Re: In Search of Genuine DigiCash

At  4:24 PM 8/19/94 -0700, Eric Hughes wrote:

>The withdrawal transaction posts a debit to a customers demand deposit
>account (decreasing it) and a credit to the suspension account
>(increasing it).

NewJargonNotice("suspension account")

Is this new nomenclature? It sounds less risque than "float", I must say...

>Where digital cash is immediately useful is online as a retail level
>wire transfer system.
          [snip]
>the cost of networking is
>dropping and the cost of computation is dropping.  I personally don't
>expect that off-line digital cash techniques will ever actually be
>economically most efficient.  Existing alternates (e.g. credit cards)
>work well enough today, and by the time PDA's work well enough and are
>cheap enough to be universal, the cost of an online verification will
>be down in the fractions of a cent.

Immediate and final clearing must save money, somehow, but right now, it's
hard to prove whether cash is still king in cyberspace. I have a (somewhat
religious, in the sense that it may not be empirically proved in my
lifetime) belief that that's the case.  That's why I like to agitate for a
test. Yes, Tim, I know, you guys aren't bankers...


Cheers,
Bob Hettinga

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Bob Hettinga writes:

> Immediate and final clearing must save money, somehow, but right now, it's
> hard to prove whether cash is still king in cyberspace. I have a (somewhat
> religious, in the sense that it may not be empirically proved in my
> lifetime) belief that that's the case.  That's why I like to agitate for a
> test. Yes, Tim, I know, you guys aren't bankers...

Don't let me stop you, Bob!

My main objection is not to anyone going ahead and trying something
(why should I object to that?), but to two themes which often seem to
go together:

1. Proselytizing for some kind of group project. Exhorting others to
"do something!"

2. An underestimation of the task ahead. A failure to absorb the work
already done, and a failure to see the work still needed. An
assumption that the task at hand is the _selling_ of digital cash as a
concept.

Now if Bob or anyone else can pull of digital cash, can convince some
bank to do a fairly major launch, fine. He or they will be famous.

I adopted this "politely skeptical" stance a year or so ago when I
hear about the efforts by Hughes, Abraham, Sandfort, and Frissell to
do some version of a digital bank. Ditto for the Austin group's plans
to do a new type of credit union.

This list has seen many proposals for many systems. Most don't go
anywhere, which is hardly surprising, given the lack of funding, the
serious technical, regulatory, and market resistance issues.

Note to All Readers Tired of this Issue: I think this'll be my last
response in a long while on this issue. Those who wish to build
RemailNet (tm), First Internet Bank (tm), Digibux Depository (tm), or
e$ Savings and Loan (tm) should certainly proceed. But statements of
plans, or exhortations that Cypherpunks should all pull together on
one of these plans, are less impressive to me--and I suspect to
others--than some tangible progress such as we saw with remailers,
with PGP, with message pools, and with thoughtful articles on the
important protcols (such as we saw tonight with Hal's posting on the
Stefan Brands scheme).

I don't think any of us on this list is yet ready to present a plan to
real bankers. Eric Hughes has told me he agrees. I don't know what Hal
or the others think, but the issues surrounding digital cash are
still sufficiently murky at this point to make a plan to deploy
digital cash premature. I see several ways around this:

1. The research groups centered around Chaum, with other CWI folks
like Brands having other approaches, will be likely centers of
expertise. Not surprising. Of relevance because this is where the
impetus will be concentrated.

2. I can imagine a financial entity (bank, brokerage, etc.) having a
working group looking into this. As a research project, as a way of
keeping current on something important.

3. Digital cash may come out of left field, sort of analogous to the
way hypertext is arriving unexpectedly from the Mosaic/Web
developments (done by a small group, fairly quickly).

What I can't see is a bunch of us going to a bank and "shmoozing" with
them and then having them see the light. Maybe Bob sees things
differently. Maybe he's right. Who knows.

What I know is that changing the world by exhortation is usually a
hopeless task. Examples work much better. Cypherpunks write code.


--Tim May


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NewJargonNotice("suspension account")

   Is this new nomenclature? It sounds less risque than "float", I must say...

As Hal pointed out, this term refers to the double-entry book notation
used to keep track of how much digital cash has been withdrawn but not
yet deposited.  I don't think I invented this use of the word
"suspension", but I also can't find where I might have picked it up.

One can consider that a digital cash exchange creates a delay between
the two legs of the transaction.  In between the beginning and end,
the transaction is suspended.  That's the sense of the word.

"Float" is a financial concept, not an accounting one or a legal one.
The issues are greater than financial ones only, and the terminology
needed is correspondingly greater.

Eric

rah@shipwright.com (Robert Hettinga) writes:

>At  4:24 PM 8/19/94 -0700, Eric Hughes wrote:

>>The withdrawal transaction posts a debit to a customers demand deposit
>>account (decreasing it) and a credit to the suspension account
>>(increasing it).

>NewJargonNotice("suspension account")

>Is this new nomenclature? It sounds less risque than "float", I must say...

I think Eric was referring to simple double-entry bookkeeping.  I don't
have his original post in front of me, but I believe the suspension account
was a liability account which represented the digital cash in circulation.
In double-entry bookkeeping, every transaction alters two accounts so that
the books stay in balance.  It's not unusual to make up specific accounts
for the particular assets and liabilities of your business.

>Immediate and final clearing must save money, somehow, but right now, it's
>hard to prove whether cash is still king in cyberspace. I have a (somewhat
>religious, in the sense that it may not be empirically proved in my
>lifetime) belief that that's the case.  That's why I like to agitate for a
>test. Yes, Tim, I know, you guys aren't bankers...

There's something I don't understand about this "immediate and final
clearing" business.  In an on-line cash system, the cash itself is not
"cleared" until you send it to the bank and/or have some guarantee from the
bank that it has not been spent before.  It seems to me that you could get
the same benefit from a checking account if you called the bank, verified
the funds were available, and electronically cashed the check on-line.

In an off-line system, is the cash really cleared immediately?  What if it
is double-spent?  Is the bank going to guarantee to cover all instances of
multiple spending, in the hope or expectation that it can sue the customer
who did it?  What if you're talking about huge sums of money, and the guy
doesn't just double-spend but hundredfold-spends it, then vanishes to Rio?
Are the banks going to cover that?  They don't cover bad checks, and I don't
see how they can afford to cover bad cash.

So for both on-line and off-line ecash there appear to me to be problems
with the notion that cash has a unique advantage in providing immediate
clearing of transactions.

Hal

Hal writes
> So for both on-line and off-line ecash there appear to me to be problems
> with the notion that cash has a unique advantage in providing immediate
> clearing of transactions.

Obviously anonymous E Cash can be duplicated with 
alarming ease.  Physical cash is also becoming easier 
to duplicate.

Is identity based cash so bad?

The existing grey capitalist system works primarily on foriegn 
check accounts.  If Joe writes a check in dollars on his Swiss
bank account, sends it by snail mail in a sealed envelope to
Peter, who places it in his BNZ account under his Hong Kong
identity, they are both fairly secure.  Although the transaction
is fully traceable, it is unlikely to be traced without the 
consent of one of the participants.

Suppose each E Cash certificate grows by adding identifying material
in each transaction that makes it possible, with the consent of 
each participant in the chain, to trace it backwards.  Or suppose
each participant maintains a database that makes such tracing possible
and proveable.

Then double spending on amounts of moderate size would
be very rare, so rare we would not have to worry in normal
transactions.  In big transactions you have similar problems
with physical cash - there is always the worry that the guards
may defect, or whatever.   That is why big transactions are
almost always identity based..

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We have the right to defend ourselves and our
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