Category: Business

In the Digital world certificates replace so many things

What is a certificate? A certificate as defined by Merriam Webster

certificate noun

1: a document containing a certified statement especially as to the truth of something
specifically: a document certifying that one has fulfilled the requirements of and may practice in a field

2: something serving the same end as a certificate

3: a document evidencing ownership or debt

certificate verb

: to testify to or authorize by a certificate

When we designed the EMV specification we employed a cryptographic mechanism to assure the merchant and ultimately the issuer of the presence of a uniquely issued payment card.  The goal, address the weakness of the security features then present on a physical payment card.

For the merchant – a local mechanism capable of allowing the device – the point of sale to attest to the membership of that card to the family of cards issued under one of the Payment Network brands.

For the Issuer – a mechanism where the card signed transaction details the merchant would forward a digital certificate – the cryptogram – to the issuer for authentication.  This cryptogram included in the message sent to the issuer assured the issuer, the card they issued; was presented to the merchant as a means of payment, for the transaction.

What is a payment card? – It is a certificate, issued by a financial institution, designed to guarantee the merchant will be paid – if they follow the agreed payment brand rules.

What is a ticket? – It is a certificate, issued by the movie theater, or a designated vendor, granting access to some venue or event.

What is a license? – It is a certificate, issued by some authority identifying your right to be or the ability to do something.

In the digital world, certificates are strings of characters, such as 2FG%4T678&b23, created, using some mechanism, by an Authority.  The readers, of these characters, use the certificate to Authenticate the uniqueness and Authority associated with the presentation of this certificate by someone or thing to something or someone.

 

To Identify or to Authenticate what is the difference?

Today I read an article on LinkedIn

 ‘Identification’ is to give an answer to the question of ‘Who is he/she?’, while ‘Authentication’ is to answer ‘Is he/she the person who he/she claims to be?’

This distinction for me is clear.  Yet, based on this article, and personal observation, people do not appreciate the unique difference between these two words.

For those who remember the film War Games, the two young adults were able to access the game simply by learning tidbits about the author of the program.  “Joshua” is the critical fact our young hackers unveiled.  This single word was both the identifier and the password.  A simplistic form of Identification which some may confuse with Authentication.

Our driver’s license number, credit card numbers, passport number, social security number, employee number, email address or other aliases; are identifiers.  These values are and should have remained, simple means of linking someone to the person who initially registered on a web site.

We then link these identifiers to a means of Authentication, an Authenticator.  We then use the authenticator combined with the identifier to assure Identification.  The recent NIST  800-63 standard defines the strength of an Authenticator.  The simple reality the authenticator can be a combination of things you know, things you have, and things you are.  Combining these factors create different strengths of Authentication.

Back in the day, a password, if properly constructed, was a very strong means of authentication.  Unfortunately remembering numerous and unique passwords is unmanageable.

One of the issues we face is how so many entities, companies, and other enterprises have taken the identifier and allowed it to also become a means of Identification, a secret.

As soon as a simple number or string of letters designed as public information, to be shared with others; became a means of Identification we created an untenable situation.

The Surveillance State Exists for Profit

I hope we all understand the data collected on each of us

https://www.nytimes.com/interactive/2019/opinion/internet-privacy-project.html

https://www.nytimes.com/interactive/2019/12/19/opinion/location-tracking-cell-phone.html

As a technologist, the revelation of what is available did not surprise me. I understood how location can easily be captured from all of the electronic devices I use. Be it the GPS chip, the triangulation of Cell Towers or the IP address of the router I am using to access the Internet. Where I am is easily acquired by any application or server I am employing.

What bothered me is that “We the People” have not pushed our governments to regulate the capture and use of this very personal information and data. What bothers me is that most of the citizens of this country or this world do not take the time to read the terms and conditions or the privacy statements provided to us and so often simply consented to them without a thought. And, if they did read them, most of us would not appreciate the language and therefore the meaning of these legal documents.

The surveillance state is real. Marketing companies, employers and so many others are buying the data and using it to improve their delivery of services, advertisements and so much more.

https://www.linkedin.com/pulse/i-hope-we-all-understand-data-collected-each-us-philip-andreae/

 

Is Identity Dead – The answer is Authentication

Today 2019-12-12 I found my way to the following article and associated podcast.

https://diginomica.com/fall-event-highlight-steve-wilson-says-digital-identity-dead-so-where-do-we-go-here 

https://www.constellationr.com/blog-news/identity-dead

Below is a flow of thought as I read and listened. to Jon Reed and linkedin.com/in/lockstep Stephen Wilson discuss this most interesting topic.

