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.