At 5:37 am -0400 on 5/2/97, Adam Back wrote:
It's not an attempt to make money less negotiable, though this is of course the effect.
Say no more. :-).
It's just another approach to avoiding the banking regulations. As you admit the market will take care of the exchange mechanism, it just adds inconvenience in locating the exchange mechanisms, and the stigma that the mechanisms are not official.
The model I've been talking about, with a trustee bank holding the book-entry assets for the certificates on the net does exactly this, without the "inconvenience" of avoiding banking regulations. :-). Occam's razor.
So now you get to trust the trustee. Doesn't seem like a big improvement.
Again, you can't have finance without trust. Fortunately, in cypherspace, reputation is orthogonal to identity. No problem. You have identified accounts for the underwriters, but you have unidentified users (once the certificates are on the net) of the cash itself.
I don't think VISA and friends want anonymous settlement, they like comprehensive transaction logs to keep people like FinCEN happy. You're not suggesting that SET offers anonymity are you?
By definition, VISA *can't* have anonymous settlement. Modulo anonymous secured credit accounts, with a tip of the metaphor to Duncan and Co. And, frankly, FinCEN *itself* can't control a bearer certificate economy, and it *knows* so. If digital bearer certificates do prove to be, say, 100 times as efficient to use as book entries, particularly on ubiquitous geodesic public networks, then FinCEN will be able monitor what comes on and off the net, but will simply have to <analogy> stand back and let the net.commerce train go by </anology>. The assistant director of FinCEN as much as admitted this, on a panel I was on, last fall at the Institute (nee' Office) of Technology Assessment's conference on the regulation of digital cash. Again, folks, this is how to win the crypto fight. Just as faster shipping killed the idea of royal charters and mercantilism in favor of lazzez faire capitalism, so to will financial cryptography kill book-entry control structures and taxation. As far as SET goes, the only feature in SET that I care about, and Cybercash has this also, is the ability to "tunnel" transaction messages through the merchant to the card issuer. I claim the same kind of protocol can be used to tunnel, an ATM message, through the underwriter, and the trustee, to the cash purchaser's home bank for authentication. That's all.
Anyway, I'm not against this initial approach necessarily. Once you've got one non-anonymous electronic payment system with low entry costs to obtaining both a merchant and a purchaser, and is widely accepted, you can boot strap an anonymous payment system off it.
Precisely. It's an intermediate form. A profitable intermediary form, just like those proto-wings on those pond-skimming insects. See why the metaphor is useful?
The net model is that it should be that a merchant and a customer account are the same, and can be had by filling in a web page in real time. However, aren't they trying to make big bucks out of merchant accounts.
I'm not sure what the above means...
Will SET and Cybercash make it easier to be a merchant than it is to be a VISA merchant? Becoming a credit card merchant is a rather onerous expensive, slow process I hear.
Right. However, this isn't like a credit card. You can almost liken an underwriter to an ATM machine, except that it "prints" cash on the spot. Yes, I know, the blinding takes place at the purchaser's machine, but the certificates don't become *negotiable* until the underwriter signs them. (That, by the way, is why you have to honor patents, because the underwriter and the trustee, for the time being, are identified, litigable, meatspace entities. The nice thing is, though, the users of the certificates are *impossible* to identify.) Anyway, the point is, modulo licensing the blind signature patent, which Digicash should do, and probably won't (this week, anyway), being an actual underwriter is more a question of marketing than anything else. Anyone with a 486 (the original mint ran on one of these) and a full-time internet feed could do it. Takes a little more work to be a bank. Part of that work is adhering to all that meatspace regulation, but, frankly, holding the float account is no different from holding any other trust account. That, as they say in the Great White North, is the beauty part. Much easier than growing a mouse in a beer bottle, eh?
You lost me there. Above you described the trustee's function as holding the ability to issue money to keep the bank honest. What _is_ a bearer certificate in this discussion? A digitally signed share certificate, or other representation of an unit of value?
