Excerpts from mail.nonpersonal: 5-Dec-95 Re: Geodesic Payment System.. "E. ALLEN SMITH"@mbcl.ru (2487)
All of this is assuming that the digital currency being produced has a one-to-one ratio with some "real" currency. If, for instance, the digital certificates were indeed bought with a one-to-one ratio from the producer, but were traded to others for "real" cash at some market-determined discount, the market would incorporate the risk. The traders who were willing to take the risk that the certificates were not actually worth one dollar/whatever would be able to make a profit by the difference between one digital dollar and one "real" dollar. The problem is simplified even more with privately backed currencies.
I had assumed that there was a market discount, but it's still not quite that simple. It's very hard for markets to deal with *unbounded* risk. The biggest problem I see with most of the crypto-cash schemes is that there is a legitimate scenario -- however low-probability you might assess it to be -- of break-the-bank catastrophic failure, i.e. in which someone gains the keys that allow him to essentially print money. This kind of low-probability, infinite-cost risk is the kind of thing that gives underwriters the heebie jeebies. There's a good reason that most companies have "Ltd" after their name instead of "Unlimited", in those countries where that's the naming convention. Excerpts from mail.nonpersonal: 5-Dec-95 Re: Geodesic Payment System.. Wei Dai@eskimo.com (1749*)
But if we're converting between one eletronic system and another, then cryptographic protocols reduce the cost of protection to nearly zero for even small organizations.
This is probably true, although protocol translation is a notoriously tricky and subtle business. But my comments were aimed at the conversion between electronic and physical monetary systems, not between different electronic systems. And, for this purpose, totally non-Internet mechanisms such as SWIFT or US ACH are, in my view, "physical" systems, for a number of historical reasons. If you disagree with that classification, however, you just push the line down a little further, but don't change the underlying assessement. -- NB -------- Nathaniel Borenstein <nsb@fv.com> | (Tense Hot Alien In Barn) Chief Scientist, First Virtual Holdings | VIRTUAL YELLOW RIBBON: FAQ & PGP key: nsb+faq@nsb.fv.com | http://www.netresponse.com/zldf