IP: Transaction Costs and the Social Cost of Online Privacy (was Re: First Monday May 2001)

[David Farber <dave@farber.net>]

>Date: Tue, 8 May 2001 08:11:29 -0400
>To: "Edward J. Valauskas" <ejv@uic.edu>
>From: "R. A. Hettinga" <rah@shipwright.com>
>
>A nice article (see the link below, folks) in First Monday this month about
>Coase's theorem, transaction cost, and the "externality" of privacy.
>
>I expect, sooner or later, that someone will teach Mr. Sholtz about the
>financial cryptography of internet bearer transactions :-).
>
>In the meantime, my stock answer to the "personal information as property"
>discussion is the same one I have to *any* property on the net: if it's
>encrypted, and I have the key, then it's my property, and I can sell it for
>whatever, and to whoever, I want to. "Externalities", and "Social Cost"
>don't have much to do with it.
>
>
>Internet bearer cash, and other internet bearer financial instruments,
>should close the loop on this phenomenon like nothing else, I think.
>
>The fact that internet bearer transactions are private by default may have
>something to do with it. It should actually cost *more* money in storage,
>processing, and bandwidth to make an internet bearer transaction "not
>private", public, whatever. Not to mention foregoing the threat, implicit
>or otherwise, of physical force, as administered by a nation-state -- the
>the transfer-pricing of that cost for the non-repudiable execution,
>clearing, and settlement of transactions. We currently live an interesting
>economic regime two wrongs make a right: my transfer-price makes your
>externality and "social" cost right.
>
>The reduced transaction cost of internet bearer transactions should also
>make firms smaller, as Coase predicted, eventually driving profit and loss
>down to the device level. Auction-priced cash settled markets that even
>machines can participate in without human intervention should make the
>world an interesting place indeed.
>
>
>To put a finer point on the history of such things, with the advent of
>telegraphy, hierarchically-switched telephone networks and mainframe
>computing, we invented book-entry transactions (offsetting debits and
>credits sent through a clearinghouse), where the force of the very
>nation-state was required for the clearing and settlement of those
>transactions. This was done to replace the physical delivery of bearer
>financial instruments requiring armored transport and storage and, quite
>literally, "cages" to process them in.
>
>Internet bearer transactions use financial cryptography protocols like
>blind signatures over a public -- and, because of Moore's Law a now
>geodesic, instead of hierarchical -- internetwork. Lots of folks think that
>transactions done this way should be significantly cheaper than modern
>book-entry settlement. That's in the cost of the entire transaction,
>including clearing and settlement, and not simply price-discovery and
>execution, which is what the web-enabled databases on the net enable us to
>do now at places like Amazon, e-Trade and Priceline.
>
>Finally, I expect that a major component in this reduction in transaction
>cost will be that the *risk* of internet bearer transactions, because they
>execute, settle, and clear all at once -- instead of in separate stages
>spread out over days or even just minutes -- should be dramatically lower
>than book entry transactions of any form we now use or can conceive of in
>the future.
>
>Cheers,
>RAH
>
>
>
>At 10:05 PM -0500 on 5/7/01, Edward J. Valauskas wrote:
>
>
> > Transaction Costs and the Social Cost of Online Privacy
> > by Paul Sholtz
> > http://firstmonday.org/issues/issue6_5/sholtz/
>
>--
>-----------------
>R. A. Hettinga <mailto: rah@ibuc.com>
>The Internet Bearer Underwriting Corporation <http://www.ibuc.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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