Bitcoin and the cypherpunks: will recent breakthroughs in computer science make truly free markets a reality?

• Author: Epstein, Jim

UBER HAS MADE waves by undermining the government's hold over the taxi industry while making it easy for anyone with a car to become a driver and anyone with a phone to hail a car. But for some radical entrepreneurs, the ride service hasn't gone nearly far enough. Take Matan Field, a 35-year-old Israeli and theoretical physicist, who is the cofounder of a venture called La'Zooz. His aim is to bypass not just regulators but all kinds of middlemen, liberating the taxi industry from external controls altogether. And Field doesn't plan to stop there. "It's a new vision for the economy," he says, "that's much bigger than transportation."

Field is part of a self-branded "decentralization" movement coalescing around the idea that recent breakthroughs in computer science have made it possible for individuals to exchange goods and services without the involvement of any third party.

Some of the highest profile firms in tech--including Uber, Lyft, eBay, Etsy, and Airbnb--are essentially marketplace operators that facilitate trade between independent buyers and sellers. In return, they extract fees, put limits on who can participate in the market, and occasionally hand over personal information about their users to the government.

Not for much longer, perhaps. The theory is that these new decentralized marketplaces will allow anyone to buy anything from anyone anywhere with as much privacy as they want, and that repressive governments will have little recourse to stop them. Brian Hoffman, the project lead on an eBay-like decentralized peer-to-peer marketplace called OpenBazaar, says that getting to know his wife's Iranian family is part of what made him want to get involved. "It gave me a first-hand look at how hard it is for people to conduct any kind of online commerce across borders," says the 32-year-old developer. "Just to get an iPhone in Iran is such an encumbering process."

The decentralization movement takes the ethos of the cypherpunks--a community that came together in the early 1990s around the idea that cryptography could preserve online freedom by shielding communications from the government's purview--and extends it to the exchange of goods and services. The movement's philosophy, Matan Field and others say, is best summed up by a quote from the inventor and theorist Buckminster Fuller: "You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete."

But Field and his cohorts face a befuddling problem: How do they convince anyone--other than drug dealers and thieves--to actually participate in the elegant systems they're creating? A handful of these marketplaces launched late last year, and almost nobody is using them. Slow uptake is far from a death sentence for early-stage companies, but there are other reasons to fear that these entrepreneurs and techno-utopians are ill prepared for the challenges the old world presents for the new one they are trying to create.

Bitcoin and Decentralization Decentralized peer-to-peer marketplaces became technically possible only in 2009, when a shadowy figure calling himself Satoshi Nakamoto gave the world a new form of virtual currency called Bitcoin. More than just a new form of money, Bitcoin is also a protocol, or system for managing information, that has the capacity to undergird--and revolutionize--much of the Internet.

eBay facilitates trade among its users in a multitude of ways: by tracking the reputations of buyers and sellers, arbitrating disputes, and establishing ground rules about what can be bought and sold. It also hosts product listings on its servers and maintains a central ledger of who sold what to whom and at what price. Enter Bitcoin's core feature, the "distributed ledger," also known as the "block-chain," which allows strangers to trust each other without the involvement of a third party. In a nutshell, when bitcoins are traded between two parties, a record of the transaction is broadcast to the entire community...