Re: e$: Cypherpunks Sell Concepts

At  7:09 PM 8/6/94 -0700, Hal wrote:
>There are two legal problems that I could see being used against digital
>cash.  The first is the civil war era prohibition on banks issuing private
>bank notes.

Where you stand on this one depends on where you sit. ;-). It seems to me
that one could just as easily treat digicash as securities denominated in
dollars, just like shares in a money market mutual fund, or more to the
point, the actual money market instruments, repos, for instance. It's going
to take a sophistical titan to get this through the courts, but if there's
a market for digicash, hey, it can happen.  It won't happen if this titan's
employers never hear about it, though.

>The second problem is the regulation of "scrip" and barter systems.  This
>was pointed out on the list last year by someone who had actually been
>involved in a private barter or scrip system which was shut down by the
>government, at great cost to all concerned.  These regulations can be
>found at 26 CFR 1.6045-1.  From subsection (f)(5)(ii), "Scrip is a token
>issued by the barter exchange that is transferable from one member or
>client, of the barter exchange to another member or client, or to the
>barter exchange, in payment for property or services".  I think this one
>will eventually get the "NetBank" people in trouble.  (You call a 900
>number and in exchange for a charge on your phone bill they give you a
>digital token you can exchange for property or services by participating
>merchants.)  Barter exchanges are required to get the names and SS numbers
>of all participants and report their transactions to the IRS.  This would
>be inconsistent with the privacy we seek from ecash.

Indeed. This is probably where we have a problem.  The only thing I can
think of here is that the technology of the internet and it's limitless
opportunity for regulatory arbitrage.  When you make the possession of a
medium of exchange illegal you get the same problems that all closed
economies have.  With the internet, enforcement is half next to useless (an
expression I picked up in Albuquerque a while back...).  Like I said to
Eric in the last post, it may be the threat of regulatory arbitrage that
wins the day here, like it has in the past.

To plug the thread a bit here, who should chair the afternoon
business-heavy session? *Email* me your suggestions, please...

Cheers,
Robert 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

Robert Hettinga says:
> At  7:09 PM 8/6/94 -0700, Hal wrote:
> >There are two legal problems that I could see being used against digital
> >cash.  The first is the civil war era prohibition on banks issuing private
> >bank notes.
> 
> Where you stand on this one depends on where you sit. ;-). It seems to me
> that one could just as easily treat digicash as securities denominated in
> dollars, just like shares in a money market mutual fund, or more to the
> point, the actual money market instruments, repos, for instance. It's going

Robert, you don't understand. The U.S. is not governed by laws any
more. In the financial community, every action you perform is illegal.
The only way that you stay out of jail is by being nice to the
bureaucrats. They allow money market funds, even though they
technically violate a dozen laws, because they feel like it. They
could prohibit them if they felt like it, too. The bureaucrats aren't
going to want digicash, so they are going to find plenty of excuses to
prohibit it. You can't do legal hacks in an environment like this. It
doesn't work. If the bureaucrats don't like you, they shut you down,
and there is not a damn thing you can do about it, period.

True, you can leave the country and do your business there -- I know
several hedge funds that already refuse to take any customers from the
U.S. because they don't want the headaches, and there are other
similar things happening in lots of other parts of the financial
industry. However, don't think you can finesse the folks at the Fed,
the IRS, the Treasury, and the SEC -- they are monsters, and they
won't be stopped by the courts.

Perry

>There are two legal problems that I could see being used against digital
   >cash.  The first is the civil war era prohibition on banks issuing private
   >bank notes.

   It seems to me
   that one could just as easily treat digicash as securities denominated in
   dollars, [etc.]

It didn't occur to me before, but you could also have 'nonbank notes'.
If the issuer isn't a bank, does the regulation still apply?

Eric

Eric Hughes says:
> It didn't occur to me before, but you could also have 'nonbank notes'.
> If the issuer isn't a bank, does the regulation still apply?

If it doesn't the simple expedient of the Fed ruling that you are a
bank would screw you up nicely.

If all else fails, they will just pass a new law, so as to prevent the
evil Child Pornographers, Terrorists, Drug Dealers and the rest from
using this horrible new technology.

I'm not sanguine about the possibilities of getting any of what we
would like through regulatory and legislative hurdles. The regulators
have taken ten years just to eliminate the restrictions on interstate
banking, and they still haven't quite done the job yet (although
hopefully the restrictions will go away by '96 or so.) They understood
that stuff fairly well. They probably won't understand digital cash as
well, although it will probably be even worse for us if they do.

Perry