rah@shipwright.com (Robert Hettinga) writes (quotes are Eric Hughes):
Digital cash has to be issued by someone, who *really should* back it up with real money, and should thus receive real money as collateral for the digicash on the net. Thus, there's a float. Thus it's really a loan with a security (ecash) to prove it, with the collateral in the bank of the issuer earning the issuer interest. Thus it's a bond. And since it has no maturity date, and it's not a perpetuity, then it has an implicit call provision. Thus, it's a callable bond.
One difference between ecash and bonds is that bonds generally pay interest (to the bond holder, not to the lender!), while ecash may not. I also suspect that most ecash will have a fixed maximum lifetime beyond which it is no good, due to technical problems in keeping lists of spent notes. So it would not necessarily be callable in theway Bob describes.
The issuer gets to keep the interest accrued on that money while the ecash is in circulation.
Perhaps in some systems this is so, but not all. The unit of account must be fixed, but the unit of account may not be constant currency, but rather currency at a fixed interest rate.
Is "unit of account" a formal term here? Could you define it?
I think Eric is referring to how the notes are denominated, and the possibility that they may bear interest. A note could be marked as worth $1 + 6% per year past 1994, expiring in 1998, for example.
The problem about not keeping the interest on the float is, who do you pay it to otherwise? If you have a truly anonymous digital cash system, you couldn't find the original purchaser if you tried. If you want to treat this like a settlement problem in securities operations then you have to track each owner's interest share for the time they held the instrument and pay them back. Again impossible. If you pay back the accrued interest on that specific ecash certificate to the person who "walks in the door" with it, is it fair?
Fair? Who cares? The question is, is it useful? Sure it is. I'd rather use cash which bore interest than that which didn't! Sure, it's a little more complicated to buy something with notes which are worth $1.05 - $1.10 than $1.00, but that's what computers are for. The value increase accrues to whomever holds the note during the time they hold it.
The solution is, keep the interest, use the money to fund the issuer's operations. If that's not enough, charge exchange fees. A competitive market will sort out who's got the most efficient operations, and thus ecash users get ecash at its most efficient price.
Sure; just don't say "the solution is". You issue non interest bearing notes and live on the float; I issue interest notes and live off the exchange fees. Let the market decide. Hal