Re: digital cash/legal tender

[nobody@alumni.cco.caltech.edu]

F. Griffith argues that a digital cash system in which the cash must
be exchanged at the bank between transactions is really just an electronic
checking system.

It is true that this is an inconvenient attribute of some digital cash
systems, but there is still an important difference between these systems
and digital checking.  The cash exchanges are anonymous.  Bob, the merchant,
does not know who is sending him (or handing him) the digital cash.  With
a checking system, OTOH, you know who is giving you the check, because
they sign their name to it.

There have been some cash proposals which don't require this bank exchange
at each step.  Barry Hayes had one which was analogous to a check which
was endorsed over from one person to the next at each transaction.  Alice
would write the check to Bob, who would endorse it over to Charlie, who
would endorse it over to Delores, and so on.  This doesn't sound very
anonymous, but Hayes was going to let people use pseudonyms rather than
their real names.  He used a variation on Chaum's double-spending detec-
tion that I posted that long message about to catch people who cheated.
This system was described in the AusCrypt proceedings.

It's important to be aware of the difference between digital cash and other
forms of digital money.  Cash protects privacy; most other proposals would
impair it.  Our goal here, insofar as we can still be said to have one, is
to protect privacy.

As far as the acceptability of digital cash, there are two issues that I
see.  One is whether the cash is legal, and the other is whether it would
be accepted.  My opinion is that if digital cash is or could be made
legal, it would be accepted.  As others have argued, we have many examples
(travelers checks, credit cards) where people accept money substitutes
without government backing.

As for its legality, I posted some research results on this earlier this
year.  Until the 1860's, private banks created and circulated their own
banknotes.  Around the time of the civil war, a 10% tax was created on
these notes by the federal government to drive them out of circulation,
which it did.  This tax is still on the books, but I'm not familiar with
its details.  The other way banks can issue cash is by holding certain
kinds of gold-backed federal certificates, but these certificates don't
exist any more.  So at this point my conclusion was that it would not be
legal for a bank to issue its own cash other than by paying the 10% tax,
which was considered prohibitive.

Hal Finney
hfinney@shell.portal.com