1994-08-29 - RE: Golbal Econ.

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From: rah@shipwright.com (Robert Hettinga)
To: rah@shipwright.com
Message Hash: 36e9dc61edad9c53bd129a85ba23195d519ac22abc764bbe0a40ca29853f263d
Message ID: <199408290314.XAA26996@zork.tiac.net>
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UTC Datetime: 1994-08-29 03:15:53 UTC
Raw Date: Sun, 28 Aug 94 20:15:53 PDT

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From: rah@shipwright.com (Robert Hettinga)
Date: Sun, 28 Aug 94 20:15:53 PDT
To: rah@shipwright.com
Subject: RE: Golbal Econ.
Message-ID: <199408290314.XAA26996@zork.tiac.net>
MIME-Version: 1.0
Content-Type: text/plain

At  9:50 PM 8/28/94 +0100, p.v.mcmahon.rea0803@oasis.icl.co.uk wrote:

>> >An "internet economy" needs a basis of trust, as well as security
>> >mechanisms appropriate for the current level of IP security. What basis
>> >of trust do you envisage?
>> Secure transactions are here already.
>... for parties with established commercial relationships.

No, for individuals transacting business with commercial entities. The NYT
article we disparaged for being rediculuously overdue is a case in point.

>> Most of this can be done in civil law. It's done all the time in the
>> securities markets. If you have certificate which is collateralized, by an
>But the contractual agreements upon which these transactions are based
>don't scale too well to the [small] vendor / casual purchaser sector,
>which I guess the term "internet economy" is intended to encompass.

I don't think so. If an underwriter has a standard purchase agreement with
the purchaser, much like all the fine print we see in a packet of Amex
checks but never read, which stipulates a collateralized certificate and
that agreement is issued thousands or millions (someday billions?) of
times, then what's the difference between that and one agreement for a
single trade between commercial parties?

I'd call that scalable, wouldn't you?

>The most likely basis of trust for this sector is not going to be achieved
>through each transient buyer-and-seller pair-instance entering into an
>explicit contract to enable the seller to believe the buyer's electronic
>[proxy-]promissory note - but by an extension of the current mechanism for
>telephone or mail-order payment, with the trusted third parties being
>VISA, AMEX, etc.

Okay. If the issuer is a trusted third party creating an exchange item of
value.  There is no promise required by any party except the issuer's
promise to show up fork over physical cash on a one-for-one basis when the
certificate is redeemed.

>While CommerceNet is the most prominent make-the-internet-safe-for-business
>initiative, it still only expects to have 1 million customers within five
>years - a goal that is modest enough given today's Internet user base,
>and growth rates. Even so, industry analysts consider this goal ambitious.

I think that the presupposition here is an underestimate, but it still may
not be enough to support an underwriter just yet. It's an underestimate
because CommerceNet is still an on-line business trying to get the "cream"
of the market, largeish transactions. Their financial partner, Bank of
America, is trying to do what it knows, which is credit cards and checks.
However, the ability of small vendors of information to make low-cost
transactions of practically any size is where the money will be, I believe.

I believe that the things you may be able to buy on the internet are legion
with just a little more bandwidth: music, information, software, on-line
consultations, maybe even a movie ;-). The most important thing is that
offline transactions with internet cash may enable much more granularity in
the transaction base.  There may be money for a business which underwrites
those transactions.  There has been some discussion here about much larger
business-to-business cash transactions using the same idea, but that's not
what I'm talking about here.

I think that a presence as an underwriter of internet cash is sort of an
option on market participation as the market grows. It may be that the
experience may be worth something over time.

>Expectations for an internet economy based on techniques above and beyond
>the ability to securely send one's credit/charge card details are unlikely
>to be fulfilled in the short/medium term.

Who knows?

I'll tell you a story. I really got hit over the head with the idea that
internet commerce was possible when I read one of the first issues of
Wired, and there was this MTV VJay, of all people, saying that the record
companies will go out of business as soon as somebody figured out how to
"upload" money to the musicians themselves.

This started me thinking, and I ran a bunch of Nexis searches on internet,
and came up with "cypherpunks". Joy.

The point is, whenever I think about internet commerce, I think about
someone buying a copy of a song from a musician as the lowest level of
economic granularity.  What I get is an offline cash system.

Robert Hettinga

Robert Hettinga  (rah@shipwright.com) "There is no difference between someone
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