IP: "CyberCash can't oust credit cards"

Hettinga's three laws of internet payment technology investment:

1. Geodesic, peer-to-peer transactions.
2. Three orders of magnitude cost reduction.
3. Nothing but net.

The application of the above to Cybercash, or SET, for that matter, I leave
as an exercise for the reader...

Cheers,
Bob Hettinga


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Source:  Charlotte (N.C.) Observer (printing a Washington Post article)

Posted at 3:32 p.m. EDT Friday, July 3, 1998

 CyberCash can't oust credit cards

By MARK LEIBOVICH
The Washington Post

 WASHINGTON -- Two years ago, CyberCash
 Inc. walked tall as a pioneer in the seemingly vast
 frontier of Internet commerce. Today, the Reston,
 Va., firm and its software that lets merchants
 receive payments over the Internet offers a
 cautionary lesson in how social habits in the digital
 age are difficult to predict -- and dicey to stake a
 business on.

 On Tuesday, CyberCash announced that its
 second-quarter revenue would be below
 expectations, and that it would lay off 20 percent
 of its staff. The news sent its stock price into a
 decline -- the latest to strike the company. Once
 trading in the $60 range, it fell steadily this week to
 finish at $11.12 1/2.

 The hard times come even as CyberCash has tried
 to tone down its aspirations and diversify into a
 more conventional business, the processing of
 credit-card transactions in ordinary stores. The
 moral, said Ulric Weil, a technology analyst at
 investment bank Friedman, Billings Ramsey Co. in
 Arlington, Va., is: ``It's always hard to bet on the
 purchasing mores of consumers.''

 William N. ``Bill'' Melton, one of Northern
 Virginia's most accomplished technology
 entrepreneurs, envisioned a world of paperless
 purchasing when he founded CyberCash in August
 1994. In this world, Internet users would purchase
 goods and services using new ``virtual currencies,''
 such as CyberCoin, a CyberCash product that
 allows online purchases of up to $20 at a time by
 transferring funds from a credit card or bank
 account to an account that CyberCash oversaw.

 Few people bought anything with this virtual
 currency at first, but the market was patient. In the
 speculative world of Internet stocks, the potential
 for this commerce seemed limitless, and
 CyberCash was an instant Wall Street hit.
 Company shares, first offered to the public for $17
 in February 1996, were trading at more than $60
 by that June.

 But today, investors are tired of waiting. The
 predicted rush to electronic currency remains a
 mere trickle and what little there is generally uses
 plain-old credit card transactions, not a fancy new
 currency. For now, consumers shopping online
 merely want to use something they know and trust
 for payment, the credit card, not an entirely new
 form of currency.

 After this week's layoff, which involved about 20
 positions in the Washington area, CyberCash has
 about 200 employees. It remains unprofitable,
 having reported a loss of $5.67 million on sales of
 $1.14 million in the January-March quarter.

 If life weren't uncertain enough in Reston,
 speculation was rampant this week among analysts
 who follow the company that its low stock price
 was making it a ripe takeover target. These
 predictions were fueled further by the company's
 announcement Tuesday that its board of directors
 had adopted a new shareholders rights, or
 ``poison pill,'' plan, which companies typically use
 to deter unwanted takeover bids.

 In this case, if an outside entity attempted to
 purchase a stake in CyberCash that exceeded 15
 percent, the company board could invoke the
 provision -- at which point CyberCash
 shareholders would win the right to purchase
 company shares at a greatly discounted price. For
 a potential buyer, this would make CyberCash far
 more expensive.

 Russ Stevenson, CyberCash's general counsel,
 said the new provision was not related to the
 company's recent struggles, and that the timing of
 its adoption was coincidental. In a statement,
 CyberCash said the poison pill did not come in
 response to an acquisition proposal.

 James J. Condon, the company's chief operations
 officer, would not comment on whether
 CyberCash was in discussions to be acquired,
 citing a company policy ``never to comment'' on
 potential acquisitions. Melton, CyberCash's
 president and chief executive, was traveling
 Thursday and could not be reached for comment.

