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Although you are right about all previous crypto-currencies falling, it's difficult to ascribe their failures to lack of incentives for most of them. The major

Although you are right about all previous crypto-currencies falling, it's difficult to ascribe their failures to lack of incentives for most of them. The major theoretical and commercial work on e-cash was done by David Chaum. His stuff was centralized, efficient, and anonymous. He had several major parties trying to license his technology, including Microsoft ( who wanted to put it in Windows) and several banks. These deals fell through because of issues with Chaum allegedly. Without buy in from a trusted name, people were then unwilling to use Digicash. The point is given that bitcoin has gotten so much attention, some known name may attempt Chaum style e-cash and get it to work. Incentives are only an issue for distributed e-cash systems and as people's willingness to use Visa shows, they can trust centralized ones.

betterunix 13y ago
Chaum's systems also failed because of a lack of demand. In the early-to-mid-90s it seemed sensible that nobody would spend money online without at least some of the security guarantees of digital cash. In retrospect, however, there are these issues: 1. Banks have centuries of experience in combating fraud. It is not clear that digital cash actually improves the situation for banks, given the higher infrastructure costs. If you cannot show banks that they will lose less to fraud with digital cash than the new infrastructure would cost, the banks will not care -- it is easier to analyze spending patterns and identify likely fraud. 2. Most users have a very poor understanding of the security implications of spending money online. On some of that, the fraud that users have to deal with is only partially defended against by digital cash; scams involving people taking money and not delivering the goods are even older than the banking system and are not addressed by digital cash. While the theft of credit card data causes headaches for users, banks are sufficiently good at stopping it that few people are clamoring for a better system. 3. It is unclear that merchants would have benefited from digital cash. While certain kinds of fraud affecting merchants might have been mitigated (e.g. no charge backs), the real issue is whether or not merchants would make more money with such systems. That is unclear, as the banks can and mostly certainly would still charge fees for the service and would likely charge at least as much as they charge for credit cards. Offline systems would mitigate the issue of service fees, but would also increase the risk of fraud and would leave merchants with the short end of the stick. If anything, Bitcoin reinforces the point that security is not the deciding factor here. Bitcoin does not even have a clear security definition, yet for reasons that we could argue about for hours on end it has become more popular than systems with provable security.
- anologwintermut 13y ago
  Security never was that big a point with Chaum's e-cash either. It was anonymity. Which it's unclear if anyone values that much. Bitcoin isn't really anonymous and for all the things I hear people saying about Zerocoin, no one has bothered to integrate it.
  - betterunix 13y ago
    Security was and remains an important goal for digital cash. Anonymity in digital cash is a security matter (in fact, anonymity in general is a security matter), and it can be formally defined and a system can be proved to achieve it (not different than other cryptographic security notions). It is also the case the anonymity was not the only security goal; protection against double-spending was equally if not more important, and in systems that support offline transactions there is the notion of protection against "frame ups" i.e. ensuring that the bank cannot produce a proof of double spending if the double spending did not occur.
    - anologwintermut 13y ago
      Sorry, I was using security in the sense of physical security that one associates with money, not cryptographic security. But yes, they are both cryptographic properties of the system and for most systems they are provable properties. If I remember correctly, Chaum's original paper didn't deal with offline double spending. It was blind signature based online e-cash that depend on the bank keeping a list of spent serial numbers(which isn't much easier keeping an account balance). So it's point was mainly anonymity. His subsequent work did offline e-cash with double spend detection, but at least the original paper on that was very inefficient. I'm curious which line of work Digicash tried to deploy. There is a large gap in my knowledge of the literature after that which also handily ignores the work of Stefan Brands, but as far as I know, the first system with really efficient offline double spend detection was due to Camenisch, Hohenberger, and Lysyanskaya, in 2006, long after Digichash went under.
      - betterunix 13y ago

betterunix 13y ago

Chaum's systems also failed because of a lack of demand. In the early-to-mid-90s it seemed sensible that nobody would spend money online without at least some of the security guarantees of digital cash. In retrospect, however, there are these issues: 1. Banks have centuries of experience in combating fraud. It is not clear that digital cash actually improves the situation for banks, given the higher infrastructure costs. If you cannot show banks that they will lose less to fraud with digital cash than the new infrastructure would cost, the banks will not care -- it is easier to analyze spending patterns and identify likely fraud. 2. Most users have a very poor understanding of the security implications of spending money online. On some of that, the fraud that users have to deal with is only partially defended against by digital cash; scams involving people taking money and not delivering the goods are even older than the banking system and are not addressed by digital cash. While the theft of credit card data causes headaches for users, banks are sufficiently good at stopping it that few people are clamoring for a better system. 3. It is unclear that merchants would have benefited from digital cash. While certain kinds of fraud affecting merchants might have been mitigated (e.g. no charge backs), the real issue is whether or not merchants would make more money with such systems. That is unclear, as the banks can and mostly certainly would still charge fees for the service and would likely charge at least as much as they charge for credit cards. Offline systems would mitigate the issue of service fees, but would also increase the risk of fraud and would leave merchants with the short end of the stick. If anything, Bitcoin reinforces the point that security is not the deciding factor here. Bitcoin does not even have a clear security definition, yet for reasons that we could argue about for hours on end it has become more popular than systems with provable security.

anologwintermut 13y ago
Security never was that big a point with Chaum's e-cash either. It was anonymity. Which it's unclear if anyone values that much. Bitcoin isn't really anonymous and for all the things I hear people saying about Zerocoin, no one has bothered to integrate it.
- betterunix 13y ago
  Security was and remains an important goal for digital cash. Anonymity in digital cash is a security matter (in fact, anonymity in general is a security matter), and it can be formally defined and a system can be proved to achieve it (not different than other cryptographic security notions). It is also the case the anonymity was not the only security goal; protection against double-spending was equally if not more important, and in systems that support offline transactions there is the notion of protection against "frame ups" i.e. ensuring that the bank cannot produce a proof of double spending if the double spending did not occur.
  - anologwintermut 13y ago
    Sorry, I was using security in the sense of physical security that one associates with money, not cryptographic security. But yes, they are both cryptographic properties of the system and for most systems they are provable properties. If I remember correctly, Chaum's original paper didn't deal with offline double spending. It was blind signature based online e-cash that depend on the bank keeping a list of spent serial numbers(which isn't much easier keeping an account balance). So it's point was mainly anonymity. His subsequent work did offline e-cash with double spend detection, but at least the original paper on that was very inefficient. I'm curious which line of work Digicash tried to deploy. There is a large gap in my knowledge of the literature after that which also handily ignores the work of Stefan Brands, but as far as I know, the first system with really efficient offline double spend detection was due to Camenisch, Hohenberger, and Lysyanskaya, in 2006, long after Digichash went under.
    - betterunix 13y ago