From: szabo@netcom.com (Nick Szabo)
Date: Fri, 5 Nov 93 01:52:28 PST
To: cypherpunks@toad.com
Subject: Commerce models
Message-ID: <9311050950.AA06937@netcom.netcom.com>
MIME-Version: 1.0
Content-Type: text/plain



Here's a copy of a post I made to imp-interest@thumper.bellcore.com
(among other reasons to refute Detweiler, who is on imp now promoting 
his "tag the criminals" agenda).  I hope I've given a fair overview 
of some of the things we're interested in, but from a "pro-commerce" 
rather than "pro-cypherpunks" point of view.  (I find the ends and
means to be very similar, but the point of view is 
different.  imp-interest is interested in pushing Internet commerce,
not ideological agendas).

-----------------------

> 1. Can anyone else come up with some other Internet commerce models?

You mentioned one of the original digital cash shemes.
There are wide variety of offline (2-party transactions) and online 
(realtime connection of buyer & seller with bank) digital cash proposals,
many by David Chaum, his students, and colleagues (cf. Eurocrypt and 
Crypto proceedings).  Some of these can be implemented securely in
software, without the need for smart cards or other kinds of
physical security.  (For example, one's own digital cash can
be encrypted with one's own private key & passphrase, making
it as difficult to rip off as any other form of electronic
money).  Also, Chaum has an interesting per-organization 
pseudonym/transferrable credentials system that could allow checking 
credit ratings without revealing identity.  

Another, much simpler concept, is "digital postage", where
tokens would be sold per service provider, perhaps from physical
stores or vending machines, or online in exhange for other
tokens, or by a non-private means like credit card as long as there is
a fluid market for such tokens.  These would be much like the token 
cards used now in subways, copy machines, etc.  Although this is not 
as general as digital cash, client software might allow a wide variety 
of tokens to be maintained and used automatically, and the basic
software would be less complicated (the underlying security
protocols easier to understand and implement purely in
software).

> 2. Do you think that the IBS model is good?

(Forgive me if I'm misunderstanding the nature of Internet
Billing Service; I'm basing my comments on your comparison of it to 
credit card billing).

I'm very concerned that IBS and on-line checks would, like credit cards,
lack privacy, allowing dossiers to be easily collected on customer buying 
patterns.  Under such systems there would be incentive for those 
seeking privacy to spoof (eg by creating false credentials and/or
credentialling agencies), as well as for those seeking to defraud
to spoof.  A good net commerce model should be able 
to deal with the fact that many Internet users can easily create
pseudonyms, and credentials (digital signatures, etc.) for those
pseudonyms, without demanding expensive, privacy-endangering
"true ID" enforcement.  Given the extremely messy legal environment with 
thousands of jurisdictions criss-crossed by the Internet, a basic principle 
of Internet commerce should be to minimize the need for legal
intervention.

Also I'm concerned about the vulnerabity of the IBS 
organization(s) themselves to corruption, which could sap or destroy 
an economy centered on such an agency.  A good commercial model
should be decentralized so that any such corruption can be quickly routed 
around, much like the Internet is built to route around node failures.  
With the efficiency of on-line software customers can "ping" 
banks, billing services, etc. by depositing money in a very
fine-grained manner at a wide variety of such service providers,
to determine which services are the most trustworthy.  Extensive
reputation records for these services can be accumulated,
searchable on-line Consumer Reports.

Thus I hope a wide variety of decentralized means of Internet commerce
can be tolerated.  Of the possible means, digital cash and/or pseudonyms 
with transferrable credentials seem the most attractive.  They are 
complicated in raw protocol and software, but could present a simple 
conceptual interface for most users, and they don't demand that third
parties, ie net culture, net user's software, and world politics be 
changed in in fundamental ways.  Some sorts of changes might happen, but 
the goal of Internet commerce is not to predict them or bring them about or 
prevent them (we can't do those things any better than anybody 
else), but to set up Internet commerce without having to rely 
on major help or change on the part of third parties.

Nick Szabo				szabo@netcom.com