 CyberCash's recent woes stem in part from its
 May acquisition of ICverify Inc., an Oakland,
 Calif., company that makes credit-card processing
 software. CyberCash, which purchased ICverify
 for $57 million in cash and stock, hoped to
 complement its own technology with ICverify's
 more conventional ``point of sale'' software, which
 helps retailers process credit card transactions in
 shops and other commercial establishments.

 Entering the ``point of sale'' market was a way for
 CyberCash to hedge its bets against the uncertain
 future of electronic commerce, analysts said. ``This
 gave (CyberCash) a piece of the physical point of
 payment, as well as the electronic point of
 payment,'' said Scott Smith, an Internet commerce
 analyst at Current Analysis Inc. in Sterling.

 With the addition of ICverify, Condon said,
 CyberCash could now offer a full package of
 payment software to potential customers. They
 could now provide, say, a clothing retailer, the
 tools to process both in-person credit card
 transactions as well as Internet credit card
 purchases.

 But the ICverify acquisition proved a difficult
 transition. In recent months, analysts said, some
 customers of both companies have frozen their
 accounts, saying they were unsure about which
 transaction software they would deploy in the
 future.

 ``The ICverify transaction resulted in customers
 taking a close look at what direction they wanted
 to go in,'' said Weil.

 Condon said he expects this to be a short-term
 problem. He said he has spoken to several
 customers who plan to continue their accounts
 shortly.

 People who follow CyberCash generally agree on
 two things: that if the company can hang on long
 enough for electronic payments to become a
 widespread phenomenon, it will be well positioned
 to cash in.

 They also say the company has a strong, tenacious
 management team in place, led by Melton. ``He is
 the rock the company is built on, and he's
 committed to the company's success,'' said Smith.
 ``I don't see anyone there who is ready to back
 down.''

 But in the end, Weil said, the future of CyberCash
 might rest with forces beyond its control. ``You
 can't change the psyche of consumers,'' he said.
 ``CyberCash doesn't have that kind of influence.''
-----------------------
NOTE: In accordance with Title 17 U.S.C. section 107, this material is
distributed without profit or payment to those who have expressed a prior
interest in receiving this information for non-profit research and
educational purposes only.
-----------------------





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--- end forwarded text


-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The Philodox Symposium on Digital Bearer Transaction Settlement
  July 23-24, 1998: <http://www.philodox.com/symposiuminfo.html>

At 9:13 AM -0400 7/6/98, Robert Hettinga wrote:
>Hettinga's three laws of internet payment technology investment:
>
>1. Geodesic, peer-to-peer transactions.
>2. Three orders of magnitude cost reduction.
>3. Nothing but net.
>
>The application of the above to Cybercash, or SET, for that matter, I leave
>as an exercise for the reader...
>

Three orders of magnitude cost reduction as compared to what?  I can
believe that much improvement over running my credit card thru an imprinter
and processing the paper slip.  But I doubt you can get anything like1000X
over SET, ugly as it is.

Arnold Reinhold

> >2. Three orders of magnitude cost reduction.

CyberCash's entire business model for e-cash is wrong.  They ask for a 4%
slice of each transaction, which is absurd.  How much do issuers of real cash
ask per transaction?  Zero, of course. 

As I've mentioned before, the way you make money with money is seignorage,
that is you print it and make your profit on the float and on coins that are
never redeemed.  Works great for travellers checks.  I suspect that Bob H.
would agree. 

Regards,
John Levine, johnl@iecc.com, Primary Perpetrator of "The Internet for Dummies",
Information Superhighwayman wanna-be, http://iecc.com/johnl, Sewer Commissioner
Finger for PGP key, f'print = 3A 5B D0 3F D9 A0 6A A4  2D AC 1E 9E A6 36 A3 47

At 2:19 PM -0400 on 7/7/98, John R Levine wrote:


> CyberCash's entire business model for e-cash is wrong.  They ask for a 4%
> slice of each transaction, which is absurd.  How much do issuers of real cash
> ask per transaction?  Zero, of course.
>
> As I've mentioned before, the way you make money with money is seignorage,
> that is you print it and make your profit on the float and on coins that are
> never redeemed.  Works great for travellers checks.  I suspect that Bob H.
> would agree.