Surveillance Capitalism – So many are taking advantage of our data!

We need to evolve through the pony express stage of data management, and get to a point where there are responsible data intermediaries who are being held to account.

Identity management, for me, is about proving things about myself. I want to log onto a bank and prove that I have a particular bank account. Sometimes I want to log on and prove that I am the controller of a multi-party bank account with my wife. And sometimes I want to log onto a health service and prove my health identity. So this is all about proving things about me in different contexts.

In the podcast, they beg the question “Why is the Digital Identity problem still any issue”?  This leads one to think about the scale and expectation so many have surrounding this idea of “DIgital Identity”!

They then go on to ask the question What is two-factor authentication and remind us that our phone is a two-factor device, exactly what the standards FIDO Alliance worked to develop.  They remind us of the reality that people look after their phones.  We know when our phone is not with us.

Why not simply bind my identity to my phone.

Mr. Wilson sees the phone as the second factor.  I would suggest our devices, bond to our identity, is the primary factor.

Mr. Wilson reminds us that Identity is all about Verifying Claims. We claim to be someone and the relying party seeks to confirm that I am who I claim to be.  Or, when I seek to log back into a website, the relying party needs to make sure it is I – the same person who the relying party originally proofed, registered and agreed on an identifier and an associated means of authentication.  

Attributes are more interesting than Identity

Attributes are what matters in the various relationships we have when we interact with another.  As we think about our data we need to think seriously about what other parties need to know about us and what we wish to share with them.  Efforts in Europe to institute GDPR and the efforts in California to implement CCPA

As I continued to read and follow the thread I ended up at a W3C working group working on “Verifiable Claims” and found the following:

Abstract

A verifiable claim is a qualification, achievement, quality, or piece of information about an entity’s background such as a name, government ID, payment provider, home address, or university degree. Such a claim describes a quality or qualities, property or properties of an entity which establish its existence and uniqueness. The use cases outlined here are provided in order to make progress toward possible future standardization and interoperability of both low- and high-stakes claims with the goals of storing, transmitting, and receiving digitally verifiable proof of attributes such as qualifications and achievements. The use cases in this document focus on concrete scenarios that the technology defined by the group should address.

The truth is that Identity Providers, as imagined, can’t deliver. Identity is in the eye of the Relying Party. The state of being identified is determined by a Relying Party (RP) once it is satisfied that enough is known about a data subject to manage the risk of transacting with them.

We are expecting people to be better than smarter than the crooks.  This is an interesting thought that begs the question.

How do “we the people” trust anything we hear, read or otherwise come across.

How does each of us keep up with all of the various products, standards, specifications and other efforts to develop stuff capable of securing our “IDENTITY”?

I am a firm believer in the work the FIDO ALLIANCE and W3C’s work on Web Authentication and recommend its adoption and use based on authenticators capable of adhering to a level of security certification commensurate with the associated risk of the acts, transactions, information, and services offered by the relying party to the user.

Cryptocurrencies, Politics and the Future

A world of volatility and speculation

This morning hash rates, degrees of difficulty and the creating of derivatives to moderate the risk of Bitcoin mining drew me in.  Several years ago I was asked to participate in a fireside chat on Crypto-currencies at the Federal Reserve in Atlanta.

Blockchain A FireSide Chat

 

One of my concerns then and still today is the exponential growth in the cost of mining.  These charts offer a perspective on a concept called the Hash Rate, a measure of the work necessary to create a block. Clearly, as time marches forward, the work to earn the reward gets harder.  Thus creating a need to increase the fees charged to add a transaction within a block to the chain.

When people speak to the justification of Bitcoin they would speak to the reduction in cost.  Is this statement still valid?

Disruption, lies, and politics

While considering the potential of Bitcoin; the working of our government rambles on, as we consider the fate of the American President.  Lies, bribes, abuse, and obstruction seems to be the order of the day.

The division between political parties; drives division within families, cities, and two people sitting together over lunch creates animosity.

