Dead as a Dollar

[jya@pipeline.com (John Young)]

   6-15-96. NYP Mag: 
 
   "Dead as a Dollar." 
 
      For everyone who uses cash, everyone who stores it and 
      everyone who regulates it, a challenge is nearing. The 
      challenge will be to make choices. Some kinds of 
      electronic currency will protect privacy, and some will 
      violate privacy. Some will make crime easier, and some 
      will make it extraordinarily difficult. Some will tax 
      commerce parasitically, and some will catalyze it. The 
      new minters of money will have enormous power to choose 
      -- unless consumers, on the one hand, and Government 
      officials, on the other, decide to make their own 
      choices. 
 
      In the "current climate," as those in Washington tend to 
      say, anything that smacks of an expanded role for the 
      Government is anathema. Policy makers at the Treasury 
      are reluctant even to talk about electronic money on the 
      record. "It's easy to go in and say, 'Oh, we're going to 
      regulate everything,' without knowing what everything 
      is," says a senior Treasury official. "We want to know 
      what everything is." He adds: "There are very serious 
      policy issues -- seigniorage, money laundering, 
      financial- stability issues, consumer issues that are 
      genuinely important that we must address and look hard 
      at. It may be sensible for the Government to issue a 
      card -- that's conceivable -- but what if you issue it 
      and nobody uses it?" 
 
      As money enters a new age, so does counterfeiting. The 
      ultimate threat is the perfect copy -- the virtual coin 
      that proves mathematically identical to the real thing. 
      If money is a string of bits, then someone, some where, 
      can make a perfect copy, and another and another. An 
      arms race is already raging between those working to 
      armor-plate digital cash with doubly and triply secure 
      cryptography and those working to pierce the armor. 
      Security experts assume that nefarious characters, in 
      search of an unending stream of money, are already 
      investing millions in the next stages of research and 
      development. 
 
      For every new idea in tamper resistance, there is a new 
      idea in tampering.... "At least you can cause people to 
      have to spend a lot of money," says Eric Hughes, a 
      cryptography expert. "But doing the second chip is far, 
      far less money than the first. And if you could make a 
      master chip that spoke the right protocol, you could 
      make a little money mint for yourself." 
 
      "Information warfare is going to make people very 
      worried downstream," says Crook at Citicorp. "We have an 
      immense paranoia about how dangerous it's going to be. 
      I think that the security requirements in our industry 
      are going to be more severe than at the Department of 
      Defense." 
 
      Cryptography is as close as modern mathematics comes to 
      magic. 
 
      It's simply a design choice. Smart cards, or their 
      on-line equivalents, could function as blindly as raw 
      cash. They could be even less traceable than in Chaum's 
      system. That is a frightening prospect to law- 
      enforcement authorities. Having finally made life 
      difficult for drug smugglers with heavy cash suitcases, 
      they will not casually allow the manufacture of half- 
      ounce chips that could make possible blind transfers of 
      hundreds of millions of dollars, a money launderer's 
      dream. Even if the Government takes no other action in 
      the electronic-money arena, it will surely move to 
      extend its restrictions on cash to cover digital 
      equivalents. And so far, the large institutions entering 
      the electronic-money arena are leaning toward 
      less-anonymous, less-private approaches than Chaum's, 
      betting that most of us will be willing to sacrifice 
      more pieces of privacy for, say, convenience. Chaum 
      could prove right, but only if the marketplace is 
      willing to cast its votes for privacy. 
 
       [With many remarks by Kawika Daguio.] 
 
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