From: tcmay@netcom.com (Timothy C. May)
Date: Tue, 3 May 94 11:47:57 PDT
To: cypherpunks@toad.com
Subject: Why Digital Cash is Not Being Used
Message-ID: <199405031848.LAA13081@netcom.netcom.com>
MIME-Version: 1.0
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Hal Finney asks us to think about and comment on the important issue of why
digital cash, in its myriad forms, is not in wider use. Especially on this
list, where the Magic Money/Tacky Tokens experiment has not (yet at least)
produced widespread use.

This question also goes to the heart of several related questions:

1. Why aren't crypto protocols other than simple encryption, digital
signatures (both implemented in PGP as the de facto standard in our
community), and remailings (implemented in Julf's anon.penet.fi remailer
and in the various Cypherpunks remailers) being *used*? Why no DC-Nets, no
data havens, no digital timestamping, etc.?

2. What *incentives* are there for creative programmers to devise and/or
implement new crypto protocols if essentially everything for the past year
and a half (since the fall of 1992, which is when PGP 2.0 and remailers
became widely available) has languished?

3. What are the "killer apps" of crypto?

4. What platforms and user environments should would-be developers target?
What machines? What networks? What languages? (An ongoing interest of mine.
Objects, scripts, Visual Basic (!) VBX tools, TCL, perl, many platforms,
etc. A tower of Babel of confusion is upon us.)


Here is my first-cut analysis of the digital cash situation.

I. Why is Magic Money/Tack Tokens, in particular, not being more widely used?

- Nothing of significance on the List to buy, hence no incentive to learn
how MM works. (Just because someone announces that their new article is
available for 10 Tacky Tokens doesn't a demand make!)

- Semantic gap. I confess to not having the foggiest ideas of how to go
about acquiring Tacky Tokens, how to send them to other people, how to
redeem them (and for what), etc. Having nothing to buy (no need), and
plenty of things to occupy my time, I've had no interest in looking at MM.

When I buy items like t-shirts from people on this list, I simply write
them a check and send it. Very simple. The banks handle the complexities.
And writing a check is a "prototype" (or script) that is learned early by
most of us. Not so with any of the various digital cash schemes. In 10 or
20 years, sure, but not now.

This is not to take away from the excellent work--I gather from comments by
others--that ProductCypher put into MM. His greatest achievement may turn
out to bring this issue to the fore, to wit, what will cause people to
bridge this semantic gap (understanding) and actually begin to *use* these
new constructs?

- as others have noted recently (and this is a well-known issue),
alternative currencies must offer some advantage over existing currencies,
or at least be roughly on a par with them.

For example, the airlines have their own currency, "frequent flier miles,"
which they pass out as an inducement for customer loyalty (repeat
business)....it is generally not advantageous for them to allow exchange.
(And really it's a kind of bribe, a transfer from the corporations which
pay for the plane tickets, with the frequent flier miles accruing--despite
futile attempts to halt this--to the individual passengers....this gives
"ffm"s a built-in advantage.)

(The proposal recently that vendors of products, like t-shirts, give a
discount for MM payments is of course unworkable. This is asking real
people to give up real dollars for an ideological cause of marginally
little significance to them. The advantages of MM must be real, not phony.)

II. Other Experiences with Digital Cash in Some Form

- On the Extropians list a while back (I've since left that list), there
was an interesting experiment involving reputations of posters and "shares"
in their reputations. Brian Hawthorne introduced is "Hawthorne Exchange,"
HeX, with eventually a few hundred or so reputations trading. The unit of
exchange was the "Thorne," with each new list member given 10,000 Thornes
to trade with.

