of Southern California (USC). He was moving to Los Angeles.

O’Connor immediately felt at home in the Golden State. The sunny L.A. weather was an obvious upgrade from gray Oxford. And in stark contrast to the conservative mindset prevalent in Great Britain, the cultural vibe on America’s West Coast encouraged ambition. Californians celebrated achievement, they respected risk taking, and they praised movers and shakers.

Here, O’Connor would start a new life as a new man. To commemorate the fresh start, he decided to change his name; from then on, Max O’Connor would be “Max More.”

“It seemed to really encapsulate the essence of what my goal is: always to improve, never to be static,” he explained. “I was going to get better at everything, become smarter, fitter, and healthier. It would be a constant reminder to keep moving forward.”

FM-2030

In California, unlike staid England, More found that he wasn’t alone in his interest in expanding human potential. One of More’s colleagues at USC, a Belgian-born Iranian-American author and teacher known originally as Fereidoun M. Esfandiary but now going by the name “FM-2030,” had spent the ’70s and ’80s popularizing a radical futurist vision.

New technologies would allow engineers to dramatically change the world for the better, FM-2030 predicted. He believed that any risks associated with technological innovation would be offset by the rewards: Solar and atomic power would bring energy abundance, people would colonize Mars, robot workers would increase leisure time, and teleworking would allow people to earn a living from the comfort of their homes.

FM-2030 predicted that technology would soon reach the point where it could drastically improve not just human circumstances but human beings themselves. Health standards would advance as more diseases could be cured and as genetic flaws could be corrected; future pharmaceuticals could boost human potential by, for example, enhancing brain activity.

FM-2030 expected that medical science would even “cure” aging, doing away with finite human life spans, gifting us with bionic body parts and other artificial enhancements. By his estimation, humanity would conquer death around his 100th birthday, in the year 2030. (That’s what the number in his name referred to.) FM-2030 predicted that we would eventually turn ourselves into synthetic post-biological organisms. “It’s just a matter of time before we reconstitute our bodies into something entirely different, something more space-adaptable, something that will be viable across the solar system and beyond,” he wrote in 1989.

Transhumanism

To most, those sort of predictions sounded fantastical. But when a research affiliate at the MIT Space Systems Laboratory named K. Eric Drexler in the early 1980s described a technique for manufacturing machinery on a molecular level, the fantastical was already starting to sound a little less implausible. Nanotechnology, Drexler believed, could fundamentally change industries including computing, space travel, and any variety of physical production.

Drexler believed that nanotech could revolutionize health care too. Physical disorders are typically caused by misarranged atoms, as he saw it, and he imagined a future where nanobots could enter the human body to fix this damage—in effect restoring the body to full health from within. Nanotechnology would thus be able to cure just about any disease and ultimately extend life itself.

“Aging is fundamentally no different from any other physical disorder,” Drexler wrote in his 1986 book Engines of Creation; “it is no magical effect of calendar dates on a mysterious life-force. Brittle bones, wrinkled skin, low enzyme activities, slow wound healing, poor memory, and the rest all result from damaged molecular machinery, chemical imbalances, and mis-arranged structures. By restoring all the cells and tissues of the body to a youthful structure, repair machines will restore youthful health.”

For Max More, such ideas weren’t just fun speculation. He believed these predictions offered a fresh and necessary perspective on human existence, even on reality itself. As More collected, studied, and thought about the concepts these futurists had been sharing, the Ph.D. candidate formalized them into a new and distinct philosophical framework: transhumanism.

The general idea and term transhumanism had already been used by evolutionary biologist Julian Huxley in the 1950s, but More now used it to denote an updated version of the humanist philosophy. Like humanism, transhumanism respects reason and science while rejecting faith, worship, and supernatural concepts such as an afterlife. But where humanists derive value and meaning from human nature and existing human potential, transhumanists anticipate and advocate transcending humanity’s natural limitations.

“Transhumanism,” More wrote in 1989, “differs from humanism in recognizing and anticipating the radical alterations in the nature and possibilities of our lives resulting from various sciences and technologies such as neuroscience and neuropharmacology, life extension, nanotechnology, artificial ultra-intelligence, and space habitation, combined with a rational philosophy and value system.”

