From: sjb@austin.ibm.com (Sjb@austin.ibm.com)
Date: Wed, 20 Sep 95 16:29:25 PDT
To: cypherpunks@toad.com
Subject: A problem with anonymity
Message-ID: <9509201546465435@ci.diamond-bar.ca.us>
MIME-Version: 1.0
Content-Type: text/plain


Date: Thu, 31 Aug 1995 18:32:01 -0500
From: Scott Brickner <sjb@austin.ibm.com>

I was thinking about some issues related to electronic commerce, and it
occurred to me that there is a significant problem in conducting
business with untraceable pseudonyms (anonyms?).  The problem occurred
to me while considering inheritance.

If one operates a business under an anonym (as opposed to the sort of
conditionally traceable pseudonym proposed by AT&T in "Anonymous Credit
Cards" <URL:ftp://ftp.research.att.com/dist/anoncc/anoncc.ps.Z>),
there's a strategy for transferring unlimited funds to one's
posterity.

Consider a business which typically has a lot of assets, but which are
offset by a lot of liabilities --- almost any sort of VAR will do, for
instance.  In your will, you leave the key to unlock a private message
to your heir, in which you hand over the information necessary to
assume your anonym.  Since the heir presumably has his own identity
(whether anonymous or not is immaterial, except to *his* heirs), and
the anonym can't be linked to you, he has no reason to care about
maintaining the reputation of the anonym.  In dismantling the anonym,
he sells its assets to his own identity at a fraction of their worth,
and defaults on the liabilities.

Since the anonym behaved reputably during its life, it developed what
would have been a credit-worthy reputation, had it been a (traceable)
pseudonym.  But, since there's nothing to link the anonym to its heirs
(or ancestors), the creditors of the anonym must eat the loss.

Since the process of taking an anonym from scratch to a positive
reputation would be reasonably short (presumably not too much longer
than taking a real name or pseudonym the same distance), especially when
helped along by being fed the profits from the legitimate business of
an ancestor anonym, it's likely that a single individual could pull off
such an asset transfer at least two or three times a decade, as well as
at inheritance time.

A market which permits anonyms to have credit based on reputation will
probably have a constant stream of defaults caused by such behavior,
representing a significant risk factor in extending credit to anonyms
which can't be predicted by reputation.

Comments?