More FUD from First Virtual

[jim bell]

At 09:58 AM 12/9/95 -0500, you wrote:

>
>The real open question about anonymous digital cash is whether people
>will want it badly enough to bear that kind of risk.  My guess is that a
>few people will, and that a few (even fewer) small banks will accept the
>risk, so there will indeed be a niche in anonymous cash.  But I think
>that for better or worse, most people and banks won't value anonymity so
>highly as to incur a low-probability catastrophic risk, which I think is
>inherent in anonymous cash.

I find this hard (read: "impossible") to believe.  The significance of the
risk is, essentially, its magnitude multiplied by its probability.  Assuming
that its probability is reduced to an arbitrarily low value, SOMEBODY will
be willing to accept the risk in exchange for a return.  By way of
comparison, most credit card companies charge 2-3% of the value of a
transaction, which apparently the market has decided is a "reasonable" cost.
The question is, why wouldn't it be possible to raise the reliability of the
whole digital cash system simply to the point where somebody is willing to
accept the risk for, say, 0.5% of the value of each transaction, which would
be a good improvement over credit cards?

The answer, I think, it that there would be no problem finding people to
take that risk in exchange for the return, ESPECIALLY if they have some
input into the design (level of security) of the system.  They might insist
on 2048-bit RSA keys, instead of 1024-bit, for example.


>> Well, maybe I haven't been following those reasons, but I see little or no
>> reason privacy should "inevitably carry a high surcharge."  If the relevant
>> encryptions had to be carried out with a pencil and a piece of paper, that
>> claim would make sense, but remember, we've got MICROPROCESSORS on our side!
>
>The cost isn't the computation.  The cost comes primarily from the
>efforts (both practical and actuarial) that will be made by the
>underwriters to minimize and amortize their risk.  As Lloyds of London
>has demonstrated, almost any risk can be undertaken at a high enough
>premium....

However, the premium only needs to be high enough to cover the actual risk,
plus perhaps a little profit on the deal. (Even if the premium was 10x the
actual risk, or even 100x, I think it would end up costing well under 1% of
each transaction.)  

Your arguments seem to only be qualitative, not quantitative.  Maybe that's
why the other guy calls them "FUD."