Re: Islands in the Net

> This is just not what "liquid" means.  A liquid asset refers to the 
> speed with which it can be traded, not what kind of value it has. 
> "Liquid" is an adjective about timeliness, not about resolution. 

Hmm.  I had thought about using "valuable," but that seemed too ambiguous.  
"Negotiable" maybe?

> Sometimes currency represents a fiat value, as with today's greenbacks. 

It's not entirely a fiat value; in effect, it's backed by the strength of the 
economy.  The difference between a ruble and a dollar was not the fiat value 
(they were the same, as I remember), but in the fact that it was a lot easier 
to exchange dollars for real assets.

For the record, I think that going off the gold standard was a bad idea, but 
growing up in the days of double-digit inflation probably gave me a biased 
opinion of floating currency.

>    Also, if it loses its ability to be exchanged for real assets 
>    it likewise loses its value (e.g., Confederate dollars from the 
>    Civil War). 
>  
> Under this reasoning, today's dollar bills should be worthless.  
> They aren't.  Real assets are not the only form of value. 

I didn't say that the government had to be the agent of such an exchange.
I can buy real assets with my dollars, but not with Confederate dollars.
While it has been somewhat eroded since the start of the Drug War, dollars are 
still exchangable for real assets, even though the government is no longer 
backing them directly.

> What currency do Visa or Master Card issue, perchance? 

Little plastic tokens that are accepted more places than the government's 
paper and metal ones.  If it quacks like a duck...

> Information doesn't obey conservation of mass, and so can't act as a 
> token. 

Exactly.  On the other hand, with real-time clearing (which the Internet
*does* provide the ability to do, with ever-increasing capacity), you can 
construct something that acts like an "instant check", which is close enough 
to cash for most practical purposes.


Amanda Walker
InterCon Systems Corporation

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In article <9411182243.AA59456@elfbook.intercon.com>,
"Amanda Walker" <amanda@intercon.com> wrote:
> 
> > What currency do Visa or Master Card issue, perchance? 
> 
> Little plastic tokens that are accepted more places than the government's 
> paper and metal ones.  If it quacks like a duck...

But it _doesn't_ quack like a duck; it hoots like a loon.  Credit cards
aren't fungible like cash, they aren't anonymous like cash*, they don't
operate like cash from the cardholder's point of view, and they don't
operate like cash from the merchant's point of view. 

> > Information doesn't obey conservation of mass, and so can't act as a 
> > token. 
> 
> Exactly.  On the other hand, with real-time clearing (which the Internet
> *does* provide the ability to do, with ever-increasing capacity), you can 
> construct something that acts like an "instant check", which is close enough 
> to cash for most practical purposes.

If you write a check, instant or otherwise, to provide funds to your
favorite political candidate's campaign committee, and that check is too
big, then the election watchdogs start barking.  If you pass a satchel
full of cash along to the campaign, the watchdogs sleep through the
night undisturbed.  Checks are not cash; there are important practical
purpose for which they differ profoundly.

- ------
*I don't see any reason why a credit card couldn't be anonymized, with
some kind of "Julf-style" bank account and an any-bearer-gets-to-use-this
card.  People might want some kind of PIN protection if they're
concerned about losing the card.  But the banks haven't chosen to offer
such a thing, and they just aren't available.

                          | In the other room I passed by Ellen Leverenz as 
   Alan Bostick           | someone asked her "Do you know any monopole 
   abostick@netcom.com    | jokes?"
finger for PGP public key | "Sure," she said.   "In fact, I know two of them."
Key fingerprint:          |     -- Terry Carr, GILGAMESH
50 22 FB 46 41 A3 17 9D F7 33 FF E1 4E 1C 89 79  +legal_kludge=off

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Alan Bostick wrote:
...
> But it _doesn't_ quack like a duck; it hoots like a loon.  Credit cards
> aren't fungible like cash, they aren't anonymous like cash*, they don't
> operate like cash from the cardholder's point of view, and they don't
> operate like cash from the merchant's point of view. 

I'm beginning to think the ideas of money, instruments, clearing,
etc., are confusing to a lot of us. Part of it is that various objects
have mix-ins from other classes. Part of it is that the legal system
has its own rules. Etc.