The trustee holds assets, in trust, which are used to capitalize the digital bearer certificates issued the underwriter. For instance, in the corporate bearer bond market, there were three people involved in issuing the bond, besides the eventual purchaser of the bond. There was the corporation, like IBM, or GE, or US Steel, say, which was issuing the bond. There was the underwriter, an investment bank, in other words, who sold the bond into the primary market, usually to brokers who in turn sold them to their clients. There was the trustee, a bank who actually handled the cash payments from the issuing corporation to the holders of the bond, and technically worked on behalf of the bond holders. On the day the interest was payable, the corporation cut a check to the trustee, who in turn cut checks to people who mailed in the little coupons they clipped off the bond every quarter. In the case of a book-entry trustee, the underwriter markets digital bearer certificates, cash in this case, to the public, in exchange for a book entry asset, money transferred through the ATM/Swift system to the underwriter's collateral account at the trustee bank. The money sits at the trustee bank until someone takes that money off the net by exchanging a digital bearer certificate for an ATM deposit transaction to the redeemer's bank. Now, sometime in the future, when there are other assets in bearer form on the net besides cash, like digital bearer bonds, or digital bearer stock, or commodities contracts, or derivatives thereof, it's easy to see how you could create a trustee which holds *those* kinds of assets instead of deposits on account somewhere in meatspace. In fact, I claim, because identity and reputation are orthogonal in cypherspace, that such a trustee, and thus, every party in the underwriting process, including the underwriter, *and* the development of any future bearer certificate cryptographic protocol, can be *anonymous*, that is, identity-free. Though, of course, they'd all have to use perfect pseudonyms.
Who issues the bearer certificates?
The underwriter.
What does possesion of the bearer certificate represent in terms of ownership of assetts?
The face value of the digital bearer certificate. For example, with a traveller's check, you buy at a premium, so that the person you give the check to can redeem them at face value, or "par", in bond language. Yes, unless the agreement between you and the issuer, as enforced by the trustee, specifies that the certificate must be backed up one for one by the assets in the reserve account, held by the trustee bank, then the issuer has the right to take some of that money and invest it in something else, and not just take the interest it accrues while it sits in the trustee's account. For the most part, the particulars about what that money is used for will be subject to market constraints. For instance, if money goes onto the net and stays there and never leaves, then, in an effort to compete, an issuer might offer lower issuing fees, even discounting the price of the certificates at issue, because he's going to make it up eventually, in the interest and other returns he gets for investing some or all of that money. However, all that's probably too messy to mess around with here. If you're interested, ( a little bond humor, there), go dig up a book on corporate finance (Brealy and Meyers was a good one, once), or fixed income mathematics (Fabbozzi's was the best, last time I looked).
Actually it's micromint which has the threshold function feature through use of k-way hashes, my hash cash is quite simple, and probably impractical to use as a basis for a currency you wished to connect to a real currency. There is a cost of printing hashcash coins, which can be made high (say a weeks CPU for a P100), but basically anyone can mint all the money they have CPU power for. This is interesting for throttling systematic abuse of limited net resources, and combining with a digicash system you could have transferability as well as anonymity. However the stability of the money supply is probably not up to it. It's kind of like allowing anyone to print money, but making it cost them in time only; the resources they already have.
It's exactly like that, and that's why I find the idea so attractive. :-).
You think you can create a digital bearer certificate market on the back of your architecture of issuers, and trustees. I don't see a great difference between this and a traditional bank.
That's the point. Reality, financial or otherwise, is not optional. :-).
How is it going to reduce the per transaction overhead, and how is it in any way distributed. (I presume your term "geodisic" refers to a distributed value transfer system).
The geodesity happens on the other side of the trustee. On the net itself. Once you get the money on the net, you can do all *kinds* of fun things there with it, and, eventually, it'll never have to leave, because, I claim, all financial assets, (stocks, bonds, notes, commodities contracts, derivatives) will be held in digital bearer form someday. It'll be too cheap not to. <beating-a-metaphor-like-a-dead-horse-mode> What we're doing at first is creating financial pond skimmers, net-based entities, in the same way that pond skimmers are air-based entities, who use financial cryptography and digital bearer certificates as proto-wings to aerodynamically flit around on the surface tension of the existing hierarchical book-entry finance system. Waterborne predators, like FinCEN, can't catch them, and the predators don't care, really. Because, sooner or later, these pond skimmers will have to breed (take the money off the net), which means laying eggs in the water, and, of course, that's where the larval pond skimmers live. :-). Of course, evolution on the net is much faster than real life. So, someday, soon, those financial cryptography pond skimmers will have wings and not rely on surface tension (book-entries) at all, and, someday after that, they won't even need water(meatspace) to hatch into. By that time, obviously, there'll be a whole *new* class of predators to worry about, but they haven't even been invented yet. </dead-horse>
What is an ACH transaction? A electronic bank clearing protocol? FSTC is Financial Securities Trading... electronic checks?
