From: jim@bilbo.suite.com (Jim Miller)
Date: Thu, 10 Mar 94 12:18:01 PST
To: cypherpunks@toad.com
Subject: anonymous credit?
Message-ID: <9403102011.AA18196@bilbo.suite.com>
MIME-Version: 1.0
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I'm wondering is anonymous electronic credit is possible.  At first,  
it seemed to me to be an unlikely thing.  Banks and credit companies  
usually want to determine if a person is a good risk, before  
extending them credit.  If a person has a bad credit history, they  
have a hard time getting credit cards and loans.  How could a bank  
determine your credit history if they don't know who you are?   
Assuming you did get a credit card using an anonymous id, if you  
abused your credit and lost the use of the credt card, you could just  
re-apply under a different anonymous id.  There would be no continous  
credit history under a single identity.

After thinking about this a little is now seems to me that anonymous  
credit is possible, but it wouldn't work like current credit cards.

A few assumptions...

1) there will be more people who pay their bills than people who  
don't pay their bills.

2) some people will pay their bills late and be subject to fees and  
interest.

3) there will always be some people who try to cheat the system by  
getting an anonymous credit line, spending it, then disappearing.


Given these assumptions, I can see anonymous electronic credit  
working as follows:

Anyone can get an anonymous credit line.  You purchase an anonymous  
credit line by forking over some anonymous digital cash up front.   
The more you fork over, the higher the initial credit line.  In  
return for the upfront cash, you get an anonymous credit id and an  
credit line to accompany it.  Your initial credit line will be equal  
to the amount of your upfront money, perhaps minus a startup fee.   
You can increase you credit line by paying your bills on time, thus  
establishing a mini-credit history with that credit company.  The  
*rate* of increase is the important factor, which I'll get back to  
later.

Instead of working like current credit cards, which give the credit  
companies a detailed record of what you purchased, where you  
purchased, and when, anonymous credit will work more like a generic  
loan.  To tap your credit line, you will use your anonymous credit id  
to make withdraws, converting a portion of your credit line into  
anonymous cash using a Chaum-ian anonymous cash withdraw protocol.   
You can then spend the anonymous cash anywhere you like, without  
revealing the details of your spending habbits to the credit company.   
The credit company would only by able to track your withdraws and  
your repayments.

The credit company might charge a service fee for each withdraw.   
They would most likely charge interest, fees for late payment, and  
perhaps also a yearly fee.

Basically, it works much like an anonymous bank account, except you  
can establish a good repayment history and increase your credit line.   
The rate at which the credit company increases your credit line will  
depend upon the credit company's assement of the risks invovled in  
carrying anonymous credit lines.

The credit company knows that you can simply disappear at any time,  
therefore it won't want to increase your credit line too fast.   
However, the higher your credit line, the more interest it can earn.   
Also, competition between different credit companies will affect the  
rate of increase.

If most people repay their credit lines, the credit company will make  
money.  If credit lines don't grow too large, too fast, the credit  
company will not lose too much money from cheaters.  The credit  
company should be able to determine a rate of increase that will make  
them a profit.

Does any of this sound reasonable?


Jim_Miller@suite.com