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Offline digital cash unsuitable to current legal environment
From: Howard Gayle <howard () hal com>
Date: Sat, 3 Jul 1993 14:11:53 -0500
A number of ingenious offline digital cash schemes have been invented. In offline systems, depositors must initially identify themselves to their bank. Then, if they behave honestly, they can anonymously create accounts, deposit and withdraw digital coins, and spend digital coins. If a digital coin is spent more than once, the identity of the double spender is revealed when the second copy of the coin is deposited. If tamperproof observers were feasible, then double spending could be prevented, not simply revealed afterwards. However, if the rewards are large enough, tampering becomes cost effective. All that is required is to extract the secret key corresponding to the observer's public key. This may not be worth doing if digital coins are limited to, say, US$1000, but may become profitable if coins for millions of dollars are allowed. Offline digital cash systems are useful in specialized applications like paying highway tolls. In the current world legal environment, however, they are unsuitable for general use with large sums of money. The governments of most industrialized countries would oppose general digital cash systems, so banks would have little chance of prosecuting double spenders. Anonymous bank accounts are illegal in almost all industrialized countries. Austria used to have anonymous accounts for Austrian citizens. I don't know if they're still available. Governments will try to prohibit general digital cash systems for the same reason they prohibit anonymous bank accounts: the (justified) belief that depositors will use digital cash to buy and sell things of which the government disapproves, and to evade taxes. Bank records provide governments with a surveillance tool they will want to keep just as much as, say, wiretaps. If a bank is to offer general digital cash (or digital metals), it would have to be an "offshore" bank, for example on a Caribbean island. But such a bank would have no recourse against a depositor who double-spends in some other country where digital cash is prohibited. The bank could transfer all the risk to the merchant accepting the (second copy of the) digital coin, but this would simply cause merchants not to accept digital coins. If people in most industrialized countries are to have the benefits of general digital cash in the current legal environment, then I think on-line systems will have to be used. In on-line systems, every transaction is performed through the bank. On-line systems permit completely anonymous accounts, and double spending is easily prevented. The disadvantage is that, for every transaction, realtime communication is needed with the (possibly offshore) bank. If digital cash is prohibited, then the realtime communication must be done in a way that makes traffic analysis infeasible. In practice, I think we'll see a hybrid system with offline digital coins offered up to some limit plus on-line transfers for larger amounts. -- Howard Gayle HAL Computer Systems, Inc. 1315 Dell Avenue Campbell, California 95008 USA howard () hal com Phone: +1 408 379 7000 extension 1080 FAX : +1 408 379 5022
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