Financial Cryptography '97 - Anguilla

by Alex van Someren

The first Financial Cryptography conference, held in late February 1997 in the Caribbean tax haven of Anguilla, proved to be a worthwhile forum for serious work in the field of electronic money; this despite the dubious honour of being rated the top 'deductible junket' in the January '97 issue of Wired magazine.

The five-day programme of presentations on electronic commerce, e-money and state-of-the-art cryptography was eclectic but concentrated on genuine technical issues and was pleasingly free from the ravings of the extremist privacy lobbyists so ubiquitous on the Internet.

The first day of proceedings concentrated on anonymity and unlinkability in electronic transactions. Of particular interest was the Janus system developed by researchers at Bell Labs (Lucent Technologies, Murray Hill' NJ, USA) for proxying Internet services including Web browsing. Janus automates the process of completing application forms for subscription services at web sites, removing the need to invent new username/password pairs for each service while at the same time preserving the anonymity of the user. Besides the anonymity issue, Janus has the potential to remove several repetitive typing burdens on regular Internet users.

Moti Yung (BTEC/CertCo, New York, NY, USA) presented a proposal in which e-cash anonymity could be controlled by the user. For example, he introduced the notion of 'distress cash'. A user might have two pin numbers, one of which guarantees anonymity while the other, if coerced by a robber to reveal the pin code, would revoke anonymity and allow e-cash tracing.

Unlinkable transactions

Also notable was work by a team including staff of AT&T Labs (Murray Hill' NJ, USA) and the US Navy Research Laboratory (Washington, DC, USA) on unlinkable serial transactions. They proposed a system to allow membership groups to be established in which members could prove the validity of their membership without disclosing details of their identity or previous transactions - such systems have considerable potential application in electronic voting systems, for example, or for preventing Encyclopaedia Britannica building a record of the pages you have visited.

On day two Simon Lelieveldt (Dutch National Bank, Amsterdam, NL) gave a valuable insider's view on the recent Bank for International Settlements report on the security of electronic money. One interesting conclusion by the BIS was the acceptance that it is possible to achieve better security in electronic money systems than is offered by non-electronic systems in present use. He offered no general guidelines on preferred technical solutions and stressed that the bank could only evaluate detailed implementation plans and the likely consequences of any particular scheme.

David Birch (Hyperion Consulting, UK) gave a rousing dissertation on the global denationalisation of money and presented some compelling statistics underlining the trend towards the disappearance of specie and the emergence of self-issued 'loyalty' currencies from supermarkets and other major retailers. He also drew attention to the catalytic social potentials of global electronic networks for the development of wholly new markets for (and of) services and the need for real deployment of viable micropayment systems in support of these markets. In particular he stressed the important role that smart cards will play and invited developers to study Microsoft's specifications for smart card readers linked to PCs.

Fault induction attacks

One of the big encryption news stories last year was about fault induced attacks. Bellcore published a paper claiming that submitting smart cards to microwaves and studying the mistakes the card made would make it possible to reverse engineer the cards. At the time it received some exaggerated press comment, largely as a result of the original Bellcore claims.

David Maher (AT&T, Mountain View, CA, USA) downplayed the threat of such attacks, with particular reference to Mondex. He also revealed that the roll-out version of Mondex uses public key digital signatures. Ultimately it is the multi-layered security procedures which provide the protection: David Maher was less willing to defend the 'security through obscurity' whereby the Mondex protocols have not been published for public scrutiny. Day three began with renowned cryptographer Ronald Rivest (MIT, Boston, MA' USA and the R in RSA) giving a keynote speech setting out some perspectives on financial cryptography and clearly demonstrating that his skill in pure mathematics is matched only by his expertise in the applying the same. Later, in his entertaining rump session, he proposed lottery tickets as a form of cash and proved that there is a place in cryptography for humour as well as mathematics.

Several speakers had applied themselves to the development of flexible micropayment systems and the possible trade-offs afforded to their deployment by using statistical sampling techniques in defence from the dangers of double-spending - most transactions are offline but there is sampling based on the assumed risk attached to each transaction. In particular, Yacov Yacobi (Microsoft, Redmond, USA) described an interesting approach to reducing the need for online processing of e-cash transactions' a widely-perceived obstacle to their successful deployment because of its costs.

Law based approaches to security

Attention on day four focused on legal issues and the potential abuses of e-money for money laundering. A paper by Markus Jacobsson (UCSD, La Jolla' CA, USA) and Moti Yung (BTEC/CertCo, New York, NY, USA) described a technique making ingenious use of diversity and multi-party distribution to increase the level of trust in e-money systems.

Their approach would require the co-operation of several banks or regulators to originate and revoke anonymity in an electronic cash system' a method more likely to be acceptable to civil liberties supporters than many of its predecessors.

Edward Radlo (Fenwick & West, Palo Alto, CA, USA) delivered the latest update of his on-going study of legal issues in cryptography from a U.S. perspective - the airing of American feelings about Export Control legislation and the First Amendment was largely limited to this session. He believes that the FBI is now the main advocate of both strong export and domestic controls.

