hughes@ah.com (Eric Hughes) replies,

1.) Chaum's e-cash coupled with WWW/Mosaic is a de facto internet mercantile protocol.

Hardly. The announcement just says it's available, not that anybody's using it. Since the information came from a press release, we can assume that lack of mention of an important customer, like a bank, means that there are no such customers right now. What that says to me is that DigiCash has looked for customers, and not found any. They've certainly had the time.

Chaum's chumming the hook. I get it. But the claim has still been made that the techonolgy works, right?

Furthermore, it's not clear that this software can be both legally and usefully deployed in the USA. The Foreign Bank Secrecy Act of 1974 requires the microfilming of all checks of value over $100, with administrative provisions for extending the required recording keeping. Other check-like transaction accounts have since been added.

So can a bank avoid this? First, they can limit transaction amounts to less than $100. That violates my criterion of usefulness; it would have some utility, to be sure, but just as surely would be a severely crippled utility. Second, they might be able to record the transaction as a "cash purchase".

I believe that that is the case, and thus whether or not it's considered a check is immaterial.

The problem here is that this accounting technique may be ruled non-compliant by the regulators, which would make the transaction _illegal_ (since there's not way to comply by recording both parties). The regulators have been authorized to move activities across the boundary of legality by legislative action. Now, one cost of deploying any such system would be the expected (negative) value of the risk taken in losing the whole development investment to an adverse regulatory decision, let alone possible actual penalties.

True. That is a risk of deploying the protocol from the financial entity's standpoint. Like most things in the banking system, a consensus (inside the beltway and out) would have to be reached. But this is a political, not a technical, challenge.

Even beyond this, there's the IRS $10K cash reporting limit, and the attendant restrictions on structuring. Detection of structuring becomes much more difficult, and banks are held responsible for at least some of the enforcement. Here's another set of risks, like above.

I'm hard pressed to see the difference between $10K of paper money and $10K of e-cash. That's the point of the technology. If you treat it the same way, you can regulate it the same way.

Just how big is the potential Internet market (in, say, two years), compared to other banking segments? Precious small right now, really. Just plain profitability is also an issue.

If it is possible to sell, maintain and support software on the internet, there will be an incentive for sellers to use it to reduce costs. In my own experience it is easier and much cheaper to identify customers who want my somewhat specialized software on the internet than it is in a lot of other places. It is possible to distribute my software to those people much cheaper. It is cheaper to maintain that software through net.mail and ftp. If I had an e-cash-register coupled with a transaction-ftp capability, I could sell my software without knowing who bought it, and put the money in the bank more efficiently than if I had to deal with checks, credit cards, etc., I would jump at the chance. (If wishes were horses, beggars would ride :-)... ) This forms demand for vendors to take e-cash. The demand from e-cash users comes from the same advantage cash confers. It's easier to use. Since anyone (including a machine) can tell that it's e-cash, that it can't be anything else, it's acceptable for all transactions. A vendor doesn't have to check the purchaser's bonafides. It doesn't matter. Privacy is a by-product of this.

2.) It seems to me that that e-cash, contrary to the status quo's thinking, is *critical* to internet commerce.

No, it's not critical. Some form of transaction mechanism is critical. Privacy is not critical to the bulk of the economy, though.

I think you're right. Personal privacy is a by-product of an iron-clad interpersonal funds transfer system, like e-cash. The cladding comes from encryption technology. A form of privacy, but I would be equivocating in the way I used the word above if I used it that way. E-cash is critical because of it's efficiency. With it, I can sell software or computer-related services from any net-connected machine to customers Singapore, or Japan, or down the street without having to worry about who they are, whether or not their checks clear, or without having to pay their credit card company's customer accounting costs, or without having to convert their e-cash from one form to another unless I wanted to.

Face up to it. If it were, it would be so obvious that we wouldn't be discussing it on a mailing list. In fact, _we_ wouldn't be discussing it, but rather a whole bunch of bank vice presidents.

This is the "if we lived here, we'd be home now" argument. Goddard, Korolev and Von Braun were making liquid-fueled rockets long before governments saw the efficacy of missles as weapons of war, and "all" Von Braun wanted to do was to go to the moon. Admittedly, a war was required before people built large rockets. I expect that some powerful economic forces will have to emerge in order to create demand for e-cash. I also that think that the Internet is creating those forces. I also don't believe that strong crypto is as engineering intensive as rocket science is (all my protestations about its comprehensibility to the contrary....).

Is anonymous cash really the most efficient? No, not in all cases. When no one is looking, the anonymity is irrelevant, and identifier-based schemes work fine. Is, for example, anonymity the most efficient for the Federal funds transfer network? No, because the values of money are so large that default on a transaction would case serious systemic problems.

Cash does have some advantages, in particular its immediate and final clearing. These can reduce transaction costs in certain markets. Anonymity, however, is not a panacea.

Conceded. Anonymity is the result of the most efficient kind of personal transaction. A cash transaction. I think the efficiency can be examined by affirming the negative here. Suppose that all cash transactions had to be recorded and each party of the transaction had to be identified and reported to some other third party (the government, say). Besides the specter of big brother watching you, the economy would choke in administrivia (I *like* that word, Eric).

3.) Since a big pile of the discussion on this group lately has been about our collective concerns about an RSA-approved version of PGP, I think there is a real parallel here in e-cash.

PGP only requires the cooperation of your email correspondent in order to function. The risk of a patent infringement suit is small, since the parties involved are small. Digital cash requires the participation of many more parties, some of whom have, almost of necessity, deep pockets.

The parallel does not extend very far. Without the creation of an entirely black market which can remain completely unexposed (and this is more difficult that it appear even on second or third thought), it is unlikely that digital cash technology will be usefully deployed independently.

I don't think I was clear enough. The parallels had to do with the distribution of the technology. With PGP being everywhere, the value of PGP grew. If the people who control patents to the "wallets" and "cash-register" technology would let that be available for all, then the value of their patents on the means of producing the medium of exchange (providing it can be readily converted into *real* money somewhere) goes up enourmously. I liked doing this. I hope all my yammering above holds water, and isn't a waste of bandwidth. These are precisely the kinds of arguments people in the financial markets will use when they throw darts at participation in an e-cash node. If the questions can be answered here, then whoever makes the pitch will be that much ahead of the game. Thanks, 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