Reinventing Digital Cash
Freshly recruited by Inria research center, in Rennes, Brittany, France, German scientist Christian Grothoff is to lead a new team that will design innovative network protocols meant to build a decentralised, secure and privacy-preserving communication infrastructure. In that context, one of his goals is to give the world a new and heavily-encrypted payment system that would protect customer's identity while enabling governments to collect taxes. As he explains, TALER has potential for sustaining a more socially-respectable economy.
The Bitcoin was used in over 100,000 transactions daily during the last Christmas shopping spree. Introduced seven years ago without any government imprimatur or endorsement by the bank establishment, the much-ballyhooed digital token is a payment system as well as a currency unto itself. Granted, the current circulation is a mere drop in an ocean of credit card spending. Still, the figure remains significant in that it demontrates cyber-denizens' craving for alternative forms of digital money.
Having said that, the Bitcoin falls short of expectations on more than one account, not the least of them being the fact that it has become the pet currency of smugglers of all stripes. “Murky business, money laundering, bribery, tax evasion. Is this the kind of arnarchistic economy that we should build our society upon? My answer is no! ” emphatically says Christian Grothoff whose TALER project offers a substantially different approach. “First of all, we don't to want to introduce a new currency. What we are building is a payment system. People will keep using euros, dollars or whatnot. ”
Incidentally, one might wonder what's the problem with the traditional credit card to begin with? “It requires the payer to identify themselves thus enabling mass surveillance a la PRISM to kick in. ” But privacy or lack thereof is only one aspect. “When you purchase something today, you must give away your credit card information to the merchant. So whom will you buy from? One of those well established Internet giants or Little Joe's obscure website? Even if both sell the same merchandise, you will end up picking the one you think you can entrust with your payment. Therefore, the credit card is actually much more than just a payment system. It actually works to the detriment of the small merchants and increases business centralization. ”
TALER by contrast makes customer's anonymity its cardinal rule. “We hold that people should have full privacy over how they spend their money. ” As the result, the merchant won't access any kind of information bare the client's shipping address. No customer data whatsoever will be stored on a bank computer neither. The anonymous remittance comes in the form of an encrypted signature for a given amount.
In Tax We Trust
Conversely, “whoever receives money has to be accountable for it. ” Indeed, taxabiliy is the second underlying principle of the system. “There has to be a cryptographic proof that the merchant was paid or that an individual received an income, be it his wage or an inheritance for that matter. TALER makes it harder to hide money and easier for a state, a regional government or a city to collect due taxes. ” As Grothoff points out, tax has actually two virtues. “On the one hand, it enables the society to fund projects for the common good: health care, education, infrastructures. In order to finance such things, social organizations need a power of coercion to charge taxes. On the other hand, and just as importantly, the levying of taxes is what imparts value to a currency. People tends to forget that very fundamental fact: a currency has no inherent value. It becomes something worth because the state accepts it as a means of paying taxes. ”
Anonymity at Withdrawal Stage
The corner stone of the novel architecture is called the ‘mint’. People will credit it by transferring money from their bank account. The mint will then allow the customer to withdraw electronic coins through a cryptographic process called blind signature. “The mint does not know the identity of the coins that are being generated. It is ‘impossible’ to link the transaction of this customer spending money to this withdrawal action. That's critical.
” After the payment, the merchant can go to the mint and redeem the value. To increase consumer confidence and make sure no money is being embezzled, the mint operator will be cryptographically checked by an auditor, be the latter a private enterprise or a government-run entity. “That's up to financial regulators in each country to decide. Our basic assumption is that all the mints in a currency domain will be certified. They will be able to show this certificate to convince customers and merchants to do business with them.
But who will operate the mint? “The government, the private sector, or both! You could have scores of mints operating simultaneously. Which wouldn't be bad for competition. A central bank could well decide to start one. But at grassroots level, a district authority or a town could also operate a mint as an innovative instrument to facilitate the use of a local currency. Of course, companies, and not exclusively banks for that matter, will also be able to run mints. ” A future spin-off of Inria might even enter the fray at some juncture.
As for the technology itself, it will be made available for free under open source licence. “We have the cryptography and the protocols sorted out. Now, we are hiring. We need competent computer programmers to develop the software. This work will require at least one year. ” Then will come the mother of all challenges: “convincing the merchants to use the system.” Indeed, why should they do so? Grothoff has an answer to that as well: “they will come when they realize that TALER offers lower transaction fees. ”
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- TALER stands for: Taxable Anonymous Libre Electronic Reserve. Also involved in this project are: Julian Kirsch, Florian Dold, Sree Harsha Totakura, Benedikt Müller, Richard M. Stallman, Cristina Onete and Nana Karlstetter.