At 3:57 PM -0400 10/24/05, John Kelsey wrote:
>More to the point, an irreversible payment system raises big practical
>problems in a world full of very hard-to-secure PCs running the
>relevant software.  One exploitable software bug, properly used, can
>steal an enormous amount of money in an irreversible way.  And if your
>goal is to sow chaos, you don't even need to put most of the stolen
>money in your own account--just randomly move it around in
>irreversible, untraceable ways, making sure that your accounts are
>among the ones that benefit from the random generosity of the attack.
>The payment system operators will surely be sued for this, because
>they're the only ones who will be reachable.  They will go broke, and
>the users will be out their money, and nobody will be silly enough to
>make their mistake again.

Though I agree with the notion that anonymity is orthogonal to market
demand at the moment, I think you lost me at the word "account", above.

That is to say, your analysis conflicts with the whole trend towards T-0
trading, execution, clearing and settlement in the capital markets, and,
frankly, with all payment in general as it gets increasingly granular and
automated in nature. The faster you can trade or transact business with the
surety that the asset in question is now irrevocably yours, the more trades
and transactions you can do, which benefits not only the individual trader
but markets as a whole.

The whole foundation of modern finance, and several -- almost posthumous,
so pervasive was the homeopathic socialism that we now call Keynesianism --
Nobel prizes in economics are based on that premise, and it has been proven
empirically now for many decades: The entire history of the currency
futures markets would be a good example, though now that I think of it, any
derivative market, since the time of Thales himself, would prove the point.

However "anonymous" irrevocability might offend one's senses and cause one
to imagine the imminent heat-death of the financial universe (see Gibbon,
below... :-)), I think that technology will instead step up to the
challenge and become more secure as a result. And, since internet bearer
transactions are, by their very design, more secure on public networks than
book-entry transactions are in encrypted tunnels on private networks, they
could even be said to be secure *in spite* of the fact that they're
anonymous; that -- as it ever was in cryptography -- business can be
transacted between two parties even though they don't know, or trust, each

For instance, another "problem" with internet bearer transactions, besides
their prima facie "anonymity" (they're only prima facie because, while the
protocols don't *require* is-a-person and-then-you-go-to-jail identity,
traffic analysis is still quite trivial for the time being, onion routers
notwithstanding) is that the client is responsible not only for most of the
computation, but also for the storage of notes or coins, instead of a
central database in a clearinghouse or bank somewhere "storing" various
offsetting book-entries in, as you noted above, "accounts". :-).

Of course, simply backing up one's data off-site, much easier with internet
bearer certificates than with whole databases, solves this problem, and, as
we all know here, the safest way to do *that* is to use some kind of m-of-n
hash,  stored, someday, for even smaller bits of cash :-), in many places
on the net at once. Obviously, we don't need small cash to store big
assets, any more than we need big servers to distribute big files in
BitTorrent, but it will only accelerate, if not complete, the process, when
we get there.

As I have said, too many times :-), about these things, transaction cost is
always going to be the critical factor in any change from book-entries to
chaumian-esque internet bearer transactions. And I believe that,
hand-in-hand with increased security, reduced transaction cost is more a
function of the collapsing cost and the ubiquity of distributed processing
power and network access than anything else.

So, anonymity is, in fact, orthogonal to market demand, primarily because
it's an *effect*, and not a cause, of that demand. As we all do now with
the current proctological state of book-entry finance, the anonymity of a
proposed internet bearer transaction infrastructure will just be a "cost"
that the market would have to bear. :-).

To channel Schopenhauer a bit, like the emergence of industrialism and the
abolition of slavery was before it, once anonymity becomes a "feature" of
our transaction infrastructure, people will eventually declare it to be not
only self-evident all along, but a moral *prerequisite* of any transaction
as well.

To put it another way, it's a pity for acrophobics that the fastest way to
get anywhere these days is to fly, but it is still a physical fact,


Version: PGP Desktop 9.0.2 (Build 2425)


R. A. Hettinga <mailto: [EMAIL PROTECTED]>
The Internet Bearer Underwriting Corporation <http://www.ibuc.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'

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