6-15-96. NYP Mag: "Dead as a Dollar." For everyone who uses cash, everyone who stores it and everyone who regulates it, a challenge is nearing. The challenge will be to make choices. Some kinds of electronic currency will protect privacy, and some will violate privacy. Some will make crime easier, and some will make it extraordinarily difficult. Some will tax commerce parasitically, and some will catalyze it. The new minters of money will have enormous power to choose -- unless consumers, on the one hand, and Government officials, on the other, decide to make their own choices. In the "current climate," as those in Washington tend to say, anything that smacks of an expanded role for the Government is anathema. Policy makers at the Treasury are reluctant even to talk about electronic money on the record. "It's easy to go in and say, 'Oh, we're going to regulate everything,' without knowing what everything is," says a senior Treasury official. "We want to know what everything is." He adds: "There are very serious policy issues -- seigniorage, money laundering, financial- stability issues, consumer issues that are genuinely important that we must address and look hard at. It may be sensible for the Government to issue a card -- that's conceivable -- but what if you issue it and nobody uses it?" As money enters a new age, so does counterfeiting. The ultimate threat is the perfect copy -- the virtual coin that proves mathematically identical to the real thing. If money is a string of bits, then someone, some where, can make a perfect copy, and another and another. An arms race is already raging between those working to armor-plate digital cash with doubly and triply secure cryptography and those working to pierce the armor. Security experts assume that nefarious characters, in search of an unending stream of money, are already investing millions in the next stages of research and development. For every new idea in tamper resistance, there is a new idea in tampering.... "At least you can cause people to have to spend a lot of money," says Eric Hughes, a cryptography expert. "But doing the second chip is far, far less money than the first. And if you could make a master chip that spoke the right protocol, you could make a little money mint for yourself." "Information warfare is going to make people very worried downstream," says Crook at Citicorp. "We have an immense paranoia about how dangerous it's going to be. I think that the security requirements in our industry are going to be more severe than at the Department of Defense." Cryptography is as close as modern mathematics comes to magic. It's simply a design choice. Smart cards, or their on-line equivalents, could function as blindly as raw cash. They could be even less traceable than in Chaum's system. That is a frightening prospect to law- enforcement authorities. Having finally made life difficult for drug smugglers with heavy cash suitcases, they will not casually allow the manufacture of half- ounce chips that could make possible blind transfers of hundreds of millions of dollars, a money launderer's dream. Even if the Government takes no other action in the electronic-money arena, it will surely move to extend its restrictions on cash to cover digital equivalents. And so far, the large institutions entering the electronic-money arena are leaning toward less-anonymous, less-private approaches than Chaum's, betting that most of us will be willing to sacrifice more pieces of privacy for, say, convenience. Chaum could prove right, but only if the marketplace is willing to cast its votes for privacy. [With many remarks by Kawika Daguio.] http://pwp.usa.pipeline.com/~jya/deaddoll.txt (48 kb) ----- Or, if http fails, DED_dol to <jya@pipeline.com> Thanks to JG and NYPaper.