Re: Bitcoin P2P e-cash paper

2008-11-05 Thread James A. Donald

James A. Donald:
  To detect and reject a double spending event in a
  timely manner, one must have most past transactions
  of the coins in the transaction, which, naively
  implemented, requires each peer to have most past
  transactions, or most past transactions that
  occurred recently. If hundreds of millions of people
  are doing transactions, that is a lot of bandwidth -
  each must know all, or a substantial part thereof.

Satoshi Nakamoto wrote:
 Long before the network gets anywhere near as large as
 that, it would be Safe for users to use Simplified
 Payment Verification (section 8) to check for double
 spending, which only requires having the chain of
 block headers,

If I understand Simplified Payment Verification

New coin issuers need to store all coins and all recent
coin transfers.

There are many new coin issuers, as many as want to be
issuers, but far more coin users.

Ordinary entities merely transfer coins.  To see if a
coin transfer is OK, they report it to one or more new
coin issuers and see if the new coin issuer accepts it.
New coin issuers check transfers of old coins so that
their new coins have valid form, and they report the
outcome of this check so that people will report their
transfers to the new coin issuer.

If someone double spends a coin, and one expenditure is
reported to one new coin issuer, and the other
simultaneously reported to another new coin issuer, then
both issuers to swifly agree on a unique sequence order
of payments.  This, however, is a non trivial problem of
a massively distributed massive database, a notoriously
tricky problem, for which there are at present no peer
to peer solutions.  Obiously it is a solvable problem,
people solve it all the time, but not an easy problem.
People fail to solve it rather more frequently.

 But let us suppose that the coin issue network is
dominated by a small number of issuers as seems likely.

If a small number of entities are issuing new coins,
this is more resistant to state attack that with a
single issuer, but the government regularly attacks
financial networks, with the financial collapse ensuing
from the most recent attack still under way as I write

Government sponsored enterprises enter the business, in
due course bad behavior is made mandatory, and the evil
financial network is bigger than the honest financial
network, with the result that even though everyone knows
what is happening, people continue to use the paper
issued by the evil financial network, because of network
effects - the big, main issuers, are the issuers you use
if you want to do business.

Then knowledgeable people complain that the evil
financial network is heading for disaster, that the
government sponsored enterprises are about to cause a
collapse of the total financial system, as Wallison
and Alan Greenspan complained in 2005, the government
debates shrinking the evil government sponsored
enterprises, as with S. 190 [109th]: Federal Housing
Enterprise Regulatory Reform Act of 2005 but they find
easy money too seductive, and S. 190 goes down in flames
before a horde of political activists chanting that easy
money is sound, and opposing it is racist, nazi,
ignorant, and generally hateful, the recent S. 190
debate on limiting portfolios (bond issue supporting dud
mortgages) by government sponsored enterprises being a
perfect reprise of the debates on limiting the issue of
new assignats in the 1790s.

The big and easy government attacks on money target a
single central money issuer, as with the first of the
modern political attacks, the French Assignat of 1792,
but in the late nineteenth century political attacks on
financial networks began, as for example the Federal
reserve act of 1913, the goal always being to wind up
the network into a single too big to fail entity, and
they have been getting progressively bigger, more
serious, and more disastrous, as with the most recent
one.  Each attack is hugely successful, and after the
cataclysm that the attack causes the attackers are
hailed as saviors of the poor, the oppressed, and the
nation generally, and the blame for the the bad
consequences is dumped elsewhere, usually on Jews,
greedy bankers, speculators, etc, because such attacks
are difficult for ordinary people understand.  I have
trouble understanding your proposal - ordinary users
will be easily bamboozled by a government sponsored
security update.  Further, when the crisis hits, to
disagree with the line, to doubt that the regulators are
right, and the problem is the evil speculators, becomes
political suicide, as it did in America in 2007,
sometimes physical suicide, as in Weimar Germany.

Still, it is better, and more resistant to attack by
government sponsored enterprises, than anything I have
seen so far.

 Visa processed 37 billion transactions in FY2008, or
 an average of 100 million transactions per day.  That
 many transactions would take 100GB of bandwidth, or
 the size of 12 DVD or 2 HD quality movies, or 

Secrets and cell phones.

2008-11-05 Thread James A. Donald
A sim card contains a shared symmetric secret that is known to the 
network operator and to rather too many people on the operator's staff, 
and which could be easily discovered by the phone holder - but which is 
very secure against everyone else.

This means that cell phones provide authentication that is secure 
against everyone except the network operator, which close to what we 
need for financial transactions.  The network operator maps this 
narrowly shared secret to a phone number. The phone number, which once 
upon a time directly controlled equipment that makes connections, is now 
a database key to the secret.

There are now send-money-to-and-from-phone-number systems in Canada, 
in South Africa, and in various third world countries with collapsed 
banking systems.

At present, each of these systems sits in its own narrow little silo - 
you cannot send money from a Canadian phone number directly to a South 
Africa phone number, and, despite being considerably more secure than 
computer sign on to your bank, are limited to small amounts of money, 
probably to appease the banking cartel and the money laundering controls.

Skype originally planned to introduce such a system, which would have 
been a world wide system, skype id to skype id, but backed off, perhaps 
because of possible regulatory reprisals, perhaps because computers are 
insufficiently secure.  If you click on the spot in the UI that would 
have connected you to Skype's offering, you instead get an ad for paypal.

Of course, the old cypherpunk dream is a system with end to end 
encryption, with individuals having the choice of holding their own 
secrets, rather than these secrets being managed by some not very 
trusted authority, and with these secrets enabling transfer of money, in 
the form of a yurls representing a sum of money, from one yurl 
representing an id, to another yurl reprsenting an id.

We discovered, however, that most people do not want to manage their own 
secrets, and that today's operating systems are not a safe place on 
which to store valuable secrets.

We know in principle how to make operating systems safe enough, but for the moment 
readily transferable money is coming in through systems with centralized 
access to keys, and there is no other way to do it.

If the mapping of phone numbers to true names is sufficiently weak, (few 
of my phone numbers are mapped to my true name) centralized access to 
symmetric keys is not too bad.

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