We are now a world driven to speculate or better said gamble while not wanting to find a gentle and graceful road to mutual satisfaction.

We need to reflect consider and potential restore faith in what is real, what is just and what is fair for all. 

Spending money on machines of war instead of investing in education and our environment makes no sense to this lone individual.  We need to once again seek peace and justice.

Identity – A Most Complex Thought

The idea of my identity, your identity, and our identity took me on a journey into social norms, physical realities, spiritual considerations, psychological consideration, and philosophy.  Starting with the classic approach of learning the definition of a word takes us to the dictionary.  What then assured the complexity of my quest is each of several definitions is similar, but, not the same.

I then found an interesting quote:

G.K. Chesterton once observed that the “special mark of the modern world is not that it is skeptical, but that it is dogmatic without knowing it.” His point was that moderns have forgotten that they are assuming what they believe to be a given. “In short,” he concludes, “they always have an unconscious dogma; and an unconscious dogma is the definition of a prejudice.”

With this thinking in mind on definition stood out:

identity n.

          1. an individual’s sense of self defined by (a) a set of physical, psychological, and interpersonal characteristics that is not wholly shared with any other person and (b) a range of affiliations (e.g., ethnicity) and social roles. Identity involves a sense of continuity, or the feeling that one is the same person today that one was yesterday or last year (despite physical or other changes). Such a sense is derived from one’s body sensations; one’s body image; and the feeling that one’s memories, goals, values, expectations, and beliefs belong to the self. Also called personal identity.
          2. in cognitive development, awareness that an object is the same even though it may undergo transformations. For example, a coffee cup remains the same object despite differences in distance, size, color, lighting, orientation, and even shape. Also called object identity.

I then thought of the various ways people expand on this word Identity and began to build a list.

        • Brand Identity
        • Cultural Identity
        • Digital Identity
        • Ego Identity
        • Emotional Identity
        • Ethnic Identity
        • Family Identity
        • Gender Identity
        • intellectual Identity
        • Material Identity
        • Moral Identity
        • National Identity
        • National Identity
        • Official Identity
        • Organizational Identity
        • Personal Identity
        • Physical identity
        • Political Identity
        • Psychology Identity
        • Racial Identity
        • Sexual Identity
        • Social Identity
        • Spatial Identity
        • Visual Identity

I am convinced my list is not complete.  What I can say is each item can be found in an article, definition or other written material produced by others.

As a final thought
Understand our identity leads one to wonder
“Who am I”
an Existential question
we each must answer for ourselves

The Identifier should not be the Authenticator

I was asked to look into the value of the EMV Secure Remote Commerce Specifications.  In the first section they wrote:

“1.1 Background … While security of payments in the physical terminal environment have improved with the introduction of EMV specifications, there have been no such specifications for the remote commerce environment. …”

This statement caused a bit of angst.  It caused me to think of the work to create SET and Visa’s efforts to promote the original version of 3D-Secure.  I was further reminded of how difficult it has been to find the balance between convenience and fraud and how merchants are more worried about abandonment than they are about the cost of fraud. Ultimately, it caused me to wonder about the goal of the EMV 3-D Secure specification.

“To reflect current and future market requirements, the payments industry recognised the need to create a new 3-D Secure specification that would support app-based authentication and integration with digital wallets, as well as traditional browser-based e-commerce transactions. This led to the development and publication of the EMV® 3-D Secure – Protocol and Core Functions Specification. The specification takes into account these new payment channels and supports the delivery of industry leading security, performance and user experience.”

The keywords found in the last sentence “the delivery of industry leading security, performance and user experience” suggest these two specifications are searching to solve the same problem.

According to the Oxford dictionary

Security is

    • “The state of being free from danger or threat.”
    • “Procedures followed or measures taken to ensure the security of a state or organization.”

Authentication is

    • “The process or action of proving or showing something to be true, genuine, or valid.”
    • “Computing The process or action of verifying the identity of a user or process.“

On this same page, the authors go on to make the following statement

“… there is no common specification to address the functional interactions and transmission of data between the participants.”

This then causes me to wonder about the original ISO 8583 specification, the current ISO 20022 specification, and the subsequent concept of the three-domain model within the 3D-Secure specification.  All three of these specifications define the interaction between the participants while not restricting the method of transmitting the data.  It seems the authors of the SRC specifications have forgotten history.  Or, are they trying to rewrite history.

