Electronic Cash

1. Electronic Cash Ryan Lackey ryan@havenco.com 2 August 2002 DEF CON X – 1400h

2. Who I am Ryan Lackey, ryan@havenco.com Resident of Sealand in the North Sea Cofounder and CTO of HavenCo, Ltd. Worked in cypherpunk ventures for years; got interested when on the net at an early age before regulations Remember the net post-accessibility and pre-regulation; want to re-create that state

3. HavenCo • Founded in 1999 • Profitable! Growing! • May do last-minute talk this year • Currently CTO • Increasingly automated operations • Personally planning to remain involved in an engineering/management capacity • Exciting things happening in the next 12 months

4. Environment • Trend toward increased regulation • Commerce is speech • Financial systems are essential to commerce • Commerce is the most regulated area • Take an active role in technical change, rather than trying to reform legal system; “write code, not laws”

5. Motivation for ecash • Technically secure payment system, widely available, can limit free speech restrictions, both specific to commerce and in general • System must be widely available to be worthwhile • Rather than fighting a long losing battle, a decisive victory for freedom • Technically interesting problem; very interesting business problem

6. What do we mean by ecash? • Two-way anonymity • “Bearer” (with double-spending protection) • Inherently p2p • Strong cryptography • Fungible, divisible • Fundamentally low transaction costs, automated • Action at a distance; network based

7. Alternatives to ecash • Existing banking systems • Credit cards • Non-cryptographic, centralized account-based systems • Cash (physical) • Living in a world of suck

8. History of Ecash • David Chaum • Patents • Digicash • Non-cryptographic electronic cash (gaming) • Lots of startups, lots of strategies, all failed • Cypherpunks mailing list, etc.

9. ApplicationsOverview • Simple user-user payments • Retail purchasing (particularly information) • Gambling • Offshore stock/bond instrument market • Task markets • Micropayments • Agent-based computing

10. Historical Efforts • Digicash – focused on payments, closed • Various smartcard systems (Mondex, etc.) • Card issuer supported systems • E-gold • Closed non-ecash systems (paypal, etc.) • Startup

11. Commercial and noncommercial margins • Non-convertible online assets (everquest) • Money within games • Lots of demo code libraries (-lucre, etc.) which haven’t been deployed

12. Reasons for failure • Patents scare away investment • Startup business model uncertain • High degree of risk in general • Not really an ideal business model • Larger project than a small group can easily do • Needs to be fairly developed before useful • Regulation and jurisdictional issues

13. Model for success • Solve small problems • Open-source • Open, distributed, but with a non-exclusive central core running • Separation of roles; technical challenges solved in technical way, business in marketplace • Don’t solve hard problems up front; lots of good work has been done • HavenCo as useful platform for deployment

14. OpenDBS • Open Digital Bearer Settlement • Personal project for several years • One of the reasons I started HavenCo • Open-source, decentralized • Simply as an experiment; if successful, great • Designed for ease of deployment and integration

15. Technical architecture • Protocol-agile • Servers on tamper-resistant hardware • Instruments flexible • Designed for complete decentralization • Open-source; signed code with reviews and guarantees of execution • Good abstraction model

16. Issuance model • Issuers (create cash) • Users (spend/receive payments) • Markets (convert one kind of cash to others) • (also: trust agents holding assets, brokers, ratings agencies, wallet providers, financial consultants, bookies, etc.)

17. Business architecture • Anyone can run any kind of ecash business for free • Natural monopolies exist, primarily in markets and some kinds of instruments • Automated market and display rendering encourage multiple currencies

18. Funding model • Focused on minimizing costs; more money seems to encourage failure in this industry • Primarily out of pocket (mine) • Basically non-commercial • Other companies can do specific sub-technologies

19. Customers and marketing plan • Gaming clients are main anchor goal • Simple apps (user to user payments) • Self-contained larger apps as good demos (mail service which uses ecash as anti-spam bounty) • Offshore stock/bond/etc. market is main long-term goal

20. Regulations • Even if legal now, can become illegal overnight • I’m focusing on the technology and technical security; it’s up to users to figure out legality • Lots of uses, some of which are probably totally legal; developed with good uses in mind

21. Deployment • Working back end (if lame) • Simple system for users later in the year • Held up by other job responsibilities, but well along

22. How the community can help • Keep fighting legal/PR battle • Integrate ecash into existing applications • Set up ecash-integrated services • Develop clients, test • Audit server code and tamper-resistant hardware • Become an Issuer! Broker! Market! • Internship

23. HavenCo Internship Program • 8-12 weeks in Europe • 5-9 weeks spent on-site working on projects; we may provide assistance in deployment • No real pay, but small stipend + expenses + colo • Starting small; may expand • Jobs@havenco.com Subject: “Internship”

24. Q&A • Ecash questions • HavenCo questions • Etc. • (After talk, I’ll be in room 1551)