Re: Meeting notes from ANSI X.9 Meeting on Electronic Payment

>        It doesn't appear that these people seem to care about
>cash-like anonymous token-based payment schemes. Is that a valid
>assesment? What is needed to make these people start caring about
>that?

My guess is, they won't. Ever.

<Elmer Gantry Mode On>
We're looking right into the maw of the beast, here, folks. This is how
book-entry systems want to rule the world. It seems to me that all this
X.BlaBla stuff is about interlocking directories, offsetting book-entries
and audit trails back to the flood, so that if you break a trade, much less
evade taxes or engage in other horsemanlike behavior, they can sic the
Lawfully Deputed Authorities to slam you in the pokey.
<Elmer Gantry Mode Off>

Code words for this bunch include "non-repudiation", "Certification
Authorities", "X.Whatever", and of course "information infrastructure", and
is done usually in concert with, well, lawyers.

Michael Froomkin has had some experience with these types already this
month, and my anonmyous informant, "Erwin Corey" , the world's foremost
authority, is in the thick of these things.

I just got some mail from someone over at bnn who gave me the following
argument, just to show how they think:

1. If we use internet-level (ISP) or link-level (SSL,etc) strong
cryptography, governments can't keep an eye on the 4 horsemen, who would
then rule the world, and the government needs to save us from that.

2. If we just use encryption for the "little" stuff, like credit card
numbers, and signatures, and wire authorization codes, and the like, the
Powers that Be will let us play with money on the internet.

3.  So, go back to your sandbox boy, and let the adults get on with the
Important Stuff, okay?

Actually, argument #3 is implicit in all of this, but that's okay. Here's why.

As one cursed with hyper-analogizing the universe, I see the X.whatever
crowd as centralized surface transport, viz: Railroads and Ships. We're in
the car and plane business, point-to-point, autonomously operated by the
users of the technology for whatever they want to do.

The time is, say, 1910. They look up in the sky at the airplanes rattling
around, or they jump out of the way of a Model T clattering down the
street, and they mutter, "let the adults get on with the Important Stuff".
Cool.

What they really don't understand is that the internal combustion engine of
internetwork commerce, digital bearer certificate technology, is about to
rock their world.

The thing I hear over and over from these people is, "We just want to map
all this great experience we have with the Law of Commerce onto the
Information Superhighway, so we won't have to reinvent the wheel."  They
can't understand why *anyone* would want to remain anonymous. They can't
imagine the benefits of uncontrolled autonomous agents, buying or selling
things, (including themselves) in a global ecology of networks and silicon.

Just like the transportation magnates of the turn of the century couldn't
understand why someone wouldn't use a steam engine, because they're much
more efficient thermodynamically than any internal combustion engine could
ever be. The technology lends itself to economies of scale, and, well, it's
lest wasteful that way. This is why J.Pierpont Morgan made a fortune
consolidating railroads and steel companies.

These people are just victims of their own success, really. They are the
end products of years of meritocratic selection, schooling, and
certification.  They have been practically bred to inhabit the top of
hierarchies.

So, when they look at the internet, they can see nothing else but what they
know. They see something like digital cash an anomaly, an error in the
data, because even with a completely on-line system and Mark Twain Bank
walking very gingerly on the thin ice of new economic technology, MTB's
cost on a Digicash trade is $.50, while the most efficient book-entry
system on the net, First Virtual, has to charge, what? $5.00 to break even?
Wait until we can actually trust off-line payment schemes for *really*
small stuff, and get profits from issuing nano-money.

They don't get it. The network isn't a hierarchy. The network is a
geodesic. You don't need offsetting book entries, you can trade digital
certificates much cheaper. You don't need to control your software, you
need to make it autonomous and set it free.

Cheers,
Bob Hettinga

-----------------
Robert Hettinga (rah@shipwright.com)
e$, 44 Farquhar Street, Boston, MA 02131 USA (617) 958-3971
"Reality is not optional." --Thomas Sowell
The NEW(!) e$ Home Page: http://thumper.vmeng.com/pub/rah/
>>>>Phree Phil: Email: zldf@clark.net  http://www.netresponse.com/zldf <<<<<

Excerpts from mail.nonpersonal: 4-Dec-95 Re: Meeting notes from ANSI..
Robert Hettinga@shipwrig (4665*)

> MTB's
> cost on a Digicash trade is $.50, while the most efficient book-entry
> system on the net, First Virtual, has to charge, what? $5.00 to break even?

There are some interesting unspoken assumptions here.  To calculate
anyone's "cost" on a transaction requires the complex amortization of
costs over many transactions, with assumptions/projections about the
transaction volume.  I have no idea where you came by either of your
numbers, MTB's or FV's, but I can tell you that your guess about FV is
off the mark.  And I'm sure that MTB is no more eager than we are to
publicly dissect all the underlying cost structures, so I have no idea
what the 50 cents that you cite really means.

From a consumer standpoint, I think that the only reasonable thing you
can do is to assume that the vendors are pricing their services at a
level that they believe yields profit in the long term.  FV charges 29
cents plus 2 percent, which means that you can put 50 cent charges
through the system if you're willing to give up 30 of those cents.  By
pricing it that way, we have invited people to put 50 cent charges
through the system.  We wouldn't have done that if we didn't think we
could make money on it.  

