Special Firing Line Debate on the regulation of financial encryption and internet commerce?

[Robert Hettinga <rah@shipwright.com>]

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Date: Fri, 19 Sep 1997 14:16:43 -0400
To: dcsb@ai.mit.edu
From: Robert Hettinga <rah@shipwright.com>
Subject: Special Firing Line Debate on the regulation of financial
 encryption and internet commerce?
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Date: Fri, 19 Sep 1997 13:44:39 -0400
To:Somebody at SCTV
From: Robert Hettinga <rah@shipwright.com>
Subject: Special Firing Line Debate on the regulation of financial
 encryption and internet commerce?
Cc: rah@shipwright.com, Rodney Thayer <rodney@sabletech.com>

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<Somebody>,

I talked to someone at WGBH, and they said that Firing Line is produced
there at SCETV. Since I couldn't find an address for Warren Stibel(sp?)
Productions on the net anywhere, I figure if I send this to you, as
<identifying information elided>, that you might be able to forward
the following to the appropropriate folks who could help.

Thanks for your best efforts on our behalf,

Robert Hettinga
Moderator,
The Digital Commerce Society of Boston

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To Whom it May Concern,


My name is Robert Hettinga, and I'm the moderator of the Digital Commerce
Society of Boston, an informal group of about 300 or so people involved in
digital commerce and financial cryptography who hang out together on an
internet email list and meet once a month for lunch and a speaker at the
downtown Harvard Club, here in Boston. A sister group is just getting
started in New York, and there have been rumblings about doing it in
Washington, as well.

We've been doing this for a little over two years now, and we've had lots of
interesting speakers, on everything from the gory guts of internet
transaction and cryptography protocols to the effect of the internet on
market efficiency, to, of course, government encryption policy, which is why
I'm writing you this.


A couple of months ago, the DCSB program committee and I decided that, given
the increasing government interest in encryption on the net, now evidenced
by two or three bills, and a lot of legislative skulduggery the past couple
of weeks, we thought it would be a good idea to shed a little light on the
situation with a debate on the subject. My first thought, of course, was
Mr. Buckley's famous Firing Line Special Debates.

In light of recent events, my program committee has encouraged me, and
Rodney Thayer, a member of the committee and a well known cryptographic
developer, to persue the idea more vigorously. :-)


Most of the discussions surrounding the control of encryption technology on
the net focus on the issue of privacy, and privacy, like, say, flight, is an
inherent good. Well, privacy is to most people, anyway...

We at DCSB believe, however, that the most significant impact of
cryptography on the net is not just privacy, it's economics. That is, it's
not "gee, we can fly" which made flight economically useful, or even
military use of aviation technology, but commercial activities like
barnstorming, mail planes, aviation racing, the DC3, and, eventually, coach
fare to Cleveland. :-). The same thing is true with encryption on the
internet. Most of us at DCSB believe that financial encryption on a
ubiquitous internet will prove to be the very cheapest way to effect any
transaction whatsoever, from pico-payments for internet switching, to
gigadollar project-bond issues and foriegn currency transactions.
(Actually, lots of us think there'll be private currencies, but that's
another story...)


Let me give you a pretty over-the-top example of what financial encryption
technology can do right now, without any further science. There is actual
code running which can do this.

Strong financial cryptography allows you to create unforgeable
cryptographic objects. It allows you to assign value to one of those
objects, just like an unforgeable dollar bill can be assigned the value of
a dollar. Because that object can be tested independantly of the person who
gave it to you (just like you can inspect a dollar bill), you don't care
who gives you money, as long as their money's good.

Notice that all forms of modern money, checks, debit and credit cards,
brokerage accounts, wire transfers and the like, require you to know
*who* you're doing business with, so that if they send you a fraudulent
debit or credit, you, or somebody you're associated with, can hunt them
down and send them to jail. None of that, including the jail part :-),
representing the force-monopoly of the modern nation state, is necessary
when you use these cryptographic objects to buy and sell with. Some
of us have even come to call these cryptographic objects "digital bearer
certificates", after the bearer bonds of not so long ago.

This type of financial encryption technology, some of us claim, will
probably be 1000 to 10,000 times cheaper to use, on a per-transaction basis,
than normal book entry settlement -- the kind you currently use when you
send your credit card over the net. The technology also allows us to do
cash settled business, at any distance, for anything you can send down a
wire: movies, words, music, legal advice, surgery instructions, whatever.