Extropianism

Specifically, More believed in a positive, vital, and dynamic approach to transhumanism; he favored a message of hope, optimism, and progress. But he did not believe that this progress could be forced or even planned. He rejected Star Trek–like visions of the future where humanity settles under a single, all-wise world government to guide the species forward.

Instead, More believed transhumanists could benefit from Hayek’s libertarian insights. Technological innovation requires knowledge and resources. As Hayek explained, the former is naturally distributed throughout society, while the latter is best allocated through free market processes that reveal that knowledge and how it matches freely chosen human desires. If people are allowed the liberty to experiment, innovate, and collaborate on their own terms, More figured, technological progress would naturally emerge. In other words, a more prosperous tomorrow was best realized if society could self-organize as a spontaneous order today.

More found an early ally in fellow USC graduate student Tom W. Bell. Like More, Bell adopted the transhumanist philosophy and favored More’s joyful and free approach to achieve it. He decided that he would help spread these novel ideas by writing about them under his own new future-looking pseudonym: Tom Morrow.

To encapsulate their vision, Morrow coined the term extropy. An antonym of entropy—the process of degradation, of running down—extropy stood for improvement and growth, even infinite growth. Those who subscribed to this vision were extropians.

More outlined the foundational principles for the extropian movement in a few pages of text in “The Extropian Principles: A Transhumanist Declaration.” It included five main principles: boundless expansion, self-transformation, dynamic optimism, intelligent technology, and—as an explicit nod to Hayek—spontaneous order. Abbreviated, the principles formed the acronym B.E.S.T. D.O. I.T. S.O.

“Continuing improvements means challenging natural and traditional limitations on human possibilities,” the essay declared. “Science and technology are essential to eradicate constraints on lifespan, intelligence, personal vitality, and freedom. It is absurd to meekly accept ‘natural’ limits to our life spans. Life is likely to move beyond the confines of the Earth—the cradle of biological intelligence—to inhabit the cosmos.”

Like the transhumanist vision that drove it, the extropian future was ambitious and spectacular. Besides life extension, arguably the central pillar of the movement, extropian prospects included a wide array of futurist technologies, ranging from artificial intelligence to space colonization to mind uploading to human cloning to fusion energy.

Importantly, extropianism had to remain rooted in science and technology—even if in often quite speculative forms. Extropians had to consider how to actualize a better future through critical and creative thinking and perpetual learning.

This called for “rational individualism” or “cognitive independence,” More wrote. Extropians had to live by their “own judgment, making reflective, informed choices, profiting from both success and shortcoming,” which, he explained, in turn required free and open societies where diverse sources of information and differing perspectives are allowed to flourish.

Governments, in the extropian view, could only hinder progress. Taxes deprive people of the resources to produce and build; borders and other travel restrictions could prevent people from being where they are of most value to the global society; regulations limit people’s ability to experiment and innovate. “Centralized command of behavior constrains exploration, diversity, and dissenting opinion,” More concluded.

The Subculture

In the fall of 1988, More and Morrow published the first edition of a new journal called Extropy, marking the de facto launch of the extropian movement. Though they had printed only 50 copies of this first edition, its subscribers soon included computer scientists, rocket engineers, neurosurgeons, chemists, and more. Among them were notable names, such as the pioneering cryptographer Ralph Merkle and the Nobel Prize–winning theoretical physicist Richard Feynman.

More believed that religion was irrational, but he also thought it served the important purpose of imbuing humans with a sense of meaning. Extropianism, he argued, had to provide a replacement for that. “The Extropian philosophy does not look outside us to a superior alien force for inspiration,” he wrote in 1989. “Instead it looks inside us and beyond us, projecting forward to a brilliant vision of our future. Our goal is not God, it is the continuation of the process of improvement and transformation of ourselves into ever higher forms. We will outgrow our current interests, bodies, minds, and forms of social organization. This process of expansion and transcendence is the fountainhead of meaningfulness.”

