I've continued to try to learn about what laws might restrict the issuing of electronic money. Banking is controlled at both the state and the federal level. One question was whether one could engage in bank-like activities without calling yourself a bank. Denning's California Codes, Financial, has this definition: ------ Section 102. "Bank" The word "bank" as used in this division means any incorporated banking institution which shall have been incorporated to engage in commercial banking business or trust business. The soliciting, receiv- ing, or accepting of money or its equivalent on deposit as a regular business shall be deemed to be doing a commercial banking business whether such deposit is made subject to check or is evidenced by a certificate of deposit, a passbook, a note, a receipt, or other writing; provided, that nothing herein shall apply to or include money or its equivalent left in escrow, or left with an agent pending investment in real estate or securities for or on account of his principal. It shall be unlawful for any corporation, partnership, firm, or individual to engage in or transact a banking business within this state except by means of a corporation duly organized for such purpose. ------ This seems to say that it's illegal to do these bank-like activities unless you either are a corporation specifically chartered to be a bank (in which case the many banking laws apply to you), or unless you are an escrow agent or a real estate or securities agent (in which case many other laws apply to you). The California financial codes are three volumes long, so there is a considerable body of law that one would have to be familiar with to consider engaging in such activies. Another approach I have thought of would be to buy and sell digital cash, calling it something else. It's legal to buy and sell other bit patterns, such as computer-readable pictures and software, so it should be legal to buy and sell these cryptographic items. The idea would be that for $1.00 you will sell someone a #1.00 crypto- cash file, either through email or over the counter if you wanted (on a floppy). Then, if someone comes to you with one of these #1.00 digital cash files, you will buy it back for $1.00. At one level you are simply buying and selling items just like the local dealer in baseball cards, but at another level you are a "money changer", converting between U.S. dollars and crypto-credits. The credits thus receive backing through your willingness to redeem them for dollars at any time. One issue is how certain people can be that you actually will buy back this crypto-cash for its "face value". Given that you're not actually a bank, not actually a money dealer, and therefore not bound by any regulations, there is nothing to compel you to continue to accept the crypto money. You could arbitrarily decide at any time not to buy it back any more, just like the local baseball card dealer. This, I think, is what makes this whole activity legal - you're not making any promises to "depositers" that they can get their money back. But, by the same token, it may prevent the digicash from being accepted. It would basically come down to your reputation for being trustworthy and committed. Another problem is the issue of sales tax. Using this "seller of bit patterns" model, you will have to collect sales tax from your customers who are within the state. From my experience selling software, you don't have to collect it for out-of-state customers. I don't know whether the state would also expect another "cut" when you buy the bit patterns back. But it sounds like there will be at least a 7% transaction cost to turn dollars into digital cash, which is probably prohibitive. One solution might be to do this from a state which doesn't collect sales tax. (Coin dealers here in California have some exemptions from the sales tax requirements, but I doubt whether these exemptions could be stretched to cover what I am proposing here. In other respects, though, that business is rather similar to what I am talking about, in that they do a lot of selling and buying back.) A related issue is whether this should be thought of as a business at all, or whether it could be a hobby. The fact is, you could actually make a lot of money at this, even though you buy and sell at the same price, by investing the dollars you are paid until you have to use them to buy the digital cash back. Still, given the apparent need to infringe or license both RSA's and Chaum's patents, I think running it on a "non-commercial" basis would be more acceptable, if that could be done. I suppose if you were careful to segregate the dollars used to purchase crypto-cash into a non-interest-bearing account, so you didn't make any money on them, you could call it non- commercial. (Actually, it's not 100% clear to me that RSA's patents would apply to a digital cash implementation, since their patent is for a communications machine, even though the algorithm is the same.) I'll let people know as I continue to learn more. Hal