--- begin forwarded text Date: Mon, 19 May 1997 11:21:28 -0400 To: Gregransom@aol.com From: Robert Hettinga <rah@shipwright.com> Subject: Re: relevance to Hayek research? Cc: austrianecon@agoric.com, VPostrel@aol.com Bcc: X-Attachments: Greg Ransom just set my subscription to Hayek-L to "review" because of the DCSB announcement I sent both there and to AustrianEcon. Since I figure that this posting probably won't see the light of day on Hayek-L, I'll just send it here to AustrianEcon instead. :-). Of course, I'm not complaining, really. Greg can do anything he wants with Hayek-L. I mean, he owns it; the internet being alloidial, and all. But, I thought I'd clear the air here a little bit about why I thought the June DCSB meeting would be useful to people both on AustrianEcon, and, even :-), Hayek-L. At 7:29 pm -0400 on 5/17/97, Gregransom@aol.com wrote:

Can you motivate this posting to the Hayek-L list for me?

Wow. I feel like a method actor or something. Say hello to Mr. Stanislawski for me, would you, Greg?

It is important that all posting to the Hayek-L list be relevant to Hayek and his work, appropriate for the research community, and not overly promotional or commercial in nature, nor in the vein of advertising.

Yeah. Anything that smacks the least bit of capitalism should be strictly avoided in such an academic setting. Hey, even *I* understand that one. ;-). If it's any consolation, DCSB really *is* just a bunch of people who get together to have lunch on first Tuesday of the month. It's not like I'm leveraging the old Harvard Club membership to create a massive personal fortune, or something. :-). I do confess that I sent the announcement to both place, and mostly on impulse, because I thought people in the Austrian economics trade would want to hear about a relatively unique economic phenomenon on the net, particularly as it reveals interesting things about how the net's decreasing the "latency" of money changes, or at least better defines, all kinds of transaction processes, and, maybe, the underlying economics of same. Not only do the type of instantaneous, continuous, digital cash-settled recursive auctions that Fred Hapgood is going to talk about at the June 3rd DCSB meeting have the potential to remove any need for copyright law on the internet, which I'll get to in a moment, but they're the tip of the iceberg for something waaay bigger. The technology behind the digital cash these recursive auctions will eventually use is all by itself a nation-state killer. In the long run, anyway. <and now, for a few blatantly commercial messages...> Since the strongest form of David Chaum's "ecash" <http://www.digicash.com/> digital bearer certificate transaction settlement protocol doesn't require book-entries, it doesn't require the force monopoly of a nation-state to backstop its transaction clearing process. There's a quote which might be useful here. It's from FC97, the first conference on Financial Cryptography, which we held in Anguilla this February and (plug, plug) a conference I had the good fortune think up ;-) <http://www.offshore.com.ai/fc97>. Doug Barnes, a fellow cypherpunk and now the Marketing VP for C2Net, a pioneering financial cryptography company in Berkeley <http://www.c2.net/>, said, during the legal session, "It's a bad idea when your internet payment protocol, in one of its terminating steps, says, 'and then you go to jail'". See my web page, <http://www.shipwright.com/>, for more details about this kind of stuff if you're interested. Also, see the debate I had in March with someone from the American Banking Association about the subject of digital bearer certificate technology. It's on HotWired's Brain Tennis site, <http://www.braintennis.com/>. Remember that, due to to the structure of the debate, he got in the last word, though. :-). <we now return you to the heresy trial, currently in progress> Now you can see why the war cry for most of my cypherpunk crypto-anarchist financial cryptography developer friends is "write software, not laws." That sounds pretty Hayekian, I'd say. Last September I was on the law enforcement panel, of all things, at the Institute, nee Office (go, Newt!), of Technology Assessment's "Symposium on the Regulation of Digital Cash". This thing was held in a conference room deep in the bowels of the Capitol Building. Yech. Talk about the lion's den. Anyway, they had me speaking, dead last in the whole symposium, immediately after the Justice Department's brand-new, wet-behind-the-ears and freshly-lobbied-for-by-the-EFF Assistant Attorney General for "computer crime", whatever that is. And, before him, and more to the point for our discussion here, spoke the Assistant Director of FinCEN. FinCEN stands for the Financial Crimes Enforcement Network, a truly amazing government agency which has the ability to tell anyone with a credit card or checking account not only what his current bank balance is, but, through perfectly legal "administrative requests" to his bank, what his, say, total clothing and grocery expenditures were last year, categorized by store. Couple that with those wonderfully subpoenable scanner cards at your supermarket, and I would say that Orwell almost has his revenge with us, eaten very cold indeed, for being so far behind schedule with '1984'. Anyway, there I was, at ground zero, in the very belly of the beast, and, if I do say so myself, I was a wonder to behold. I scared them so bad that the everyone's eyes actually bugged out. Their jaws really bounced on the floor a few times in true Tex Avery fashion. Proving, once again, that cartoon physics really is the only kind of science they allow inside the Washington Beltway. I told the assembled unholy host of legislative aides, beltway bandits, and various other corridor-crawling symbionts to Le Infame Moderne that David Chaum's blind signature patent created fully anonymous digital cash (issued by private free banks, mind you), something they vaguely knew already and were gathered there to try to stop. But, even more frightening to statists everywhere, it was quite a simple matter, really, to use the same cryptographic protocol to create