Electronic Cash

Ryan LackeyRyan Lackey

ryan@havenco.comryan@havenco.com

2 August 20022 August 2002

DEF CON X – 1400hDEF CON X – 1400h

Who I am

Ryan Lackey, ryan@havenco.comRyan Lackey, ryan@havenco.comResident of Sealand in the North SeaResident of Sealand in the North SeaCofounder and CTO of HavenCo, Ltd.Cofounder and CTO of HavenCo, Ltd.Worked in cypherpunk ventures for years; got Worked in cypherpunk ventures for years; got

interested when on the net at an early age interested when on the net at an early age before regulationsbefore regulations

Remember the net post-accessibility and pre-Remember the net post-accessibility and pre-regulation; want to re-create that stateregulation; want to re-create that state

HavenCo

Founded in 1999Founded in 1999 Profitable! Growing!Profitable! Growing! May do last-minute talk this yearMay do last-minute talk this year Currently CTOCurrently CTO Increasingly automated operationsIncreasingly automated operations Personally planning to remain involved in an Personally planning to remain involved in an

engineering/management capacityengineering/management capacity Exciting things happening in the next 12 monthsExciting things happening in the next 12 months

Environment

Trend toward increased regulationTrend toward increased regulation Commerce is speechCommerce is speech Financial systems are essential to commerceFinancial systems are essential to commerce Commerce is the most regulated areaCommerce is the most regulated area Take an active role in technical change, Take an active role in technical change,

rather than trying to reform legal system; rather than trying to reform legal system; “write code, not laws”“write code, not laws”

Motivation for ecash

Technically secure payment system, widely Technically secure payment system, widely available, can limit free speech restrictions, both available, can limit free speech restrictions, both specific to commerce and in generalspecific to commerce and in general

System must be widely available to be worthwhileSystem must be widely available to be worthwhile Rather than fighting a long losing battle, a Rather than fighting a long losing battle, a

decisive victory for freedomdecisive victory for freedom Technically interesting problem; very interesting Technically interesting problem; very interesting

business problembusiness problem

What do we mean by ecash?

Two-way anonymityTwo-way anonymity ““Bearer” (with double-spending protection)Bearer” (with double-spending protection) Inherently p2pInherently p2p Strong cryptographyStrong cryptography Fungible, divisibleFungible, divisible Fundamentally low transaction costs, automatedFundamentally low transaction costs, automated Action at a distance; network basedAction at a distance; network based

Alternatives to ecash

Existing banking systemsExisting banking systems Credit cardsCredit cards Non-cryptographic, centralized account-Non-cryptographic, centralized account-

based systemsbased systems Cash (physical)Cash (physical) Living in a world of suckLiving in a world of suck

History of Ecash

David ChaumDavid Chaum PatentsPatents DigicashDigicash Non-cryptographic electronic cash (gaming)Non-cryptographic electronic cash (gaming) Lots of startups, lots of strategies, all failedLots of startups, lots of strategies, all failed Cypherpunks mailing list, etc.Cypherpunks mailing list, etc.

ApplicationsOverview Simple user-user paymentsSimple user-user payments Retail purchasing (particularly information)Retail purchasing (particularly information) GamblingGambling Offshore stock/bond instrument marketOffshore stock/bond instrument market Task marketsTask markets MicropaymentsMicropayments Agent-based computingAgent-based computing

Historical Efforts

Digicash – focused on payments, closedDigicash – focused on payments, closed Various smartcard systems (Mondex, etc.)Various smartcard systems (Mondex, etc.) Card issuer supported systemsCard issuer supported systems E-goldE-gold Closed non-ecash systems (paypal, etc.)Closed non-ecash systems (paypal, etc.) StartupStartup

Commercial and noncommercial margins Non-convertible online assets (everquest)Non-convertible online assets (everquest) Money within gamesMoney within games Lots of demo code libraries (-lucre, etc.) Lots of demo code libraries (-lucre, etc.)

which haven’t been deployedwhich haven’t been deployed

Reasons for failure

Patents scare away investmentPatents scare away investment Startup business model uncertainStartup business model uncertain High degree of risk in generalHigh degree of risk in general Not really an ideal business modelNot really an ideal business model Larger project than a small group can easily doLarger project than a small group can easily do Needs to be fairly developed before usefulNeeds to be fairly developed before useful Regulation and jurisdictional issuesRegulation and jurisdictional issues

