From: hughes@ah.com (Eric Hughes)
Date: Fri, 22 Jul 94 10:27:22 PDT
To: cypherpunks@toad.com
Subject: Small transaction amounts
In-Reply-To: <9407211652.AA09087@ua.MIT.EDU>
Message-ID: <9407221704.AA29638@ah.com>
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   Not yet. But I'm just a few weeks away from Alpha testing a very
   large web-based project which has all sorts of agents interacting
   with each other and dealing in very small amounts of money. It
   includes a second rate (but effective) digital cash protocol.

In a closed computational environment, there is no need for
cryptographic digital cash.  Telescript, for example, is a closed
computational environment, at least now.  Inside such an environment,
one can rely upon the fact of closure for security in money transfer.
The operators of the closed place provide an assurance that running
the agents will be done as expected, and that funds will flow as
expected.

I can't tell from the above quotation whether the project is closed in
this way or not.  Verbum sapienti ...

The cost of cryptographic computation, database lookups, and amortized
staff time (the most expensive, and not getter cheaper nearly as fast
as the others) for each transaction has some characteristic minimum
value.  The transactions cleared through such a system will have their
own minimum, which will be on the order of the cost of provision.

One can create closed environments expressly for the purpose of doing
this kind of low-cost low-level transaction.  These systems have
reduced resource requirements and will always be cheaper to operate
than a full scale digital cash scheme.

The closure, however, of these systems means that they don't scale.
That's bad, fatal, in fact.  That doesn't mean that closed systems
will disappear, merely that the largest systems must be open.

What is desirable economically is that the boundary between closed
clearance systems and open clearance systems be porous enough that the
market can find an optimal distribution between the two varieties.

Eric