[fc-discuss] Financial Cryptography Update: On Digital Cash-like Payment Systems

[cyphrpunk]

On 10/19/05, Daniel A. Nagy <nagydani at epointsystem.org> wrote:
> > >  http://www.epointsystem.org/~nagydani/ICETE2005.pdf
>
> Note that nowhere in my paper did I imply that the issuer is a bank (the
> only mentioning of a bank in the paper is in an analogy). This is because I
> am strongly convinced that banks cannot, will not and should not be the
> principal issuers of digital cash-like payment vehicles. If you need
> explaination, I'm willing to provide it. I do not expect payment tokens to
> originate from withdrawals and end their life cycles being deposited to
> users' bank accounts.

Suppose we consider your concept of a "transaction chain", which is
formed when a token is created based on some payment from outside the
system, is maintained through exchanges of one token for another (we
will ignore split and combine operations for now), and terminates when
the token is redeemed for some outside-the-system value. Isn't it
likely in practice that such transaction chains will be paid for and
redeemed via existing financial systems, which are fully identified? A
user will buy a token using an online check or credit card or some
other non-anonymous mechanism. He passes it to someone else as a
cash-like payment. Optionally it passes through more hands. Ultimately
it is redeemed by someone who exchanges it for a check or deposit into
a bank or credit card account.

If you don't see this as the typical usage model, I'd like to hear your ideas.

If this is the model, my concern is that in practice it will often be
the case that there will be few intermediate exchanges. Particularly
in the early stages of the system, there won't be that much to buy.
Someone may accept epoints for payment but the first thing he will do
is convert them to "real money". A typical transaction will start with
someone buying epoints from the issuer using some identified payment
system, spending them online, and then the recipient redeems them
using an identified payment system. The issuer sees exactly who spent,
how much they spent and where they spent it. The result is that in
practice the system has no anonymity whatsoever. It is just another
way of transferring value online.

> Using currency is, essentially, a credit operation, splitting barter into
> the separate acts of selling and buying, thus making the promise to
> reciprocate (that is the eligibility to buy something of equal value from the
> buyer) a tradeable asset itself. It is the trading of this asset that needs
> to be anonymous, and the proposed system does a good enough job of
> protecting the anonymity of those in the middle of the transaction chains.

The hard part is getting into the middle of those transaction chains.
Until we reach the point where people receive their salaries in
epoints, they will have little choice but to buy epoints for real
money. That puts them at the beginning of a transaction chain and not
in the middle. Sellers will tend to be at the end. The only people who
could be in the middle would be those who sell substantially online
for epoints and who also find things online that they can buy for
epoints. But that will be a small fraction of users. For the rest of
them, anonymity is not a sellling point of this system.

If you take away the anonymity, is this technology still valuable?
Does it have advantages over other online payment systems, like egold,
credit cards or paypal?

CP