The extropian perspective on life would over the next couple of years manifest itself as a small and local Californian subculture with distinct habits and rituals. The extropians had their own logo (five arrows spiraling outward from the center, suggesting growth in every direction), and they congregated at an unofficial clubhouse (or “nerd house”) called Nextropia. They developed their own handshakes (shooting their hands with intertwined fingers upward to only let go when their arms stretched all the way up—the sky’s the limit!), they organized events (where some of them wore extropian-themed costumes, such as dressing up as space colonists), and a number changed their names. There was an MP-Infinity and an R.U. Sirius.

As the extropian community grew from a few dozen to a couple hundred people, More and Morrow in 1990 launched the Extropy Institute, with FM-2030 as its third founding member. The nonprofit educational organization would produce a bimonthly newsletter, organize extropian conferences, and—cutting-edge for its time—host an email list to facilitate online discussion. While email was still a niche technology, the tech-savvy and future-oriented extropians generally knew how to navigate the newly emerging internet.

High-Tech Hayekians

Drexler had joined the extropian community shortly after it was established, as had several of his friends—fellow technologists who worked on some of the most innovative and challenging projects of the day. One of them was Mark S. Miller, at the time the main architect of Xanadu, an ambitious early hypertext project. Founded in 1960, Xanadu was still a work in progress 30 years later.

As part of the project, Drexler and Miller had throughout the 1980s published several papers on allocating processing power across computer networks. Computers, they proposed, could essentially “rent out” spare CPU cycles to the highest bidder. Self-interested computers would allocate their resources across the network through virtual markets to maximize efficiency, all without the need for a central operator. This would allow computing power to be used wherever it was most valued while encouraging investment in more hardware if there was sufficient demand for it.

Drexler and Miller were using Hayek’s free market insights to design computer networks. They had studied Hayek’s work on the advice of another Xanadu contributor, their mutual friend Phil Salin. A futurist with degrees from UCLA and Stanford University, Salin liked to merge free market insights with cutting-edge technology. Most notably, he had by the mid-1980s concluded that the time was right for a private space transportation industry and launched one of the decade’s most ambitious startups, the private space launch company Starstruck. The three of them—Drexler, Miller, and Salin—had in 1990 been dubbed the “high-tech Hayekians” by the economics journal Market Process, a nickname the trio accepted with pride.

AMIX and Cryonics

Though it successfully managed suborbital launch in1984, Starstruck ended up a commercial failure. Salin found that the U.S. government made it practically impossible to operate a space transportation business, since the taxpayer-subsidized space shuttle was undercutting the market.

But that wasn’t Salin’s only project. Besides advising Drexler and Miller, he’d also been publishing papers and essays about the economic effects of the computer revolution. These became the basis for yet another ambitious endeavor: Salin would create an online marketplace for buying and selling information. Although not as spectacular as launching rockets, he believed this project could change the world in an even bigger way.

Called the American Information Exchange (AMIX), this marketplace could sell any information people were willing to pay for. It could include advice from a mechanic on how to get an old car running again, or a few lines of computer code to automate the accounting at a dentist’s office, or a blueprint design for a new vacation home in the Florida Keys. If it was information, it could be sold on AMIX.

Salin believed AMIX’s greatest benefit would be a sharp reduction of transaction costs—that is, the costs associated with making a purchase, including opportunity costs (the “cost” of having to miss out on other things). A transaction cost could, for example, be the opportunity cost of doing market research to find out which insurance provider offers the best deal, or the cost of calling different liquor stores to find out which one sells a specific brand of wine. On AMIX, people could instead pay someone else to find the best insurance option for them, or purchase information about liquor stores and their inventories. If anyone on the information market offered these services for less money than it would have effectively cost the prospective buyers to find the information themselves, trading for it over AMIX would decrease the transaction cost of the purchases, making insurance, wine, and many other goods and services cheaper.

Society would benefit tremendously from such an efficiency gain, Salin believed, because lower transaction costs would make certain trades worthwhile that otherwise wouldn’t have been. More trade means a better allocation of resources across the economy via spontaneous order.

