From: Robert Hettinga <rah@shipwright.com>
Date: Sat, 12 Apr 1997 14:57:59 -0700 (PDT)
To: cypherpunks@toad.com
Subject: Re: anonymous credit
In-Reply-To: <199704121752.KAA03393@crypt.hfinney.com>
Message-ID: <v0302090daf759e70271e@[139.167.130.246]>
MIME-Version: 1.0
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This looks pretty much like a standard secondary market for digital bearer
bonds. For the few of those here who haven't done so already ;-), see the
e$ home page for several rants on the same subject.
<http://www.shipwright.com/>

The only people who really need to be identified in such a market -- at
least as "identified" as a perfect pseudonym needs to be -- are the issuer
and the trustee, both of whom must have some kind of persistant reputation
in order to issue the bonds in the first place. The issuer because they're
borrowing the money for something, and trustee, because, as the financial
intermediary, they're renting their reputation to the trade in exchange for
a haircut on a transaction somewhere, usually at issuance and redemption.

In Mr. Dai's case, the trustee is some large trustworthy entity, and the
issuer is a bunch of anonymous, or at least pseudonymous, people whose
reputations would be trashed by the trustee though on a separate "channel"
if they don't pay up. It's actually what happens with mortgages and bank
accounts all the time, except we're doing it here in bearer form. In fact,
in blinding(?) the borrower's identity from the lender, we doing something
pretty much like securitizing the debt. There is nothing to keep us from
pooling the debt and issuing securitized versions, controlling for all
kinds of risks much the same way that GNMAs, or CMOs, or other deriviative
fixed income assets do. In fact, it's a very good business reason for doing
this, and so it probably will happen in the long run.

Once again, anonymity (of a sort) is cheaper than identity.

By the way, the trustee doesn't have to be large, only reputable.

If Moore's Law allows it, I anticipate markets in which the trustees could
become very small indeed, and would actually form syndicates with lots of
entities to handle what would now be considered routinely small
transactions, like lunch. :-). This the "personal" digital bearer bond that
I abuse so much as a replacement for credit cards when I explain this stuff
to people who are starting to learn about it. :-).

Hal's discussion about lending principal and borrowing from the same pool
at the same time reminds me of a scheme I've heard for hedging against the
eventual day when the US government repudiates its debt. If you feel
morally obliged to kick in your share, anyway. The idea is, hold your
calculated share of the national debt in US Treasuries (with interest
reinvestment, of course :-)), and, when the fateful day comes, you'll owe
the "money", now zero, to yourself, just like Roosevelt said. Actually, if
the government is moral and starts to repay the debt, you can hold
treasuries and redeem them to pay the debt-repayment surtax. Of course, you
could make better money elsewhere, but there is a certain, um, fireside,
symmetry about it.

At this stage, however, I'm a confirmed pyrophobe, Fed-wise.


Cheers,
Bob Hettinga






-----------------
Robert Hettinga (rah@shipwright.com), Philodox
e$, 44 Farquhar Street, Boston, MA 02131 USA
Lesley Stahl: "You mean *anyone* can set up a web site and compete
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Andrew Kantor: "Yes."  Stahl:  "Isn't that dangerous?"
The e$ Home Page: http://www.shipwright.com/