Model for success

Solve small problemsSolve small problems Open-sourceOpen-source Open, distributed, but with a non-exclusive central Open, distributed, but with a non-exclusive central

core runningcore running Separation of roles; technical challenges solved in Separation of roles; technical challenges solved in

technical way, business in marketplacetechnical way, business in marketplace Don’t solve hard problems up front; lots of good Don’t solve hard problems up front; lots of good

work has been donework has been done HavenCo as useful platform for deploymentHavenCo as useful platform for deployment

OpenDBS

Open Digital Bearer SettlementOpen Digital Bearer Settlement Personal project for several yearsPersonal project for several years One of the reasons I started HavenCoOne of the reasons I started HavenCo Open-source, decentralizedOpen-source, decentralized Simply as an experiment; if successful, Simply as an experiment; if successful,

greatgreat Designed for ease of deployment and Designed for ease of deployment and

integrationintegration

Technical architecture

Protocol-agile Protocol-agile Servers on tamper-resistant hardwareServers on tamper-resistant hardware Instruments flexibleInstruments flexible Designed for complete decentralizationDesigned for complete decentralization Open-source; signed code with reviews and Open-source; signed code with reviews and

guarantees of executionguarantees of execution Good abstraction modelGood abstraction model

Issuance model

Issuers (create cash)Issuers (create cash) Users (spend/receive payments)Users (spend/receive payments) Markets (convert one kind of cash to others)Markets (convert one kind of cash to others)

(also: trust agents holding assets, brokers, (also: trust agents holding assets, brokers, ratings agencies, wallet providers, financial ratings agencies, wallet providers, financial consultants, bookies, etc.)consultants, bookies, etc.)

Business architecture

Anyone can run any kind of ecash business Anyone can run any kind of ecash business for freefor free

Natural monopolies exist, primarily in Natural monopolies exist, primarily in markets and some kinds of instrumentsmarkets and some kinds of instruments

Automated market and display rendering Automated market and display rendering encourage multiple currenciesencourage multiple currencies

Funding model

Focused on minimizing costs; more money Focused on minimizing costs; more money seems to encourage failure in this industryseems to encourage failure in this industry

Primarily out of pocket (mine)Primarily out of pocket (mine) Basically non-commercialBasically non-commercial Other companies can do specific sub-Other companies can do specific sub-

technologiestechnologies

Customers and marketing plan

Gaming clients are main anchor goalGaming clients are main anchor goal Simple apps (user to user payments)Simple apps (user to user payments) Self-contained larger apps as good demos Self-contained larger apps as good demos

(mail service which uses ecash as anti-spam (mail service which uses ecash as anti-spam bounty)bounty)

Offshore stock/bond/etc. market is main Offshore stock/bond/etc. market is main long-term goallong-term goal

Regulations

Even if legal now, can become illegal Even if legal now, can become illegal overnightovernight

I’m focusing on the technology and I’m focusing on the technology and technical security; it’s up to users to figure technical security; it’s up to users to figure out legalityout legality

Lots of uses, some of which are probably Lots of uses, some of which are probably totally legal; developed with good uses in totally legal; developed with good uses in mindmind

Deployment

Working back end (if lame)Working back end (if lame) Simple system for users later in the yearSimple system for users later in the year Held up by other job responsibilities, but Held up by other job responsibilities, but

well alongwell along

How the community can help

Keep fighting legal/PR battleKeep fighting legal/PR battle Integrate ecash into existing applicationsIntegrate ecash into existing applications Set up ecash-integrated servicesSet up ecash-integrated services Develop clients, testDevelop clients, test Audit server code and tamper-resistant hardwareAudit server code and tamper-resistant hardware Become an Issuer! Broker! Market!Become an Issuer! Broker! Market! InternshipInternship

HavenCo Internship Program

8-12 weeks in Europe8-12 weeks in Europe 5-9 weeks spent on-site working on 5-9 weeks spent on-site working on

projects; we may provide assistance in projects; we may provide assistance in deploymentdeployment

No real pay, but small stipend + expenses + No real pay, but small stipend + expenses + colocolo

Starting small; may expandStarting small; may expand Jobs@havenco.comJobs@havenco.com Subject: “Internship” Subject: “Internship”

Q&A

Ecash questionsEcash questions HavenCo questionsHavenCo questions Etc.Etc.

(After talk, I’ll be in room 1551)(After talk, I’ll be in room 1551)