Digital Money

I would like to take issue with the recently expressed opinion that
digital cash is not money, but merely a mechanism for communicating
transactions.

What does it mean to mint money?  In the traditional sense, it means
to issue something only you can produce, and guarantee that it will be
accepted for some sort of goods and services.  In the case of paper
money, this takes the form of a printed document which is moderately
difficult to forge, and which can be exchanged for goods and services
of various kinds.  Since the issuing agency, usually a government, is
presumed to exercise prudent financial management to prevent the
currency's value from decreasing, and is likely to be around for a
long time, such cash can be hoarded with little risk.

In making the transition from paper cash to digital cash, only one
thing changes.  It is now the information which represents the money,
not the document itself.  Since such information can be easily
replicated, spent banknotes must be carefully documented and the
issuing institution must allow each banknote to be spent exactly once.
Cryptographic signatures and authenticity verification provide
excellent protection against forgery.

But these differences are minor ones.  Banknotes which have been
communicated to you through a secure channel, and whose contents have
not been disclosed to any third party, should be for all practical
purposes identical to cash.  Digital banknotes issued by a national
government should be just as good as physical banknotes printed by a
national government.

Most of the objections to using digital cash for other than immediate
transactions stems from issues related to trust in the issuing
institution.  One would certainly have less faith in a newly formed
digital bank operated through a string of anonymous remailers than one
would have in digital currency issued by Citibank or Chase Manhattan.

But given an issuing institution of unquestionable trust, there should
be no significant difference between digital cash and real cash, and
storing it for indefinite amounts of time on a floppy in your pocket
should be completely risk-free.


-- 
     Mike Duvos         $    PGP 2.3a Public Key available    $
     mpd@netcom.com     $    via Finger.                      $

Mike Duvos writes:
 > Since the issuing agency, usually a government, is
 > presumed to exercise prudent financial management to prevent the
 > currency's value from decreasing, and is likely to be around for a
 > long time, such cash can be hoarded with little risk.

You seem to have a much different notion of "risk" than I do...

 > Digital banknotes issued by a national government should be just as
 > good as physical banknotes printed by a national government.

Indeed, if national governments were in the business of issuing
digital "notes", then such instruments would be essentially equivalent
to cash.  However, I'm not sure if the mechanism of issuance can be
made the same as that of physical cash; is there a protocol that does
not require a two-way transaction to get the digicash?  (Physical cash
is one way; the money is printed and then essentially just handed out.
It doesn't matter who gets what bill.)

 > But given an issuing institution of unquestionable trust, there should
 > be no significant difference between digital cash and real cash, and
 > storing it for indefinite amounts of time on a floppy in your pocket
 > should be completely risk-free.

Is storing a $20 US bill in your pocket for indefinite amounts of time
really "risk free"?  How about 20 Chilean pesos?  20 rubles?

(No, digital cash is no better or worse.)

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