From: "James A. Donald" <jamesd@echeque.com>
Date: Sun, 27 Sep 1998 20:03:41 +0800
To: cypherpunks@cyberpass.net
Subject: Re: Cypherpunks defeat?
In-Reply-To: <199809231921.VAA12284@replay.com>
Message-ID: <4.0.2.19980927162224.00bb9d80@shell11.ba.best.com>
MIME-Version: 1.0
Content-Type: text/plain



    --
Anonymous wrote:
> Most cypherpunks have become disillusioned about their
> dreams, and you will seldom hear them defend the notion
> that cryptography offers any kind of alternative to a
> society based on coercion.  The past few years have been
> hard ones.  The failure of digital cash, [....]
>
> Is the cypherpunks dream dead?  Is the movement over?
>
> Maybe it is time to give up. 

We are not defeated.

We have won many key victories, and only one, though the
biggest one, remains to be accomplished.

Our failures have had obvious and remediable causes.

Few people use encryption technology today, because few
people have real need of it.

Few people have real need of it, because there is no
reasonably liquid net money. People are not making, spending,
transferring, and promising, money through the net, so they
have little need to encrypt their messages or care for the
reputation of their nyms.

And that is the big remaining battle.

Net money.  Net money that is reasonably liquid, that many
people acquire, that many people spend, money that is readily
convertible to worthwhile goods and services.  Don't worry
about blinding and all that.  Once any sort of net money is
flowing in large amounts, all that stuff then becomes
possible and desirable.  If there is no liquidity, nobody
cares about blinding, and if you have blinding it does you no
good anyway without liquidity.

Once we get that, we will shortly get it all.  As long as we
do not have that, we have very little.

Digicash failed because it was proprietary.  For net money to
be a success we need a standard for transferring promises to
pay that is separate from the software issuers, and thus
separate from the issuers of promises to pay or deliver.  It
has to be a standard such that anybody can play, anyone can
write software that will interoperate with software written
by others, and anyone can issue promises to deliver anything,
so that Ann, Bob, and Carol can transfer and exchange
promises between each other subject only to the need to trust
each other, without needing permissions or licenses from
anyone else.

And it has to have software that is competitive with existing
methods of transferring value.

Credit cards are very competitive for transactions of modest
size, because of the additional services, in particular
dispute arbitration and resolution provided by the card
issuers, and because of their large installed base. Smaller
players cannot hope to compete in that area.

We have however no adequate means for small payments, five
dollars to fractions of a cent. This offers a fertile
opportunity for the development of netmoney.

We also have no entirely satisfactory means for large low
margin payments..

The large payment problem could be addressed by some system
that provided a tight connection between internet money and
US dollars in US banks, or, better, a system that provided a
tight connection between internet money and US dollars in non
US banks, or, if we had a large and liquid micropayment
system, it could be provided by a tight connection between
micro and macropayments.

If several banks in some moderately popular banking haven
allowed people to transfer funds instantly and cheaply from
one account to another within the haven, through digitally
signed messages passing through https protocol, this would
make it possible to readily solve the large payment problem
by offering the means to create a tight connection between
net dollars and offshore dollars.  If this were done then the
revolution would ensue within a few years. So far none have
been willing to do this, perhaps out of fear of reprisals,
more likely out of sheer inertia.

The offshore dollar system is probably larger and more
liquid, and is certainly considerably more free, than the
onshore dollar system, but it is inconvenient for modest 
payments. People use it primarily for transfers of many
thousands of dollars.  Also the connection between the
offshore dollar and the onshore dollar is weak, because it is 
inconvenient, slow, and costly, to transfer dollars between
the offshore and onshore banking systems.

I see no possibility that anyone will be permitted to create
a strong connection between an internet dollar and the
onshore dollar, whereas it is quite possible that someone
will get away with creating a strong connection between the
internet dollar and the offshore dollar.

Alternatively, (and perhaps more likely) a satisfactory
solution to the micropayment problem automatically brings in 
its train a solution to the large payment problem, since the
software must accumulate many small promises into a few large
promises, and provide means to transfer these large promises
through numerous intermediaries, thus a large volume of
micropayments will create the liquidity for macropayments.
We do not need the banks to win this one, though they would
be very handy.

Large promises to pay could acquire value not through a fast
and cheap connection to the banking system, whether onshore
of offshore, but through a fast and cheap connection to the 
micropayment system, resulting in an internet dollar that
derives its liquidity from the internet market, and is
coupled to the US dollar no more strongly, and no less
strongly, than the offshore dollar is coupled to the onshore
dollar.

