Hal writes:

Now, the more elaborate technology of digital cash can actually go a long way towards solving this problem, at least in theory. With this approach, each note has a unique serial number, and part of the agreement is that only the first presentation of a note with any given serial number will be honored. Then if the holder of a note wants to sell it to someone else, they go through a protocol with the borrower in which he verifies that the note has not been spent, and a new note is issued with a new serial number that nobody has seen before. This way the buyer of the note is protected against being sold an already-sold note. Plus, the digital cash technology allows this to be done without the debtor finding out who is selling his old notes to whom. There is no reason for him to have this information; the holder of the note ought to be able to sell it privately, and this is a good way of preserving that aspect of the transaction.

Rather than have the holder and the person to whom the note is being sold go through a transaction with the issuer, one can have the issuer give his customers a cryptographically tamperproof software module which will prevent anonymous double-spending. This allows the digital cash system to work "offline" without having to connect to the bank every time two people wish to conduct a transaction.

Perhaps some form of registered mail for note redemptions, plus a requirement that when a conflict like this arises both presenters must identify themselves, could address some of these problems. (These problems arise for digital cash just as much, by the way.)

If you design the system so that cheating breaks the anonymity and identifies the perpetrator, then you can simply deter it in the same way we do with conventional instruments. Give the person a horrible credit rating and threaten to toss him in jail. -- Mike Duvos $ PGP 2.3a Public Key available $ mpd@netcom.com $ via Finger. $