October 24, 1996 -- New Kinds of Money

Transcript of the live chat session that took place Thursday, October 24, 1996.

These sessions are scheduled for noon-1 PM US Eastern Time (GMT -4) every Thursday.

These sessions are hosted by Richard Seltzer. If you would like to receive email reminders of our chat sessions, simply send a blank email message to or go to and sign up there.

For transcripts of other previous sessions and a list of future topics, click here.

For an article on how to make "business chat" work (based on this experience), click here.

Since the chat itself happens at a rapid pace, it's often difficult to note interesting facts in particular URLs as they appear on-line. Here's a place to take a more leisurely look. I've rearranged some of the pieces to try to capture the various threads of discussion (which sometimes get lost in the rush of live chat).

Please send email with your follow-on questions and comments, and suggions for topics we should focus on in future sessions. So long as the volume of email responses is manageable, I'll post the most pertinent ones here for all to see.

Threads (reconstructed after the fact):


Richard Seltzer ( - 11:56am -- The scheduled chat is on Business on the WWW. If you are here for that discussion, please identify yourself.

Richard Seltzer ( - 11:57am -- We're here to share experiences about doing business on the Internet -- particularly the World Wide Web. What works? What doesn't work? Why? What are the trends that matter? How can you/should you adapt to the Internet culture and environment?

I work for the Internet Business Group at Digital Equipment in Littleton, MA. In that capacity, I end up talking to people from large companies about how they can use the Web for business. I also have my own personal Web page -- which is content rich and no frills -- which I do for practically nothing and draws a fair amount of traffic and attention.

In a chat session like this things can get pretty frantic. It's sometimes difficult to follow the threads of conversation. And there's no time to write down interesting URLs and facts. So last week, I took a copy of the raw transcript and edited it to make the threads clearer and posted it at my own little Web site so anyone could take a look. You can see it at I plan to do the same today. Barring technical difficulties, I hope to have a transcript up later today. I'll post it at the same site, naming this one /chat15.html

Today, we'll be discussing "new kinds of money" -- i.e., virtual cash,smart cards, micropayments (Millicent), etc. What they are. What's likely to happen. What are the implications for business on the public Internet and also for intranets. (Also, implications for banks and other financial institutions).

If you are here for the schedule chat, please identify yourselves, and let us know your areas of interest.

Harold ( - 12:02pm -- Hi Richard, just wanted to let you know I am here.

Bob Hettinga ( - 12:03pm -- Howdy!

Tom Dadakis DadaCom ( - Thu, Oct 24, 12:05pm -- Hi, everyone. I'm Tom Dadakis, an internet/intranet consultant, presently project leader for an intranet develpoment for a major corpoation HQ in Fairfield Cty, CT.

Todd ( - 12:07pm -- Hello. I don't have any v-money experience but am interesting in hearing about other's experiences.

Richard Seltzer ( - 12:13pm -- If this sessions goes as I suspect, we'll probably just get warmed up to the subject by the time the hour runs out. So I'd think it's likely that we will continue the discussion next week and perhaps the week after. With that in mind, here's a list of some suggested reading and Web sites, relating to the variety of solutions that are in the market and the labs today. Recommended reading:

Bob Hettinga ( - 12:17pm -- I would also reccommend you at least look at Bruce Schneier's "Applied Cryptography". Skip the hard parts. ;-). It will explain all of these financial cryptographic protocols, like for instance Chaum's digital cash, which is the prototype for the other "certificate", or "token", or "note" based exchange systems.

Bob Hettinga ( - 12:33pm -- There's a quote in Applied Cryptography saying something like "there are two kinds of cryptgraphy, the kind which will keep your kid sister from reading your diary, and the kind which the resources of a nation state can' break. This book is about the latter." Reality, and higher mathematics, is not optional...

Richard Seltzer ( - 12:18pm -- Another reference to check -- Digital Money by Daniel Lynch, a book just published by Wiley. (Lynch is the chairman of CyberCash, one of the players in this new game.)


