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Cyphernomicon 12.10

Digital Cash and Net Commerce:
Prospects for Digital Cash Use

  12.10.1. "If digital money is so great, why isn't it being used?"
           - Hasn't been finished. Protocols are still being researched,
              papers are still being published. In any single area, such
              as toll road payments, it may  be possible to deploy an
              application-specific system, but there is no "general"
              solution (yet). There is no "digital coin" or unforgeable
              object representing value, so the digital money area is
              more similar to the similarly nonsimple markets in
              financial instruments, commercial papers, bonds, warrants,
              checks, etc. (Areas that are not inherently simple and that
              have required lots of computerization and communications to
              make manageable.)
           - Flakiness of Nets. Systems crash, mail gets delayed
              inexplicably, subscriptions to lists get lunched, and all
              sorts of other breakages occur. Most interaction on the
              Nets involves a fair amount of human adaptation to changing
              conditions, screwups, workarounds, etc. These are not
              conditions that inspire confidence in automated money
           - Hard to Use. Few people will use systems that require
              generating code, clients, etc. Semantic gap (generating
              stuff on a Unix workstation is not at all like taking one's
              checkbook out). Protocols in crypto are generally hard to
              use and confusing.
           - Lack of compelling need. Although people have tried various
              experiments with digital money tokens or coupons (Magic
              Money/Tacky Tokens, the HeX market, etc.), there is little
              real world incentive to experiment with them. And most of
              the denominated tokens are for truly trivial amounts of
              money, not for anything worth spending time learning. No
              marketplace for buyers to "wander around in." (You don't
              buy what you don't see.)
           - Legal issues. The IRS does not look favorably on
              alternative currencies, especially if used in attempts to
              bypass ordinary tax collection schemes. This and related
              legal issues (redemptions into dollars) put a roadblock in
              front of serious plans to use digital money.
           - Research Issues. Not all problems resolved. Still being
              developed, papers being published. Chaum's system does not
              seem to be fully ready for deployment, certainly not
              outside of well-defined vertical markets.
  12.10.2. "Why isn't digital money in use?"
           - The Meta Issue: *what* digital money? Various attempts at
              digital cash or digital money exist, but most are flawed,
              experimental, crufty, etc. Chaum's DigiCash was announced
              (Web page, etc.), but is apparently not even remotely
           + Practical Reasons:
             - nothing to buy
             - no standard systems that are straightforward to use
             - advantages of anonymity and untraceability are seldom
           - The Magic Money/Tacky Tokens experiment on the Cypherpunks
              list is instrucive. Lots of detailed work, lots of posts--
              and yet not used for anything (granted, there's not much
              being bought and sold on the List, so...).
           - Scenario for Use in the Near Future: A vertical
              application, such as a bridge toll system that offers
              anonymity. In a vertical app, the issues of compatibility,
              interfaces, and training can be managed.
  12.10.3. "why isn't digital cash being used?"
           + many reasons, too many reasons!
             + hard issues, murky issues
               - technical developments not final, Chaum, Brands, etc.
             + selling the users
               - who don't have computers, PDAs, the means to do the
                  local computations
               - who want portable versions of the same
             + The infrastructure for digital money (Chaum anonymous-
                style, and variants, such as Brands) does not now exist,
                and may not exist for several more years. (Of course, I
                thought it would take "several more years" back in 1988,
                so what do I know?)
               - The issues are familiar: lack of standards, lack of
                  protocols, lack of customer experience, and likely
                  regulatory hurdles. A daunting prospect.
               - Any "launches" will either have to be well-funded, well-
                  planned, or done sub rosa, in some quasi-legal or even
                  illegal market (such as gambling).
           - "The american people keep claiming in polls that they want
              better privacy protection, but the fact is that most aren't
              willing to do anything about it: it's just a preference,
              not a solid imperative.  Until something Really Bad happens
              to many people as a result of privacy loss, I really don't
              think much will be done that requires real work and
              inconvenience from people, like moving to something other
              than credit cards for long-distance transactions... and
              that's a tragedy."[L. Todd Masco , 1994-08-20]
  12.10.4. "Is strong crypto needed for digital cash?"
           - Yes, for the most bulletproof form, the form of greatest
              interest to us and especially for agents, autonomous
           + No, for certain weak versions (non-cryptographic methods of
              security, access control, biometric security, etc. methods)
             - for example, Internet billing is not usually done with
             - and numbered Swiss accounts can be seen as a weak form of
                digital cash (with some missing features)
             - "warehouse receipts," as in gold or currency shipments
  12.10.5. on why we may not have it for a while, from a non-Cypherpunk
           - "Government requires information on money flows, taxable
              items, and large financial transactions.....As a result, it
              would be nearly impossible to set up a modern anonymous