anonymously held digital *bearer* forms of any negotiable instrument you could care to imagine: bonds, stocks, futures, or any derivative thereof. I told them Perry Metzger's joke about "Gold Denominated Burmese Opium Futures". That was good for a titter or two of nervous laughter... Remember, of course, that, and increasingly so, most assets are financial, and thus completely convertable to digital bearer form if the transaction protocol for them turns out to be significantly cheaper than the book-entry settlement methods of the status quo. After all, it wasn't too long ago in financial history that paper bearer certificates were the norm. There's a lot of cultural memory still there. The word "coupon" as a synonym for bond interest is a perfect case in point. Then came the real bombshell. The guy from FinCEN absolutely agreed that if the transaction costs of digital bearer certificates proved to be an order of magnitude (or, say, three) lower than book entries, which I claim they will be (without proof, of course, just yet ;-)), FinCEN would be pretty much out of business. The whole "crime" of money laundering would become the equivalent of a "legislated" value for Pi. An example which, I might add, proves Avery's Laws of Cartoon Physics, um, reigns, in legislative bodies the world over, and not just inside the Beltway. "Actually, it's worse than that, ladies and gentlemen," I said, quoting myself. "Virtually *all* of the current tax infrastructure is based upon book-entries and the necessity of audit trails to verify tax compliance: capital gains, income and sales taxes, even import duties. Those audit trails are there primarily to prevent non-repudiation in the execution of a transaction protocol, that is, all the double-entry bookeeping between the buyer and the seller and the financial intermediary(ies) underwriting the trade. Those audit trails are *not* there to enforce taxes, believe it or not." They didn't get the point, so I drove it home. I said, "Without the requirement to prevent non-repudiation (and, I ask you, when was the last time you had a cash transaction fail to clear?), the marginal cost of tax compliance will become unsustainable over time. Uncle, and his relations elsewhere, are all going to have to figure out something else to tax, in other words. Now, *what*, exactly, do you need all that money for?" I had all the right people standing up and yelling at me at question time, so I knew I was on to something. :-). So, somewhere, Greg, I think Dr. Hayek must be laughing out loud. That's why this kind of stuff might be important to your readership. Oh. Yeah. I forgot. The actual topic of this missive. What's a "recursive auction"? Jason Cronk, who subscribes to AustrianEcon, by the way, did a talk on them at the rump-session of, you guessed it, FC97 in Anguilla. Ian Grigg, a major free banking fan, and also a subscriber, presented an idea which is exactly the obverse(?) for *his* paper, which was accepted for the main conference session. Ian's paper dealt with a way to organize the "buy" side of the same process. Springer Verlag will be publishing the conference proceedings sometime this summer, and I'll announce that here, if there's interest. Anyway, a recursive auction market, for lack of a better analogy, is kind of like institutionalized software piracy. I create something new and digital. I go on the net, and I sell the first copy to the highest bidder. Then I sell the next copy to the next bid, which, of course, is probably lower than the first. I keep on doing this until people stop bidding. Of course, everyone who buys what I'm selling can turn right around and sell it to someone else in turn, probably at a lower price than they bought it from me. This is the only instance I can think of where buying high and selling low makes you money. ;-). Well, on an item-price basis, anyway. Obviously, the total return is higher on the sell side than the buy side, or nobody would be foolish enough to buy anything from you for resale. Just by forgetting the whole quasimystical issue of "rights" to electronic intellectual property (which, like the current "intellectual capital" craze, is, at best, a polite regulatory fiction), timeliness of content is rewarded, as is novelty, which keeps people who create new stuff right on cranking it out. A person who's invested in a big switch and bandwidth, or who has the most valuable use of any other kind, can afford to pay more for earlier, "fresher", copies of something than someone without the same net.resources. Because, for instance, in the case of the person with all the bandwidth, he can resell copies faster than anyone else. A person who doesn't need something badly can wait a while and pick it up at a lower price after the initial feeding frenzy's over. Finally, the person who continually invents something new gets paid as soon as something he makes becomes usable to anybody at all. The things which get sold can be anything from a jotted down brainstorm, to the first draft of a novel, to more perishible "content", like an hour of teleoperated surgery, say. So, for works of art, whatever that means, copyright law becomes superfluous. More to the point, given sufficient attention to such matters, *all* parties in recursive auction transactions can be completely anonymous, and everything still works. I mean, when was the last time you had to produce identification for a cash transaction? Okay, besides at the bank, and even then for deposits greater than $10k. That's the very exception which proves the rule, obviously. Cartoon physics comes to banking. Remember, again, book-entries cause book-entry taxation and regulations, not vice versa. Anyway, whether at the increasingly hysterical legislative cartoons, or because of the now sandy foundations of the nation state, again, Hayek, somewhere, *must* be laughing, Greg. Cheers, Bob Hettinga Moderator, The Digital Commerce Society of Boston (among other things...) --- end forwarded text ----------------- Robert Hettinga (rah@shipwright.com), Philodox e$, 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' The e$ Home Page: http://www.shipwright.com/