To be perfectly clear:  our minimum service charge is 30 cents, not 5
dollars.  If we didn't think it was worthwhile to take transactions that
small, we wouldn't do so.

Finally, on the more philosophical matter:

> They don't get it. The network isn't a hierarchy. The network is a
> geodesic. You don't need offsetting book entries, you can trade digital
> certificates much cheaper. You don't need to control your software, you
> need to make it autonomous and set it free.

In terms of crypto-privacy, anonymous communication, and things like
that, I agree completely.  However, it's genuinely more complicated than
that where money is concerned, because there are aspects of the
translation between "bits and bucks" that have some extremely serious
practical complexities.

A true geodesic structure is self-supporting and self-structuring.  A
cryptographic infrastructure can and should be similar, I agree
completely.  However, a *monetary* infrastructure needs convertability,
and the points of conversion are always the best targets of attack for
criminals.  (I've been casting about for an analogy to physical
geodesics, and it's hard to find one.  The best I can come up with is to
imagine that in order to convert a carbon buckyball to a more
conventional set of carbon molecules, you had to do it through a service
bureau that was capable of error, fraud, or subversion by outside
criminals.  This would ONLY matter if you ever wanted to do such
conversions, but it would matter a lot then, especially if you had to
suffer a serious financial loss if you got the wrong carbon molecules at
the end of the process.)

IF you wanted to settle for a totally non-convertible economy (like
rubles in the old Soviet Union, or like the LETS system on the net
today, as I understand it) then you could build it geodesically.  But if
you want to be able to convert back and forth between Internet payment
systems and non-Internet payment systems, it can never be truly
geodesic.  It will always be attackable at the points of conversion. 
(You may "trade digital certificates", but how do you know the ones
you're receiving were obtained for legitimate real-world value?) 
Because of this, the underwriting financial institutions, who have a
very reasonable desire to limit their own risk, will inevitably seek the
protection-by-traceability offered by something less than perfect
anonymity.  We may not like it, but it's a very natural position to be
taken by those who are actually bearing the financial risks at the point
of conversion.

The truth is that there's a natural tension between the consumer's
desire for privacy and the underwriter's desire for financial
protection.  First Virtual has been worrying about this for 2 years now,
actually.  Our solution -- which I think has held up pretty well -- was
to allow users to be pseudonymous (as opposed to anonymous), to limit
the traceability-by-pseudonym to the service bureau (FV) that effects
the payments, and to treat all such information with the highest
possible standards of confidentiality.  The fact that the information
can be traced when absolutely necessary is actually a huge selling point
with those who carry the financial risks.  I'm not claiming it's a
perfect solution, but I think that unless you are clear about the
underlying tradeoffs, it's hard to talk seriously about how to build a
better solution.  -- Nathaniel
--------
Nathaniel Borenstein <nsb@fv.com>       | (Tense Hot Alien In Barn)
Chief Scientist, First Virtual Holdings | VIRTUAL YELLOW RIBBON:
FAQ & PGP key: nsb+faq@nsb.fv.com       | http://www.netresponse.com/zldf

On Tue, 5 Dec 1995, Nathaniel Borenstein wrote:

> In terms of crypto-privacy, anonymous communication, and things like
> that, I agree completely.  However, it's genuinely more complicated than
> that where money is concerned, because there are aspects of the
> translation between "bits and bucks" that have some extremely serious
> practical complexities.
> 
> A true geodesic structure is self-supporting and self-structuring.  A
> cryptographic infrastructure can and should be similar, I agree
> completely.  However, a *monetary* infrastructure needs convertability,
> and the points of conversion are always the best targets of attack for
> criminals.  (I've been casting about for an analogy to physical
> geodesics, and it's hard to find one.  The best I can come up with is to
> imagine that in order to convert a carbon buckyball to a more
> conventional set of carbon molecules, you had to do it through a service
> bureau that was capable of error, fraud, or subversion by outside
> criminals.  This would ONLY matter if you ever wanted to do such
> conversions, but it would matter a lot then, especially if you had to
> suffer a serious financial loss if you got the wrong carbon molecules at
> the end of the process.)

I agree that conversion points are good targets for attack.  Therefore
whether conversion services are centralized or distributed will partly
depend on the economy of scale in protection against criminals.  I'm not
sure how much of this economy of scale exists for conversion between
electronic and physical monetary instruments.  But if we're converting
between one eletronic system and another, then cryptographic protocols
reduce the cost of protection to nearly zero for even small organizations. 

Wei Dai

Nathaniel Borenstein writes:

 > A true geodesic structure is self-supporting and self-structuring.  A
 > cryptographic infrastructure can and should be similar, I agree
 > completely.  However, a *monetary* infrastructure needs convertability,
 > and the points of conversion are always the best targets of attack for
 > criminals.

Ah!  You mean the criminals seeking to exploit the conversion, not
criminals using the anonymity of the system for income secrecy.  I got
a little confused right there.

-russ <nelson@crynwr.com>    http://www.crynwr.com/~nelson
Crynwr Software   | Crynwr Software sells packet driver support | PGP ok
11 Grant St.      | +1 315 268 1925 voice | Flushing, NY.  Not just a suburb,
Potsdam, NY 13676 | +1 315 268 9201 FAX   | it's a good idea in general.