Re: digital cc transactions, digital checks vs real digital cash

[Robert Hettinga <rah@shipwright.com>]

At 4:55 pm -0400 on 5/12/97, Bill Stewart wrote:


> Book-entry banks need some kind of fairly reliable
> dispute resolution mechanism, but it doesn't need to be a force monopoly.
> If you happen to have a nation-state just lying around to be used,
> banks will be happy to use them, because they're more convenient for
> wide-area business than Mafia enforcers, probably cheaper, and can be
> more dependable and predictable, though your mileage may vary.

A force monopoly by any other is a nation state or is busy becoming one, to
mangle a few literary allusions.

> If you have relatively dependable identities, you can run a reputation
> system without relying on governmental or private violence providers;
> it's probably less expensive, but also less effective in most communities,
> so the risk of losing money may make it less attractive than governments.

Certainly the New York diamond market works this way. As do the NYSE, NASD,
Lloyds, etc. Eric Hughes called them "clubs". Reputation clubs, if you
will. The problem comes when your business is so large and centralized
(because of the hierarchical nature of networks where you have very
expensive human information "switches") that you can't know who you're
dealing with. Then it's easier to beat up on people who make the wrong
book-entries. By the way, most of these reputation clubs function best
where you have peer-to-peer trading contact. Geodesic markets, in other
words. Which, of course, is why geodesic markets with strong persistant
cryptographic repuations will probably go to things like reputation clubs,
or at least with on-line reputation registries operating much like Standard
and Poor's or Moody's or Dun and Bradstreet work today.

> If people know that nobody will take their checks if they bounce them
> and don't make good, and know they won't get any credit, and know that
> the merchants are all on the Grapevine, they'll generally be honest*.
> If identities are fluid, and you're willing to keep creating and burning
>them,
> you can sometimes get away with reneging on obligations,
> but people are less likely to trust you if they don't know you -
> so they'll want to see certified e-checks from well-known banks.

That's true. However, and of course no one has proven this yet, I think
that all the offsetting book-entries cost much more than a
spent-certificate registry.

> I tend to view book-entry systems as an effect of an
> economy that uses credit to fund business ventures;
> you can call the book entries "bonds" or "stocks", but
> book-entry is the obvious way to keep track of either one.

Not at all. Before mainframe computing, and certainly before telegraphy,
all debt was held in unregistered, bearer certificate form. The bookeeping
load for modern registered shareholder book-entry settlement was impossible
to maintain. I claim that, now that we have bearer certificates in digital
form, the cost advantage of electronic digital bearer settlement over
electronic book-entry settlement will eventually kill the later off
economically.

> Sure, you could do things like split all revenues on receipt,
> but book-entry is probably still easier.

I'm not sure I understand this sentence.

> [*Honest people will generally be honest anyway, which is most people
> in most cultures, but that doesn't mean they'll be good enough at
> planning to pay off their loans on time, especially if they're using
> the money for risky activities such as farming or software development...
> On the other hand, violence providers aren't always good at extracting
> payments from people who really don't have the money any more.]

People are honest primarily because it's too much physical effort to be
otherwise. Consistantly lying takes up too much memory, for instance. :-).

The nice thing about digital bearer settlement, is that it allows you to be
honest without telling potentially hostile people everything you do.

Cheers,
Bob Hettinga


-----------------
Robert Hettinga (rah@shipwright.com), Philodox
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experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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