Re: ecash-info

At  8:22 PM 8/15/94 -0500, Zipper wrote:

>I think it would be kinda nifty to come up with some kinda' experimental
>beta test here in the States.  I'll do some headscratching and see with
>what I can find out.

Me too. With that idea in mind, I called them about 6 weeks ago to get some
stuff sent to me in the mail, and got put on the blower David himself.
After I picked myself up off the floor, I told him how some cronies and I
were interested in linking up with a bank to try a market test. The idea
was that the bank puts up a (forgive me, but they'll understand it better
this way, I swear) "drive up window on the information highway", and some
third third party (or even the bank themselves) would issue and underwrite
the digicash.  If the bank doesn't do it, I was hoping there would be a
market for third-party underwriters.  That's where most of my team's skills
might work, anyway.

Anyway, when I screwed up the guts to ask, Chaum told me that the going
price for the underwriter's license/code was $275K plus a percentage of the
net profits. He said that it would include some development support. He
said that he'd send some stuff, and he got my address, but I never got
anything back either.

The price didn't seem too outrageous to me at the time (Boone Pickens: "You
can name any price you want, if I can set the terms"), but the problem is,
there's no data to determine what the market would be. I guess that's why
they call it risk capital.

From what I've read in the press about him, Chaum has talked to very large
banks about this, and hasn't seemed to get anywhere with this except for
non-internet uses (automated tollbooths, smartcards, etc.).  It's possible
he sensed my relative playerlessness and blew off the follow-up.  Seeing
the increase in traffic about his inactivity in promotion leads me to
believe that he's either working hard in getting his product market-ready,
which makes sense, or he's dropping the ball, which I would charitably say
is an unfair reading of the facts.  I think that accusing him of not
properly promoting his product misses two points. The first is, everyone
who is the least bit interested in e$ knows what Chaum is doing, and that's
everyone who could do anything with the information, thus his promotional
activities on that front are quite successful, I would say.  The second
point is if he really is bringing new code to market, increasing
expectations until the code is ready could cause more harm than good.


I agree with you.  I expect that if a bank with a significant
institutional, trustee, or transaction processing presence stepped up to
the plate on this something interesting could happen. I am interested in
approaching a bank here in Boston with those credentials once I have
something (or even someone) to go in there and talk to them with.

>
>Only, any system I develop would have to have a centralized database
>to prevent double-spending and fraud.  I don't quite understand how
>they are going to work around such a problem, and I can probably
>surmize why the total lack of response from them.

My own auto de fe on all this is that in the early stages, most digicash
will go straight to the bank to be cashed out.  Enough people will be sent
to jail at this stage that people will be very careful not to double spend
in later secondary transactions where a piece of cash is spent several
times before being cashed out.  Eventually, the protocols will be imbedded
so far into the software's user interface that it will be very hard for the
average person to double spend by accident.  Professional criminals who do
it on purpose will be as prevalent as counterfeiters are now.  There will
be a few determined people who will get caught inevitably and go to jail.
I don't expect the level of fraud in digital cash to be much higher than
that of credit card fraud, which as we've discussed here, is pretty low.  I
expect that the level of digital cash fraud will be about that of
counterfeiting now, which is pretty damn low, I bet.


I like this. I must say that the last month or so has been a really good
month for e$ discussions here.  Thanks to all who have been talking about
it.

We should remember that certain people around here are very good at what
they do, and should be paid attention to even when their delivery can be
upsetting for one reason or another.

I chalk it up to interface fatigue, in the sense that there are certain
abrasions that occur when so many brains of different viewpoints bump
against each other here on the net.  Another way to look at it may be
another form of friction, the transaction cost of the information you get
by interacting on the list.  That's certainly appropriate to a discussion
of internet commerce, eh?

Cheers,
Bob Hettinga

-----------------
Robert Hettinga  (rah@shipwright.com) "There is no difference between someone
Shipwright Development Corporation     who eats too little and sees Heaven and
44 Farquhar Street                       someone who drinks too much and sees
Boston, MA 02331 USA                       snakes." -- Bertrand Russell
(617) 323-7923

Anyway, when I screwed up the guts to ask, Chaum told me that the going
   price for the underwriter's license/code was $275K plus a percentage of the
   net profits.

It's no small wonder that he's not gotten anywhere.  Anybody who wants
an operational cut of a finance system is asking for way more money
than anybody might want to pony up.  A bank (or similar) wants to buy
technology, not a partner.

   the increase in traffic about his inactivity in promotion leads me to
   believe that he's either working hard in getting his product market-ready,
   which makes sense, or he's dropping the ball, which I would charitably say
   is an unfair reading of the facts.

A third possibility is that he's just not getting anywhere.  If you
want too much money for what someone else is willing to pay, you don't
make a sale.

There are three potential benefits from any Internet money system:

1. The ability to transact and settle to the outside banking system.
2. The ability to keep one's transactions private from one's counterparty.
3. The ability to keep one's transactions private from the bank, and
   hence the government.

Having property 2 subsumes 1, and having 3 subsumes both 2 and 1.

Here's the crux.  ONLY property one has large and direct and immediate
economic benefits to the issuer.  Property two has a very small
increase in revenue, and property three has an additional, even
smaller increase.  These relative revenues can be explained by the
fact that privacy for your average transaction is not worth a whole
lot, and so if you raise your rates to go after the lucrative market
who wants property 3, you lose most of your customer who only need
property one.

If you were a bank, would you pick system 1, 2, or 3?  System one will
result in direct customer fees.  System two will result in, perhaps,
very slightly higher fees, and some dissatisfied retailers who want to
be subsidized for the collection of transaction data.  System three,
again, has about the same revenue available, and in addition will get
the regulators pissed off!

So, with these three kinds of transaction systems in competition with
each other, which do you think will win?

Let me answer that for you.  It's system 1.

Now Chaum wants to offer system 3, and it's expensive to purchase.
Surprised at lack of success?  Not at all.

Eric