At this stage, Authentication seems to the most important part of what EMV is attempting to address.  But,  the focus seems to be more about rewriting history that solving the fundamental problem.  We seem to have this desire to take public identifiers and convert them into secrets.

“An industry transition from a dependency on Consumer entry of PAN data can be accomplished by providing an SRC specification that meets the needs of all stakeholders involved.”

These intriguing contradictions beg the question.  Why did the authors of the Secure Remote Commerce specification not reference the good work of those that created the 3D-Secure specification and propose an approach unlike EMV?  They all are part of the same organization!

Is the goal not to address authentication and Security of the payment transactions, be they instore or on the Internet.  I would argue

We allowed the PAN, the payment card identifier, to become a means of authentication

This use of the PAN as both an identifier and an authenticator; reminds me of a hearing of the United States House Committee on Ways and Means May 17th, 2018 hearing on “Securing Americans’ Identities: The Future of the Social Security Number”.

“House Ways and Means Social Security Subcommittee Chairman Sam Johnson (R-TX) announced today that the Subcommittee will hold a hearing entitled “Securing Americans’ Identities: The Future of the Social Security Number.” The hearing will focus on the dangers of the use of the Social Security number (SSN) as both an identifier and authenticator, and examine policy considerations and possible solutions to mitigate the consequences of SSN loss or theft.”

All the witnesses and most of our members of congress accepted and understood the problem.  We allowed a simple government-issued identifier to become a means of authentication, in other words, an authenticator.  Like allowing the social security number and now also the PAN to become part of how we authentic someone’s identity.  We caused these publically available identifiers to become valuable and sensitive PII data.

Cardholder Authentication and Consumer Device Identification

What is clear, as one continues reading the SRC specifications, is the goal is to reduce the frequency of presenting payment credentials on merchant websites.

“Minimising the number of times Consumers enter their Payment Data by enabling consistent identification of the Consumer and/or the Consumer Device”

A very different approach to what the payment schemes do with the EMV based payment process.  The authors of EMV saw the PAN as public data, they architected something designed to assure the uniqueness of the card and the ability to positively verify cardholder.  Card Authentication and Cardholder Verification.

Why not simply think and focus on the same architecture?  Simply change the word “card” to “device” and focus on Device Authentication and Cardholder Verification or as everyone is promoting Multi-Factor Authentication.  We simply need to make sure the thing is genuine and the right individual is using the thing.  The thing is what the cardholder has – The “what you have” factor.  Add a pin/password or better still a biometric to be the second factor the “what you know” or “what you are” factor.

EMV 3D-Secure creates the ability to exploit the “what you have” factor by offering Device fingerprint data to the issuer’s authentication process.

 

Pay to be Paid

An interesting concern and a telling phrase. When one Googles the phrase “Pay to the Paid” the result takes us into the contracts associated with Protection and Indemnity insurance P&I.

When I entered the search term, I was thinking about how financial institutions see ‘payments’ as a revenue source. In particular, the word ‘Interchange’ springs to mind. I remember sitting in a management meeting in Foster City, at the Visa International offices, as we discussed the results of a McKinsey study this study stated the banks were not earning from their most frequent activity – processing payments.

We then as Visa saw a need to help our members appreciate the breadth and complexity of this simple word “Payment”. Payment Zsars and Gurus were all the rage. International Banks spent millions to create payment factories capable of supporting ACH, WIRE, Swift and card payment. Was the goal to streamline the process? For some, yes!  For others, the focus was on reducing costs. For others, they focused on creating a sticky proposition capable of assuring long term relationships with their corporate clientele. For all, increase revenue and profit.

Did any actually think to focus on streamlining the mechanical process of moving money between two individuals or entities? Many will argue yes. Why did they not seek to develop Real-time Gross Settlement Systems, RTGS? Why is it only new economies that saw these opportunities?

The answer often comes back to the fear of cannibalizing existing sources of revenue or even worse making a legacy solution redundant.

It is time to move to Multi-Factor Authentication built on a Restricted Operating Environment

Passwords should become a thing of the past. Here’s why

This morning one of my Google alerts found a blog coming from the World Economic Forum.  It reminds us of the inventor of the password Fernando Corbato.  In an interview with the Wall Street Journal, he said passwords have become “a nightmare”.

