e$: The greater fool theory of Digicash, quantified, roughly

[Robert Hettinga]

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Date:  Thu, 5 Jun 1997 09:31:10 -0400
From: Robert Hettinga <rah at shipwright.com>
To: Multiple recipients of <e$@thumper.vmeng.com>
Subject:  e$: The greater fool theory of Digicash, quantified, roughly

At 10:18 pm -0400 on 6/4/97, Tim May wrote on cypherpunks:

> Chaum said he had to agree that these were good examples, and that he'd
> think about the issue furhter. He speculated during his panel presentation
> that possibly a mechanism could be found to allow such vendor or seller
> anonymity for _educational_ and similar materials, but not for other
> things...Froomkin and I were incredulous.

Sheesh. Silly "exemptions" to seller anonymity like this one indicate to me
that Chaum & Co. will *never* license the blind signature patent to anyone
with an actual useful purpose for it.

We're all going to have to sit around for another 10 years until that
patent's unencumbered for there to be any valid market for anonymous
digital cash -- or the other kinds of instantly-settled digital bearer
certificates that the patent enables. I suppose that's justice, as it means
that Chaum & Co. aren't going to make any money on the blind signature
patent, either.

If they don't wake up, that 10 years will be over soon enough. In about 5
years or so, just about the time this round of financing fantasy runs out,
potential developers will probably just decide to stick it out for the
remaining 5 years they don't have to pay a royalty. Digicash, Inc., will
become yet another a $10 million (at last estimate) technology rathole.
That $10 million, of course, doesn't include the current purchasers of the
technology, who are being left high and dry by Digicash's inability to
understand what market they are in.

First a bank, then a software company, now a credit card association
equivalent (onk?!), Digicash never has figured out that the only thing they
are is a financial cryptography company. The first, and best, of course,
but still financial cryptographers. Like Dolby, they should only license
and certify applications of the technology they invent. Period. Chaum could
have done that easily enough, say, $9.5 million and 10 years ago. He would
have gotten to keep all the family money he sunk into fun stuff like the
Digicash Building in the Netherlands and sales offices all over the planet,
because all he needed were a few cryptographers and licensing lawyers. He
would have probably gotten at least triple the $9.5 million of shareholder
equity that he wasted, all back in actual revenue over the intervening
years. Without spending a dime more in further capitalization. He would
have gotten a gross return on that $500k 1987 investment of say,
(30mil/500k ) = 6000%, just on earnings alone. If he went public in the
interim, a conservative estimate of market capitalization, assuming a
simple linear revenue growth curve (yielding a current revenue of $6
million a year) and a very conservative P/E ratio of 10, gives us
(6mil*10)= $60million. That's probably before the internet commerce
hockey-stick earnings kicked in, much less the rediculuous Netscape-era P/E
ratios internet companies now command. In engage in a little market-speak,
"what an incredible bungle of a unique value proposition". ;-).

Anyway, the Greater Fool Theory of Digicash has been proven once again,
with Chaum's own words as relayed by Mr. May.

Now maybe we know why J. Pierpont Morgan fired Edison from General Electric.

Hmmm... And why Negroponte fired *Chaum*?

Hey! Maybe there is hope?

Naaaaah....

Notice, of course, that Dr. Dolby (or his estate and heirs) probably still
owns his company, and is doing very well, thank you.

Cheers,
Bob Hettinga

-----------------
Robert Hettinga (rah at 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/


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-----------------
Robert Hettinga (rah at 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/