Secure communications

User-managed groups revolution as business
1

Are there any experts in clandestine communications here?

I’ve written a program that encrypts/decrypts messages using one-time pad type of security. There are 2 versions, actually. One version generates cryptographically secure numbers to a file that is a couple of meg in size (configurable). The generator is not seedable, so the other party would have to have the same key file to read a message.

The other one is less secure, but handy. It can seed off the date, or anything else that changes consistently. The decryption can essentially reproduce the keyfile based on the date/etc. It is less secure, but could be adequate for messages that go stale fast, or are not that sensitive.

My question is, what is a good way to verify trust? If everyone downloaded a copy of the software (even source to modify), how do we know the program didn’t fall in the wrong hands? If this were the only message, and it said “get software now. It will be deleted in 1 hour…” then the “enemy” would be SOL if they did not see the message for an hour. They would have lost the opportunity to get the software, and the encryption is virtually impossible to break because it is not based on an algorithm.

The Internet kill switch is a fantasy, but a program that can send/recv text on an arbitrary port number might be handy. There is no way they can block all ports. It would blind the government too.

2

I think I found my group right here!

Keith, you have a part of the key to an Idea I have for peer to peer banking. I have a rough outline of the system at deefburger.blogspot.com

Some of what I have posted there is rough text. I didn’t polish it at all and was using the blog to post some of the idea. That post is a little out dated from what I currently have, but the basic premise is still valid.

My system is a Trust based system. Philosophically analysed, trust is based on memory and consistently truthful query. The system uses distributed storage of trust information that is non encrypted and can be queried on demand. But the value portion of the system is highly encrypted and must use shared keys to unlock.

The idea is that the memory of individual transactions as having been completed with both parties satisfied is a data point for trust. As a community of individuals transact, they build a trust memory in the community at large. As time goes by, and more and more value is transfered between parties, Trust in the community grows, as well as the wealth that is created by the individual participants.

Another key feature of the system is the base. It can use any widely traded commodity as a base for valuation, but uses an ounce of gold as the base value by default. It does not require the holding of the commodity, as the base is used as a unit of measure. Actual holding of specie is allowed but not necessary.

Any wealth accumulated by an individual has a memory in the community at large and so if an individual element is stolen or lost it can be re-created on-the-fly. It is very hard to steal wealth from anyone in this system.

The system is an ad-hoc peer to peer network of Trust elements, called Witnesses, with User controlled elements called Elements on top. The Witnesses do the encryption and communications. Messages are routed between Witnesses.

Would you be interested in hashing out this crazy scheme? I’m a Computer Consultant but not much of a code jockey. My love is Philosophy and Applying it.

3

Is there any way of extending the concept into making an economic entity into its own bank. We know credit expansion causes booms and busts and global credit expansions boom and bust the whole economy. I read a paper on here that implied that booms and busts could even be caused by the time preference differential inherent in banking. For example, a Demand Deposit is due at any time by the bank, but the loans lent out are due in several years. Credit expansion can even occur in 100% reserve setting if short term bonds are used to back long term loans. With the Internet, banking as such is an obsolete concept. If a company could issue its own medium of exchange, clearing houses could convert those credits to the value of the credits issued by other companies in the system. Any business cycles would be limited to very small portions of the economy.

I’ve been trying to theorize what to use as a universal base in such a system and you seem to have the answer. I’m working out all the details of how this would work, but I think what you have is similar to what I am thinking. BTW: I have plenty of coding experience…

4

“I’ve written a program that encrypts/decrypts messages using one-time pad type of security. There are 2 versions, actually. One version generates cryptographically secure numbers to a file that is a couple of meg in size (configurable). The generator is not seedable, so the other party would have to have the same key file to read a message.”

If the key file was put on a USB stick it would be ultra secure. Could the software be designed such that you could distribute the software freely and sell the key files separately?

