Virtual Cash

I'd like to see more on this.
Bud

> But it sounds like "vitual money."  I would like to see a description of the 
> model for this.  Sounds like a form of barter-script.  

One reason they haven't caught on is that there *isn't* a model. There
is software (cypherpunks write code! :-) to implement banks and
exchange coins (the tacky tokens themselves) but noone (as far as I've
seen) has come up with an "economic model" within which they could use
them. (In spite of perry's objections, the economic discussions *are*
relevant here...  many readers seem to not understand the complexities
of money systems, without which *using* e-cash won't be practical, so
we need some major cross-breeding here.)
							_Mark_

Mark W. Eichin wrote:

| > But it sounds like "vitual money."  I would like to see a
| > description of the model for this.  Sounds like a form of barter-script.  

| One reason they haven't caught on is that there *isn't* a model. There
| is software (cypherpunks write code! :-) to implement banks and
| exchange coins (the tacky tokens themselves) but noone (as far as I've
| seen) has come up with an "economic model" within which they could use
| them.

	Money has value because we agree it has value.  As long as
noone is willing to give me a meal, a nights lodging, or 30 minutes
CPU time for some number of tacky tokens, they will be just that;
tacky.  This is not to flame the dude who wrote the code.  Its a good
things that its been written, but what he can't write is a framework
for using the money in.

	(eg) If I knew that Derek Atkins was willing to write encryption
code for 10 tokens an hour, I might start trying to accumulate tokens
to pay Derek to do some useful work.  But he would only be willing to
accept those tokens if he knew he could get something useful for them.
If he is the only one providing things for tokens, hes going to
accumulate lots of tokens, and not be able to spend them, since theres
nothing interesting to spend his tokens on.

	So, if we want to make tokens worth something, we need to
start transforming them into real goods &/or services.  This will
reward those early adopters who grabed tokens when they were first
published.  To do this, we need to know how many tokens exist, ie,
what the money supply is.  If we don't know, the value of tokens would
be subject to a painful misestimation.  We would also need some sort
of guarantee the bank isn't going to mint more on a whim.  If tokens
aren't going for a lot of dollars, this could be a simple personal
guarantee from the bank.

Adam

-- 
Adam Shostack 				       adam@bwh.harvard.edu

Politics.  From the greek "poly," meaning many, and ticks, a small,
annoying bloodsucker.

Have you signed the anti-Clipper petition?

> 	Money has value because we agree it has value.  As long as
> noone is willing to give me a meal, a nights lodging, or 30 minutes
> CPU time for some number of tacky tokens, they will be just that;

The simple model: I offer to accept U.S. dollars and hand out tokens
at a one-for-one rate.  I also promise to redeem them at the same
rate.

Unfortunately, nobody would trust me, and they'd be smart not to.
I'm not an established financial institution.  Not only might I
abscond with the money, I don't have the financial reserves to
cover redemptions and still make money on a no-fees system.  And
I don't know the laws involved, so you might lose out when I get
hauled off to jail.

Poll: assuming you had a use for FedNote-backed 100%-reserve digicash, 
what service fee would you be willing to pay, and how much money
would you be willing to leave in the hands of some random individual?

   Eli   ebrandt@hmc.edu

On Mon, 2 May 1994, Eli Brandt wrote:
> Poll: assuming you had a use for FedNote-backed 100%-reserve digicash, 
> what service fee would you be willing to pay, and how much money
> would you be willing to leave in the hands of some random individual?

I would be willing to pay 5% upon receipt of the digicash, and possibly 
some smaller fee upon redemption. A random individual? None at all. 
However somebody with a good reputation I might trust initialy with 
amounts less than $500.

Happy Hunting, -Chris.

______________________________________________________________________________
Christian Douglas Odhner     | "The NSA can have my secret key when they pry
cdodhner@indirect.com	     | it from my cold, dead, hands... But they shall
pgp 2.3 public key by finger | NEVER have the password it's encrypted with!"
cypherpunks         WOw            dCD           Traskcom          Team Stupid
  Key fingerprint =  58 62 A2 84 FD 4F 56 38  82 69 6F 08 E4 F1 79 11 

------------------------------------------------------------------------------

On Mon, 2 May 1994, Christian D. Odhner wrote:

> On Mon, 2 May 1994, Eli Brandt wrote:
> > Poll: assuming you had a use for FedNote-backed 100%-reserve digicash, 
> > what service fee would you be willing to pay, and how much money
> > would you be willing to leave in the hands of some random individual?
> 
> I would be willing to pay 5% upon receipt of the digicash, and possibly 

Sounds reasonable to me.  There are plenty of ~$100 transactions for 
which a $5 fee for anonymity would be reasonable.  I don't think I'd 
trust someone known only by net-rep with much more that...

Joe

>I would be willing to pay 5% upon receipt of the digicash, and possibly 
>some smaller fee upon redemption. A random individual? None at all. 

And a business?  They'd laugh.

For any system of digital cash to take off, it must be economical to use.

