From: "R.A. Hettinga" Sent: Oct 25, 2005 8:34 AM To: cryptography@metzdowd.com, cypherpunks@jfet.org Subject: On the orthogonality of anonymity to current market demand

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That is to say, your analysis conflicts with the whole trend towards T-0 trading, execution, clearing and settlement in the capital markets, and, frankly, with all payment in general as it gets increasingly granular and automated in nature. The faster you can trade or transact business with the surety that the asset in question is now irrevocably yours, the more trades and transactions you can do, which benefits not only the individual trader but markets as a whole.

The prerequisite for all this is that when the asset changes hands, it's very nearly certain that this was the intention of the asset's previous owner. My point isn't to express my love for book-entry payment systems. There's plenty to hate about them. But if the alternative is an anonymous, irreversible payment system whose control lies in software running alongside three pieces of spyware on my Windows box, they probably still win for most people. Even bad payment systems are better than ones that let you have everything in your wallet stolen by a single attack. ...

However "anonymous" irrevocability might offend one's senses and cause one to imagine the imminent heat-death of the financial universe (see Gibbon, below... :-)), I think that technology will instead step up to the challenge and become more secure as a result.

What's with the heat-death nonsense? Physical bearer instruments imply stout locks and vaults and alarm systems and armed guards and all the rest, all the way down to infrastructure like police forces and armies (private or public) to avoid having the biggest gang end up owning all the gold. Electronic bearer instruments imply the same kinds of things, and the infrastructure for that isn't in place. It's like telling people to store their net worth in their homes, in gold. That can work, but you probably can't leave the cheapest lock sold at Home Depot on your front door and stick the gold coins in the same drawer where you used to keep your checkbook.

And, since internet bearer transactions are, by their very design, more secure on public networks than book-entry transactions are in encrypted tunnels on private networks, they could even be said to be secure *in spite* of the fact that they're anonymous; that -- as it ever was in cryptography -- business can be transacted between two parties even though they don't know, or trust, each other.

Why do you say internet bearer transactions are more secure? I can see more efficient, but why more secure? It looks to me like both kinds of payment system are susceptible to the same broad classes of attacks (bank misbehavior (for a short time), someone finding a software bug, someone breaking a crypto algorithm or protocol). What makes one more secure than the other? ...

Cheers, RAH

--John Kelsey