Pretty much. Actually, the model I like is one where transactions on the
net are free, but putting money *on* the net costs some smidge of money,
just like buying traveller's checks cost money, something like one or two
percent, I think.

You can't get any network effects, oddly enough, if you charge to take it
*off* the net, because merchants have to *pay* to participate. It would be
as if you had to pay to redeem a traveller's check. If that were the case
nobody would accept them. Pretty serious seignorage loss that would cause.
:-).

Again, I've a white paper on this. If anyone's interested, I'll send it to
them offline.  And, again, the dbs list folks have already seen it. :-).

Speaking of gratuitous plugs ;-), there are only two more days until I
close the subscription book on the symposium, and I still have some room.
See <http://www.philodox.com/symposiuminfo.html> and register now, if you
want to go.

Cheers,
Bob
-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The Philodox Symposium on Digital Bearer Transaction Settlement
  July 23-24, 1998: <http://www.philodox.com/symposiuminfo.html>

Bob Hettinga wrote:
> At 2:19 PM -0400 on 7/7/98, John R Levine wrote:
> 
> 
> > CyberCash's entire business model for e-cash is wrong.  They ask for a 4%
> > slice of each transaction, which is absurd.  How much do issuers of real 
> > cash
> > ask per transaction?  Zero, of course.
> >
> > As I've mentioned before, the way you make money with money is seignorage,
> > that is you print it and make your profit on the float and on coins that are
> > never redeemed.  Works great for travellers checks.  I suspect that Bob H.
> > would agree.
> 
> Pretty much. Actually, the model I like is one where transactions on the
> net are free, but putting money *on* the net costs some smidge of money,
> just like buying traveller's checks cost money, something like one or two
> percent, I think.
> 
> You can't get any network effects, oddly enough, if you charge to take it
> *off* the net, because merchants have to *pay* to participate. It would be
> as if you had to pay to redeem a traveller's check. If that were the case
> nobody would accept them. Pretty serious seignorage loss that would cause.
> :-).

Haven't you said in the past that the *consumer* can't be charged anything to
use the system in the way of fees (consumer being the party bringing money into
the system), and that all fees need to get charged to the merchant (or whoever
the party is who removes money from the system)?

Certainly, at first order, the fee *should* be on removing money from the 
system, from a selfish point of view on the part of Ivan the Issuer -- if 
you're making money on seignorage, you're making money when people add money
to the system *and leave it there*.  Thus, you want to provide incentives for
people to buy money and leave it there -- charging no "on" fees and minimal
"off" fees would do it.  To ensure that people have faith in the cheap
convertability of electronic cash to real money, you could provide a highly
regressive fee structure for taking money out of the system -- if people
end up only redeeming their stuff through middlemen in huge batches, the
fees will go down very fast, and so will your costs.  The percentage cost
of shipping a billion dollars to a major customer in exchange for a billion
dollar token is much lower than shipping one billion one dollar bills to
a bunch of holders of one dollar tokens.  (This is an argument for regressive
fees, not for charging out rather than in, since it would apply just as well
to those who bought a billion tokens and then resold them, of course)

>From a *technical* standpoint, it makes sense to design an electronic cash
system to allow cheap coin-for-coin exchanges.  The marginal cost of a
transaction like this *is* 3 orders of magnitude less than one involving
a back-office system and wire transfer.  *This* is why electronic cash is
3 orders of magnitude cheaper than existing systems.  If you kludge a back
office system, a debit card system, and a wire transfer system onto the
backend, transactions going through that system don't get any cheaper than they
wold be in an unregulated traditional offshore bank.  As an issuer, you want
as few back-office processed transactions as possible, and those you do have,
should be as large as possible.

