RE: bearer = anonymous = freedom to contract

[Robert Hettinga <rah@shipwright.com>]

--- begin forwarded text


From: "Paul Guthrie" <pguthrie@ricochet.net>
To: "Wei Dai" <weidai@eskimo.com>, "Robert Hettinga" <rah@shipwright.com>
Cc: "Adam Back" <aba@dcs.ex.ac.uk>, <dbs@philodox.com>
Subject: RE: bearer = anonymous = freedom to contract
Date: Tue, 16 Feb 1999 12:20:57 -0800



> -----Original Message-----
> From: dbs@philodox.com [mailto:dbs@philodox.com]On Behalf Of Wei Dai

> Bob wants to pay Alice $100, so he sends Alice a digitally signed check
> "Pay Alice $100 from my account at Bank B." Alice forwards this check to
> her bank, Bank A. Bank A immediately forwards the check to Bank B. Bank B
> checks it hasn't seen this check before and Bob has $100 in his account,
> then debits Bob's account by $100 and sends confirmation to Bank A. Bank A
> debits Bank B's account at Bank A by $100 and credits Alice's account by
> $100, then sends confirmation to Alice. (Or if Bank A trusts Bank B,
> instead of Bank A debiting Bank B's account, Bank B can credit Bank A's
> account at Bank B.)
>
> In an appropriate jurisdiction (namely one that won't force the banks to
> reverse the payment for any reason) this system has instant settlement,
> but I think it would be rather confusing to call Bob's check a digital
> bearer document.

What you have described here is not instant settlement, but settlement with
specific delays in components of the overall process.  When you actually
look at how these systems work in the real world, the settlements occur (if
they even can given the number of banks that would need to fund accounts at
every other participant) in a delayed fashion and are usually aggregated.
Part of the reason is historical, part of the reason is technological (Cobol
programmers are still in great demand) and part of the reason is for risk
management - clearly an area that can be optimized by better biometric
identity verification.  Finally, banks love float.  This is a large driving
factor away from shortening settlement delays.

In other words what you have described is possible, but not realistic.  I
therefor concur with Bob that bearer settlement is the only pragmatic form
of instant settlement that I've seen.

Paul Guthrie

--- end forwarded text


-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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