For example, I tend toward Amanda's point of view, that credit cards
"quack like a duck." When I make a purchase with my credit card, and
the thing clears, both the merchant and I act as if we've just
exchanged money. (In fact, one of my "credit cards," with the little
Visa symbol, etc., is actually a "debit card"...when I use it, money
is taken _immediately_ out of my account. I assume--but don't know for
sure--that the merchant's account is credited quickly, if not
immediately. 

Anyway, there are many forms of "money," with many things that make
the forms "money-like." 

It's be nice if we could chart out all these forms, see the critical
things that factor in, etc. Has such an analysis been done?
(Especially kept current, with all the various new forms, new rules,
new laws.)

> *I don't see any reason why a credit card couldn't be anonymized, with
> some kind of "Julf-style" bank account and an any-bearer-gets-to-use-this
> card.  People might want some kind of PIN protection if they're
> concerned about losing the card.  But the banks haven't chosen to offer
> such a thing, and they just aren't available.

This has come up several times. I'll let others recount what they
know.

The consensus about major banks not offering "anonymous cards" is that
two factors are at work:

1. The public has not yet woken up and asked for a card which
_obscures_ their purchases. (Some people were proposing that we try to
convince American Express, as an example, to issue a "Privacy Card.")

2. Truly anonymous cards, like bank accounts in false names, are not
encouraged in the U.S. Things like Social Security numbers, IRS
reporting requirements (interest paid, for example), etc., all make
truly anonymous cards pretty rare.

(Even the "cash deposit" cards are not anonymous.)

Of course, I'm not saying one can't find ways to get credit cards
issued under assumed identities. It probably happens a lot. But this
is a different issue, I argue.

There could be a legal way to issue true "cash credit cards," similar
to the cash-charged-up phone cards, but I have no idea what would be
needed. Offshore-based cards may still be the best bet, as several
folks (the usual suspects) have noted; a bank in the Caymans issuing a
Visa card, for example. (Though the "Frontline" report on
money-laundering mentioned ATM and credit card "scams" as a way to
launder money that was being stopped, so...)

--Tim May

-- 
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From: tcmay@netcom.com (Timothy C. May)

   For example, I tend toward Amanda's point of view, that credit cards
   "quack like a duck."

I don't think I can stress the following enough, but understanding the
following principle is necessary (not convenient, or helpful, or
replaceable) to understand how payment systems work:

** The most important thing about a transaction system is not how it
** works a transaction succeeds, but what happens when it fails.

Failure properties are more important than financial properties.  The
the expectations about float, rates of interest, time to clear and
settle, etc. are all meaningless if the failure properties don't
create a robust system.

Anyone at all can design a transaction system which works for
successful transactions, but designing for failure is enormously and
surprisingly difficult.  For example, here's a transaction system
that works only when there are no failures.  Everyone memorizes
the amount of money they have.  When two people do a transaction,
one persons increases their money by the same amount that another
person decreases theirs.

Now obviously this system doesn't work.  But the reason it doesn't
work is because of failures -- increasing balances between
transactions the obvious one.  Note that if all the implicit
constraints are met the naive system above does actually work.

Let me be blunt.  Most transaction systems people run by me show the
same naivete as those who design ciphers for the first time.  These
naive systems just won't work, and those that propose them just
haven't thought through the issues, and usually have been ignorantly
unaware that there are any.

"Why can't you just ..." is, unfortunately, most often said in mock
ignorance rather than humility.

I should note, though, that almost all these systems _do_ work
reasonably well under simple failures.  That means that they could be
deployed, but that they won't scale to many users.  Thus while they
might be suitable for a club like the hypothetical Hacker Privacy
League (which cypherpunks is _not_), they aren't suitable for
universal use.

As a primer and milestone, I'll make the bald assertion that
bankruptcy of the financial institution is one of the most important
failure modes to consider.  The argument that this almost never
happens is made only by those who haven't estimated the cost of this
failure more.  Once you have a good appreciation about bankruptcy and
payment systems, you'll be well on your way to having the mental
framework necessary for dealing with the issues.

I don't intend to lecture on this list about these issues.  These are
extremely arcane yet important details, and I hope to derive part of
my livelihood from them.

   When I make a purchase with my credit card, and
   the thing clears, both the merchant and I act as if we've just
   exchanged money.

To take this particular example, what happens if it doesn't clear?  Is
this different that, say, with a check or with cash?