A better example is the credit card, rather than the traveler's check.  I've
*never* used a traveler's check, since I'm fundamentally annoyed by the idea
that I'd have to pay a fee to put my money into the system.  The *vast* 
majority
of consumers are unwilling to pay a fee to conduct a transaction they can
conduct in another way for free -- credit cards, cash, personal checks, wire
transfer, or whatever.  Merchants *already* pay money to handle money -- it's
just another cost of doing business.  For a merchant, processing *cash* costs
money, credit cards cost 1-4%, and I'm sure traveler's checks cost *something*
to handle.  I think it's a fundamental principle of financial psychology that
the resistance in going from a free service to a slightly charged service is
far higher than even a much larger increase in a service that already costs
money.

I think the ideal fee structure for an electronic cash issuer is:
* No cost to exchange coin-for-coin.  These cost you microcents anyway.
* Minimal (zero) cost to the public to issue cash.  This could be done by
selling large blocks of tokens at cost to issuers who are already in contact
with the public, and who get some kind of tangible benefit from processing
the transaction for the customer -- a pre-existing banking relationship that
wants a value-add, a retail store, a web site with advertising, whatever.
Primary market cash issuing might have a highly regressive fee structure, to
force secondary markets to come into being, but this is not essential.
* Secondary market redemption costs which *also* go to zero due to many 
players,
for the same reason as issuance.  Primary market should charge enough to
recoup redemption costs (charge for the wire transfer, or whatever), and 
potentially a regressive structure to help pay for operations costs.  
Optionally, the issuer could link through a proprietary and cheap protocol
their own bank accounts to the redemption of cash, making it much cheaper for
customers of the issuer's bank to redeem cash.  This is related to seignorage,
if these bank accounts are at the same bank which holds the backing accounts
for the currency.

A lot of people have discussed this fee structure, and I agree with them that
it is the best.

AFAIK, Mark Twain had a somewhat opposite fee structure, and look at how
successful they were...

This model is not really the credit card model (charge per transaction), nor
it is the traveler's check model.  It is the *cash* model -- banks and cash
handling companies charge handling fees for dealing with large quantities of
paper bills.  Think of user-to-user transactions as secondary market, 
withdrawing cash from the bank as primary market withdrawal, and exchanging
electronic cash for fiat money as the (currently hypothetical) step of 
redeeming bank notes for their backing, or something similar to taking physical
cash from retailer tills and getting it deposited to a cash management account.

It is electronic *cash*, after all.
-- 
Ryan Lackey
rdl@mit.edu
http://sof.mit.edu/rdl/

At 6:41 AM -0400 on 7/8/98, Ryan Lackey wrote:



> Haven't you said in the past that the *consumer* can't be charged anything to
> use the system in the way of fees (consumer being the party bringing
>money into
> the system), and that all fees need to get charged to the merchant (or
>whoever
> the party is who removes money from the system)?

Nope, and, if I did, I was wrong. :-).

You probably can't bootstrap things on seignorage alone, I don't
think<double negative?>, but if you did, again, you would kill your digital
cash issue anyway, because of lack of merchant acceptance, especailly in
the early phases.

Note, in my canonical example, cash, that people already pay a fee for
"foreign" ATM withdrawls anyway, and people are used to doing things that
way. That's great, because I expect that margins on a net.ATM withdrawl
through an underwriter would be significantly higher than what a bank makes
on their non-customer ATM transactions. Three orders of magnitude cheaper?
I wouldn't be surprised.

> Certainly, at first order, the fee *should* be on removing money from the
> system, from a selfish point of view on the part of Ivan the Issuer -- if
> you're making money on seignorage, you're making money when people add money
> to the system *and leave it there*.  Thus, you want to provide incentives for
> people to buy money and leave it there -- charging no "on" fees and minimal
> "off" fees would do it.

Yup. But, oddly enough, that was Mark Twain's (final) fee structure, too.
Didn't save them in the end, though.