5

I wouldn’t sell the keys. I would make it so that they could be generated by the user or recreated by the user with the correct pin and password. The idea here is that the user could re-generate their entire or at least the majority of their portfolio from the memory of transaction stored in all the other elements they transacted with. This feature solves the problem of theft by making the stolen device unusable except with the correct pin and password, and so the replacement element can be made live before the stolen unit is cracked, Then the history can be changed by the proper user by doing a key change on the newly created and unlocked element. The stolen element would not have the new keys even if it were unlocked.

In my system, each user is a “bank” unto themselves. The system is basically all the other elements that that user transacted with. The memory is distributed among the community “system” of “banks”. With each element using a highly encrypted user layer, as well as an open source witness layer for trust information, the system supports itself.

Have you looked at deefburger.blogspot.com? ITES and EVES are basically the same system, with EVES being an entirely electronic version of ITES.

The design goal of the project was to solve all the problems of gold money hard currency using modern technology and the modern attitude about electronic funds transfer.

Sound Money (gold or silver coin) problem areas:

Cetralization of monetary media creation and control.

Theft and carry loss.

Storage

Advantages of Sound Money:

Trust is built in

Value stability and Measurement stability.

Universally acceptable medium

No bank needed for exchange as third party arbiter of value.

The hardest problem to solve was the trust problem. All the others were fairly simple once that one was solved. This is why originally I called it Individual Trust Exchange System or ITES. The trust issue is tricky. It is what breaks a bank now when that bank fails. Part of the bank’s problem in failure is the inability to pay back because they are leveraged, but this only affects it on the surface. What is more important to the community that uses it is the loss of trust. That loss of trust will ultimately close the doors of the bank even if they are financially sound. The trust that we use today is held by the reputaion of the banking system used. This is why the banks refuse to do the tax collecting themselves. If they did, they would lose the trust of the populace and no one would put their money in the bank because they would not put their TRUST in that bank!

Instead, when the FED was created, the bank system was set up to remain separate in the minds of the people so that they could be “trusted” with the money. The IRS was created at the same time to be the tax collector. The only reason for this is that if the FED used its built in ability to directly access the funds on deposit for tax collection, the banks coffers would be emptied overnight. Why? No trust.

Trust is what makes or breaks a bank or banking system. Everything else is just currency and exchange.

6

There are two things I don’t understand about your system. Let me preface my question by this statement – money is a medium of exchange.

  1. You value goods with fiat gold based on local currency. If there is local currency isn’t there local banking as banks would have to issue the notes?

  2. Why does not completing an exchange imply bad trust? If I get a quote for a good but can’t find a price that satisfies me that seems to be a mark against me in your system. Isn’t the trust in a medium of exchange the trust that the money can be exchanged as a universal good?

I like the idea overall.

7

I am enjoying Deef’s idea as well. Where has he gone?

8

Question number 1: The system can operate independent of local currency. If the local currency is exchanged, then the exchange rate is agreed upon during the transaction. As a reference, the London spot price that day could be used.

Question number 2: An incomplete exchange is incomplete. Until it is either withdrawn or satisfied it remains an error. There are are only two possible outcomes that are not errors, 1:1 which is a complete transaction, and 0:0 which is an aborted transaction. Neither is an error. Only 0:1 or 1:0 remains as either an error or incomplete. The system does not judge, just records and remembers.

9

I’ve been busy with Physics and Metaphysics projects. I do monitor Mises any way. Thanks for the feedback.

10

And I though I was the only crazy person plotting an online, commodity based bank! But it looks like while I’ve been day dreaming you guys are actually working.

But you know I don’t think I’m that crazy anymore. I’ve been seeing more and more things like this http://www.wired.com/magazine/2010/02/ff_futureofmoney, and I’m sure that at some point the current banking system will be replaced with something along the lines of what you guys are discussing.

Deef, I’ll have to go check out your blog.

Cheers,

Michelle

11

A decade ago I worked for gold-based payment systems like e-gold. Even back then we were talking about how online commodity-based payments would revolutionize money and free people from the state. We read Cryptonomicon and said, “Yeah, that’s the future!”

