All payment mechanisms require a basis of trust - so that the seller knows s/he will get paid . With an online clearing system, four elements of trust are needed: + both the vendor and the customer need to trust the bank + the customer needs to trust the vendor to deliver the goods and change once the vendor has been paid + any one out of n of the digital mixes (proxy servers) used to communicate between the parties needs to be trustworthy + independent auditors for the bank This kind of trust comes through repeated relations: if the vendor has delivered in the past, and benefits from staying in business in the future, they will deliver the goods today. Same for the bank issuing and honoring currency. Regular money supply figure updates and independent auditing of a free bank are important, so that they cannot take hidden actions to inflate the money supply. (Alternatively, an online bank can peg the value of its tokens to, and facilitate conversion to and from, a widely issued currency such as the dollar). Also, note that trust is unbundled. Each agent is only trusted with certain aspects of the transaction; no agent is trusted to carry out the entire transaction, or with the knowledge of all aspects of the transaction. There are entry and exit problems: it costs to gain a reputation, and if one's need for a future reputation is small it pays to abscond. These can be overcome by the agent trying to gain the reputation, via offering up-front subsidies to use their services (like sign up bonuses), by sponsorship and introduction of new services by known reputable agents, by keeping maximum transaction sizes low, and by other means. Many of these techniques are well known and commonly used by businessmen. Trust can also be gained by knowing someone personally. Many cypherpunks do, and this will remain important. But it's also a risk for controversial services, as being personally known puts them at greater risk of being shut down by intolerant force. So trust based on reputation of agents on the net, and on the contstraints imposed by cryptographic protocols -- that is our important task; if I might be so bold I'd say that's the essence of the cypherpunks vision. There are also a wide variety of other means of gaining trust through repeated relation, unbundling/distribution of trust, and the like. For example, an escrow is a third party trusted to hold transactions, eliminating the need for the customer to trust the vendor to deliver. Escrows are useful when the vendor is anonymous, not having established a reputation for its nym, and for large transaction sizes. The above bank/vendor/customer/mix scenario seems the simplest to start out with on the Internet at this time. Jim Hart hart@chaos.bsu.edu