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274. The effect will be within the power of central banks to control so long as Mondex money is issued by banks whose reserve requirements can be increased. See supra note 240. If, however, Mondex money were to be issued by a poorly monitored non-bank financial institution or one not subject to reserve requirements, the effect on the money supply could become more pronounced. Back to text at note 274.

275. Paul Rodgers, Banks in Cash Card Warning; Fears of Abuse by Forgers and Money Launderers, The Independent, July 9, 1995, at B1. Back to text at note 275.

276. Interestingly, if the issuing bank treats the transaction as a purchase of digital cash, rather than a deposit, then there is no need for an abeyance account, or even deposit insurance. Aside from issues of risk management if there is a run on digital cash or a catastrophic failure of the card encryption scheme, it would seem the bank might be able to escape the effects of abandoned property laws that require untouched accounts to escheat to the state after a period of time. A lost Mondex card is thus pure profit to the bank. See Richard Field, Re: E-Cash: Mondex, e-mail to list e-cash@nptn.org, 18 Aug. 1995.

Nevertheless, whether the transaction in which a customer exchanges pocket cash for digital cash counts as a "deposit" to the bank or a "sale" of a product by the bank is of little macroeconomic relevance if the central bank is able to adjust reserve requirements to require banks to hold reserves for any digital cash they issue.

On the other hand, the Chairman of Mondex has suggested that the loss of seignorage alone will cause governments to nationalize his operations within 20 years. Jones Remarks, supra note 267. Back to text at note 276.

277. Unless Alice is a business with a floating charge on her account, in which case she has in effect borrowed against it. Back to text at note 277.

278. This is a short period. See generally 12 C.F.R. § 236 (1995). Back to text at note 278.

279. Note that this is a wholly separate and potentially larger effect than the relatively trivial effect that electronic cash which is cleared might have on the velocity of money. Back to text at note 279.

280. Mondex has signed agreements with banks in Hong Kong, Canada and the United States. None of these jurisdictions is notorious for its relaxed banking regulation, but Hong Kong will become part of the Peoples Republic of China in 1997. Back to text at note 280.

281. Indeed, the technology now exists to track the movement of unmarked bills through the banking system simply by recording their serial numbers. E-Mail from John Gilmore to Michael Froomkin (19 Sept. 1995) (on file with author). Back to text at note 281.

282. See supra note 220. Back to text at note 282.

283. Finney, supra note 243. Back to text at note 283.

284. See supra text accompanying note 252 (discussing Mark Twain Bank). Back to text at note 284.

285. 28 U.S.C. § 6050(i) (1995) requires any person who receives more than $10,000 in cash in the course of a trade or business to file a Form 8300 declaration stating the cash payor's name and other identifying information. This requirement applies to all transactions, even payments to lawyers, and has survived constitutional challenges that it pierces the client's Sixth Amendment right to consult a lawyer anonymously and the client's Fifth Amendment right to consult counsel without self-incrimination. See, e.g., United States v. Goldberger & Dubin, 935 F.2d 501 (2d Cir. 1991). But see United States v. Gerner, 5 F.3d 963 (1st Cir. 1995) (denying summary enforcement of summons against law firm on grounds that District Court finding that tax proceeding was pretext for anticipated investigation of client was not clearly erroneous). Federal law requires a U.S. bank involved in a cash transaction exceeding $10,000 to file a report with the Secretary of the Treasury. See 31 U.S.C. § 5313(a) (1995), 31 C.F.R. § 103.22(a) (1995). Federal law also makes it illegal to break up a single transaction above the reporting threshold into two or more separate transactions for the purpose of evading the reporting requirement. 31 U.S.C. § 5324(3) (1995). But see Ratzlaf v. United States, 114 S. Ct. 655 (1994) (reading strict scienter requirement into statute). Back to text at note 285.

286. In earlier drafts I suggested that, regardless of the regulatory environment, even a bank willing to issue anonymous digital cash would be highly unlikely to allow anonymous accounts unless its clearing system was on-line. On-line clearing would allow the bank to prevent double-spending; off-line clearing, I suggested, would leave the bank vulnerable to an infinite amount of respending of the same coin since the anonymous account holder would know that the bank did not know her identity and would know that coins would only be cleared after a transaction was over.

As this article was in proofs, I received e-mail from Stefan Brands, one of the leading developers of digital cash protocols, in which he described an unpublished system he has invented that protects a bank wishing to engage in off-line clearing of anonymous digital cash issued to anonymous bank accounts. Under this protocol, the bank faces no more risk of multiple spending than if it issued "blinded" digital cash to an ordinary account with an identified account holder.

Brands's protocol works as follows:

1. Alice contacts the Bank. She identifies herself to the Bank's satisfaction and provides the Bank with a unique public key that she will use to identify herself in future communications.

2. The Bank issues Alice with a signed blinded credential (for a description of the "blinding" protocol, see supra Y III.B.3) that I will call a "ticket". The ticket has information about Alice's real identity, but the Bank cannot access that information in a computationally feasible manner unless the ticket is used to open more than one account or a coin backed by that ticket is double-spent.