Richard Seltzer ( - 12:04pm -- Bob Hettinga -- I'm delighted that you were able to join us. I understand that you will be speaking on a related topic at MIT tonight.

Bob Hettinga ( - 12:04pm -- Yes. I'm doing a "your brain on e$" talk...

Bob Hettinga ( - 12:05pm -- Stuff like the end of book-entry settlement, what happens when routers can buy copies of themselves, that kind if cruft...

Richard Seltzer ( - 12:06pm -- For the benefit of those who haven't seen a message about it -- here's the "clipping" I saved:

ISIG (the Internet Special Interest Group of the Boston Computer Society, which continues to function despite the demise of BCS), is holding a meeting tonight (Oct. 24) which will deal with some of the same topics we're talking about in our chat today. Go to MIT, Building 6, Room 120 at 7 PM The speaker is Bob Hettinga, the founder of the Digital Commerce Society of Boston.

The announcement message circulated by Marianne Cooley reads: "Obviously, the net is going to give us the ability for anyone, anywhere, to buy anything. No matter where the buyer or seller is, or, for that matter, where the thing being sold is.

"However, financial cryptography, the technology which underlies digital commerce, will have much more profound implications than merely the simplification of sales and distribution. It permits us to make anonymous *cash* transactions for everything from a billion-dollar foriegn exchange trade to possibly even switching internet packets themselves.

"If this promise is kept, it could change the fundamentals of our entire society. Itforces profit and loss responsibility further and further down into organizations until they break up into smaller competing operating units. It makes book-entry transactions like checks or credit cards obsolete, and replaces them with strange stuff like digital cash and personal digital bearer bonds. It creates cash-settled auction markets for practically anything. People joke about routers and switches which save up enough from their traffic-tolls to buy copies of themselves. About micromoney as processor food. "On a macroeconomic scale, all of government's revenue sources are book-entry taxes, like those on sales, income, and capital gains.

"What happens when taxes become a tip?", some people have asked. That is, if government can't trace transactions anymore, because of the very way those transactions executed, how will government be funded?

"Disintermediation is a common buzzword in the financial markets. It is usually meant to describe what mutual fund companies have done to banks. What happens when mutual funds become microintermediated?

"In this talk, we'll look at all of this, and what the world might look like if Moore's Law and strong cryptography do manage to create a geodesic economy."

Directions to Building 6 Room 120 -- Go to the main entrance of MIT on Mass Ave and walk up the steps into the domed building. Go straight ahead into the long hall ("the infinite corridor".) Keep walking until you reach the sign that says Building 6,to the right. Turn down the hall to the right until you reach room 120 on your right.

Bob Hettinga ( - 12:08pm -- Whew. Couldn't have said it better myself. ;-).

Richard Seltzer ( - 12:07pm -- By the way, I'll be posting a transcript of this session at So you don't need to scribble madly to catch all those details. Should have it up this afternoon.


Richard Seltzer ( - 12:09pm -- I'm interested in this topic from a variety of perspectives. First, I believe that if and when we finally get lots of people and vendors set up to deal with transactions of less than a penny, then very interesting business models can open up for selling content and renting software, etc.

Anyway, if the cost of a transaction goes ridiculously low (by doing away with the need for costly verification and checking and rechecking) all kinds of opportunities open up. I'd like to see a way to provide credits as well as debits in this kind of money. I could imagine giving away credits to induce people to look at your marketing material, and then them being able to "spend" those credits at sites that have content for sale or software for rent, etc.

Bob Hettinga ( - 12:13pm -- Yes, the Millicent idea. Sell people some you your own private money to "buy" stuff back from you.

barbara ( - 12:13pm -- Who would be the bank? I'm confused. Does each company maintain its own credit system?

Bob Hettinga ( - 12:14pm -- Nope. You'll always have financial intermediaries who "rent" reputation to the transaction to help it clear.