I just think that if merchants are the key to acceptance of digital bearer
cash, much less fully anonymous blinded digital bearer cash :-), then you
shouldn't charge merchants anything to accept the stuff. If a merchant can
download a wallet or registerware free or very cheap, and instantly start
taking cash payments for whatever they sell over the net, and, when it came
time to take that cash and put it into their own bank it didn't cost them
anything to do it, then they would probably accept the stuff a heartbeat.
The cost of anything is the foregone alternative, three orders of
magnitude, and all that and "free" comes pretty close to three orders of
magnitude in cost reduction from merchant credit card fees in my book. :-).

The other beneficiary, in terms of cost, of course, is both the
underwriter, who's issuing cash for rediculously cheaper than a
corresponding volume of noncustomer.meat.ATM transactions would cost, not
to mention *some* seignorage :-), and the trustee, who's getting a share of
both for something they do already for the mutual fund and stock/bond
transfer markets.

I see seignorage as a tasty long-view source of income, certainly, but I
expect the half-life of a given dollar of digital cash to be measured in
days, if not hours, in the early stages. Frankly, I don't see seignorage
showing up significantly on the income statement of an underwriter until
there are other bearer instruments (stocks, bonds, and especially mutual
fund shares) to invest that cash in, keeping it on the net.

I think that that's one of the reasons that the Fed, among other people,
aren't too worried about the immediate macroeconomic effects of digital
cash. That and that the Fed's seignorage income, in the overall scheme of
Fed revenues, is pretty small, and probably dwarfed by other things like
printing and handling costs, etc. Greenspan himself is/was a free banking
advocate, certainly, and has said publically (see last September's Official
Cypherpunk Forbes issue :-)) that he thinks that private electronic
banknote issue is not a scary proposition at all.

Anyway, by the time that there are other digital bearer instruments out
there, and the money supply gets affected by digital cash seignorage, much
less fractional reserve accounts, (which *will* happen as competition heats
up and, someday even traveller's-check-type purchase premia on digital cash
will go away [*some*day!]), then the central bankers will have other things
to worry about besides just the impact if digital bearer settlement on
their money supply. Problems like why have *national* instead of private,
currencies, anyway. :-).

Nice problem to have, I figure.


Cheers,
Bob Hettinga
-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The Philodox Symposium on Digital Bearer Transaction Settlement
  July 23-24, 1998: <http://www.philodox.com/symposiuminfo.html>

Bob Hettinga wrote:
> At 6:41 AM -0400 on 7/8/98, Ryan Lackey wrote:
> You probably can't bootstrap things on seignorage alone, I don't
> think<double negative?>, but if you did, again, you would kill your digital
> cash issue anyway, because of lack of merchant acceptance, especailly in
> the early phases.
> 
I think you can bootstrap things on "value-add" to a bank, and on seignorage,
taken together.  It is *good business* for a bank to provide a service like
this.  It is one of those services, like online banking, ATMs, ubiquitous
branch locations (mmm, BankBoston...), private banking personnel, etc. which
make customers happier.  It is a good business case for a bank.

> Note, in my canonical example, cash, that people already pay a fee for
> "foreign" ATM withdrawls anyway, and people are used to doing things that
> way. That's great, because I expect that margins on a net.ATM withdrawl
> through an underwriter would be significantly higher than what a bank makes
> on their non-customer ATM transactions. Three orders of magnitude cheaper?
> I wouldn't be surprised.

My banks eat the foreign ATM costs as a customer value-add expense.
For the cash example, banks don't generally charge users to withdraw or
deposit money at a teller window, or at their own ATMs.  I think an online
bank dealing with electronic cash is more dealing with "internal" transactions
than with "foreign" transactions -- AFAIK, a lot of the foreign ATM charges
are charged by the foreign bank, which has no real interest in the user
doing anything but switching banks, anyway.
> 
> > Certainly, at first order, the fee *should* be on removing money from the
> > system, from a selfish point of view on the part of Ivan the Issuer -- if
> > you're making money on seignorage, you're making money when people add money
> > to the system *and leave it there*.  Thus, you want to provide incentives
> > for
> > people to buy money and leave it there -- charging no "on" fees and minimal
> > "off" fees would do it.
> 
> Yup. But, oddly enough, that was Mark Twain's (final) fee structure, too.
> Didn't save them in the end, though.

