Re: What backs up digital money?

From: jeff@BlackMagic.Com (Jeff)
> 
>   Regarding "What backs up digital currency/cash", a hypothetical situation
>   just to see what you guys think.  Can this happen ?  I honestly have my
>   doubts, mostly I see logistical problems (finding a mechanism, etc, if
>   you recall my mini-rant just a few days ago).  Anyway, these are some of
>   the things I honestly feel would have to happen for a true Internetwork
>   currency to take off, if that's even possible.
> [Lots of examples of tokens issued by various businesses and other groups]

I think this is an interesting idea, and no doubt will happen in some
form.  Coupons and other special tokens could be issued electronically.
But there are limits to how far it is likely to go, since these tokens
are competing with ordinary cash-backed tokens (digital cash).  It's like
today, maybe you could buy something at the swap meet using a handful of
50-cents-off toilet paper coupons, if the seller was agreeable.  But this
becomes in essence a barter trade.  Why do this, if the cash alternative
is much more widely accepted?

Another factor that arises is that if some token does catch on and
circulate widely, it could be subject to regulation.  I understand that
in Las Vegas, some people started using casino chips as money.  You
could buy things with them, and they were accepted since people knew
they could be turned in for cash at the casino.  But the Feds cracked
down and brought the practice to a halt.  (I will ignore for now the
question of whether such a crackdown could work on the net, but it would
at least be a barrier to the acceptance of such tokens.)

The idea of your "market square" token, which represents a basket of
other tokens, is interesting, but it seems like you're basically
re-inventing money.  I don't quite understand the specifics of your
proposal, where the market square token is based on the "market value" of
the other tokens.  In what units is this market value expressed?  It
seemed like what you had instead was a set of relative prices, where each
token was worth a certain number of each other kind.  I don't see how you
can get a unique market value for each token out of that system.  It
doesn't seem like the relative value idea really works, anyway, as it
suffers from the barter problem that there will be too few people who
want to trade their shoe tokens for fruit tokens.  That was what
motivated the transition from barter to money in the first place, or so
the story goes.

If your overall point is that even without digital cash, we would end
up with some form of electronic money eventually anyway, I think it is
true.  Entrepreneuers abhor a vacuum, and if the need is there it will
be met.  But the fact is that we are likely to have digital cash before
all these other things, so I don't really see the whole scenario coming
to pass.  I do think a lot of your specific applications are
interesting, though, and hopefully there will be many more creative
uses of this technology.  I know Eric Hughes a while back was talking
about a way for players to transfer wealth between MUD games using a
token based system.  There are a lot of game possibilites.

Hal

On Fri, 29 Mar 1996, Hal wrote:

> From: jeff@BlackMagic.Com (Jeff)
> > 
> >   Regarding "What backs up digital currency/cash", a hypothetical situation
> >   just to see what you guys think.  Can this happen ?  I honestly have my
> >   doubts, mostly I see logistical problems (finding a mechanism, etc, if
> >   you recall my mini-rant just a few days ago).  Anyway, these are some of
> >   the things I honestly feel would have to happen for a true Internetwork
> >   currency to take off, if that's even possible.
> > [Lots of examples of tokens issued by various businesses and other groups]
> 
> I think this is an interesting idea, and no doubt will happen in some
> form.  Coupons and other special tokens could be issued electronically.
> But there are limits to how far it is likely to go, since these tokens
> are competing with ordinary cash-backed tokens (digital cash).  It's like
> today, maybe you could buy something at the swap meet using a handful of
> 50-cents-off toilet paper coupons, if the seller was agreeable.  But this
> becomes in essence a barter trade.  Why do this, if the cash alternative
> is much more widely accepted?

The solution is a series of a "coupon/token exchange."  One can imagine a 
service which does nothing but exchange all forms of coupons/tokens or, 
indeed, provides a fluid market for them a la "Idea Futures."

If a given coupon/token issuer wanted complete fluidity, he has merely to 
offer the coupons/tokens on the coupon/token exchange.  After a basic 
finding, the market will take care of the rest, including valuation.

This gives the individual issuer exchangability, to the extent the 
market percieves his coupons to be worth something.  Individuals not 
interested in their 'currency' being public could refuse to offer them on 
the exchange, or offer them on the exchange "blindly" without a 
description of their terms of redemption, and thus maintain an 
underground market in the tokens or coupons, used, one would assume, only 
by those who were familiar with the terms of redemption.

> Another factor that arises is that if some token does catch on and
> circulate widely, it could be subject to regulation.

With an offshore exchange, this becomes almost a non-issue.  Particularly 
if encryption is used to mask exchanges.