Then it turned out that the only significant market was Ponzi schemes, who were attracted the those systems’ non-repudiability rather than their commodity backing. Don’t get me wrong, I’d love to think that things might have changed. But have they?

-=Steve=-

12

Hello Michell and Steve,

Yes, the electronic part of the system was pretty easy. The real problem lies in the trust portion of the problem. Everyone who looks at how things are now in the Internet Age of electronic funds transfer sees the possibility, but can’t see the means without some central authority to “clear” the transactions and take responsibility for the possibility of error in the transaction or fraud. This trust aspect is currently handled by the central bank, ultimately. This is why having deposit insurance, having a bank, and having some legal recourse is necessary.

I solved the problem by spitting the trust function from the user interface and then creating a communication system that was completely encrypted within the trust-communication layer. The details of which are outlined in the blog post.

Basically, trust is built from a history that is distributed through the ad-hoc distribution of the transactions themselves as well as the database of outcome. An outcome has only four states, happy:happy or 1:1, not-do:not-do 0:0, or error/incomplete 0:1, 1:0. This is the the measure of the individual’s history of transaction. For a community, it is the basis of trust for transactions with new individuals from other communities. The larger the community, and the better the trust level within that community, the easier it is to do business with new people from far away places. Even today, the central nature of banking prohibits the opening of new markets because of exchange difficulties in trusting overseas banks and individuals.

I have seen the results of the central bank model in online game systems, which are cloistered economic systems, until someone gets the idea that they can actually act as an exchange bank by selling their online “money” for real money on Ebay and then transfering it to the other player within the game system. The operators of the game then go nuts and start playing games with the money in the game, in a vain attempt at re-establishing their control over the economy! Sounds familiar doesn’t it? The changes they make to this one aspect of the game can destroy their customer’s trust in the system, especially when all the “money” they thought they had accumulated is suddenly withdrawn by the central authority for violations of policy.

Only a decentralised, ad-hoc trust system can avoid this sorry circumstance of power.

The other problem for any currency is measurement. As Mises clearly shows, the real value in any transaction is subjective and dependent upon the individuals negotiating the exchange. As long as the measuring device is stable over time, such as commodity money, then the valuation of other goods and services can also enjoy some stability even though the actual valuation is subjective.

The biggest problem in a fiat money system for the users of such a system is the inability to measure value consistently. This is the biggest part of the gaff. This is what lulls people into an acceptance of inflation.

I collect antique poker chips, whist chips, and dice. I study the history of these things and learn how they were used and misused. Gaffs are cheats. Loaded dice, stacked decks, and so on have specific areas of apparent regularity, but with hidden irregularity. This hidden aspect of the gaff is utilised and leveraged by the theif, who uses the regular appearance of the gaff to defraud the unsuspecting mark.

Some of the gaffs I have come across were used by the casino to break a card counter, or drop a particularly lucky big bucks patron before they broke the house. Think Goldman-Sachs, Lehman, AIG. The house won this last round. Lehman and AIG were the coolers. The purpose of the failures of those firms was to take the heat off the house, even though they are technically “the house”. A casino will stack the table with their own losers to make the mark feel as though he’s not alone, and to take the blame if he suspects any wrong doing. It’s an old art, cheating.

With this knowledge of gaffs in mind, I developed a simple system with no central authority to corrupt. Instead, if any part of the system fails to opperate strictly within the confines of the trust system, then the system rejects that part, more and more as the error 0:1 1:0 conditions in their history increases. With the memory of these errors distributed throughout the system among the the other units involved, there is very little chance of a concerted gaff, and also an automatic means for the system to identify and eventually to eliminate the offending parts. This could even include an entire nation being isolated from the rest of the world economy because of their government mishandling the people and the system.

