thoughts on digital cash

I've thought a bit about digital cash since the thread started here,
and I have a bunch of thoughts.  I hope I'll be coherent.

** For production use, you want a real, live bank or other entity to
issue the "money".  Assuming the digital cash is backed by gold, or
securities, or something else tangible, you don't want the bank to go
away with all your money.  Or, if you read in the newspaper "Feds
seize First National Bank", you want to know if they've just seized
*your* bank, and therefore will be able to watch your deposits and
withdrawals.  If you don't know who your bank really is, you won't
know.

** All of the above applies to your escrow agent (who may be your
bank) for similar reasons.  Public key systems provide
non-repudiability, but knowing provably that a pseudonym just stole
money or goods from you doesn't help you get it back.  Sure, it
tarnishes their reputation, but if they steal a whole lot of money all
at once, they won't care.

** Anonymity in banking is a well-known concept.  If I transfer money
from my numbered swiss bank account to your numbered swiss bank
account, nobody knows anything, except who the bank is.  And I don't
see Switzerland giving up their enviable position in the international
banking community willingly.  All we need to do is convince a swiss
bank to do some digital cash banking.  Easier said than done.

** Legality of starting our own anonymous electronic bank: what do the
laws say, anyway?  As long as I pay taxes on any profit, I can form a
sole proprietorship to freely buy and sell purple widgets with very
little government interaction.  Would it still be legal if I got a
whole lot of people to accept purple widgets instead of cash?  Would
it be legal if we called it "digital purple widgets" instead of
"digital cash"?


I'd really like to see some sort of digital cash system set up.  My
feeling is that there would be a stronger demand than most people
think for such a thing, even if it weren't anonymous and untraceable
and all that.  But if it has those features, too, and we do it first,
it will get used.  And de facto standards are hard to get rid of.

		Marc

>From: Marc Horowitz <marc@mit.edu>

>** Anonymity in banking is a well-known concept.  If I transfer money
>from my numbered swiss bank account to your numbered swiss bank
>account, nobody knows anything, except who the bank is.

Such accounts do not exist in Switzerland -- there is no such thing as
a Swiss account for which the bank does not possess information on who
the account holder is. Such things may have existed at one point --
but emphatically do not exist today. There are a few such things in
existance in odd corners of the world -- but they aren't well
publicized.

>** Legality of starting our own anonymous electronic bank: what do the
>laws say, anyway?  As long as I pay taxes on any profit, I can form a
>sole proprietorship to freely buy and sell purple widgets with very
>little government interaction.  Would it still be legal if I got a
>whole lot of people to accept purple widgets instead of cash?  Would
>it be legal if we called it "digital purple widgets" instead of
>"digital cash"?

The law is a slippery thing -- however, anonymous bank accounts, no
matter what you call them, are almost certainly illegal in the United
States. Most computer people don't seem to understand that the law is
interpreted not by a computer but by humans -- and they won't care
what "hacks" you use. If it smells like a bank, they will
likely convict you if it comes to that point.

Perry

>>** Legality of starting our own anonymous electronic bank: what do the
>>laws say, anyway?

Perry write:

>The law is a slippery thing -- however, anonymous bank accounts, no
>matter what you call them, are almost certainly illegal in the United
>States. 

OK, Perry, time to quote sources.  Exactly what laws _do_ prohibit
such bank accounts?

>Most computer people don't seem to understand that the law is
>interpreted not by a computer but by humans -- and they won't care
>what "hacks" you use. If it smells like a bank, they will
>likely convict you if it comes to that point.

Most political dissidents don't seem to understand that the law is
interpreted accurately, for the most part.  There exist clear
statutory definitions on what a bank is.  If you don't meet those
criteria, you're not a bank.

Eric

>From: Eric Hughes <hughes@soda.berkeley.edu>

>>>** Legality of starting our own anonymous electronic bank: what do the
>>>laws say, anyway?

>Perry write:

>>The law is a slippery thing -- however, anonymous bank accounts, no
>>matter what you call them, are almost certainly illegal in the United
>>States. 

>OK, Perry, time to quote sources.  Exactly what laws _do_ prohibit
>such bank accounts?

I know securities law much better than commercial banking law -- I
can't quote commercial banking law or the UCC for the most part, so
I've got no idea precisely where in the codes such accounts are
prohibited.  However, I'm so certain that the law in the U.S. requires
that the bank have full information on the holders of all accounts
that I'm willing to bet $150 right now with anyone who believes
otherwise. The law not only requires that the bank know who you are,
but may even require that ID be presented when you open an account (I
know that this is now routine practice, although its possible that its
only implied from the standards used to determine non-compliance
rather than directly required by the law.) I don't have any incentive
to find the precise place in the books where it says you can't have an
anonymous account in the US, but for a few hundred bucks in easy money
I'd find it fairly quickly. If you don't believe me, well, have fun.

>>Most computer people don't seem to understand that the law is
>>interpreted not by a computer but by humans -- and they won't care
>>what "hacks" you use. If it smells like a bank, they will
>>likely convict you if it comes to that point.

>Most political dissidents don't seem to understand that the law is
>interpreted accurately, for the most part.  There exist clear
>statutory definitions on what a bank is.  If you don't meet those
>criteria, you're not a bank.