Richard Seltzer ( - 12:17pm -- Barbara -- There are a wide variety of schemes -- Bob Hettinga could probably give a more authoritative definition than I can. Some methods are tied to the regular credit card system. Some provide you (for a debit to your credit card account) with a kind of portable money, like traveller's checks, but actually just encrypted numbers. Others (like Millicent, which is a project in the labs at Digital Equipment) use a totally different approach, requiring little or no verification (because the transactions are so small) and hence making the cost of a transaction very very small. While credit card based systems typically can't economically handle transactions of less than a dollar. Millicent (and projects of that ilk) can handle less than a penny.

Bob Hettinga ( - 12:19pm -- We sort of wander into an Alice-in-Wonderland world with this stuff. The upshot is, we can implement the equivalent of a dollar bill as a cryptographic object, which spends like, er, real money. :-).

Richard Seltzer ( - 12:23pm -- All -- Part of the importance of "digital money" is making it possible for Internet travelers to make spontaneous purchases -- to decide on the spot that they want something and just get it, without wasting time with complex procedures. At one level it's like a vending machine ("cybercoin" is an implementation, which I believe is intended for transactions of the order of magnitude of 25 to 50 cents.) Of course, that opens the door for the fun world of cyber slot machines for you to put those coins in.

Richard Seltzer ( - 12:25pm -- There are also a number of businesses that really take off until low-transaction- cost on-line money is widely available. For instance, use of Internet access kiosks in public places could be paid for with "smart cards" or with on-line money (like Millicent).

Todd ( - 12:26pm -- Richard - I'm confused about this milli-cent notion; if one can do something useful with it, I assume by purchasing several cheap units of whatever, than wouldn't the bad guys do the same thing? That is, conterfeit many millicents to add up to a significant payoff.

Richard Seltzer ( - 12:29pm -- Todd, I'm not a expert on Millicent. But the risk of what you're suggesting is virtually nil. For details on how it works check the public documents on the Web:

Bob Hettinga ( - 12:30pm -- Todd, that's why they call them *cryptographic* protocols. They're designed so that people who *don't* trust each other can do business with each other...

Richard Seltzer ( - 12:31pm -- By the way, there is a natural connection between these "new kinds of money" and the "low-cost Web-access devices" we talked about over the last few weeks. One future scenario involves the proliferation of relatively simple, perhaps diskless computing devices, with the software applications residing on the Internet rather than on your hard disk. In that scenario, it would be very important to have a simple and easy and painless way to pay for "renting" the use of the software. it's also easy to imagine the same business model in use for on-line video games.


Richard Seltzer ( - 12:39pm -- Bob -- Of the options out there -- Cybercash, Digicash, smart cards, Millicent, etc. What would you bet on for the long term? And do you have ideas on how to get past the boot-strap problem? (Getting enough people to use it soon enough for it to become interesting).

Bob Hettinga ( - 12:43pm -- On choosing all the different transaction protocols out there, you're probably going to have to be a pioneer and get a few arrows in your back. Like I said, the simplest ones are already here. They all use credit cards to "clear" the trade. That's Cybercash/Cybercoin, First Virtual, and, of course, just sending a credit card with SSL, or SET.

Richard Seltzer ( - 12:46pm -- Bob -- I believe that all the ones that use credit cards have fairly high transaction fees -- on the order of magnitude of a first class postage stamp. Those open the "vending machine" level market and the equivalent of putting coins in a video game machine. But what's most interesting to me is the stuff that's now in the labs at Carnegie-Mellon (NetBill) and Digital (Millicent) which takes it to a different level. I'm interested in technology that will/can open new untested business models.

Bob Hettinga ( - 12:51pm -- Richard, that's where my joke about a router saving enough out of it's packet-switching income to buy a copy of itself comes from. IETF's IPSEC group, which, is just about done, will be specing a router-level encryption system for the internet. It's not to much to see attaching cryptographic objects, like micromoney, to those packets to pay for switching them. The ganglia twitch. Ain't Moore's Law fun? ;-).

