From: clarissa_wong@alpha.c2.org (Clarissa Wong)
Date: Fri, 8 Mar 1996 08:28:22 +0800
To: cypherpunks@toad.com
Subject: Jump Start ecash With IPhone
Message-ID: <199603060435.UAA07171@eternity.c2.org>
MIME-Version: 1.0
Content-Type: text/plain


Proposal: Augment computer-to-computer Internet phone with local
          telephone-to-Internet-phone gateways to create a new
	  telephone-to-telephone long distance network via the Internet.

Result 1: No computer is needed for cheap long distance or
          international voice phone calls.
Result 2: ecash gets its "Killer Ap", a service that (a) people
          want to buy and (b) requires micropayments for economic
	  feasibility.  (Details below.)
Result 3: Creates a large, decentralized market that is difficult
	  for anyone to regulate and that provides many opportunities
	  to make money.
Obvious
Nonresult: Achieving privacy in long distance or international voice
          requires further development.  Hardware and software
	  beyond that in an ordinary telephone is needed at each end.

Who Can Do It:

    ISPs (Internet Service Providers) are in the best position to
    operate nodes of this decentralized network.  They have the
    Internet connection, the phone banks, the technical expertise,
    and some business experience.

      Telephone <---> ISP <---------> ISP <---> Telephone

Scenario (Result 1):

    Granny Smith in Paducah wants to chat with her grandson Adam Smith,
    who is studying economics in Hong Kong.  From her ordinary touch-tone
    phone she makes a local _voice_ call to Cheap Speech, Inc. and at
    the prompt enters the phone number for Adam.  Cheap Speech finds that
    TalkToMe Ltd is a network node in Hong Kong within a local phone call
    of Adam and, through the Internet, establishes a connection.  Then it
    patches in the voice call from Granny as TalkToMe dials out and
    reaches Adam.

      Granny Smith <--> Cheap Speech <-----> TalkToMe <--> Adam Smith

Payments (Result 2):

    More than half the cost of running a traditional long distance voice
    business is for handling the billing.  The cost of the technology to
    provide the service is thus less than the cost of the billing!
    Cheap Speech and TalkToMe cannot provide cheap voice service,
    as in the example above, unless they use a much more efficient payment
    system.  That is why the low transaction cost of ecash is so important
    and that is why this message is being sent to cypherpunks rather than a
    telecom list or news group.

    So who uses the ecash?  Surely Granny and Adam Smith can't shove it
    through ordinary telephones.  They just want to get ordinary voice
    connections with ordinary telephones as they have for many years,
    only cheaper.

    Here is how I think ecash fits in:

      Granny Smith --> Cheap Speech
          Granny pays Cheap Speech through ordinary means, probably
          by monthly credit card charge, which is common for ISPs.
	  The overhead for this probably is only around 5% (plus staff
	  for account setup and support) because the ISP already is
	  set up for that kind of payment system and Granny Smith is
	  a local person providing repeat business, not a bad apple
	  on a spending spree with a stolen credit card number.

      Cheap Speech --> TalkToMe
          Cheap Speech and TalkToMe do not have any previous business
	  arrangement with each other and probably never have done business
	  with each other before.  They also are on opposite sides of the
	  world.  But Cheap Speech consults a Rating Service that says
	  TalkToMe is reliable, so Cheap Speech sends a small amount of
	  ecash to TalkToMe to open a connection and dial out to Adam.
	  Since ecash clears instantly, TalkToMe does not need to know
	  anything about Cheap Speech.  No international billing network
	  is needed.  Little overhead is incurred.

      TalkToMe --> Adam Smith
          TalkToMe provides this service in exchange for the ecash from
	  Cheap Speech.

    The main problem I see with this scheme is that Cheap Speech may
    have a cash flow problem.  Payment to TalkToMe must be made immediately
    whereas payment from Granny Smith may take a couple of months to
    arrive.  If, however, the volume of incoming calls (ecash coming in)
    matches the volume of outgoing calls (ecash going out), then the cash
    flow will balance out.  Also, Cheap Speech could offer Granny a discount
    for prepayment.

Regulation and Profit Opportunities (Result 3):

    Big, centralized organizations are big targets for lawsuits and
    regulation.  They are the "deep pockets" lawyers love to pick.
    They are the leverage points for power-hungry politicians.

    But the Internet was designed to survive nuclear war.  It was
    designed to route around outages, no matter their cause.
    A decentralized, Internet-based, international network of small,
    independent voice service providers could enjoy similar advantages.

    Many companies are creating _computer-to-computer_ Internet phone
    software.  See the NetWatch Top Ten - Voice / Video On The Net at URL:
            http://www.pulver.com/netwatch/topten/tt24.htm
    We can depend on that technology to improve.  I do not know of any
    companies who also are providing interfaces to ordinary telephones
    and designing a decentralized network with an ecash-powered payment
    system.  That is our advantage.

    But the network described above has many limitations.  These are
    opportunities to make money by selling your solutions to customers.
    Examples:

    It needs a directory and rating service for voice providers such as
        Cheap Speech and TalkToMe.  (Perhaps Raph Levien will expand
	his rating services to a new domain?)
    The network will not be useful until it has many nodes.
        That is partly why this proposal is being sent to a large audience.
	Cypherpunks who cut their teeth building a remailer network perhaps
	can build a voice network, too?  Think of it as a challenge.
    People who travel a lot will want cheap long distance telephone service
        while on the road.  How do they arrange that if their only contract
	is with a service provider near their home?  We need a more
	flexible payment protocol than the one described above.
    Enhanced services - fax, teleconferencing, time-delay and retry,
        phone mail, and collect calls.
    Multiple brands of ecash will require conversion services.  Currently
        Mark Twain Bank's offering looks best, but when ecash succeeds,
	expect many more.  Eventually, the network may work best with
	ecash denominated in currencies other than government-sponsored
	fiat currencies.

Conclusion:

If this idea is so good, then why am I telling you about it?

  (A) I cannot do it all myself.
  (B) Feedback on the idea from knowledgeable people is valuable.
  (C) If it succeeds, it will create a market with opportunity for
      plenty of people to make money, including me.
  (D) We have a limited window of opportunity to get this done.  My guess
      is that we have roughly one year before other people embed their
      solutions into the Internet and financial system so deeply that
      this network will be locked out from commercial success.  According
      to the theory of increasing returns, whoever gets to market first
      usually gets the market.
  (E) Even though the decentralized structure should help reduce exposure
      of the network-as-a-whole to harmful lawsuits and regulations,
      individual local providers may face sanctions from regulators of
      the FCC, state PUCs, national Telekom monopolies, etc. once they
      realize what's happening.  (Operators of cypherpunk remailers endure
      similar risks.)  The faster the system can be developed and deployed,
      with a large number of satisfied customers, the more widespread
      support it will have, the harder it will be to stamp out, and the
      safer life will be for everyone involved.  It would be nice to be
      able to say "The Genie is out of the bottle."

   CW