Re: IP: "CyberCash can't oust credit cards"

[Robert Hettinga <rah@shipwright.com>]

At 6:41 AM -0400 on 7/8/98, Ryan Lackey wrote:



> Haven't you said in the past that the *consumer* can't be charged anything to
> use the system in the way of fees (consumer being the party bringing
>money into
> the system), and that all fees need to get charged to the merchant (or
>whoever
> the party is who removes money from the system)?

Nope, and, if I did, I was wrong. :-).

You probably can't bootstrap things on seignorage alone, I don't
think<double negative?>, but if you did, again, you would kill your digital
cash issue anyway, because of lack of merchant acceptance, especailly in
the early phases.

Note, in my canonical example, cash, that people already pay a fee for
"foreign" ATM withdrawls anyway, and people are used to doing things that
way. That's great, because I expect that margins on a net.ATM withdrawl
through an underwriter would be significantly higher than what a bank makes
on their non-customer ATM transactions. Three orders of magnitude cheaper?
I wouldn't be surprised.

> Certainly, at first order, the fee *should* be on removing money from the
> system, from a selfish point of view on the part of Ivan the Issuer -- if
> you're making money on seignorage, you're making money when people add money
> to the system *and leave it there*.  Thus, you want to provide incentives for
> people to buy money and leave it there -- charging no "on" fees and minimal
> "off" fees would do it.

Yup. But, oddly enough, that was Mark Twain's (final) fee structure, too.
Didn't save them in the end, though.

I just think that if merchants are the key to acceptance of digital bearer
cash, much less fully anonymous blinded digital bearer cash :-), then you
shouldn't charge merchants anything to accept the stuff. If a merchant can
download a wallet or registerware free or very cheap, and instantly start
taking cash payments for whatever they sell over the net, and, when it came
time to take that cash and put it into their own bank it didn't cost them
anything to do it, then they would probably accept the stuff a heartbeat.
The cost of anything is the foregone alternative, three orders of
magnitude, and all that and "free" comes pretty close to three orders of
magnitude in cost reduction from merchant credit card fees in my book. :-).

The other beneficiary, in terms of cost, of course, is both the
underwriter, who's issuing cash for rediculously cheaper than a
corresponding volume of noncustomer.meat.ATM transactions would cost, not
to mention *some* seignorage :-), and the trustee, who's getting a share of
both for something they do already for the mutual fund and stock/bond
transfer markets.

I see seignorage as a tasty long-view source of income, certainly, but I
expect the half-life of a given dollar of digital cash to be measured in
days, if not hours, in the early stages. Frankly, I don't see seignorage
showing up significantly on the income statement of an underwriter until
there are other bearer instruments (stocks, bonds, and especially mutual
fund shares) to invest that cash in, keeping it on the net.

I think that that's one of the reasons that the Fed, among other people,
aren't too worried about the immediate macroeconomic effects of digital
cash. That and that the Fed's seignorage income, in the overall scheme of
Fed revenues, is pretty small, and probably dwarfed by other things like
printing and handling costs, etc. Greenspan himself is/was a free banking
advocate, certainly, and has said publically (see last September's Official
Cypherpunk Forbes issue :-)) that he thinks that private electronic
banknote issue is not a scary proposition at all.

Anyway, by the time that there are other digital bearer instruments out
there, and the money supply gets affected by digital cash seignorage, much
less fractional reserve accounts, (which *will* happen as competition heats
up and, someday even traveller's-check-type purchase premia on digital cash
will go away [*some*day!]), then the central bankers will have other things
to worry about besides just the impact if digital bearer settlement on
their money supply. Problems like why have *national* instead of private,
currencies, anyway. :-).

Nice problem to have, I figure.


Cheers,
Bob Hettinga
-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.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'
The Philodox Symposium on Digital Bearer Transaction Settlement
  July 23-24, 1998: <http://www.philodox.com/symposiuminfo.html>