Richard Seltzer ( - 12:53pm -- Bob -- That sounds like a neat business model. I've been mainly thinking of the consumer site, but yes these kinds of billing/payment mechanisms could be embedded in the infrastructure of the Internet, as a way for ISPs or companies to pay for bandwidth or value-added services on a per use basis. Interesting. services.

Bob Hettinga ( - 12:57pm -- Right, Richard! A chaotic market will beat a top-down resource allocation hands down, every time.


Todd ( - 12:32pm -- Isn't virtual shopping "skimming the cream" in somecases? For instance, won't people shop in their local stores, and then once they know what they want, buy it on the net at a discount.

Richard Seltzer ( - 12:36pm -- Todd -- I'm sure "skimming the cream" will be a problem. Already that's the case in retail sales of computer related products. You go to the store that has knowledgeable people to learn whatever you can and decide what you should buy, and then you make the purchase at a discount store or by dialing an 800 number. On the Web, however, interesting new models could evolve. I could imagine using something like Millicent to pay for interactions with knowledgeable experts who could help me make purchase decisions.

Bob Hettinga ( - 12:37pm -- Actually, some of us call "skimming the cream" competition. Others, call it "progress". ;-).


Richard Seltzer ( - 12:03pm -- Welcome, Harold. Have you ever used any of the various on-line forms of money either to buy or sell?

Harold ( - 12:05pm -- I would like to know if anyone knows of a service that an online business can use that will take orders, collect the money, and then send the money to my business. And what is a typical charge for such a service?

Harold ( - 12:18pm -- Since Nobody has responded to my question, perhaps I can make it more precise. I want to offer for sale some rather low dollar items (books, software,etc) typically in the $50 - $500 price range. It would be nice if I could find a service that would respond to an order form that is located on my Web site, and handle the money transaction for me. Then, when that is complete, I can ship the product. Has anyone heard of this type of service on the Web?

Richard Seltzer ( - 12:21pm Harold -- Good question to which I don't have a good answer off-hand. A number of companies are competing for that kind of business. One that comes first to mind (but I have no first hand experience with) is Open Market. Their Web site is at They are located in Cambridge, MA.

Bob Hettinga ( - 12:21pm -- Harold, there are several. The short answer is, if you're big enough to take Mastercard or Visa you can just do it yourself.

Bob Hettinga ( - 12:23pm -- If you're not big enough, and you want to wait 90 days for your money, there's First Virtual. If you don't want to wait 90 days, you can go to any of a number of "malls" out there, OpenMarket started that way, but they're more in the software business now.

Bob Hettinga ( - 12:24pm -- The stuff I'm interested in are more peer-to-peer. For instance, the last time you sold something, did you take Mastercard? ;-)

Bob Hettinga ( - 12:26pm -- Sold something personally, I mean. There will probably be digital checking sometime next year, and, if the patent holders can quit playing dog-in-the-manger, actual digital cash could happen pretty quickly.

Richard Seltzer ( - 12:27pm -- Bob -- I take MasterCard/Visa payments. The transaction cost is high, but it's absolutely necessary for me to get paid by folks from other countries, without the hassle and cost of converting currency.

Harold ( - 12:25pm -- Bob, can you give me the names of any of the "several" that do offer this type of service? Thanks in advance.

Bob Hettinga ( - 12:28pm -- Actually, Harold, just about any professional web-building outfit will do it. Not actually clearing the trade, but hooking you up with people who do. Like I said, if you already take VISA or MC, you can do it yourself, with any secure web-server. Book-entry transactions like credit cards are pretty much a done deal on the net.


Harold ( - 12:40pm -- Another question that is not very sphisticated, but important to me. Presently, I have clients wire money to my bank acount to speed up the purchasing transaction. Is there simple, low cost, software that I can purchase for both my self and allow clients to download that will encrypt my info presently available?