              digital cash system, despite the fact that we have the
              technology.....I think we have more of a right to privacy
              with digicash transactions, and I also think there is a
              market for anonymous digicash systems. " [Thomas Grant
              Edwards. talk.politics.crypto, 1994-09-06]
  12.10.6. "Why do a lot of schemes for things like digital money have
            problems on the Net?
           + Many reasons
             - lack of commercial infrastructure in general on the
                Net...people are not used to buying things, advertising
                is discouraged (or worse), and almost everything is
             - lack of robustness and completeness in the various
                protocols: they are "not ready for prime time" in most
                cases (PGP is solid, and some good shells exist for PGP,
                but the many other crypto protocols are mostly not
                implemented at all, at least not widely).
             + The Net runs "open-loop," as a store-and-forward delivery
               - The Net is mostly a store-and-forward netword, at least
                  at the granularity seen by the user in sending
                  messages, and hence is "open loop." Messages may or may
                  not be received in a timely way, and there is little
                  opportunity for negotiaton on a real-time basis.
               - This open-loop nature usually works...messages get
                  through most of the time. And the "message in a bottle"
                  nature fits in with anonymous remailers (with
                  latency/delay), with message pools, and with other
                  schemes to make traffic analysis harder. A "closed-
                  loop," responsive system is likelier to be traffic-
                  analyzed by correlation of packets, etc.
               - but the sender does not know if it gets through (return
                  receipts not commonly implemented...might be a nice
                  feature to incorporate; agent-based systems
                  (Telescript?) will certainly do this)
               - this open-loop nature makes protocols, negotiation,
                  digital cash very tough to use--too much human
                  intervention needed
               - Note: These comments apply mainly to _mail_ systems,
                  which is where most of us have experimented with these
                  ideas. Non-mail systems, such as Mosaic or telnet or
                  the like, have better or faster feedback mechanisms and
                  may be preferable for implementation of Cypherpunks
                  goals. It may be that the natural focus on mailing
                  lists, e-mail, etc., has distracted us. Perhaps a focus
                  on MUDs, or even on ftp, would have been more
                  fruitful...but we're a mailing list, and most people
                  are much more familiar with e-mail than with archie or
                  gopher or WAIS, etc.
             - The legal and regulatory obstacles to a real system, used
                for real transactions, are formidable. (The obstacles to
                a "play" system are not so severe, but then play systems
                tend not to get much developer attention.)
  12.10.7. Scenario for deployment of digital cash
           - Eric Hughes has spent time looking into this. Too many
              issues to go into here, but he had this interesting
              scenario, repeated almost in toto here:
           - "It's very unlikely that a USA bank will be the one to
              deploy anonymous digital dollars first.  It's much more
              likely that the first dollar digital cash will be issued
              overseas, possibly London.  By the same token, the non-
              dollar regulation on banks in this country is not the same
              as the dollar regulation, so it's quite possible that the
              New York banks may be the first issuers of digital cash, in
              pounds sterling, say.
              "There will be two stages in actually deploying digital
              cash.  By digital cash, here, I mean a retail phenomenon,
              available anybody. The first will be to digitize money, and
              the second will be to anonymize it.  Efforts are already
              well underway to make more-or-less secure digital funds
              transfers with reasonably low transaction fees (not
              transaction costs, which are much more than just fees).
              These efforts, as long as they retain some traceability,
              will almost certainly succeed first in the marketplace,
              because (and this is vital) the regulatory environment
              against anonymity is not compromised.
              "Once, however, money has been digitized, one of the
              services available for purchase can be the anonymous
              transfer of funds.  I expect that the first digitization of
              money won't be fully fungible.  For example, if you allow
              me to take money out of your checking account by automatic
              debit, there is risk that the money won't be there when I
              ask for it.  Therefore that kind of money won't be
              completely fungible, because money authorized from one
              person won't be completely identical with money from
              another.  It may be a risk issue, it may be a timeliness
              issue, it may be a fee issue; I don't know, but it's
              unlikely to be perfect.
              "Now, as the characteristic size of a business decreases,
              the relative costs of dealing with whatever imperfection
              there is will be greater. To wit, the small player will
              still have some problem getting paid, although certainly
              less than now.  Digital cash solves many of these problems.
              The clearing is immediate and final (no transaction
              reversals).  The number of entities to deal with is greatly
              reduced, hopefully to one.  The need and risk and cost of
              accounts receivables is eliminated.  It's anonymous.  There
              will be services which will desire these advantages, enough
              to support a digital cash infrastructure. [Eric Hughes,
              Cypherpunks list, 1994-08-03]

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