Encryption: Cryptomoney
and the End of (Most) Taxes

Friday, September 10, 1999


Despite the U.S. federal government's best efforts, strong encryption technology is spreading rapidly.

In fact, the anti encryption policies of the U.S. and cooperating countries are causing the development of this technology to spread internationally, as the industry is forced to move work to jurisdictions from which it can be legally exported.

Naturally, this overseas technology will make connections with overseas banks and financial institutions, both legitimate and not so legitimate. This combination makes possible the creation of hidden, private currencies—currencies in which international business can be done invisibly, shielded from the eyes of both competitors and governments.

The effects of this change are hard to estimate. How quickly could this catch on? Is there an interface at which governments can exert pressure to stop financial transfers into standard accounts — clearly they can try, but such pressures do not prevent, for example, illegal drug profits from being laundered and transferred into the legal banking system.

It seems likely that legislation would be passed against cryptomoney, but what legal principle would be used, and would it survive the courts? From the outside, it would simply appear that a given bit string has a given monetary value—this is not different in principle from selling software bit strings, a legal act.

Which taxes may thrive — sales and ownership tax on physical objects, a "head tax," the dreaded bit tax?

How would cryptomoney and the battle against it affect existing industries and institutions, and are there specific leading indicators to watch? What business actions should be triggered by those indicators?

Is the expected government effort to prevent encrypted money likely to be so damaging that preventive action should be taken, and if so, what would this be? Since those taking these actions are politicians, and they are influenceable in various ways, should such influence be brought to bear earlier rather than later? Are there existing laws and regulations that need to be changed prior to cryptomoney's first appearance?

We look forward to exploring these and related questions with you on September 10, including work on how they may affect you and your organization specifically.

—Christine Peterson, Executive Director, Foresight Institute

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