Governance of anonymous financial services

[Allen]

Steve Schear wrote:

[snip]

>> One problem is the holders could collude and play a "shell game".
>> Suppose that 30% of the holders were going to be asked to reveal their
>> assets, then the company could back only 30% of the currency, and
>> redistribute the assets to the selected holders before the auditors come.
> 
> How about this method?
> 
> 1.) Auditors meet at a defined place and time.
> 
> 2.) Courier arrives and presents a fraction N of M of the backing, once 
> at a time, to the auditors
> 
> 3.) Auditors verify the fraction, account for it and enclose it in a 
> container with a unique hard to forge seal
> 
> 4.) Courier leaves
> 
> 5.) Step 2-4 are repeated until the total of M has been presented to the 
> auditors
> 
> 6.) In the second round, the auditors request the same fractions N of M 
> again. Not all N have to be presented, but can be
> 
> 7.) One after another the couriers with the respective fractions present 
> them again to the auditors
> 
> 8.) The auditors verify the seals, and remove them
> 
> 9.) The couriers leave
> 
> There are two disadvantages to the process:
> 1.) It takes quite some time.
> 2.) It is expensive
> 
> The advantages are:
> 1.) It is secure for the auditors and the operators
> 2.) It presents the full backing

Although your schema is quite good I think it fails to account 
for the underhanded nature of some humans and the benefits to be 
gained under some situations.

Think about the counterfeiting of all currency (even US) by the 
British during WWII, think about counterfeiting in general, 
stocks, bonds, salted mines, and the host of other scams that 
have happened over time. One common factor is that as the 
protections get better, the skill of the nefarious improves.

The other limitation of your schema is that the fractions without 
seals on the second round can not be verified until there is a 
third round, and then the unsealed fractions on the third round 
can not be verified until the fourth round, etc. Because of this 
you have to seal all assets and leave them sealed until the next 
audit to prevent the same unsealed package from being presented 
twice.

Simply put if there are 100 fractions alleged and the auditors 
request 30, which are then sealed. On the second round they 
request 30, if the math was perfect and no randomness crept in, 
the second lot of 30 should contain about 9 sealed packages and 
21 unsealed. This could be met by having only 51 fractions total. 
So you add a few more for safety  and you need maybe 60, quite a 
shortfall from 100.

For a quick look at the other schema proposed using cross signed 
transactions and other cryptographic methods, there is the human 
arrogance factor to consider. Some people, like the Yellow Kid, 
are very convincing in their lies and will happily sign any 
document alleging that the moon is made of green cheese and that 
the Lunar Landing was a fraud foisted off on a gullible public 
because they figure the odds of them being caught are so small 
and so far in the future that they will have been able to high 
themselves off to an untouchable spot like some overthrown tin 
pot  dictator from South America and live in splendor the rest of 
their natural days. It is only a very short step from this to 
stock fraud and other financial scandals that we have seen over 
the last few years.

As I see it, cryptography is an excellent tool to raise the 
barrier to the less skillful, but it is, like all tools, 
manipulated by humans. Some are more skillful in their use of 
tools than others and find creative ways to solve problems.

A small sample. Do you know what a dent puller is? It's a slide 
hammer with a screw on the tip that you screw into the sheet 
metal of the dents in your car to render the surface flatter so 
it can be treated with Bondo and paint to make it look like it 
was never there. Guess what? Some clever person realized that 
some common door locks could be broken with the same device so 
for a while there was a lot of breaking an entering with this tool.

Another, and more recent, case is the Kryptonite bike and 
motorcycle lock. Thick, hardened steel not easily cracked, except 
by some 17 year old bike shop kid with a 19 cent Bic pen.

This is a great subject with lots to explore, both technically 
and socially. I love it and all the wonderful thinking it brings out.

Best,

Allen

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