AMIX was a visionary concept. But it was also way ahead of its time. When AMIX went live in 1984, Salin and his small team had built the marketplace from scratch. The reputation system they developed was the first of its kind, as was their dispute resolution tool. Since no online payment processors were operational, they had to implement that themselves as well. Even websites didn’t exist yet, which meant that AMIX users had to establish their own network—a network they had to access via dial-up modems, since there was no broadband internet yet. Unsurprisingly, the project was off to a slow start.

Sadly, Salin didn’t get to develop AMIX much further: Shortly after the project’s launch, he was diagnosed with stomach cancer. He sold AMIX to the software company Autodesk in 1988, and it shut down the project in 1992—just after the high-tech Hayekian had passed away at the age of 41.

But for extropians, there is always hope, even in death. If indefinite life spans are really within reach for mankind, as extropians believe, dying just before this transhuman breakthrough adds a bitter layer to the tragedy. To stumble with the finish line in sight—perhaps just a few decades early—would mean the difference between death and eternal life. So extropians adopted a fallback plan: an escape route to bridge the gap. The extropians embraced cryonics.

Today, five facilities across the U.S., China, and Europe cryopreserve a couple hundred bodies and heads of dead people. Those people signed up to be frozen (in whole or in part) as soon as possible after clinical death, to be stored in subzero temperatures. Over a thousand more people have signed up to have their bodies or heads thus preserved.

Although clinically dead, the people kept in biostasis are essentially waiting for science to advance to the point where they can be unfrozen, resurrected, and cured from whatever ills had gotten the best of them. They would wake up a few decades into the future in good health, all set to participate in the transhuman future.

So goes the theory. There is, of course, no guarantee that such resurrections will ever be possible. With today’s technology, it certainly isn’t. But with tomorrow’s technology, who knows? Even if one estimates that the chance of success is (very) slim, the odds of eventual revival may reasonably be estimated as greater than zero, and that’s a bet Salin and other extropians were willing to make.

Digital Cash

The extropian movement, like More himself, was naturally at home in California. Silicon Valley had become a global hot spot for innovation, attracting some of the most ambitious technologists, scientists, and entrepreneurs to the West Coast.

But there was a notable exception. By the early 1990s, some extropians had become convinced that a small startup halfway across the globe was developing a particularly important technology: electronic cash. And David Chaum, who had launched a company called DigiCash in 1989, appeared to be holding all the cards.

For at least one extropian, a computer scientist named Nick Szabo, that was reason enough to head to Amsterdam and work for DigiCash. Meanwhile, the game developer Hal Finney was advocating the importance of digital cash to his fellow extropians in hopes of getting more of them involved. Spread across seven pages in the 10th issue of Extropy, published in early 1993, Finney detailed the inner workings of Chaum’s digital cash system, and—tapping into the group’s libertarian ethos—explained why extropians should care.

“We are on a path today which, if nothing changes, will lead to a world with the potential for greater government power, intrusion, and control,” Finney warned. “We can change this; these [digital cash] technologies can revolutionize the relationship between individuals and organizations, putting them both on an equal footing for the first time. Cryptography can make possible a world in which people have control over information about themselves, not because government has granted them that control, but because only they possess the cryptographic keys to reveal that information.”

Other extropians generally came to share Finney’s concerns, and they understood why electronic cash offered an important part of the solution. Moreover, as they learned about cryptographically secured money, some extropians started toying with the idea that electronic cash had huge benefits even beyond privacy.

Where Chaum had mainly been concerned with the anonymous features of digital currency, these extropians began to consider what it would mean for government monopolies on monetary policy. By 1995, a special Extropy issue was devoted to digital cash. The cover prominently featured a blue-reddish mock-up currency bill where instead of some head of state, Hayek’s portrait appeared. “Fifteen Hayeks,” the denomination read. It was supposedly issued by the “Virtual Bank of Extropolis.”

Competing Free Market Currencies

In one article inside the issue—”Introduction to Digital Cash”—the software engineer Mark Grant speculated that digital money could be used to establish local currencies. He also suggested one particularly spicy way of backing Chaumian cash.