If you take deposits and allow people to write drafts against those
deposits you are going to fall under the commercial banking or
securities laws no matter what you do, Eric. I'm sorry that you don't
like this, but its the truth. The best you can hope for is to be
classified as a mutual fund or the like and not as a commercial bank
-- in which case the reporting requirements are just as tight and you
fall under the even more restrictive securities laws. The securities
laws are EXTRAORDINARILY tight when it comes to reporting. Other than
brokerages holding securities in street name, nominee and other
anonymous arangements of any sort are not merely prohibited under the
securities laws but actual criminal offenses.

Perry

Perry writes:

>If you take deposits and allow people to write drafts against those
>deposits you are going to fall under the commercial banking or
>securities laws no matter what you do, Eric. 

The definition of a bank is an institution that accepts demand
deposits.

From Black's Law Dictionary:

Demand deposits.  Any bank deposit which the depositor may demand
(withdraw) at any time in contrast to time deposit which requires
depositor to wait the specified time before withdrawing or pay a
penalty for early withdrawal.  Funds accepted by bank subject to
immediate withdrawal; such represent largest element in money supply
of the United States.

Certain mutual funds which have checks available to them do not fall
under this classification.  Such a mutual fund might be said to have
deposits, but they are not demand deposits.  You can't get them
whenever you like.  The fine print of such aggreements states that the
mutual fund company does not have to honor the check for up to thirty
days, typically.  Because of the time delay, such deposits are not
payable on "demand."

Mutual funds, though, since they are backed by securities, do fall
under securities law.  

Again, from Black's:

For purposes of the Securities Act of 1933 and the Securities Exchange
Act of 1934, the term "security" embraces all investment contracts,
and the test is whether the investment is made in a common enterprise
which is premised upon the reasonable expectation of profits solely
from the managerial or entrepreneurial efforts of others; such test
contains three elements: the investment of money; a common enterprise;
and profits or returns derived soleley from efforts of others.

I merely pointed out that if you're not a bank, you're not under
banking regulation.  This does not preclude regulation under other
laws.

Eric

>However, I'm so certain that the law in the U.S. requires
>that the bank have full information on the holders of all accounts
>that I'm willing to bet $150 right now with anyone who believes
>otherwise. 

You've certainly showed us that you believe this Perry, but otherwise
this statement contains no educational content.  This, to me, sounds
like a grown-up version of "Is so!!!" backed up by "My bank account
can beat up your bank account!"

>[...] ID be presented when you open an account (I know that this is
>now routine practice, although its possible that its only implied
>from the standards used to determine non-compliance rather than
>directly required by the law.)

I'd really like to know if ID is required or not, for one, because
that seems to affect the banks liability vis-a-vis presentation of
false credentials.

You made a claim of fact.  I'm asking for you to provide a reference
in support of your claim.  Simple rational discourse.

>[...] you are going to fall under the commercial banking or
>securities laws no matter what you do, Eric. I'm sorry that you don't
>like this, but its the truth.

Now you're putting words into my mouth.  I made no judgement as to
whether I thought this was a good state of affairs.

Eric

>From: Eric Hughes <hughes@soda.berkeley.edu>

>>However, I'm so certain that the law in the U.S. requires
>>that the bank have full information on the holders of all accounts
>>that I'm willing to bet $150 right now with anyone who believes
>>otherwise. 

>You've certainly showed us that you believe this Perry, but otherwise
>this statement contains no educational content.  This, to me, sounds
>like a grown-up version of "Is so!!!" backed up by "My bank account
>can beat up your bank account!"

I'm sorry, but I can't be troubled to spend time looking for the
regulation otherwise. This is tantamount to asking me to bother
spending time looking up where in the law books precisely running red
lights is outlawed. I'm certain its illegal, but have very little
interest without a monetary incentive to go and look up precisely
where it says so -- I'd gain no interesting information personally.
I'd have to take time off of work and go to a law library to determine
precisely where in the mass of regulations and laws this particular
practice is prohibited. For $150, the hour or so of my time involved,
although not well compensated for, would at least be sufficiently
compensated for that I would bother.  Obviously, this is not evidence
of the truth, but as you have noted, it is evidence of a very strong
belief. If you have evidence to the contrary, here is your chance not
only to make $150 but to have me do all the work required for you to
get your $150.

>You made a claim of fact.  I'm asking for you to provide a reference
>in support of your claim.  Simple rational discourse.

You don't have to believe me if you don't want to.  As I've said, I
have very little incentive to track down the specific place that the
practice of permitting anonymous accounts is outlawed -- but I'm as
certain of it as I am that driving a car requires a license in all 50
states. If I asserted that fact, and you desired evidence, I would
have a similar lack of desire to go and look up where specifically in
the law books of all the states that driving without a license was
listed as a violation. Doing legal research of this kind is not
entirely unpleasant, but it is tedious and would put me out of my way,
little or no reward.

Perry

For important claims like that, the value added is that other people
putting in voluntary effort to produce things spend it in places that
better satisfy your desires.  It certainly is an indirect reward,
however.

dean

We should just write all the software to fully automate the system, get
lightweight hardware for it and some solar panels and launch it into orbit.
Whose jurisdiction is that?

e