Richard Seltzer ( - 12:43pm -- Harold -- I believe your question is one of security and cryptography. I'm sure there are solutions, but am not familiar with them.

Bob Hettinga ( - 12:46pm -- Yes, Harold. It's called Digicash. It's spendable the second you get it. The problem is, there's a 2 percent transaction fee (traveller's checks charge that, so it' not outrageous) to take the money back off the net. If you're spending it *on* the net, there's no problem.

Harold ( - 12:49pm -- Bob- Perhaps one of Richard's references can provide me info on Digicash so that I can better understand it. My only question now, is it real and is it being used?

Richard Seltzer ( - 12:51pm -- Harold -- I have no direct experience with it, and would like to invite a spokesperson from there to join us next week.

Bob Hettinga ( - 12:53pm -- Harold, I'd say it's Wright-Brothers real. There are 5 banks around the world which have implemented versions of the same technology. Including Deutchebank, and Mark Twain Bank, here in the US. An Austrailian bank just came on yesterday.


Pambytes ( - 12:30pm -- Hi, I have a client that is going to be implementing a "Smart Card" for his site. Is there somewhere I can go to learn more about this? I got the impression that this is not is use by retailers yet.

Richard Seltzer ( - 12:34pm -- Pambytes -- There's a very good introductory overview article about Smart Cards in the August 1996 issue of Scientific American. How is your client going to be using it? I can understand a kiosk with the card reader and you swipe your card through it to buy time for use. But what is the tie-in with a specific Web site?

Bob Hettinga ( - 12:36pm -- Smart cards are interesting, because their being fancied as storage for money. Mondex is an example. Unfortunately, some guys at Bellcore just figured how to break into these "wallets" by bombarding the chips inside with microwaves...

Bob Hettinga ( - 12:36pm -- Two steps forward, one step back...

Richard Seltzer ( - 12:37pm -- Bob -- Interesting. I hadn't heard about that "break in." Does that threat seriously jeapordize the viability of smart cards?

Bob Hettinga ( - 12:40pm -- Well, it's a problem of granularity, really. In order to steal lots of money you have to go and break into lots of smart cards. On the other hand, if, as we say on cypherpunks, your private key *is* your identity, then the song "steal your face" comes to mind... :-).

Pambytes ( - 12:44pm -- He will be using it at some kiosk locations as well as using it for transactions between consumers and manufacturers. For example the consumer can buy prescription drugs prescribed by their doctors with it directly from the manufacturer. Doctor writes the prescription to the card and then the patient gets the drugs directly from the manufacturer (with a markup to my client).

Bob Hettinga ( - 12:47pm -- Pambytes, it looks like you're using a "private" money scheme. It will be interesting to see how that works.

Richard Seltzer ( - 12:48pm -- Pambytes -- That sounds like a very useful and exciting business model. Is this up and running now? Is there a URL we can check for further information?

Pambytes ( - 12:51pm -- It is not up yet. I plan on getting the first part up during the next couple of months. It is being set up as an intra net site via subscriptions like an online service. It will also be available at a couple of kiosk terminals and mirrored as an internet site (less services and security)

Richard Seltzer ( - 12:56pm -- Pambytes -- Will that service be restricted to a geographic area? I'm not sure how laws relating to prescriptions work. Can it be national? (I suspect crossing national boundaries could cause problems). Is there a hook-up with the mail order prescription-delivery outfits? A possible tie-in with Medicare/Medicaid? Sounds very promising.

Bob Hettinga ( - 12:59pm -- There's a cypherpunk named Tim May who says that national borders are speedbumps on the information superhighway. Somebody else has called Pambytes' "can't put it on the internet or we'll break the law" problem, regulatory arbitrage.