I argue that they had already shot their feet full of holes to the extent that
nothing they did would have saved them by that point, but Mark Twain is a 
complex enough example that it might be worth just ignoring.  I don't know
if their experiment will even be a footnote to the footnote to history that
is DigiCash.
> 
> I just think that if merchants are the key to acceptance of digital bearer
> cash, much less fully anonymous blinded digital bearer cash :-), then you
> shouldn't charge merchants anything to accept the stuff. If a merchant can
> download a wallet or registerware free or very cheap, and instantly start
> taking cash payments for whatever they sell over the net, and, when it came
> time to take that cash and put it into their own bank it didn't cost them
> anything to do it, then they would probably accept the stuff a heartbeat.
> The cost of anything is the foregone alternative, three orders of
> magnitude, and all that and "free" comes pretty close to three orders of
> magnitude in cost reduction from merchant credit card fees in my book. :-).

I've already shown why it is in the best interest of the issuer to participate.
The next step is to convince merchants it is worth doing.  Merchants, I 
believe,
are willing to accept a percentage redemption fee for a new payment system
if their customers demand it.  They fundamentally want to make their customers
happy.  If a lot of customers request a new payment scheme, or they are 
convinced customers want to use it, they will happily use a new payment scheme.

I think resistance to new payment schemes on the part of a merchant is in 
cost and effort to set up.  Having a free apache commerce plugin which handles
a variety of payment systems, including electronic cash, so the systems
integration costs for adding electronic cash to an operation are zero, and
they end up being cheaper than credit cards to process -- a 1% primary market
fee, or a going-to-zero percent secondary market fee.  Or, provide non-fee
incentives for merchants to accept the system -- loyalty points, tax-free 
accounting in offshore bank accounts, the Amex approach of marketing merchants
who accept the system to their client base directly, etc.

For a directed payment system, going from customer to merchant to bank, then
you definitely need merchants before you can get customers, which turns this
on its head. *However*, a good electronic cash system is user-to-user, the
Mondex model, rather than DigiCash's model.  This means the system can 
bootstrap
as soon as a single pair of people want to exchange money.  People already
want to exchange money user-to-user on the net -- there's a huge unsatisfied
demand.  That's more than enough to get it in place.  Making it anonymous
adds even more incentive.
> 
> I see seignorage as a tasty long-view source of income, certainly, but I
> expect the half-life of a given dollar of digital cash to be measured in
> days, if not hours, in the early stages. Frankly, I don't see seignorage
> showing up significantly on the income statement of an underwriter until
> there are other bearer instruments (stocks, bonds, and especially mutual
> fund shares) to invest that cash in, keeping it on the net.

The half-life of a given dollar of digital cash will be *infinite* if there
is an expanding base of users, a cheaper secondary market for getting 
electronic
cash than the cash out and cash back in system, and there is never a big panic.
The holding time for a particular user might be pretty short, but I think 
from the beginning a large amount of money will just be left on the net, since
it's far cheaper for a consumer to buy cash from a merchant directly than
for the merchant to cash out and the user to buy them on the primary market.
> 
> I think that that's one of the reasons that the Fed, among other people,
> aren't too worried about the immediate macroeconomic effects of digital
> cash. That and that the Fed's seignorage income, in the overall scheme of
> Fed revenues, is pretty small, and probably dwarfed by other things like
> printing and handling costs, etc. Greenspan himself is/was a free banking
> advocate, certainly, and has said publically (see last September's Official
> Cypherpunk Forbes issue :-)) that he thinks that private electronic
> banknote issue is not a scary proposition at all.

I thought seignorage was a net profit for the Fed, after printing/handling.
They *do* give the Treasury a kickback for this, and I'm not sure how the 
budget
actually works, but I think they pay all distribution/printing/etc. costs
themselves, and thus this is actually spare money.

It doesn't really apply here, since many of those costs are fundamentally 
different in the electronic cash world than in the printed cash world.