Government with access to Fiat money and control of that banking system will operate eventually, as a casino. And a crooked one at that. The regular patrons will be the ones who end up broke. The high rollers will be kept happy until needed, then hosed off and tossed out the door when they are no longer needed. Again, I say look at Lehman, GS, and AIG. This tossing is a part of the show. It’s for the benefit of the patrons, so that they can continue to trust the house. And a warning of what will happen if they refuse to play by the house rules, whatever they may be, and a few free-plays tossed around to cheer up the rest and “apologize” for their loss.

So this system had to avoid the centralization of the system entirely, and be able to adjust should the attempt to centralize it were to be made. Any centralization that was not naturally created by voluntary exchange within a community would be shunned away by the system automatically with the increase in error accumulation that centralization and manipulation would create within the distributed trust system.

13

Sorry about the giant paragraph. The system dumped my formatting!

14

Ya, it dumps my formatting too, so I’ll just apologize now for what I’m sure will be the following huge paragraph.

Deef, very interesting way of looking at things, I like the casino analogy.

I also like the purity of your idea. But I think that it’s some thing that will happen only after people “trust”, or as I would put it, start to think its “normal” to exchange wealth outside of a state controlled banking system. What has gotten me exited about this stuff lately is how un-“crazy” online and international exchange has become. Paypal is a very well known, well respected business. I’ve been using paypal to send money to people back in the States and no one finds it unusual to use this private, internet based business to transfer wealth between countries and currencies. And to read about this stuff in Wired magazine, again a well know, well respected magazine that I picked up off the shelf at my local news stand. I feel that the technology is there and people are getting comfortable with it.

But I’ve only been paying attention to this sort of thing for a few years now. So I’ll have to ask you guys….Do you feel that people are becoming more and more comfortable with new and internet based ways of transferring wealth?

If you created buygoldtoexcapethestate.com, it might not do so well. But if you made paybuddy.com, and created an iphone app for it, well it might catch on. I think the way some thing like this would start to happen is to have a paypal like business who allows people to transfer money between currencies and to store money in a commodity via something like goldmoney.com. Of course you would still have to convert your gold into a fiat currency to buy groceries, but it would be a way for people to at least partially escape what I think is an impending serious inflation, and a way for them to grow more comfortable with alternative ways of doing things.

Also, I don’t think most people think in terms of “centralized” or “de-centralized”, they simply use and trust things and are normal and that their friends use.

15

I got the idea from many of the things you say. Mainly it was the learning of the use of cell phone minutes in third world countries in place of currency. That did it for me. I realized that the tech in a phone includes, these days, Bluetooth and WiFi with ad-hoc connection capability, and text messaging. With ad-hoc connections which can only happen physically locally, the central authority, in this case the cell phone company, can be eliminated from the causality of the exchange. But to do this, another system of trust must exist to replace that role lost by not using the cell phone company.

Encryption was another problem that could be broken. So I figured if the data that was encrypted was encrypted with different keys, and distributed amoungst different elements, then a full decryption, even with quantum computation, would not be possible except through seizure of an entire communities units. With this in hand, I also realized that the distribution of the data also functions as a distributed backup of the data. A unit that is lost or stollen can be recovered by recreating it with the same encryption keys and passwords, and then recovering transaction history from the community. The stollen/lost unit could be flagged as such, and the new MAC address of the replacement unit would be replaced in the exchange data. No loss from stealing or seizure or circumstance.

With an ad-hoc, multi-path routing protocol, the units can store and forward for those units they can see, when they see them.

My favorite pastime, (when I’m not doing any of the other favorites), is thinking of third-world solutions to engineering problems. This struck me as a major third-world problem/solution that could find it’s way back to first-world use pretty quickly. The biggest problem being the central control of monetary production/distribution, and the trouble that creates for the common man.

If such a system found it’s way back, the Central Banks and governments would fight it tooth and nail. But this fight would probably be the end of them, because their power is not sourced from their political position, but instead from their ability to seize funds. That ability would vanish with a trust system like mine. I tried to make it capable of sustaining direct attack in this way, and from that place.