   Anyway, there are many forms of "money," with many things that make
   the forms "money-like." 

A "means of payment" is only one of the functions of "money".  It is
useful to keep this clear.

Eric

From: "Amanda Walker" <amanda@intercon.com>

   Hmm.  I had thought about using "valuable," but that seemed too ambiguous.  
   "Negotiable" maybe?

The standard word for something that is worth something is "value".
If I sell you a promissory note, I exchange value for a note.  That
value can be in the form of cash, money on deposit, or even other
notes.

Negotiable means something else entirely.  A negotiable instrument is
an instrument that can be transferred with certain protections over
and above the transfer of a normal contractual obligations.  The
requisites for negotiability are, basically, those that make the
instrument suitable for sale in a secondary market.  The instrument
must be in writing (not oral).  It must be signed.  It must contain an
unconditional promise or an order for a particular sum of money and
must contain to other promises, orders, etc.  It must be payable to
order or to bearer.  The exact details may be found in your standard
commercial paper review guide.

   > Sometimes currency represents a fiat value, as with today's greenbacks. 

   It's not entirely a fiat value; in effect, it's backed by the
   strength of the economy.  

Backing specifically refers to the relationship between the currency
and the issuer of the currency.  A fiat currency means that the
government created the currency by fiat, i.e. out of the blue.  A
dollar may derive value from the underlying economy, but it is not
backed by the economy, since the economy is not an entity.

   The difference between a ruble and a
   dollar was not the fiat value (they were the same, as I remember),
   but in the fact that it was a lot easier to exchange dollars for
   real assets.

Both rubles and dollars are fiat currencies, yes.  The dollar is a
relatively well managed currency and the ruble was not.  Therefore the
dollar was in greater demand than the ruble, and hence easier to use.
The difference is entirely in degree.

   For the record, I think that going off the gold standard was a bad
   idea, but growing up in the days of double-digit inflation probably
   gave me a biased opinion of floating currency.

Well, when you finance a war with an inflating fiat currency, that
leads to price increases.  Inflation is a tax which the government
does not need the IRS to collect.  Thankfully the foreign exchange
markets now quickly penalize any country that mismanages its currency
supply.

   While it has been somewhat eroded since the start of the Drug War,
   dollars are still exchangable for real assets, even though the
   government is no longer backing them directly.

The USA gov't, howeve, is backing the dollar still; it's just not
backing the dollar with specie (gold and silver metal).  The reason
that Confederate dollars are no longer valuable as money is that the
Confederate government no longer exists.  A fiat currency is backed by
several properties of active governments: legal tender laws, income
taxes paid in the national currency, procurements, etc.

   > What currency do Visa or Master Card issue, perchance? 

   Little plastic tokens that are accepted more places than the government's 
   paper and metal ones.  If it quacks like a duck...

A credit card is not a currency.  It is a means of payment.  Not all
means of payment are accomplished through currency.  One does not say,
for example, that checks are a currency merely because I can pay for
things with them.

Eric

Eric Hughes says:
> Negotiable means something else entirely.  A negotiable instrument is
> an instrument that can be transferred with certain protections over
> and above the transfer of a normal contractual obligations.  The
> requisites for negotiability are, basically, those that make the
> instrument suitable for sale in a secondary market.  The instrument
> must be in writing (not oral).  It must be signed.  It must contain an
> unconditional promise or an order for a particular sum of money and
> must contain to other promises, orders, etc.  It must be payable to
> order or to bearer.  The exact details may be found in your standard
> commercial paper review guide.

It must be for a sum certain in money, payable on a date certain. It
must state the place and person (note -- not necessarily a natural
person) to whom the money must be delivered.

Typical notes contain other conditions, but those are the keys.

Checks, promisary notes, bank notes (which most of us have never seen
in our lifetimes) and many other similar instruments are all
considered "commercial paper" and are similar in form.

(Checks are interesting in so far as they are an order to the bank to
pay at its premises to the named party, whereas many notes state that
the signatory must pay to the holder at his premises on a particular
time and place. However, such subtleties aren't particularly important
for our purposes.)

The fascinating thing about the rules for commercial paper, by the
way, is that they come from the Law Merchant, which was developed at
medieval trade fairs in merchant courts that had no connection with
any government entity and no overt powers of enforcement...

Perry