Bimetalism and the Free Silver Movement.
The Coinage Act of 1792 established free coinage in the United States, where individuals could bring gold or silver to the mint to be cast into coins of special monetary value. The mint could be paid for this by subtracting a seignorage, as a rent for enforcing the money supply. Because either gold or silver were coined, the situation was called bimetalism. It is also commodity money, in that the face value should be equal to the value as metal.
Various coinage acts adjusted the official values of silver and gold according to the relative supply of the metal. However, problems arise when the relative values change rapidly, and in fact one could make a risk free profit by trading the coins at face value then melting them down to metal and doing the opposite exchange at the favorable market price of the metal.
The Coinage Act of 1873 ceased the free coinage of silver. Those opposed to the act called it the Crime of '73, and saw it as a theft by the large bankers and industrialists against the common farmer. William Jennings Bryant ran for the U.S. Presidency in 1896 and 1900 on the Free Silver Platform to restore free coinage of silver.
The coin pictured is a satirical comment on Bryant's position, illustrating how much less than one "gold's" dollar of silver would be called a monetary dollar by the government coinage. This would be, essentially, an easy money policy were one dollar of "banker's money" (gold) converted to two dollars of "farmer's money" (silver). His speech to the Democratic National Convention in Chicago on July 9, 1896, includes the famous line,
You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold. -William Jennings Bryant, 1896.See here.
The Free Silver movement features in the first Wizard of Oz book (1901). The silver slippers (ruby in the movie) and the yellow brick road represent the choice of bimetalism versus the gold standard, and the scarecrow being the natural wisdom of the common farmer.
Why are we here.
To learn about the blockchain.
Cryptographer Silvio Micali has proposed that the blockchain is to the cybersphere what the development of aqueducts were to western civilisation. The progress in the cybersphere is hampered by proper security elements. What we have now has so far lasted by the good will and good behavior of the participants. Just as Roman cities grew, eventually it was not enough to simply hope for the requirements, such as water. The vast communal project of aqueducts brought water from far away so that the cities could continue to grow.
So too the communal project of blockchains brings solutions to the needs of a growing cybersphere. It solves many problems that plagued cryptographers in their work towards recreating in the cybersphere the real world ceremonies that underpin our social lives.
The format of the course is new. I looked for inspiration to University of Berkeley, and Blockchain at Berkeley, a DeCal course. This motivated the one day a week format, to open up the curriculum to accommodate more student interest, more choice, and to enable an education of students by students, with the university's role being: (1) to providing the common meeting place, (2) to bring those investments for appropriate facilities, and (3) providing contact with the academic community that is an important driver of progress.
So we are also here to, in general, experiment with the University as a student-centered learning environment; I hope not so much to teach as to lead learners.
Why I am here.
I have a long background in the application of cryptography to problems with a social component: be it issues of money, or voting, or contracts. I will provide my perspective on what has happened all these years, towards the creation of Bitcoin and the Blockchain; and to explain in the depth you find useful the mathematics that makes it work; and to help organize projects that you should undertake to internalize the concepts, and enable your creative involvement in the technology.
I also have a background in mathematical finance, for instance in the courses I give on option pricing, and I have some background on financial theories. As well as an interest in the history of money.
The History of Electronic Money
Useful background here is my primer on crytography, of which I would like to excerpt some information about the Crypto Wars. The cipherpunks and crypto-anarchists that lead the development of e-money were very much involved in the Crypto Wars, and having background will help you understand the motivations.
From my Primer on CrytographySince the founding of the NSA (also known as the "No Such Agency" agency) in 1952 by President Truman, there has been a question as to the legal status of civilian cryptography. As electronic communication and especially banking became prevalent, there was a need for secure communications. To some extent, the government was reluctant to cede control over the use of and knowledge about encryption. DES was created by IBM to be a standard commercial encryption for banking. It was developed in collaboration with the NSA and for years there were questions about NSA's role in the collaboration.
As the date at which DES was made a national standard for encryption and the date of announcement of the creation of Public Key Cryptography by Whitfield Diffie and Martin Hellman, 1976 marks the beginning of some difficult decisions by the government concerning the direction and accessibility of cryptography for and by civilians. This period is called the Cryptography Wars. The reference to read concering this is Privacy on the Line by Whitfield Diffie and Susan Landau. Also University of Miami Law Professor Michael Froomkin was very much involved in this topic (see It came from planet clipper: The battle over cryptographic key escrow).
In a short period of time, cryptography went from an occult art or literary pastime to a mathematical science integrally linked to the information age and of great political interest to the government. The government exercised two forms of restraint on civilian cryptography.
- First, prior restraint: research on cryptography may have had to be reviewed by the government, and the the government must permit publication.
- Second, cryptographic equipment is considered either a munition, and its export is controlled by the Department of State subject to the Arms Export Control Act and the International Traffic in Arms Regulation (ITAR), or a dual-use item, and its export is controlled by the Department of Commerce subject to the Export Administration Act.
This became an issue as the effective life of the DES standard drew to a close. DES, created in a respectful and enlightened collaboration between IBM and the NSA, was an effective cipher. It is limited, however, by its short key length. All ciphers have keys, and guessing the key, or finding the key by trial and error, is always a threat, lessened by the fact that there are some many keys to try. For DES, there are 72,057,594,037,927,936 keys (this is called 56-bit security). In 1976 this was a lot of keys. Computers in those years would take centuries to search through the key space. In 1998 a group called the Electronic Freedom Foundation built a $250,000 computer that took 56 hours to complete the search. A new standard encryption algorithm was needed.
The United States government was wary of a new algorithm that was too strong. At the time, encryption in excess of 80 bit keys could not be exported. On the other hand, commerce demanded good security. Companies such as Sun opened up development offices outside the United States for their cryptographic development. Meanwhile, in 1993 the United States government suggested the use of Key Escrow and the NSA secret Skipjack algorithm in the tamper-proof Clipper Chip as a compromise.
As noted in the boxed quote, the Crypto Wars were ushered in because,
DigiCash differs from Bitcoin in at least two important ways,
Hashcash
An early suggestion to defeat spam was for servers not to accept mail without a payment associated to the email. The payment was to be made in computation cycles, evident from the sender of the email having solved a sort of puzzle. What is needed is,
Hence, given mail M, the puzzle is find an x such that f(M||x)=y is of a certain form. Usually that y end in m zeros.
(But see later on. While the original intuition is that Bitcoin is mined by hashing, and the Proof of Work is a certificate to memorialize the work down in the mining, the use of Proof of Work was eventually understood in a slightly different way.)
author: burton rosenberg
created: 13 jan 2019
update: 27 oct 2019
