At 8:27 AM 8/23/94 -0400, Peter Wayner wrote:
tcmay@netcom.com (Timothy C. May) wrote:
I don't think any of us on this list is yet ready to present a plan to real bankers. Eric Hughes has told me he agrees.
Real bankers may be well ahead of everyone on this list. I'm told that Citibank has some very intriguing work pending at the patent office. It's for digital cash.
Thank you. This is exactly the kind of stuff I've been talking about. Real bankers aren't completely necessary. This is why my thinking has changed on the subject. You need financial accumen to make sure you don't spend down your suspension account, but that (cash portfolio management) can be purchased from lots places besides real banks. The technology of digital cash is something that Citicorp thinks it has to reinvent. That's par for the course. But you don't need a real banker to run a secure www/Secure Mosaic node. You barely need real bankers to hook in to the ATM system as long as you can prove that nobody, including the underwriter, sniff the user's card swipe and PIN number. You don't need real bankers to make sure that the fraud laws cover double spending of digital cash. You don't need bankers to make sure that you comply with cash reporting requirements when money comes on and off the net. Wiring all the above together to make a digital cash underwriter is doable at a relatively small level, without bankers for the most part. This is why Citicorp, and other banks like it, are going to shoot themselves in the foot when they try. I 'm pretty sure, having worked for Citicorp myself, they spent big piles of money trying to engineer around Chaum (or anybody else). Chaum almost has a viable product, which will cost a whole lot less (even if he gets his cut of profits) to implement from the underwriter's standpoint. Citicorp has tried this "We are The Technologists" tack in Travel (CIMS), Point of Sale data collection (CPOS), Telephone Banking (they even invented their own dial up terminal!) and several other unrelated businesses. They failed because of an institutional mentality of Not Invented Here and a very centralized, top-down management style. They're not much different from most other very large banks, I'm afraid. Citicorp's early success in bank Data Processing during the late 60's and early 70's, first in ATMs (they aren't the largest any more by a long shot), and the credit cards (same here), makes them, and some readers of this list, think they are a 900lb gorilla when it comes to digital cash. They aren't. Neither is any bank, no matter how large they are. I'd be real interested to see if Citibank can beat an onslaught of smaller underwriters who can offer cash at smaller margins than they can. Folks, the costs of an operation like a digital cash underwriter aren't too difficult to imagine. The entry cost for the average underwriter (if the market is there to support one) is not nearly the amount that Citicorp is going to spend putting up theirs, and so Citicorp will loose money on this investment as well, and eventually back out. It's like people who go in to see the machine The Well runs on. Their jaw drops at how small the box really is. If Citicorp did it the machine would be 10 times bigger and cost 10 times as much, to justify their hockey-stick earnings estimate and a cast of a thousand managers and analysts. The thing that's important here is Grove's Law. Chips have an economic half-life of 18 months, which drops the cost of any computer based business accordingly, along with the costs of entry into those businesses. I've personally seen large companies go into a new high-tech service businesses and kill their entry with overengineering and bloated middle management. You see it in the Wall Street Journal all the time. At some point, if the market is there, there will probably be a consolidation in digital cash underwriting, and larger companies will emerge as economies of scale become evident. But to think that any company can come into a completely different operating paradigm and take over from the start just because they're huge somewhere else is probably not going to wash. Think about railroads and airplanes. If the railroads seriously tried to fund aircraft development, they would have gotten smeared. They would still be trying to make a steam powered plane fly the day Douglas delivered the first DC-3. The banks aren't the big bad monsters we fear them for. Their participation in the market is necessary, as is the participation of most financial instutions, but an Argumentum ad Bacculum with the Banks as the threat of force is pretty much a waste of breath. Sorry. I promise not to turn blue next time. Cheers, Bob Hettinga ----------------- Robert Hettinga (rah@shipwright.com) "There is no difference between someone Shipwright Development Corporation who eats too little and sees Heaven and 44 Farquhar Street someone who drinks too much and sees Boston, MA 02331 USA snakes." -- Bertrand Russell (617) 323-7923