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

--- My preferred and soon to be permanent e-mail address:unicorn@schloss.li "In fact, had Bancroft not existed, potestas scientiae in usu est Franklin might have had to invent him." in nihilum nil posse reverti 00B9289C28DC0E55 E16D5378B81E1C96 - Finger for Current Key Information

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.