The open question is how do we solve for the nightmare of password management we have created that is both effortless and secure.

This article calls for private enterprise and our governments to find answers.  I hope in finding these answers capitalism and profit do not become the reason to act.  I hope social responsibility and community action drive all to find answers that are affordable, convenient, secure and more importantly consumer-friendly.

We Keep Talking About It, When Will We Solve For Identity in the Digital Space

This morning I read an article in the Financial Times The real story behind push payments fraud.  What is disturbing, the acceptance of fraud and the focus of bankers on adding fees (like Interchange) to help cover the cost of fraud.  This article speaks to Push Payments and how liability shifts from the merchant back to the Issuer and ultimately the consumer.  It makes reference to Pull Payments and the use of debit cards where the fraud liability, unless online, is the merchants’.

To address card payment fraud in the physical world the payment schemes developed EMV.  In the digital or eCommerce realm everyone accepted allowing the merchants to not attempt to authenticate the cardholder and simply ask the consumer to provide openly available data {cardholder name, PAN the account number, expiry date, and address details}; if they, the merchant, would accept liability for any fraud.

As the world moves to embrace “Faster Payments” and Real-Time Gross Settlement ‘RTGS’, instead of focusing on assuring the identity of the sender and the recipient; we assume fraud will occur.

Why not focus on solving the problem?  Solving for Digital Identity solves for Card Not Present fraud, RTGS fraud, Faster Payment fraud, and so much more.

 

 

What is a Cryptocurrency or better yet why do we want them

As a member of a committee responsible to develop the agenda for Payment Summit this February in St Lake City, we’ve been discussing a panel on Cryptocurrency.  The initial conversation spoke of blockchain and cryptocurrencies and how these two topics, while related, need to be independent of each other.

With an agreement to focus on Cryptocurrency, I began to ask myself, “What is a cryptocurrency”?

Off to the Internet.  My computer instantly offered a definition.

A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank

        • ‘decentralized cryptocurrencies such as bitcoin now provide an outlet for personal wealth that is beyond restriction and confiscation.’
        • ‘States will undoubtedly resist the spread of cryptocurrencies.’
        • ‘Bitcoin was the first widely used cryptocurrency, but few people know it is not the only one.’
        • ‘What does your cryptocurrency allow people to do that they could not do otherwise, and how does it help them do existing tasks more quickly or cheaply?’
        • ‘If cryptocurrencies are like other speculative activities, the early players and the big players benefit to the detriment of the late entrants and the small players.’
        • ‘As with all cryptocurrencies, price is based on supply and demand.’‘Even with recent fluctuations, the total value of the cryptocurrency is still over eight billion USD.’
        • ‘The majority of cryptocurrency activity still appears to be speculative.’
        • ‘A cryptocurrency may be hackable, but it can also be really, really, really hard to hack—harder than robbing a bank.’

The interesting challenge in this definition is the words “operating independently of a central bank”.

In September 2017 the Bank of International Settlement BIS published a report on Cryptocurrencies.  This report spoke to the idea of CBCC or Central Bank Cryptocurrency.  The authors offered a diagram known as the Money Flower.  The flower positions this idea of CBCC within the world of money and argues a Central Bank could easily create a sovereign cryptocurrency. 
The article then goes on to describe a series of examples.  As I moved through the document I was drawn to the idea of Digital Currency and once again was compelled to search for clarity.  At the same time I noted the recent announcement by China and how the European Union recently suggested the European Central Bank consider just such an investment.

During my research, I was reminded of the work of David Chaum and remembered how early in the growth of Bitcoin someone suggested David could be Satoshi Nakamoto.  I am also reminded of my time at Europay and how we explored the use of Chip Cards, given their hardware and cryptographic capabilities, to create a Cash Replacement, Mondex.  In parallel with our efforts Visa Cash emerged, Proton, Chip Knip, Chipper and, others emerged.  This led me to a BIS report on Electronic Money.

Looking back in history to the early discussions of Electronic Money and read the early views of the European Union and the US Treasury, it reminded me of some of the original concepts and issues.  I’m reminded of words like anonymity, traceability, origination, and sovereignty.

Anonymity and the lack of traceability are what criminals and Silk Road Market Place saw as the benefit of Bitcoin.  The concepts of origination and sovereignty clearly are key to the thinking of Governments and Central Bankers and critical elements of the origin of Bitcoin, as expressed in the original white paper.

