[fc-discuss] Financial Cryptography Update: Penny Payment Systems

iang@iang.org iang@iang.org
Thu, 20 Oct 2005 07:51:03 +0100 (BST)

((((((((( Financial Cryptography Update: Penny Payment Systems )))))))))

                            October 20, 2005




Google's plans on a payment system are giving some people amusement.


Synopsis:  it's a merchant oriented system, based on credit card. 
Direct "Paypal" model in other words.  (This is a little unfair to
those who invented the model, before Paypal, but hey, history sucks.)

Question is, would you or I do any different?  That's a tricky
question.  Probably not, because Paypal is about as vulnerable as a
unchaperoned princess on the way to her first ball.  I'd be keen to
migrate that model away for fraud reasons, but the "standard approach"
has a lot of merit going for it right now.

This column waxes on without limit about how the planet will spin
faster and the sun will shine brighter when google releases, due to all
the hook-ins with other google products.  Roight.  But seeing as I
murmured that eBay was looking ok the other day, I feel compelled to
point out this statement:  "Since eBay is already in deep trouble, it
poses no threat to Google either way."	Huh!


Introducing WhoPay:

WhoPay: a Scalable and Anonymous Payment System for Peer-to-Peer
Kai Wei, Yih-Farn Chen, Alan J. Smith and Binh Vo

EECS Department
University of California, Berkeley
Technical Report No. UCB/CSD-05-1386 2005


An electronic payment system ideally should provide security,
anonymity, fairness, transferability and scalability. Existing payment
schemes often lack either anonymity or scalability. In this paper we
propose WhoPay, a peer-to-peer payment system that provides all the
above properties. For anonymity, we represent coins with public keys;
for scalability, we distribute coin transfer load across all peers,
rather than rely on a central entity such as the broker. This basic
version of WhoPay is as secure and scalable as existing peer-to-peer
payment schemes such as PPay, while providing a much higher level of
user anonymity. We also introduce the idea of real-time double spending
detection by making use of distributed hash tables (DHT), which further
improves the security level of WhoPay. To evaluate how well WhoPay
distributes load among peers, we have run simulations with several
different configurations. The simulation results show that the majority
of the system load is handled by the peers under typical peer
availability, indicating that WhoPay should scale well.


To which, Daniel comments:
The main idea is simple: rollovers are handled by the first user who
received a coin rather than directly by the issuer. If the user goes
off-line, the issuer can temporarily take care of the rollovers. This
is the innovation of PPay. This WhoPay is basically an anonimization
layer on top of PPay.

As commented from time to time, a lot of good research is going on in
p2p space.

In PayPal/eBay news, PaymentNews reports that the AuctionBytes.com's
Ina Steiner has commented on the new eBay policy of banning other
payment systems from auctions.	Ostensibly for user safety, there is
some skepticism, and notions that this is positioning in advance of
google are going to be hard to shake:

>From time to time, as new payment services arise, eBay will evaluate
them to determine whether they may present trust and safety concerns
and are appropriate for the marketplace. eBay will consider the
following factors, among others, in making its determination:

* Whether the payment model offers substantial financial, privacy and
anti-fraud protection for buyers and sellers 
* Whether the payment model raises the potential for confusion among
eBay users, or involves incentives that may present fraud concerns 
* Whether the payment model involves precious metals, or other non-cash
(points, miles, minutes, coupons, discounts) as consideration 
* Whether the payment service has a substantial historical track record
of providing safe and reliable financial and/or banking related
services (new services without such a track record generally cannot be
promoted on eBay) 
* The identity, background and other business interests of the payment
service sponsor 
* The license/regulatory status of the payment provider in the
countries where it provides payment services

The gold community will get a kick out that one!  Also recently
reported was PayPal's year summary.  Payment News says:

PayPal's parent eBay announced third quarter financial results this
afternoon. The following highlights regarding PayPal's third quarter
financial performance were included:
* Payments net revenues grew to $247.1 million, an increase of 44
percent year over the same quarter last year and up 1.3 percent vs. the
prior quarter.
* PayPal's user accounts grew to 86.6 million accounts, up 53 percent
year over year and up 9.8 percent vs. the prior quarter. Active
accounts grew to 24.5 million, up 41 percent year over year and 7
percent vs. the prior quarter.
* Total gross payment volume handled by PayPal grew to $6.7 billion, up
44 percent year over year and 3 percent vs. the prior quarter. Total
number of payments grew to 117.4 million, up 41 percent year over year
and 4 percent vs. the prior quarter. 69 percent of PayPal's payment
volume was eBay-related.
* PayPal earned revenues of 3.60% on payment volume totaling $247.1
million, had expenses of 1.11% of payment volume totaling $74 million
and losses of 24 basis points totaling approximately $16 million.

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