At 2:49 PM 8/28/94 -0500, Jim Hart wrote:

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

I don't see why an offline system couldn't qualify for all of the above.

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).

In an offline system, the underwriter's collateral position can be monitored by a trustee, which is itself audited also. This takes care of the contents of the "railroad locker". If the currency is consistently redeemed without the spectre of double spending, then the reputation of the currency increases. That should be taken care of with proper fraud detection and enforcement.

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.

Amen. As I said previously on this list, if I'm an underwriter, and a legitimate customer comes up to my redemption window with a previously spent cash, he may be out the money, but I'm out the reputation of my product. Prosecuting fraud is the ultimate solution to this problem, but it's obvious that the above methods make perfect sense to protect the integrity of either off-line or on-line system. Thanks, Jim. I agree with Tim. I always learn something when you put something up. In particular, I'm now thinking about what happens if the risk of double spending is small enough to insure against. That would effectively do what issuers of credit cards or traveler's checks do when their products are "double spent". Make the victim whole and run the culprit to ground. For credit cards, it's cheap enough (3%) for them to self insure, with a vigilant enforcement effort. Unfortunately, there's probably a "frontier" stage at first, where the currency is more at risk. It is a caveat emptor situation, with Wyatt Earp for enforcement of the integrity of the underwriter's cash certificates. The brain grinds away. I hope I'm not stripping gears... 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