R. A. Hettinga on 23 Jan 2001 16:05:07 -0000

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[Nettime-bold] Re: <nettime> The End of an Era: the Internet Hits Ground

That's right. Money is *not* necessarily banking.

(Sometimes it takes me a while to figure these rather obvious things out,
being an ordinary net.entrepreneur/average net guy. Nice to have some help,
there. :-))


--- begin forwarded text

Date: Tue, 23 Jan 2001 11:15:23 -0400
From: Somebody
To: Somebody Else
Cc: Buncha People, rah@shipwright.com
Subject: Re: <nettime> The End of an Era: the Internet Hits Ground

Somebody Else wrote:
> Fascinating (realistic) stuff.

I think the essential point that comes out of this current burst
of retrospective hand wringing is that the laws of finance and
economics dominate those of the net.  Not that I ever thought
that was in doubt, myself.

> Can anyone point me at chapter & verse on the following?  Seems to
>conflict with the e-money legislative approaches in Europe?
> "For all its technical feasibility, anonymous electronic cash remains as
> elusive as it did 5 years ago, not the least because governments have made
> it clear that they would not allow any financial institution operating
> within their jurisdiction to issue such a currency."

I suspect the author is guilty of gross simplification.  He's
assumed that there must be one cause to the failure of this
fairly obvious innovation.  Of course, looking at the complexity
of the events, it's easy to assume that "the government" is to
blame.  And it's often enough a valid assessment in the public
mind to make it a good starting point.

The real problem lies more directly at the feet of the Internet
entrepreneur.  The field of electronic money is probably the most
complex of all, and it seems to be complex in excess of the
capabilities of the average net guy (I don't think this is so
much of a criticism, as I've yet to find any other sort of guy
that could do better...).

There are many more barriers to entry in the money business than
other businesses, not least a cultural weight that implies that
money is banking.

That 'banking' barrier is a direct result of governments, although
they would not understand the words.  For about a century, the
arisal of central banking has been accompanied by the arisal of
a heavily regulated sector of banks that basically exhibit herd
behaviour, in the words of economists.  As the regulation
increases, companies discover that cartelisation is the best
choice, as if one company does the same as all the others, it
cannot be wrong.

A side effect of this is to remove innovation as a plausible
mechanism within the banking sector.  So, thus, the cultural
message that money is banking also means that e-money isn't
going to happen, as it is innovative, and thus at odds with
what banks can do.  (I have a paper by Merton Miller somewhere
where he discusses innovations in finance, and lists a goodly
number.  Not one came from the banks, but all were adopted by
the banks eventually.  Note that this is a *general* observation,
the exceptions like the Belgium and Dutch smart card successes
are interesting because of that.)

As I say, that's only the government part of the story, I once
counted up the barriers to entry in digital money and came up
with 8, way more than other industries.  That's enough to stop
most in their tracks;  so I'd say the author is simplifying and
being unkind in his assessment.

Unfortunately I lost the bit of paper I wrote my barriers on
and have never been able to recreate the exact 8.  Yet one more
barrier, perhaps :)

<Somebody's .sig>
--- end forwarded text

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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