That's important, because old fashioned bearer bonds, which settled
instantly, were made obsolete not by tax policy (economics creates policy,
not the other way) as liberals would have you believe :-), but by the
economics of their transport and storage. That is, you couldn't shove a
bearer bond or a large value piece of cash down a wire to settle a trade.
The only way to do that was with book-entries, debits and credits, in other
words, and to do *that*, you had to biometrically identify all parties to a
trade, and, more to the point, you have to wait for the transaction to
percolate through the books of all the trade's parties and their
intermediaries in order for the trade to clear and settle.

This requirement for biometric identity and transaction logging is, of
course, at the root of all our present concerns about financial privacy, but
you can now see that we've put the cart before the horse: our privacy, or
lack of it, is directly caused by the efficiency of our transaction
mechanisms over paper methods. If there was a strictly private way to do
the same thing with the same or greater improvement that book-entry
settlement had over paper, it would happen, and lots of financial privacy
would result. In addition, if we didn't need the government as the ultimate
"error-handler" in our transaction protocols, we wouldn't "need" government
to regulate our markets -- and the rest of our lives -- by extension.

Now, as you've seen, digital bearer settlement opens up a pretty large can
of worms, but they're libertarian worms, :-), as the cover story of the
September 8th issue of Forbes points out.


A story, by the way, I had a hand in putting together, as Josh McHugh, the
Forbes reporter, pretty much told the story as I told it to him, and
interviewed the people I pointed him to. For my efforts, I even found
myself mentioned once in a sidebar with Walter Wriston and Alan Greenspan
;-). My mother, who, at 75, still sits on the New Mexico State Republican
Committee, was pretty happy about that. She's been wondering why I've been
wasting all this time on the net... :-).

Josh contacted me after reading a story in Wired's July issue on the First
International Conference on Financial Cryptography (FC97), which I helped
organize on Anguilla this past February. FC97 was covered by NTT Japan, the
New York Times, the Financial Times, Institutional Investor, and, of course,
(with yet another single mention in thousands of words ;-)) Wired. The web
site for FC98, this year's conference, is <http:www.fc98.ai>, if you'd like
to see that.


Anyway, I think that I fairly speak for the DCSB membership when I say that
government restrictions on cryptography, (and by extension, financial
cryptography) are restrictions on economics, which, communism has shown us,
policy makers restrict at their own peril. "Reality is not Optional", to
quote the title of one of Thomas Sowell's Forbes columns.


And, so, here's the debate I'd like to have. On the left, defenders of the
state's right to control crime and espionage (and its population), with
crypto-knowlegable people from law enforcement, the intellegence community
and government to back them up. And on the right, some well-known
freemarketers and crypto- um, anarchists. :-). Walter Wriston, former
chairman of Citicorp, for example, would be a good choice, so would David
Friedman, son of Milton. Even Phyllis Schlafly has articulated a strong
pro-cryptography position, though on first amendment grounds (which, by the
way, is the single thread keeping strong cryptography from outright
prohibition at the moment). I think that, given the last couple of articles
in Forbes on cryptography, (and the entire contents of Forbes ASAP every
month ;-)) Mr. Forbes would also agree to helping with the debate.

And Mr. Buckley, of course. I think, anyway. He has made some very strong
defenses of social conservativism over the years, but I expect that he
would come down in favor of deregulating strong cryptography, especially
for financial and economic reasons.


DCSB proposes a Special Firing Line Debate, in Faneuil Hall, site of
debates during the Revolution, and the venue for numerous modern debates
like this one.

Essentially, we'd get the room and the crowd, get you up to speed on the
issues if you'd like, and point you to some good people on both sides of the
issue to fill out the panel if you want them. You guys organize the debate
itself, and bring the cameras.


What can we do to help you guys make this happen? How soon can we get
started? :-).

Cheers,
Robert Hettinga
Moderator,
The Digital Commerce Society of Boston

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-----------------
Robert Hettinga (rah@shipwright.com), Philodox
e$, 44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The e$ Home Page: http://www.shipwright.com/

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-----------------
Robert Hettinga (rah@shipwright.com), Philodox
e$, 44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The e$ Home Page: http://www.shipwright.com/



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-----------------
Robert Hettinga (rah@shipwright.com), Philodox
e$, 44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The e$ Home Page: http://www.shipwright.com/