Since credit card rates cost business 2 1/2% - 4%, digital cash must
be more efficient in real terms in order to succeed.

Eric

>[...] but noone (as far as I've
>seen) has come up with an "economic model" within which they could use
>them.

Denominate digital money in dollars in a demand deposit account in a
US bank.

Why reinvent the wheel, or, in this case, the unit of value?

Eric

Eric Hughes wrote:

> >[...] but noone (as far as I've
> >seen) has come up with an "economic model" within which they could use
> >them.
> 
> Denominate digital money in dollars in a demand deposit account in a
> US bank.
> 
> Why reinvent the wheel, or, in this case, the unit of value?

Exactly, digital money must be fungible, with some other unit of
value.  But limiting it to USD, is not the way to go.
Individuals should be able to pick and choose which currency they
want their digital money to represent.  

U.S. banks are problematic.  They tend to be unstable.  I propose
the following banks which currently have a AA rating or better:

Alegemene Bank Netherland
Credit Suisse
Swiss Bank Corp
Barclays Bank
Union Bank of Switzerland
J.P. Morgan

The legal structure is also quite elementary and so is the
software. (Although I don't profess to be a software expert.)  

I'll put the software issue aside for a moment, and concentrate
on the structural part of the system.  

The appropriate structure is an "investment club" which in point
of fact is a private mutual fund.  The club has a trustee, I'd
suggest an account run by either by a trust company or by a lawyer.
The lawyer receives the funds in her trust account, and signs and
acknowledges each receipt.  She then invests the funds into
deposits at approved institutions, or in Government guaranteed
securities.  In essence, it's no different than a money market
fund. 

The fund itself is purely an international partnership, domiciled
as a Liechtensteinian Anstalt.  An anstalt has unique
characteristics in that it is both a private foundation and a
corporation, and receives unique legal treatment.  

I'll leave the discussion here, since the complexities are quite
voluminous and move on to the software.

The mm package, provides a jumping point.  Of course it's the
server module which should be used by the client.  Each client
uses the server to "create" their money.  The money is then sent
to the trustee, who upon receipt of funds in her trust account
signs each unit of money.  The coins can then be exchanged, as in
the mm package.  Now, if someone wants to redeem the coins, back
into currency, they send the coins to the trustee with a request
that funds be paid according to instructions with the signed
coins.  The trustee can then send appropriate amount of funds
wherever the instructions call for.  

Faith in the system builds as coins can either be accepted by an
individual or can be converted by the individual into what
actually backs up the system, cash.  All the trusttee has to do is
differentiate between a message which is transferring coins, and
a message which is redeeming coins.  Easy as pie.

A message which is transferring coins simply signs the new coins
and removes the old coins from the list.  A message redeeming
coins, removes the coins from the list, and sends funds to the
appropriate individual.

>> Denominate digital money in dollars in a demand deposit account in a
>> US bank.

>Exactly, digital money must be fungible, with some other unit of
>value.  But limiting it to USD, is not the way to go.

Any pre-existing national currency will do.  My point was abbreviated
for clarity.

Eric

"Mark W. Eichin" says:
> (In spite of perry's objections, the economic discussions *are*
> relevant here...  many readers seem to not understand the complexities
> of money systems, without which *using* e-cash won't be practical, so
> we need some major cross-breeding here.)

In the context of digicash, economic discussions are relevant.
However, I think that general questions on subjects like "is the Fed a
conspiracy by the Bavarian Illuminati" and the like are probably not.

The differences between free banking and central banking are likewise
difficult to explain -- it would overwhelm this list to discuss them.
We could discuss nothing else all day for weeks.

Anyway, the real reason none of the test e-cash systems here have
taken off is multifold.

1) The market is illiquid.
2) The currency is difficult to use -- more difficult to use than
   alternatives.
3) There is nothing of value to trade for. (I wouldn't take many of
   the offered items for free, so why would I spend time trying to
   figure out the digicash system to get them.)

Basically, you need a commodity to be widely recognised as having
value and widely tradeable for goods and services, or easily converted
into something you can trade, before it can be used as money.

Something people have to remember is that digital cash is not money --
its more like "digital anonymous bank drafts". Just as a check can be
USED for money but is in fact a way of TRANSFERING money, so digicash
isn't in and of itself the source of value -- its a bookkeeping
system for something that is. That something could be dollars, gold,
cocaine futures contracts on the Bogota Commodity Exchange, girl scout
cookies, or anything else people decide is a good medium of exchange.

The choice of medium largely depends on what people want to trade
with. Right now, for whatever reason, thats generally dollars. The
savvy digital banker, therefore, will likely set up shop to allow
people to move dollars around.

Even this will not guarantee success, unless the system becomes quite
widely deployed. Of course, the incentives to do that come from the
payoffs you would get for doing so in the free market. That also
likely means that digital cash systems will involve fees -- either on
the purchase of digital cash the way Travellers Checks are handled, or
in some other similar manner.

Perry