“Just as the personal computer and laser printer have made it possible for anyone to become a publisher, digital cash makes it possible for anyone to become a bank, whether they are a major corporation or a street-corner drug dealer with a laptop and a cellular telephone,” Grant explained. “Indeed, as national debts continue to increase, many people might see an advantage in using cash backed with, say, cocaine instead of cash backed solely by a government’s ability to collect taxes.”

Another contributor, the web engineer Eric Watt Forste, wrote a rave review of the economist George Selgin’s The Theory of Free Banking. The book, which offers an elaborate account of how banking infrastructure could develop in an unregulated, denationalized environment, could offer a blueprint for the digital domain as well, Forste suggested: “While crypto mavens are busy explaining how these banks could function technologically, the theory of free banking explains how they could function economically.”

Lawrence White, Selgin’s closest ideological ally in the free banking movement, contributed an article to the journal as well. Although it mostly offered a technical comparison between electronic cash schemes and existing payment solutions, White slipped in a hint of how digital currency could dramatically upset international banking dynamics: “One major potential advantage of electronic funds transfer via personal computer is that it may give ordinary consumers affordable access to off-shore banking.”

Perhaps most notable of all, More took it upon himself to summarize and present Hayek’s seminal 1976 book on competing currencies, The Denationalisation of Money. Hayek’s work had shaped extropianism. The Austrian’s insights regarding distributed knowledge, free markets, and spontaneous order had been a core source of inspiration when More formulated the movement’s organizational principles. Now, More asked his fellow extropians to consider one of Hayek’s more radical proposals, an idea that had until then gained limited traction. Inflation is caused by government expansion of the money supply, More explained. The central bank’s interest rate manipulations cause economic instability. And “the monetary system enabled undisciplined state expenditure,” he wrote. “Raising taxes generates little enthusiasm, so governments often turn to another means of finance: Borrowing and expanding the money supply.”

Each of these ills hampered economic growth, and that curtailed human progress. But those ills could be remedied, More argued, if we followed Hayek’s advice and left money to the free market. If the state monopoly on money could be abolished, competition would give private currency issuers an incentive to offer more desirable forms of money.

More knew that this wouldn’t come easily. Since governments benefit from their monopoly the most, they had no incentive to abolish it and every reason not to. Yet More saw that technological innovation could fast-forward positive change. Hayek’s vision could be realized by leveraging the recent interest and innovation around electronic cash.

It was trivial for governments to enforce a money monopoly when banks were easy to locate, regulate, tax, penalize, and shut down. But when banks can be hosted on personal computers on the other side of the world and operate with anonymous digital currency, the dynamic would change dramatically. Governments wouldn’t formally abolish the money monopoly, More figured, but the right set of technologies could make this monopoly much harder to enforce.

And so the founding father of the movement called on extropians to consider transactional privacy and currency competition in tandem.

“Competing currencies will trump the present system by controlling inflation, maximizing the stability of dynamic market economies, restraining the size of government, and by recognizing the absurdity of the nation-state,” More wrote. “Pairing this reform with the introduction of anonymous digital money would provide a potent one-two punch to the existing order—digital cash making it harder for governments to control and tax transactions.”

More concluded: “I deeply regret Hayek’s recent death….Not having been placed into biostasis, Hayek will never return to see the days of electronic cash and competing private currencies that his thinking may help bring about. If we are to remain the vanguard of the future, let’s see what we can do to hasten these crucial developments. Perhaps we will yet see a private currency bearing Hayek’s name.”

These seemingly outlandish ideas in small-circulation zines in the early to mid-1990s finally came to fruition in a world-changing way by the end of the next decade, when bitcoin emerged as Satoshi Nakamoto’s brainchild and made free market money something the world’s biggest financiers and bankers could no longer ignore.

This article is adapted from The Genesis Book: The Story of the People and Projects That Inspired Bitcoin by permission of Bitcoin Magazine Books. 

The post How 1990s Libertarians Laid the Groundwork for Cryptocurrency appeared first on Reason.com.

what you need to know

in your inbox every morning