What these cryptographers have created is amazing, yet one worries about who is responsible for and benefits from the origination of Bitcoins, forks of Bitcoins and the multiple cryptocurrencies now in existence.

If we look inside Bitcoin its architecture promotes the idea of mining and allows the successful miner to originate new bitcoins.  They argue this is the incentive driving participation.  I then wonder about the cost of Bitcoin mining or the cost of Ethereum mining.  Does the cost of supporting Bitcoin justify its continued existence?  Does the supposed benefit of cryptocurrencies justify the profit earned by the miners who support the work to assure consensus?

As my research progressed  I ran into a speech given at a conference and the Bundesbank Money in the digital age: what role for central banks? The article attempts to address three questions:

      • What is money?
      • What constitutes good money, and where do cryptocurrencies fit in?
      • And, finally, what role should central banks play?

The author’s arguments are worthy of consideration.  Especially the questions of efficiency and trust.

The question we all must consider
What is money?
Especially in the global and emerging digital market place.

In the end, I remain confused and concerned.  Digital Money, Electronic Money, Digital Currencies, Cryptocurrencies, Feit Money, stablecoins and the potential of the distributed ledger clearly are set to disrupt much.

 

Where are we

Today.

How many passwords are you trying to manage!  Does your LinkedIn contact list connecting you to more than  4,000 individuals?  Does Facebook, Instagram, and other social media websites inundating you with news and stories about your friends, colleagues and interesting people?

How many cookies have your computers accumulated?  How many databases have more information about you than they need?  If we search the dark web, how valuable is your data?

Cando seeks to help you manage your data, identity, assets, and relationships.

Philip lives on Sea Island with his 93-year-old father, the Doctor.  They pursue travel and Philip keeps his head into what is happening in financial services, blockchain, authentication, digital identity, and, whatever else people seeking to understand the transformation; particularly those in the identity and payments space.

What is happening means we can unlock our hotel rooms, cars, and homes from our phones. Our security system iwill be another app we have to find on our phone.

Instead, we need an intuitive assistant seeking to simplify our lives by taking on repetitive tasks like driving, working inside a data table or simply opening up the house for the season.

Normalizing data and performing the analysis capable of earning value is the name of the game.  Management is about stimulating a team to work in the mutual interest of the organization.  Executives define the strategy and articulate the vision in a manner conducive to success.

Cando seeks to help you manage your assets and relationships.  Assets those places and things you use doing your daily life and those interactions you have with people and entities seeking to serve, sell and partner with you.

Then there are friends who we expect to be part of our lives and therefore have privileges and access capabilities.

All of this with a target of selling integration services to the top million and simply assuring each person has an identity thus serving the bottom billion.  ultimately earning $1 per year per user to simply be there when it all breaks and you wish to restore your digital life.

At the core, your digital security will be based on the use of cryptography and sophisticated matching algorithms designed to assure anyone that you are that one individual in the populatations of the universe.

What You possess, What You Are, What You Claim … Your Certificates

NCCOE NIST Multi-Factor Authentication

What you Possess — The Thing

What you Are — You

Your Relationships

Responsibilities

Authority

Advice

— Secrets

My Certificates

 

 

 

 

 

 

 

 

Seven Words

World Wide Web Consortium

FIDO Alliance

Global Platform

The Trusted Computing Group

Future interests

  • Artificial Intelligence
  • Machine Learning
  • Nature Language Interface
  • Predictive Analytics

Another short description of Blockchain

WTF is The Blockchain? The ultimate 3500-word guide in plain English to understand Blockchain.

This technology called the Blockchain is built on the desire to create a new model to assure “trust”. 

To establish trust between ourselves, we depend on individual third-parties.

Could there be a system where we can still transfer money without needing the bank?

This statement begs the question, What is a Bank.  Is it simply an institution for recording the value we deposit with them and then allow us to move/transfer some portion of that value to another.  This then means the loans a bank makes, based on the sum of the deposits we trust them with, is not part of what a bank does.