Of course for this to work, we will need a large and liquid
market for aggregated micropayments. The existing finance
systems for self publishing, dirty pictures, and gambling,
really do not work very well, so there seems an obvious and
large market for micropayments.

Jakob Nielsen, an apparently well informed internet commerce
pundit who claims familiarity with lots of market research
and has himself done lots of market research has argued that 
there is a large and compelling market for micropayments  
"The Case for Micropayments" 
http://www.useit.com/alertbox/980125.html

Jakob Nielsen:
       Some analysts say that users don't want to be
       "nickeled and dimed" while they are online. In fact,
       the problem is being dimed; not being nickeled.
       Unfortunately, some sites that currently charge for
       content do so at a level of a dollar or more per page.
       Such pricing is obviously unpleasant and will only be
       acceptable for highly  value-added content that users
       can predict in advance that they will benefit 
       significantly from buying. Regular articles (like this
       column) cannot be that expensive. 

       Long-distance telephone calls and electricity are both 
       metered services. Many people do feel a tension while 
       they are on the phone, at least while making an 
       international or other expensive call. At the same 
       time, very few people worry about powering a 
       lightbulb, even though doing so costs a few cents per 
       hour. Electricity charges mainly serve to make people 
       turn off the lights when they go to bed. The 
       difference is clearly in the level of pricing:

       less than a cent per minute and people use as much as 
       they need (electricity) 10 cents per minute, and 
       people ration their usage a little (long distance 
       phone calls) 40 cents per minute, and people ration 
       their usage a lot (international calls)  On the Web, 
       users should not worry about a cent per page. If a 
       page is not worth a cent, then you should not download 
       it in the first place. Even as the Web grows in 
       importance in the future, most people will probably 
       access less than 100 non-free pages per day (in June 
       1998, heavy users visited an average of 46 pages per 
       day).  Most users will have $10-$30 in monthly service 
       charges for Web content. 
	   
One cent, or half a cent, is probably the sweet spot for
pages and dirty picture, with quarters being the sweet spot
for games and gambling.

Obviously pay pages cannot and should not be searched by
search engines, so the typical design would be a free,
searchable, index page containing lead in paragraphs and pay
links to the non free pages on the site, or a collection of
free summary pages each containing a pay link to the
corresponding non free page, or (better) both a free index
page and also a collection of free summary pages.

We want the payment system to introduce no additional delays
when we click on a link, so the index page should cause any
necessary negotiations between the browser and server so that 
the server is ready to accept the coins of this particular
user, so that the user can get the pay page with a single
message, a single URL containing a coin.  The server then
immediately starts downloading the page without waiting for
any further messages to complete, and simultaneously attempts
to deposit the coin.

Suppose you are browsing dirty pictures, and both you and the
server are clients of the same token issuer.  Then the token
issuer knows that you are browsing the dirty picture pages,
and knows how much money the dirty picture issuer is making.

But for the scheme to be successful, we need many token
issuers, and the means to transfer aggregated token values
between issuers, so that in general the entity that takes
your bank money and provides you with net money, and the
entity that takes the dirty pictures servers netmoney and
provides it with bank money, will be very different entities, 
probably in very different jurisdictions, separated by a
chain of intermediaries, who have an economic incentive to
aggregate transactions, thus obscuring individual spending
and getting.

If any creditworthy person can issue tokens, privacy is not
such a big problem, and if the aggregated values representing
large numbers of tokens are readily transferable in a large
liquid market intermediary market, it is not a problem at
all, since the dirty picture issuer and the guy looking at
the dirty pictures are likely to be anonymous to the token 
issuer.

The IBM token scheme provides for intermediaries.  Previous
token schemes did not.  This is an important step forward.
Until now, no one has issued a micropayment scheme that had a 
ghost of a chance. The IBM scheme seem basically workable,
though I need to examine it further.

Micropayments have not failed.  They have not yet been tried.
We still have not seen a scheme attempted that had all the
requirements that real netmoney will need.  It is simply 
quite a bit of work to design these things, and to get them
deployed in a form that ordinary mortals can use.   

    --digsig
         James A. Donald
     6YeGpsZR+nOTh/cGwvITnSR3TdzclVpR0+pr3YYQdkG
     NPL9VZbCi5pP9i/NPYToSVmWYTnX2mbqCxE3CBmj
     4RNCFUvHIWJi/I6WQfi1zBE3fjEMJNMx41wskrUiI
-----------------------------------------------------
We have the right to defend ourselves and our property, because 
of the kind of animals that we are. True law derives from this 
right, not from the arbitrary power of the omnipotent state.


http://www.jim.com/jamesd/      James A. Donald