Trading was very sparse, with most people apparently never bothering to
learn to trade (a la my own experiences with Magic Money). I downloaded the
docs one night, tried a few trial trades, and then proceeded to make dozens
of trades, trying to buy cheap and sell dear. Between my trades, the
reputation attached to my posts (and to my "nom du humor," Klaus! von
Future Prime) I amassed a sizable fortune in Thornes. I even offered to
exchange real dollars (checks) for Thornes, the better to amass a fortune
(for reasons I won't go into here). Edgar Swank offered to sell me his
Thornes for $20, I think it was, and I sent him a check immediately. (No
one else did.)

But I think the system was ultimately a failure. Nothing interesting was
for sale, and Thornes had a ridiculously low value (reflecting of course
their "toy" nature...my $20 bought 20,000 Thornes, as I recall). By "low
value" I mean that the number of Thornes given to each participant (Hint:
"given" is the important word) was worth nominally $100 (by Brian's sales
price--probably none were ever sold at this price), worth $10 to me and
others (by my offer of $1 per 1000 Thornes), and probably worth much _less_
as the HeX market languished and, probably, ultimately folded. (Does
anybody on the Extropians list know if it is still operating? And what
happened to by shares when I left the list?)

- Similar barter schemes have been described elsewhere. "Mother Jones" had
an interesting article last summer about a barter scheme in New England,
and other folks have mentioned here the articles in "Utne Reader" and so
forth.


III. What Markets Might Make Use of Digital Cash

- phone cards, subway cards, parking garage cards...all are examples. But
these are mainly to reduce the need for customers to carry coins and bills,
to reduce the dangers of theft of coins and bills (and the need to collect
them frequently from payment points), and to speed up processing by not
having customers fumble for change, etc.

- toll roads...this is a market that Chaum's DigiCash company has been
targeting for several years now. Privacy is a concern (don't want Big
Brother tracking your movements), and the infrastructure may allow
considerable investments in remote sensing of IDs and pseudonymous IDs,
online clearing, etc. Read the Chaum stuff for details on this.

- illegal markets, for transferring wealth in fairly large amounts. Not at
all clear how this will happen, and it sure won't happen with some
fly-by-night hackers and/or students offering a new service.

(I didn't mention that one of the persistent concerns about learning new
crypto protocols here on this list is the epiphenomenality (transience) of
it all...remailers appear and then vanish when the students go away or lose
their accounts, features added make past learning useless, and so on. Life
is too short to spend it learning crufty details that will go away in a
matter of months. I'd hate to buy $300 worth of TackyTokens and then find
that their value went away when J.Random User graduated!)

- betting markets, the "Internet Casino in Cyberspace," etc. Nick Szabo was
once championing this, and I think it could be an interesting, and very
real, market. Lots of issues here.

- Digital Postage. This remains my favorite. There's a _need_ for
untraceable payments (else why use a remailer?). I've written about this
extensively, as have others.

If remailers offered robust (see above point about crufty, flaky, hobby
remailers) services that they operated as _businesses_, with reasonable
attention to reliability, interconnectivity to other remailers, overall
robustness, and carefully articulated policies about logging, privacy,
etc., then MM or something similar could have a real value.

IV. Is there Any Hope for Cypherpunks Software Use?

The remailers (of Hughes and Finney, with other contributions) came in the
first few _weeks_ of existence of the Cypherpunks group. Julf's system
already existed.

Remailers were the "low-hanging fruit" that got plucked fairly easily (not
taking anything away from Eric, but he himself says he learned enough Perl
in one day to write the first, crude remailer the _next_ day!).

Later protocols have not fared as well. Why this is so is of great importance.

That's a topic unto itself, and one which I hope to write about soon. Lots
of important questions and interesting issues.

--Tim May


..........................................................................
Timothy C. May         | Crypto Anarchy: encryption, digital money,
tcmay@netcom.com       | anonymous networks, digital pseudonyms, zero
408-688-5409           | knowledge, reputations, information markets,
W.A.S.T.E.: Aptos, CA  | black markets, collapse of governments.
Higher Power: 2^859433 | Public Key: PGP and MailSafe available.
"National borders are just speed bumps on the information superhighway."