If the only role of the intermediary is to maintain a ledger capable of recording and facilitating the transfer to electronic facsimiles of something, then, yes a distributed ledger removes the need for the middle man the trusted intermediary.  Instead of trusting a third party we agree to a methodology “The Distributed Ledger” to record these intangible assets or rights of ownership of a tangible asset in a manner where each of us has a copy of the ledger.  The beauty of this concept is for someone to attempt to change a record in the ledger, recording the disposition of a tangible or intangible asset; 51% of us would have to agree to that alteration.

In the above-linked article, all of what happens can be summaries with this quote

Earlier the third-party/middleman gave us the trust that whatever they have written in the register will never be altered. In a distributed and decentralized system like ours, this seal will provide the trust instead.

 

Review of the IMF The rise of Digital Money

While reading the recent document produced by the IMF I am compelled to wonder.

What is the difference between what they call Bank Deposits and e-money.  My first question, ignoring the words bank deposit.  Both are electronic accounts of value, recorded in someone’s ledger.  These two diagrams extracted from a BIS paper offer a perspective.  

They then speak to four attributed to the “means of payment”

  1. The Type, be it a claim or an object.
  2. The value, be it fixed or variable.
  3. If it is a claim who is liable?
  4. The technology, be it centralized or decentralized


They then speak to the five ‘Means of payment”.

Object-Based

  1. Central Bank Money (cash)
  2. Crypto-currency (non-Bank Issued)

As we think of the evolution of these object-based means of payment, we need to reflect on a new term “Central Bank Digital Currency” CBDC.

As a historian, I then wonder where things like Digi-cash and Mondex fit into the classification.  The value was originated and then distributed into a personal and secure storage device (Wallet).  Redemption or better said the guarantee, was provided by a party.  Maybe not a bank or the central bank, yet, easily embraced by such an institution.  Somehow history seems to lose sight of the origins of money and assumes the existence of a central bank.  Here in the USA, the formation of a Central bank was one of many areas of political discourse.

Claim-Based

  1. b-money (Bank issued)
  2. e-money (Privately issued)
  3. i-money (Investment funds)

The magic word behind all of these discussions is “Liquidity”.  The bottom line does the receiver of the money appreciate the value of the unit of measure and is the receiver confident they will be able to convert that money into another form, of their preference

 

 

Blockchain made simple

Let’s start at the beginning, the transaction, the distributed ledger entry. Think about the content of the transaction as the payload. Next think of the payload as land deed, cryptocurrency value, record of ownership, journal entry, smart contract … marriage contract. Either two or more people seek to exchange and record. Another way to think about all of this is as a block of data, code or other digital representation of something duplicated in every participant’s copy of the current ledger. No matter what happens, a secure system must be established for a smooth cryptocurrency transaction to take place. Maybe look for the best vpn for crypto trading? Could be an option, but only in the later stages when the initial nitty-gritty of the process is established.

A governance model is required

What is essential, before anyone can do anything.

The parties seeking to exploit a distributed ledger must define how it will work.

It is what the community or parties seek to represent and manage, using distributed ledger technology, agree.

The whole process of defining the payload begins when the community agrees to and sets off to publish the processes, procedures, rules, functions, and purpose of their application. It is this act of governance we use to define how and what will be conveyed in the payload to be stored and recorded on a blockchain. Which blockchain, protocol, and cryptographic processes; obviously it is a decision of the community.

We need to be clear before we can do anything with the payload. Ourselves and ultimately others will have initially and subsequently defined the mechanics and processes designed to assure the integrity of the blockchain itself.

A Transaction is appended to the chain

There are two parties to each event recorded within these transactions. The agreed events, transactions and smart contracts are ultimately included in a block and properly extended onto the chain for everyone to see and read. More about Confidentiality in another post.

Once governance is established
People can now interact

Each party has an address and then addresses unique to each asset e.g. coin. The address, in most cases, is simply an asymmetric cryptographic public key.

    • The individual, as is always the case with cryptography, has their own private key(s); they must retain, never lose and keep secret.

When the two parties decide to record an event; the sale or transfer of the title to a car.

    • A formal record of a property, a transaction, ledger entry is created.
    • The basic data.
      • The seller’s public key
      • the buyers public key
      • the payload
      • a hash
      • the signature created by the seller using their private key.

The transactions are broadcast to the network, buying and selling included. These transactions can take place through various methods; for instance, digital currencies could be purchased online, whereas to sell, you may have to use Bitcoin ATM and other ideas, which you can learn on Coin Cloud or similar company blogs.

