From: hughes@ah.com (Eric Hughes)
Date: Thu, 2 Jun 94 08:30:34 PDT
To: cypherpunks@toad.com
Subject: IMP (was Re: ecash-info (fwd))
In-Reply-To: <199406020211.WAA03002@zork.tiac.net>
Message-ID: <9406021538.AA05856@ah.com>
MIME-Version: 1.0
Content-Type: text/plain


   >Now, one cost of deploying any such system would
   >be the expected (negative) value of the risk taken in losing the whole
   >development investment to an adverse regulatory decision, let alone
   >possible actual penalties.

   True. That is a risk of deploying the protocol from the financial entity's
   standpoint.  

It's a risk, that risk has costs both direct and indirect, and
therefore Chaum's systems are _more_expensive_ than they appear.  These
risk costs _will_ affect what gets deployed.

   Like most things in the banking system, a consensus (inside
   the beltway and out) would have to be reached. But this is a political, not
   a technical, challenge.

Almost all the problems in deploying a digital cash system at this
point are financial and political.

   re: IRS reporting

   I'm hard pressed to see the difference between $10K of paper money and $10K
   of e-cash.  That's the point of the technology. If you treat it the same
   way, you can regulate it the same way.

Smurfing is easier in the electronic domain by a long shot.  Smurfing,
for those, not in with the jargon, is sending out flunkies with a few
thousand in cash each to fetch cashier's checks (i.e. non-cash
instruments).  Since the transfer of e-cash and the creation of
nominal accounts is much easier, it's that much better for moving
anonymous money.

The Treasury Department will see this as a Bad Thing.  It will most
definitely be a regulatory hurdle.

   re: getting profitability

   If it is possible to sell, maintain and support software on the internet,
   there will be an incentive for sellers to use it to reduce costs.  [etc.]

I elided an important point.  It seems clear to us that there's a
large market available on the Internet.  Will it be clear to the
financiers?  Not without a lot of education.

   If I had an e-cash-register coupled with a transaction-ftp capability, I
   could sell my software without knowing who bought it, and put the money in
   the bank more efficiently than if I had to deal with checks, credit cards,
   etc., I would jump at the chance.

This is a feature of any all-electronic payments system, not only of
electronic cash systems.  There are alternatives which can work
economically.  Deployment of anonymous digital money is not an assured
event.

   E-cash is critical
   because of it's efficiency.  

Almost all the efficiency comes from the fact that it's electronic,
not that it's cash.  It is true that cash systems more quickly
consolidate receivables, but the advantage over paper is _relatively_
small.

   With it, I can sell software or
   computer-related services from any net-connected machine to customers
   Singapore, or Japan, or down the street [...]

As soon as foreign exchange transactions come into play, life gets
more complicated real quickly.  I think there really is a large market
available in low level foreign exchange, but it's much more likely
that single currency money systems will be the first to be deployed.

   Suppose that all cash transactions had to be
   recorded and each party of the transaction had to be identified and
   reported to some other third party (the government, say). Besides the
   specter of big brother watching you, the economy would choke in
   administrivia (I *like* that word, Eric).

Choke?  I think not.  Costs would go up a little, certainly, but all
the reporting could be put into software.  Ever heard of the term
"compliance officer" in banking?  It's someone who goes around and
makes sure the firm doesn't inadvertently break any laws.  Well,
compliance for cash reporting would be in software from day one of the
requirement.  It might add a bit to computer system costs, but not
appreciably to labor costs.  After all, filing would be done
electronically, for real-time monitoring.

   If the people who control patents to the "wallets" and
   "cash-register" technology would let that be available for all, 

The 'purchaser' package of DigiCash will be freely distributed.  I
don't think the 'merchant' package will be.  I infer this from looking
at the questionnaire for self-qualification of DigiCash's that got
posted here.  There was a one category for banks, certainly to be
licensees, and one for merchants, therefore also to be licensees.

In summary.  Anonymous cash systems are not clearly better than
identity money systems.  It's not clear at all that one will win out
over the other.  In the USA, there are strong governmental forces
against anonymity.  The best we can hope for is that both get
deployed.  The market will then be able to choose.

Eric