On Sun, Dec 06, 1998 at 12:08:04AM +0000, Adam Back wrote:
(2) Borrowing resources -- a student with access to a campus full of workstations can obtain quite a bit of free CPU time.
If a problem can be solved on a network of computers for free, then by definition broadcasting the solution to that problem won't create any money. B-money mints will need to solve problems that can't be parallelized well on low-bandwidth networks in order to prove that they're not using free idle time of network computers. I'm not sure if such a problem class exists, however. I think this problem will probably become less serious in the future as people discover more productive uses of idle computer time.
(7) If such a system took off there seems to be an overhead equivalent to the value of b-money in circulation which over time has essentially been burnt off in disipated heat, and useless hardware. But probably the cost is still much lower than the enormous costs involved in maintaining a force monopoly to enforce traceable transactions.
I now tend to think that the government monopoly of force is a net benefit. If you look at countries where the government doesn't have a monopoly of force (like Russia) things look pretty bleak. Anyway, back on topic. The resource waste in creating b-money can be reduced if we assume that b-money will be created gradually as the b-money economy expands rather than all at once at the beginning. If we build a deflation factor into b-money, b-money will be worth more over time and therefore not as much b-money will be needed to support the operation of the economy. This can be accomplished by specifying that the standard basket used to define the creation of b-money grow at a fixed rate over time. But of course deflation also has costs since it makes comparing prices across time more difficult. I think b-money will at most be a niche currency/contract enforcement mechanism, serving those who don't want to or can't use government sponsored ones. However if it did become mainstream I think there are some interesting macroeconomic questions here. Will prices really be stable as they're designed to be? Will there be business cycles? What is the optimum inflation/deflation rate?