> I understand that
> in Las Vegas, some people started using casino chips as money.  You
> could buy things with them, and they were accepted since people knew
> they could be turned in for cash at the casino.  But the Feds cracked
> down and brought the practice to a halt.  (I will ignore for now the
> question of whether such a crackdown could work on the net, but it would
> at least be a barrier to the acceptance of such tokens.)

Again, if you had an offshore entity which provided easy convertability 
to, e.g., e$ dollars, this becomes impossible to eliminate.
 
> The idea of your "market square" token, which represents a basket of
> other tokens, is interesting, but it seems like you're basically
> re-inventing money.  I don't quite understand the specifics of your
> proposal, where the market square token is based on the "market value" of
> the other tokens.  In what units is this market value expressed?  It
> seemed like what you had instead was a set of relative prices, where each
> token was worth a certain number of each other kind.  I don't see how you
> can get a unique market value for each token out of that system.

Anyone have the idea futures URL available?  The author should take a 
look at it.  Briefly, by offering "futures" contracts on ideas (queen 
mother dies by year 2000), one can get a market valuation of the 
legitimacy or likelihhood of this claims truth.

In the same way, a liquid exchange of tokens or coupons would provide 
fairly accurate valuations of the instruments.

All the exchange would have to do is provide token or coupon convertability 
into it's own tokens (exchange tokens, "etk"s) and then permit purchases of 
all the trading coupons or tokens in terms of exchange tokens.

e.g., assume currently one e$ is trading at 1etk.  Those wishing to buy 
"tacky tokens" with e$ need only purchase 1etk, then run their cursor 
down to the tacky token field and see that two tacky tokens are trading 
at 1etk.  Send the exchange their etk and get two tacky tokens.  (Of 
course, the exchange would be best off in demominating things in 
etk100,000's so as to collect a small exchange fee in their own currency 
easily.

The result might even be active trading in etk's.  Get an offshore bank 
involved, and you have real interesting stuff.

> It
> doesn't seem like the relative value idea really works, anyway, as it
> suffers from the barter problem that there will be too few people who
> want to trade their shoe tokens for fruit tokens.  That was what
> motivated the transition from barter to money in the first place, or so
> the story goes.

What I've proposed is just a local common exchange of sorts.  But it's 
only limited in so far as there are active users of the exchange.

> If your overall point is that even without digital cash, we would end
> up with some form of electronic money eventually anyway, I think it is
> true.  Entrepreneuers abhor a vacuum, and if the need is there it will
> be met.  But the fact is that we are likely to have digital cash before
> all these other things, so I don't really see the whole scenario coming
> to pass.  I do think a lot of your specific applications are
> interesting, though, and hopefully there will be many more creative
> uses of this technology.  I know Eric Hughes a while back was talking
> about a way for players to transfer wealth between MUD games using a
> token based system.  There are a lot of game possibilites.

The void to be filled will be as individuals see the advantages of 
minting their own currency.  My brain's tired.  Anyone want to spit some 
of these out?

> Hal
> 

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[Everyone's ignoring the obvious answer: Exabyte's, silly :)]

I find it kind of strange that many people are advocating setting up 
nano-currencies when lots of central-bank grownups in the EU are still 
bang-up for monetary union. I'd be interested to hear why so many people 
think the massive extra costs involved in adding 1000s of extra private 
negotiable currencies will somehow be worth it (apart from FOREX and 
derivatives arbitragers).

If I was going to create a purely digital currency I'd want to do it at a 
supra-national scale (e.g. the Euro or maybe even the UNO); otherwise why 
not just treat chaumian cash as just another payment instrument.





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> From: Hal <hfinney@shell.portal.com>

> I understand that
> in Las Vegas, some people started using casino chips as money.  You
> could buy things with them, and they were accepted since people knew
> they could be turned in for cash at the casino.  But the Feds cracked
> down and brought the practice to a halt.


   Noting your caveat that this is a rumor, I doubt it.  I'm not aware of 
there being any legal basis for doing so. The only possible related thing 
would be for the IRS to bothyer people _after the fact_   _if and only 
if_ they were using barter to to hide the receipt of income. For example, 
if you have declared on your tax return that you are engaged in _buying 
and selling widgets with the intent of realizing a profit_ (Schedule C), 
they are likely to question whether your bartering of a widget for 5 
50-cents-off-toilet-paper coupons, was really an even trade of your 
personal property for someone else's personal property.

Even in such case, the rule is not absolute. For example, the regulations 
which implement the taxation of the inter-state trade in firearms, make 
the presumption that the dealer does possess some number of firearms as 
chattels.

The legal tender laws are of very limited scope. Bus companies _are_ 
allowed to decline to accept dollar bills and instead demand exact change 
in coins, for example.