From: Nathaniel Borenstein <nsb@nsb.fv.com>
Date: Wed, 6 Dec 95 04:20:35 PST
To: "E. ALLEN SMITH" <EALLENSMITH@ocelot.Rutgers.EDU>
Subject: Re: Geodesic Payment Systems? (was Re: Meeting notes from ANSI X.9 Meeting on Electronic Payment)
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Excerpts from mail.nonpersonal: 5-Dec-95 Re: Geodesic Payment System..
"E. ALLEN SMITH"@mbcl.ru (2487)

> 	All of this is assuming that the digital currency being produced has
> a one-to-one ratio with some "real" currency. If, for instance, the digital
> certificates were indeed bought with a one-to-one ratio from the producer, but
> were traded to others for "real" cash at some market-determined discount, the
> market would incorporate the risk. The traders who were willing to take the
> risk that the certificates were not actually worth one dollar/whatever would
> be able to make a profit by the difference between one digital dollar and one
> "real" dollar. The problem is simplified even more with privately backed
> currencies.

I had assumed that there was a market discount, but it's still not quite
that simple.  It's very hard for markets to deal with *unbounded* risk. 
The biggest problem I see with most of the crypto-cash schemes is that
there is a legitimate scenario -- however low-probability you might
assess it to be -- of break-the-bank catastrophic failure, i.e. in which
someone gains the keys that allow him to essentially print money.  This
kind of low-probability, infinite-cost risk is the kind of thing that
gives underwriters the heebie jeebies.  There's a good reason that most
companies have "Ltd" after their name instead of "Unlimited", in those
countries where that's the naming convention.

Excerpts from mail.nonpersonal: 5-Dec-95 Re: Geodesic Payment System..
Wei Dai@eskimo.com (1749*)

> But if we're converting
> between one eletronic system and another, then cryptographic protocols
> reduce the cost of protection to nearly zero for even small organizations. 

This is probably true, although protocol translation is a notoriously
tricky and subtle business.  But my comments were aimed at the
conversion between electronic and physical monetary systems, not between
different electronic systems.  And, for this purpose, totally
non-Internet mechanisms such as SWIFT or US ACH are, in my view,
"physical" systems, for a number of historical reasons.  If you disagree
with that classification, however, you just push the line down a little
further, but don't change the underlying assessement.  -- NB
--------
Nathaniel Borenstein <nsb@fv.com>       | (Tense Hot Alien In Barn)
Chief Scientist, First Virtual Holdings | VIRTUAL YELLOW RIBBON:
FAQ & PGP key: nsb+faq@nsb.fv.com       | http://www.netresponse.com/zldf