3. Alice waits while the Bank issues similarly blinded tickets to other people. When there are enough other tickets in circulation, e.g. issued but not used, so as to fog her identity, Alice contacts the Bank anonymously and presents her ticket. The Bank opens an anonymous account, keeping the ticket on file instead of the normal customer information. (Alice could, of course, give the ticket to anyone else, and the Bank would be none the wiser, but since the Bank will be able to seek redress from her if coins issued to the account are double-spent she has a strong incentive not to do this.)

4. Alice purchases coins anonymously using funds in her anonymous account. Each coin issued to her encodes sufficient information about Alice's ticket that if the coin is double-spent it not only reveals the ticket, but also allows the Bank to decrypt the ticket and learn Alice's identity. Nevertheless, no matter how many coins Alice single-spends, the Bank cannot in a computationally feasible manner get this information. Furthermore, there is nothing that the first recipient of a coin, or the bank holding a coin, can do to make it appear a coin was double-spent. See E-mail from Stefan Brands to Michael Froomkin, 15 May 1996 (on file with author); E-mail from Stefan Brands to Michael Froomkin, 20 May 1996 (on file with author).

Anonymous digital cash that can be purchased from anonymous accounts and cleared off-line has many interesting possible applications. These coins could, for example, serve as anonymous digital postage stamps. The stamps could be used to compensate remailer operators for remailing anonymous communications. Without some means of compensation, few people are likely to be willing to operate remailers if there is any risk of liability for carrying anonymous messages. See supra text accompanying notes 88-94. Back to text at note 286.

287. Jones Remarks, supra note 267. In a man in the middle attack, Mallet inserts himself into the communications channel between Alice and Bob. He relays all of Alice's messages to Bob and vice versa until Alice sends Bob the Mondex money; Mallet sends Bob random and worthless data and walks off with the cash. Back to text at note 287.

288. See supra text at notes 240-41. Back to text at note 288.

289. Although the implications of anonymous transactions for taxes, product liability, and copyright, remain to be worked out, it seems to me likely that the effects will be unevenly distributed. I do not believe that the tax system will be deeply affected, since most production and even more consumption involves transactions that are easily monitored for tax compliance. Furthermore, any transaction that encounters the banking system--for example, deposits placed on short-term interest--will be easily traceable for tax purposes so long as the bank is located in a jurisdiction that enlists banks as enforcers of its, or its treaty-partners', tax rules. My income, for example, comes from a salary paid by an institution that has no incentive to make it easy for me to engage in tax avoidance. My house is plainly visible from the street, and as easily taxed as it can be linked to me. Most of what I buy is tangible--things like groceries, diapers and shoes--and can easily be taxed under a VAT system if our current tax system should show signs of collapse. Though some knowledge workers may be able to demand that payment be routed to accounts held at untaxed off-shore addresses, thus causing an effect at the margin, these schemes seem likely to remain relatively small in comparison to traditional, more easily taxable, forms of labor and compensation for the foreseeable future. Back to text at note 289.

290. Jones Remarks, supra note 267. Back to text at note 290.

291. See generally Froomkin, supra note 228. Back to text at note 291.

292. For one slightly over-enthusiastic suggestion that digital cash will not only internationalize money but that private currencies will crowd out national currencies, see Giles Keating, Electronic Money Is In Race With Emu, Fin. Times, Nov. 2, 1995, at 15. Back to text at note 292.

293. Indeed, there are currently markets in CyberBucks, the currency issued by CyberCash for its test of its software. See Ecash Market, available online URL ~mark/ecash/ecash.html; see also Electronic Cash Marketing Mailing List, available online URL people/lethin/ecm.html. On November 24, 1995, one shop offered to pay $5 for 100 cyberbucks and offered to pay 100 cyberbucks for $8. FireCloud Solutions EShop, available online URL eshop/eshop.htm (accessed on Nov. 24, 1995, printout on file with author). Back to text at note 293.

294. See generally Bray Hammond, Banks and Politics in America (1957); Glyn Davies, A History of Money 460-61, 465-66, 471-85 (1994). For an extremely interesting discussion of the market mechanics of private notes, see David G. Ordel, Private Interbank Discipline, 16 Harv. J. L. & Pub. Pol'y 327 (1993); see also Martin S. Eichenbaum & Neil Wallace, A Shred of Evidence on Public Acceptance of Privately Issued Currency, Federal Res. Bank of Minn. Qtrly. Rev. [unpag] (Winter 1995) (suggesting that Canadian experience with coupons suggests that private currency may be more acceptable to public then widely believed by economists and lawyers). Back to text at note 294.

295. See Money Laundering, supra note 202. Back to text at note 295.

296. As a result, money launderers use false invoicing, overpricing goods to camouflage the cash flows being laundered. See Money Laundering, supra note 202, at 9-10. Back to text at note 296.

297. See supra text accompanying note 272 (allegations that Mondex scheme contains this feature). Back to text at note 297.