Re: E-cash's feasibility?

From: Adrian Tymes (wingcat@pacbell.net)
Date: Fri Jun 08 2001 - 12:42:49 MDT


hal@finney.org wrote:
> I would be interested in hearing more about how you see the "everyone is
> a bank" model working. Would each person issue a different electronic
> currency? How would these forms of cash acquire value?

Actually, this has been the main problem with ecash's feasibility I
have seen, with very few attempts to address it (as opposed to the
technical ends, which have been done to death and yet most people
working on it still seem to think the failure of adoption is mainly
due to technical faults). Put simply:

I am J. Random Consumer, with a finite amount of spendable cash. For
sake of simplicity, say it starts out in US$ in my bank account, from
which I can convert it to US$ physical currency (with wide, but not
universal, acceptance) or write checks (agains with wide acceptance,
especially for sending money by mail where physical currency is not
desirable) or a few more esoteric options (useful in certain cases, but
of less utility in general than checks and physical currency). With
checks, I can either give (or send via mail) directly to the
destination, or I can employ a credit card (say, for ecommerce or for
extra accountability, say to track expense account useage while wining
and dining my clients) and send the check to the card merchant.

I can convert basically freely between checks and cash and money in my
bank account (with minor fees for certain conditions of conversions,
like converting at certain automatic teller machines). If I should
happen to overpay the credit card, there is a very good chance I can
get my money back out via a refund check should I choose not to employ
the credit card again - thus, effectively guaranteeing good exchange
between money/debit in credit card account and money in my bank
account.

Now, introduce an ecash system. Acceptance extremely limited (places
worldwide that accept a specific form of ecash in the low 1000s for a
wildly successful launch), and no guarantee that I can get unspent
money out of the system. In addition, these merchants, if they are
doing business not directly (and heavily) subsidized by the ecash
vendor, will also have to accept a form of payment I am more likely to
have (say, a Visa or Mastercard, assuming the venue is an ecommerce
application). Thus, the consumer has zero incentive to use ecash, and
major incentive not to. Maybe the vendors benefit, but if so, they do
not share enough incentive with the customers to use ecash (which may
be because, even if the vendors passed all of their savings to the
customer and made no profit off of this, it still would not be enough
to offset the cost that the customer perceives).

I have never heard any even proposed solutions to this problem - and
I've been working professionally in ecommerce for the past ~2.5 years,
so I highly suspect I would have heard one by now (floating around the
newsletters or reports from conferences, if nothing else) if any had
been seriously proposed. Until it is fixed, I do not believe any
customer would willingly participate in such a scheme *regardless of
all other details including anonymity*. (Of course, those other
details will matter once this is fixed, so they should still be worked
on, but lack of customer acceptance - by istelf - can kill any system.)

That said, I can offer a possible solution, by example from real life.
There was a snippet in Wired some years back (I can look up the ref if
necessary, though this is just an analogy) about a community near a
certain ski resort. This ski resort had an ironclad guarantee: ski
lift passes for $5 each; turn in an unused pass, and you get $5 back.
No inflation, tricks, or questions asked of the returner. Of special
note: these passes had no identification on them, save whether they had
been used or not (I don't recall the details here; designed usage might
have involved taking the pass, in which case the pass would not even
have to record use). Over time, some passes were inevitably lost, so
the ski lodge issued new ones. Some of the local merchants, hearing of
this guarantee and knowing that the lodge management was neither likely
to go out of business nor change policies soon, allowed their customers
to spend these passes as the equivalent of $5. More merchants
eventually joined, and before long, the lodge was effectively issuing
its own local currency (for the benefit of lodge and lodge management,
presumably), with similar powers to many governments' central banks
(though constrained by resources and local-only acceptance of currency,
of course).

Actually, reflecting on the above, another possibility comes up: have
a credit card that generates a new number for each transaction, which
the bank can then match to account. Some credit card companies are
already proposing such, but only for online transactions; a more
extended version might employ a smart card that can physically deform
itself and change the coding on its magnetic stripe, such that even
"card present" transactions generate new numbers (maybe even new names,
though regenerating signatures - without having the cardholder sign the
card in the merchant's presence, which most merchants frown upon -
might be difficult). Anonymity would depend on whether the card issuer
cooperates with various authorities who wish to match purchase to
cardholder...difficult to defend with a central institution issuing
these cards, as is standard, though I wonder if there might be a way
to distribute the institution a la Gnutella (but with physical
infrastructure also distributed), such that any agency wishing to raid
or arrest the institution would have to target an overwhelming number
of targets simultaneously. (It would have to be more-or-less
simultanesously: it's a standard tactic among organized crime, which
these agencies would have reason to assume they're dealing with, to
assume that someone going offline for more than X amount of time ==
raid, and use that as a signal to begin precautions that will make it
impossible for other raids to get information, and maybe also key
participants...) The list of issues which a distributed business would
face (especially if they do invoke, and eventually have to recover
from, hide-from-raid protocols) seems long...but maybe someone could
compile a list, and include ways to deal with each item on it as people
suggest them?

> > I also want to argue against Clay Shirky and others who claim that
> > micropayments are a bad idea because they are bad for consumers. They
> > DO benefit distributors at the expense of consumers, but they
> > disadvantage consumers only a little, and benefit distributors quite a
> > lot. The whole P2P idea is that the consumers ARE distributors (and
> > even, more democratically, producers!) so, in a P2P environment,
> > micropayments are a good idea.
>
> Maybe so, at any rate it would be an interesting experiment to try.

Ah, but in P2P, why not just barter for things we know are valuable?
Or, for micropayments in a standardized medium of exchange, who
converts this to other standardized mediums of exchange? (Most
currencies can be converted from one to another...)



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