From: eric@remailer.net (Eric Hughes)
Date: Thu, 1 Dec 94 18:10:41 PST
To: cypherpunks@toad.com
Subject: Re: E-money Good or Bad?
In-Reply-To: <sede08a1.001@aba.com>
Message-ID: <199412020309.TAA14459@largo.remailer.net>
MIME-Version: 1.0
Content-Type: text/plain


   From: KDAGUIO@aba.com

Welcome to cypherpunks, Mr. Daguio.  Steven's article was unclear (to
me, at least), about just what you do for the ABA.  Could you provide
a more lengthy introduction?

   Whoa! Much of content of the discussions I had with Mr. Levy
   concerned the importance of protecting privacy and security for
   everyone.  None of those comments made the cut.  Yes, I have
   concerns about fully anonymous digital cash, but while I am not a
   full on crypto-anarchist, neither am I a crypto-facist.

There are two senses of the phrase "protecting privacy and security
for everyone".  The first, that I favor, construes the context
strictly, that is, privacy and security with respect to only the
transaction system in question.  The second construes the context
broadly, taking into account anticipations external to the system to
arrive at a judgement of what constitutes protection.  It appears that
you, Mr. Daguio, are much closer to the second than the first; if this
is inaccurate, please correct me.

I believe these two notions of protection are irreconcilable with each
other.  Protection of privacy to me means that only me and my
counterparty know that we have transacted and how much we have
transacted.  Digital cash techniques address the first of these and my
own Remote Auditing protocols can be used for the second.  Note that I
did not say that the bank need know, because both these technique
allow the bank to remain willfully ignorant and yet have an assurance
that they, the bank, are not at risk.  Protection of security means
protection against fraud and assurance of continuity of service.

On the other hand, if we assume that protection of security means that
the populace should be protected against narcoterrorists by denying
them a conduit for funds, then the strong privacy referred to above
cannot b maintained.  Nor even, in fact, can the security be
maintained, as a recent seizure of funds in transit inside New York
indicates.  (Very delicate work; the window of opportunity for the
feds was on the order of an hour, as I recall, and even though they
needed a court order, they hit it.)

I am partial to the first because, at a deep level, it can be stated
exactly what the requirements are, and relatively concisely.  The
second interpretation requires any number of assertions about the
outside world and its chains of causality.  Moreover, the second
interpretation includes a significant amount of discretion by public
officials who are not directly accountable to the public.  Not one of
the executive branch officials in charge of financial matters, however
construed, is elected.  Congress has ceded discretionary authority to
regulators and has largely left the task of interpretation to them.

This discretion with respect to what constitutes security is, to me, a
Very Bad Thing.  At the whim of a department, it may suddenly be
declared that something new is now disapproved of.  The color of law
is used to justify these changes, but they coincide neither in
necessity nor in sufficiency with the law.  To my knowledge, there was
no intensive and large scale investigation into Rostenkowski's
affairs, much less the Clintons's commodities, questionable
activities, if true, certainly constitute bribery.  In a parallel
issue, the FBI is known to have intercepted (legally, mind you) credit
card purchases for grow lights, unquestionably legal even if
associated with one of the least significant forms of drug use.  So
not every illegal thing is followed (not even the most serious) and
legal things are.

   Let me ask you a question.  If people can communicate over the
   net anonymously, tranmit unreadable messages, and transfer
   unlimited amounts of fully anonymous money, haven't you, in
   addition to protecting some of the interests of minorities, also
   perfected a mechanism by which people with evil intent can engage
   in criminal activities completely unobserved and with no fear of
   prosecution?

No, we have not.  What we have perfected (assuming your hypothetical)
is a system where anybody with whatever intent can move money around
with a strong assurance of predictability.  This is manifestly _not_
the same as engaging in criminal activities completely unobserved.  To
pick only the most obvious examples, drug organizations still need to
manufacture and distribute, and these will always remain very tangible
activities.

   I have always believed that people won't come outside to play
   with you unless they feel safe.  We want electronic commerce to
   work everywhere in the world.

Well we want it to work everywhere in the world, too, because that
increases the opportunity for regulatory arbitrage.

A parallel with eurocurrency markets is instructive.  If England
allows an anonymous system and the USA doesn't, then I'll open up a
eurodollar account in England and transact there.  If England doesn't
want to allow the system to operate there, but is willing to hold
dollars for another bank in, say, Hong Kong and Hong Kong allows
anonymous transaction, I use a dollar account there.

In fact it's because of the ability to perform transactions of this
nature at arbitrary points in the globe that anonymous systems will be
very difficult to prevent in the long term.  There will be money in
it, you see, and military protection and fiber optic cable is not
particularly expensive for a national government which wants a new
industry, like, say, India or South Africa or Vietnam.  There's a
distinct possibility that the first country to deploy these systems
will set up a new world financial center, and that's playing for the
big time.

Eric