ACH: Automated Clearinghouse. FSTC: Financial Services Technology Consortium.
Isn't this going to be just another electronic check, with full transaction log, and associated overhead, banking regulations giving banks enough effective monopoly to charge high handling fees?
Yup. But the neat thing about them is they take pennies to clear, instead of quarters for paper checks. The other thing is, they're peer-to-peer. Credit cards aren't, remember? When was the last time you sold a car or house and took MasterCard in payment. :-).
I don't find electronic checks that interesting.
Yeah. You're a "wings" person. So am I, obviously. However, I think of FSTC (or any other) electronic checks, or Cybercash/coin, or even FV, and barely, SSL/SET, as "legs" which are just long enough to let the surface tension of the banking system hold us up, so we can do transactions in cypherspace.
What we want is fully anonymous, ultra low transaction cost, transferable units of exchange.
Amen.
If we get that going (and obviously there are some people trying DigiCash, and a couple of others), the banks will become the obsolete dinasaurs they deserve to become.
Wellll... Depends on what you call a "bank" I suppose. I would claim that, more than anything else, a trustee in my model is a bank, whether its assets are digital bearer or not. I won't quibble with you about it, though. A bank is a type of financial intermediary. Someone who risks reputation in return for interest, or other profit of somekind. You can't have finance, and thus trade and economics, without financial intermediaries. Might as well call some kinds of them "banks", whether they live on the net or not.
I think this would be a good outcome, and I'd rather see this happen than see anyone go to any great effort to get the banks involved. Let them stick to electronic "cash" systems (what a misuse of the word) based on credit cards and checks. See how that survives against _real_ distributed electronic cash with transaction costs 10 to 100 times lower, with 0 red tape barriers to entry for both sellers and buyers.
Well, the consequence of book-entry transactions, of course, is the interference of the nation-state, because that's your anti-repudiation mechanism. Book-entry banks need nation-states, or force monopolies of somekind, to exist. However, the net represents a whole new financial biome, if you will. A biome where book-entries, like fins, are too slow to fly with. :-).
The net is becoming more and more important as an mechanism for information exchange in it's own right. This is why I think just cutting the ties with the physical world and having a payment system working now would be interesting.
Certainly the sooner the better. However, you still have to get those assets on the net in negotiable form. That's why you need to use good old fashioned book-entry banks to make your assets negotiable. It's like punching paper numbers into a spreadsheet when you can download a file from the mainframe. Yes. Mainframes sucked. But that's where the data was.
Deployment wins and all that. Hashcash is completely distributed; there is NO bank. You can not forge hash cash, you can not double spend hash cash. You can print as much hashcash as you have CPU time for. You can resell hashcash for real money on an unoffical exchange, or trade hashcash for different services.
Way cool. So, how, if you're going to issue hashcash denominated in dollars, are you going to convert them into actual dollars? Are you going to put up a physical deposit window and take in bills somewhere? :-). Wouldn't it be nice for someone to swipe their ATM card into a reader on their machine using your web page, and get hashcash? To do that, you need a trustee bank.
I don't see any particular inherent reason why an electronic payment protocol can't be designed which requires no trust of the bank; at least it should be possible to arrange it so that the bank minting funds for it's own use will be detected. All you need is that the protocol is publically verifiable. Digicash already prevents double spending through the database of protocoins.
You might not have to trust the bank. But you do have to trust a financial intermediary of some kind. In finance, more often than not, that entity is called a "bank", for lack of a better term. Again. You can't have finance, and thus trade and economics, without reputation. Trust, in other words. Cheers, Bob Hettinga ----------------- Robert Hettinga (rah@shipwright.com), Philodox e$, 44 Farquhar Street, Boston, MA 02131 USA Lesley Stahl: "You mean *anyone* can set up a web site and compete with the New York Times?" Andrew Kantor: "Yes." Stahl: "Isn't that dangerous?" The e$ Home Page: http://www.shipwright.com/