Pambytes ( - 12:59pm -- No geographical restrictions across the US, it will be national, then adding canada and the rest of the globe. I don't know about the legalities or bordercrossing problems...I need to learn more and this is part that my client is handling. Thunderstorm hitting me...gotta run. Tune in later...great chat:)


barbara ( - 12:05pm -- Hi, Richard! I'm here also. This doesn't have anything to do with your topic but I just heard about the practice of some companies to place their competitor's name in their Metatags and therefore lead the person seeking information to their web site as well as their competitors. Have you heard of this?

Richard Seltzer [I missed this question during the chat, here's my followup answer] -- That sounds like an interesting twist. The technology let's you put whatever you want in the keyword Metatag. When someone enters a query at a search engine such as AltaVista for one of the words or phrases in your Metatag, your site will come up on the results list, even though that word or phrase may not be visible on your page. (For details check the Help files at AltaVista

My take is that it is a good idea to mention your customers and prospects on your Web pages in hopes that they'll find you when looking for themselves. But I'd do that in plain text -- not with Metatags. And putting competitors' names in Metatags sounds like abuse of the technology, like a dirty trick. Do you know of any Web page that does this? I'd like to take a look.


Richard Seltzer ( - 12:49pm -- As expected, we seem to be just now scratching the surface of this topic. If there is sufficient interest, I'll do whatever I can to get spokes people for First Virtual, Cybercash, Netbill, Digicash, and Millicent to tune in for a continuation of this discussion next week. Are there others I should include?

Richard Seltzer ( - 12:57pm -- Time is racing by. Am I right to presume that this topic needs further exploring? Please send me email with your thoughts. or

Harold ( - 12:52pm -- I for one, need something now that is better than the crude technique I am presently using and would be extremely interested in more info on the subjects being discussed today.

Richard Seltzer ( - 12:58pm -- Everyone, please let us know your email addresses and URLs for followup. And please send any followup comments to me and I'll post them with the transcript at my Web site. Check

Bob Hettinga ( - 12:54pm -- I want to get a plug in here for the Digital Commerce Society of Boston, which I moderate. If you're interested, send me mail: We meet on the first tuesday of themonth at the downtown harvard club for lunch and a speaker...

Tom Dadakis DadaCom ( - Thu, Oct 24, -- 12:58pm -- See you next week. Only lurked today.

Richard Seltzer ( - 12:59pm -- Bob -- I really appreciate your participation today. Hope you can make it again next week. And remember everybody, he'll be speaking on related topics at MIT tonight (details in the transcript, or write to him directly).

Pambytes ( - 1:00pm -- (

Richard Seltzer ( - 1:01pm -- Thanks to all. Please send followup messages, and check the transcript. And let me know if you'd like to receive reminder emails about these

barbara ( - 1:01pm -- Bye

Bob Hettinga ( - 1:01pm -- Bye everyone! It was fun.


Suggestion for a topic -- the international aspect of Internet business

From: EuroLinks <> Date: Fri, 25 Oct 1996 18:15:27 +0200

First of all, let me complement you on how your Website is developing. I haven't been there recently, but when I visited this week, I spent quite a bit of time admiring what you've done since I was there last winter. Kudos!

And kudos also for your chat show, which I've tuned in on occasionally since discovering it (you're promoting it well). You asked for a suggestion for a program. What about: "the international aspect of Internet Business"? This includes the issues of language (marketing across linguistic lines, not just across borders), foreign currency collections, logistics of worldwide product delivery, etc. I would be happy to be part of the show, if you would like.

As you may have noticed by my email address, I am now part of a European consortium for multilingual Website promotion: EuroLinks, headquartered in Brussels (we are four full-time people there). EuroLinks brings all the top (actually the only) Internet marketers throughout Europe under one umbrella, so that we can offer Website promotion and Webvertising in any uropean language. Our agencies are to be found in Amsterdam, Paris, Madrid, Milan, Geneva, Dusseldorf, and Stockholm. I invite you to take a look at our site, which is just being launched this week (

Best regards, Bill Dunlap

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