The nodes or miners continuously work to assemble a defined number of transactions and create the next block.

The chain’s role is to record the providence of an asset and the immutability of all the associated transactions.

    • Each active node or miner is attempting to create the next block.
    • The mathematics involved and the use of hashes to bind this new block to the existing blocks in the chain is beyond the scope of this blog.
    • Let us simply assume the mathematicians and cryptographers define as part of the original design of each chain an infallible solution to the issues of economics, security, integrity, and immutability.
    • These specifications will define the hash game and how one adds the next block to the chain retaining the immutability of the present and the past

By being the first to calculate the cryptographic nonce

The winner receives a reward.

    • Hopefully proportional to the cost of work or other discernable and agreed method of reward.
    • The other active nodes then test to see if they agree the first got it right.
    • If consensus is reached the new block is appended to the chain.
    • This all assumes 51% or more of the miners or nodes reach consensus on the winner’s answer. And no one can control 51% or anything closer than 33%.

Around and around the game continues, as transactions are added and immutably recorded on the chain.

This whole process fundamentally assures history cannot be altered.

Chains split and fun things happen

If the process is not elegantly managed in full sight of all the participants.

Going Cashless

For some twenty plus years, I can remember hearing people speak of the dream of an economy without coin and paper money.  A dream, driven by the desire to promote the use of electronic payments.

Over the last months, a number of articles focus on promoting the idea of a cashless society.  They all speak to the advantages and attempt to promote the concept, arguing we can:

  • Eliminate the concern of thugs insisting at gunpoint for the cash
  • Reduce the risk of employee theft
  • Stop paying people to count all those dirty coins
  • Remove the need for an expensive safes
  • Stop paying to have a specialist truck take the money to the bank
  • Eliminate the grey market

The business case for a merchant to eliminate cash seems to be beneficial.   Many have tried and succeeded to no longer accept cash.

At the same time articles report on the new regulations; various cities and states are implementing and considering.  These regulations are intent on outlawing merchants from going cashless.  The argument often focuses on how eliminating cash disadvantage the underbanked.

Then there is a reality! As a consumer, I recently have been surprised at the need to carry cash and the unsettling pleasure of finding out I still had cash in my leather wallet.

The first wake up to this reality took place while driving from St Simons, GA to the Orlando International Airport. In the trusting hands of Google Maps, I traveled down I-95, across I-4 and was directed to the FL-417. Suddenly a road sign informed me that I was on one of the various Florida toll roads.  Above my head was a road sign indicating which lane, based on my preferred method of payment, to move into. Driving a car that was not mine and knowing it did not possess a PeachPass, my only option was cash.

Fortunately, I had cash and was able to continue my journey.

The following Friday my father and I went to The Lodge to play Sniff, a dominoes game. The game was competitive and cash was the only method to settle. With a bit of cash in my pocket, I was able to pay the few dollars I lost.

One Saturday a street vendor in front of the local Harris Teeter was selling spare ribs. When I went to pay they informed me, they only accepted cash. Once again I was fortunate, I had enough cash and was able to buy those delicious ribs for dinner.

On various Sundays, when the collection plate came around, I’ve had a check or a bit of cash and was able to leave my tithing.

On a number of occasions, the valet, tour guide or other service individual deserved a tip and I’ve had a few dollars in my wallet.

Two more events brought the reality of how society does not want cash to disappear.

One morning, I wanted to enjoy a pastry. Not having $2.75 to pay for the Danish, Sweet Mama’s, a local baker, charged me $0.50, an eighteen percent surcharge, simply to use a credit card

Finally, yesterday as a guest for lunch at the local Rotary Club, I was confronted with a series of cash only events. This time I did not have any cash and was not in a position to contribute to various worthy causes.

We dream of a cashless society. Yet churches, valets, toll booths, street vendors and the Rotary all continue to desire or require cash. Some are not even willing to accept anything but cash.

Looking at our society from two different angles, we must accept the continuing need for cash.  Be it the underbanked, unable to acquire a credit or debit card; or those who carry many credit cards, both need to use cash simply to eat or enjoy life.

Later today I will have to visit the ATM and make sure I have a bit of cash in my wallet.

 

https://www.paymentssource.com/news/target-outages-show-the-failings-of-cash-as-backup