Greenspan is/was a libertarian, and would probably be ok with private 
electronic
banknotes putting him out of business, as long as it was better for the economy
and people as a whole.
-- 
Ryan Lackey
rdl@mit.edu
http://sof.mit.edu/rdl/

At 12:24 PM -0400 on 7/8/98, Ryan Lackey wrote:



> My banks eat the foreign ATM costs as a customer value-add expense.

Yes, but what do they do for customers of *other* banks? They *charge* them
for it. Which is exactly what any underwriter should do to put money onto
the net. There is no difference between an underwriter of digital cash and
a provider of a third-party cash machine, be it at a bank other than your
own, or, more equivalent, those private ATM machines you see all over the
place now.


> I argue that they had already shot their feet full of holes to the extent
>that
> nothing they did would have saved them by that point, but Mark Twain is a
> complex enough example that it might be worth just ignoring.  I don't know
> if their experiment will even be a footnote to the footnote to history that
> is DigiCash.

Well, certainly no more than Otto Lillienthal was... :-).


> I've already shown why it is in the best interest of the issuer to
>participate.
> The next step is to convince merchants it is worth doing.

 By making it so cheap for them to use that it becomes ubiquitous? ;-).



> The half-life of a given dollar of digital cash will be *infinite* if there
> is an expanding base of users, a cheaper secondary market for getting
> electronic
> cash than the cash out and cash back in system, and there is never a big
>panic.

Big pile of "ifs" there. I expect that all you really need are other
digital bearer assets which provide a better return than cash. :-).



> I thought seignorage was a net profit for the Fed, after printing/handling.
> They *do* give the Treasury a kickback for this, and I'm not sure how the
> budget
> actually works, but I think they pay all distribution/printing/etc. costs
> themselves, and thus this is actually spare money.

Okay. Since the actual, financial definition of seignorage is in fact the
difference between what money's worth and what it costs to produce it,
you're probably right. :-). Nonetheless, income on seignorage is miniscule
to other income that the Fed makes, and that's a fact. Greenspan has gone
on record (see the Forbes article) as saying that it would be no skin off
his nose if the Fed never saw any of it.

> It doesn't really apply here, since many of those costs are fundamentally
> different in the electronic cash world than in the printed cash world.

Well, yeah, to the extent that the cost structure is somewhat :-)
different. Unique, non-replicable money-bits *are* easier to print and
control than paper ones after all. Some people say three orders of
magnitude cheaper. ;-).


> Greenspan is/was a libertarian, and would probably be ok with private
> electronic
> banknotes putting him out of business, as long as it was better for the
>economy
> and people as a whole.

Agreed, and he's said as much, like I've said. Controlling the money
supply's more what Greenspan's interested in, and, frankly, given the
amount of eurodollars (the "other" e$ :-)) held in dollar-denominated
accounts in foriegn banks, it's probably safe to say that that's going to
be more of a problem for him as time goes on. And, of course, the physical
cash sitting in some Russian mattresses is, well, seignorage.

Cheers
-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The Philodox Symposium on Digital Bearer Transaction Settlement
  July 23-24, 1998: <http://www.philodox.com/symposiuminfo.html>

At 8:47 AM -0400 on 7/7/98, Arnold G. Reinhold wrote:



> Three orders of magnitude cost reduction as compared to what?  I can
> believe that much improvement over running my credit card thru an imprinter
> and processing the paper slip.

Yes. SSL and HTML does that to paper, even telephone, credit card
transactions. As long as you're using the net anyway. :-).

> But I doubt you can get anything like1000X
> over SET, ugly as it is.

Actually, it's *SET's* burden to proove that it's 1000X cheaper (including
the cost of fraud) than SSL, the status quo ante of internet payment
systems.

I don't think SET is cheaper, much less three orders of magnitude cheaper,
than SSL.

Cheers,
Bob Hettinga
-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The Philodox Symposium on Digital Bearer Transaction Settlement
  July 23-24, 1998: <http://www.philodox.com/symposiuminfo.html>