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

[cyphrpunk]

On 10/24/05, John Kelsey <kelsey.j at ix.netcom.com> wrote:
> More to the point, an irreversible payment system raises big practical
> problems in a world full of very hard-to-secure PCs running the
> relevant software.  One exploitable software bug, properly used, can
> steal an enormous amount of money in an irreversible way.  And if your
> goal is to sow chaos, you don't even need to put most of the stolen
> money in your own account--just randomly move it around in
> irreversible, untraceable ways, making sure that your accounts are
> among the ones that benefit from the random generosity of the attack.

To clarify one point, it is not necessary to have "accounts" in an
ecash system. Probably the simpler approach is for a mint that has
three basic functions: selling ecash for real money; exchanging ecash
for new ecash of equal value; and buying ecash for real money. All
ecash exchanges with the mint can be anonymous, and only when ecash is
exchanged for real money does that side of the transaction require a
bank account number or similar identifying information.

In such a system, the ecash resides not in accounts, but in digital
wallets which are held in files on end users' computers. The basic
attack scenario then is some kind of virus which hunts for such files
and sends the ecash to the perpetrator. If the ecash wallet is
protected, by a password or perhaps a token which must be inserted,
the virus can lie in wait and grab the ecash once the user opens the
wallet manually. There are several kinds of malicious activities that
are possible, from simply deleting the cash to broadcasting it in
encrypted form such as by IRC. Perhaps it could even engage in the
quixotic action of redistributing some of the cash among the users,
but my guess is that pecuniary motivations would dominate and most
viruses will simply do their best to steal ecash. Without accounts per
se, and using a broadcast channel, there is little danger in receiving
or spending the stolen money.

Digital wallets will require real security in user PCs. Still I don't
see why we don't already have this problem with online banking and
similar financial services. Couldn't a virus today steal people's
passwords and command their banks to transfer funds, just as easily as
the fraud described above? To the extent that this is not happening,
the threat against ecash may not happen either.

> The payment system operators will surely be sued for this, because
> they're the only ones who will be reachable.  They will go broke, and
> the users will be out their money, and nobody will be silly enough to
> make their mistake again.

They might be sued but they won't necessarily go broke. It depends on
how deep the pockets are suing them compared to their own, and most
especially it depends on whether they win or lose the lawsuit. As
Steve Schear noted, there is a reasonable argument that a payment
system issuer should not be held liable for the misdeeds of its
customers. Jurisdictional issues may be important as well. Clearly
anyone proposing to enter this business will have to accept the risk
and cost of defending against such lawsuits as part of the business
plan.

CP