Peter Swire (Ohio State University, Ohio, USA) suggested a contract model for preserving consumer privacy, especially in the area of bank databases. Michael Froomkin (University Miami School of Law, FL, USA) took the argument a stage further by developing a model in which a large number of certification authorities (CAs) provide graded certificates which are trustworthy either to the extent of the procedural checks that the CA carries out before granting a certificate or relies on customer trust of known CAs. He believes that CAs should be forced to accept limited liability to pre-agreed levels..

Author Peter Wayner delivered an interesting perspective on the money laundering business in his evening session. He described a number of ingenious schemes which have been used, many based on the false pricing of otherwise conventional contracts. This was followed by a rump session of short informal presentations.

Onion routing

In one, the US NRL team revisited their fascinating proposal first presented at the Workshop on Information Hiding in May 1996 (Cambridge' UK), for a multi-layered 'Onion routing' technique for networks which is highly resistant to traffic analysis. This involves layerings of encryption that resist eavesdropping and traffic analysis. The scheme would rely on having a large number of 'onion routers' on the Internet (

In another, consultant Adam Shostack (Boston, MA, USA) invoked Clausewitz in his argument that cryptography is the ultimate post-modernist munition' shared by anarchists and nations alike.

Gold Certification Authority

The final day included a plea from Paul Lampru (VeriFone, Atlanta, GA, USA) for a 'Gold Certification Authority' standard to facilitate the public deployment of e-money in support of healthcare and social security systems - substantial civil liberties concerns were raised by the audience as a result.

Theodore Goldstein (Sun/Javasoft, Mountain View, CA, USA) described the security model underlying the Java electronic commerce framework (JCEF) which would allow different financial services to work together. The full specification for JECF is at Sun's open-minded attitude towards peer review of their software source code won him a heartfelt and spontaneous round of applause.

Barbara Fox (Microsoft, Redmond, WA, USA) described a 'Grand Unified Meta-Protocol (GUMP)' to reduce reinvention in the design of protocols for e-commerce systems; she blamed working with physics graduates for an acronym surely worthy of, if not deserved by, Microsoft.

David Kravitz (CertCo, NY, USA) presented a scheme for providing partial anonymity for customers by shielding customer names from merchants.


Overall the conference was well attended, although representatives of banks were notably absent, and its content was wide-ranging and highly topical.

Although the choice of location does not perhaps present the most appropriate optics, Financial Cryptography is a conference which deserves to succeed and which has got off to an auspicious start - the organisers and programme committee are entitled to feel that they have made a real contribution to the advancement of electronic commerce as we enter its all-important deployment phase.

Alex van Someren is a founder and Managing Director of nCipher Corporation Ltd., a start-up company delivering solutions for electronic commerce systems. nCipher is based in Cambridge, UK and is affiliated with Newbridge Networks Corporation. -


One of the many interesting side discussions at Financial Cryptography '97 worked through some of the potential of a global Internet stock exchange.

The starting point is that the existing markets are inefficient on a number of levels. They tend to be parochial - US investors invest in the US; UK investors invest in the UK. In any case, regulatory hurdles make it difficult for people to invest directly in cross-border IPOs. The markets are also too expensive - investors pay out exorbitant fees to mutual funds and brokers for what is generally agreed to be an indifferent service. The markets are lop-sided in their information flows - professional analysts are either briefed by company finance directors or, at least, have better access to professional sources of information. Finally, they are ineffective at raising money for entrepreneurs. An Internet stock exchange could eventually help correct (partially at least) these problems providing a low cost mechanism for Internet based IPOs and subsequent trading. There would have to be some specified level of due diligence and, to protect the small investor, a requirement that investors prove they have the competence and resources to make risky investments. All investors would have equal access to the company news pages with simultaneous news alerts being emailed to interested investors as they are released. Whichever investors backed such a global exchange would have a strong economic incentive to protect its reputation - outside the clutches of the SEC, state regulators and, in the UK, the myriad of SROs. This model imagines an exchange with its own clearing and settlement house which would hold electronic share certificates and client accounts. Ian Grigg of software house Systemics ( suggested an interesting alternative. Why not have independent issuing houses whose reputations and thus business prospects would stand or fall on their track record? They would issue clients with digital stock certificates which could, when the markets became sufficiently liquid, be traded on any of a number of competing Internet based stock exchanges. As it is assumed that these exchanges would be automated price/time order matching systems, there would be no role for brokers. However, there would be a role for independent market makers to quote a bid/ask spread on illiquid stocks and also for the usual gamut of would-be gurus peddling their charts and analyses of prospects. It quickly becomes apparent that we don't really need all these expensively paid brokers with their marble halls and $1m bonuses or any of the mutual funds with their thousands of door-stepping salesmen. If an investor wants to track the market, he can download a routine to build the appropriate index (or unitised indices for the small investor). As Simon Fedida ( pointed out last month, there are already companies offering quantitative analysis routines for the private investor.

Does this all sound a far-fetched flight of fancy? We'll find out more next month with reports on the progress of plans for Internet stock exchanges in the US.

Duncan Goldie-Scot
Financial Times Virtual Finance Report
172 Tachbrook Street
London SW1V 2NE
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