Re: Islands in the Net
Tim May writes:
We "locally clear" (approximately the same as "readable on its face") cash and commercial paper because of an assumption that forgery is difficult and unlikely. When forgery becomes common in some area, merchants carry lists of suspected numbers, IDs, etc., and the "readable on its face" criterion erodes.
Exactly. What allows something to be used as an economic unit are its uniqueness and liquidity. Real assets are unique simply by virtue of being physical objects, and are liquid (in the long run) by virtue of having inherent value. I don't worry about someone forging my house, for example, and even things like gold coins or other precious metals are much easier to verify than to forge, and once verified can be exchanged for real assets without reference to the entity which originally issued them (for example, the value in a Krugerrand is that it's gold, not the fact that it was issued by South Africa). Precious metals and the like are borderline, for all practical purposes we can view them as having inherent value, since people have assigned them value for all of recorded history. Currency, however, has no inherent value. Its only value lies in its being made up of unique tokens which can be exchanged for real assets. If a token ceases to be unique, it ceases to have value (except perhaps as a curiousity-- there may well be people who collect counterfeit money, for all I know). Also, if it loses its ability to be exchanged for real assets it likewise loses its value (e.g., Confederate dollars from the Civil War). Digital cash poses two problems. The first is that digital information is easier to duplicate than to verify, and a successful forgery is absolutely indistinguishable from the original, since it is the information itself that is the token, not any phsyical instantiation of it. The other is that to be successful, digital cash needs to be liquid. For a token to be liquid, it must be backed by real assets. Governments are the classical examples of entities which have sufficient resources to back a currency, although cartels in the private sector can also do so (VISA/ MasterCard, for example). So far, though, no one has solved either the uniqueness problem or the liquidity problem for digital cash. As a result, it might be more realistically be called "digital scrip", at least so far.
This is the sense in which I meant that "Money sure isn't like this."
Indeed, mainly because existing currency is either physical objects or data controlled by the banking system and overseen by governments. Right now, digital currency only works by being a pointer to a token, not the token itself.
We need to find a way to get back to exploring the various nifty systems that are being described in the crypto papers, but which lack any real implementation.
Speaking as someone who has a sharp interest in such things, and the resources to apply to them, I have to say that the current regulatory environment serves as a large barrier. If industry's hands are tied, then this all has to be done in "free time" or academia... This slows things down immensely. If it weren't for the Department of State holding the export-control sword over our heads, we'd already have things like digital purchasing, online user registration, digital sigs & encryption by default in email, and so on. Amanda Walker InterCon Systems Corporation
I have rearranged quotations from the original for more cogency of response. From: "Amanda Walker" <amanda@intercon.com> Real assets are unique simply by virtue of being physical objects, and are liquid (in the long run) by virtue of having inherent value. The other is that to be successful, digital cash needs to be liquid. For a token to be liquid, it must be backed by real assets. This is just not what "liquid" means. A liquid asset refers to the speed with which it can be traded, not what kind of value it has. "Liquid" is an adjective about timeliness, not about resolution. There are plenty of liquid assets which don't have "real" value, the "real" in "real estate", i.e. physical existence. Promises, for example, have value, but not "real" value. A negotiable promissory note, i.e. a promise to deliver money (money which may be real or virtual), is a liquid asset, but not a real asset. Currency, however, has no inherent value. Its only value lies in its being made up of unique tokens which can be exchanged for real assets. Currency is not just paper money. Currency also includes minted specie (e.g. gold coins), other minted coins, silver certificates, and federal reserve notes. Sometimes currency _is_ the real asset, as in Krugerrands. Sometimes currency is a promise to deliver real assets, as a silver certificate (the _old_ greenbacks). Sometimes currency represents a fiat value, as with today's greenbacks. If you take a dollar bill to a Federal Reserve Bank, you won't be able to turn that physical representation of a dollar of fiat currency into anything that's still money and at the same time backed by real assets. Just because it's a fiat currency doesn't make it any less a currency. Also, if it loses its ability to be exchanged for real assets it likewise loses its value (e.g., Confederate dollars from the Civil War). Under this reasoning, today's dollar bills should be worthless. They aren't. Real assets are not the only form of value. Governments are the classical examples of entities which have sufficient resources to back a currency, although cartels in the private sector can also do so (VISA/ MasterCard, for example). What currency do Visa or Master Card issue, perchance? They don't issue currency. Not all forms of money transfer involve currency, though, so credit cards can move money around without moving currency around. The constitution of the USA reserve currency making power for Congress and so far they haven't relinquished any of it. So far, though, no one has solved either the uniqueness problem or the liquidity problem for digital cash. As a result, it might be more realistically be called "digital scrip", at least so far. The uniqueness problem is entirely solved by what Chaum calls the "spent number database" (a term I abhor). Some of the other offline techniques can be used to implement a tradeoff between uniqueness and identity. The problem you refer to as liquidity is really the backing problem. It has also been solved, but not yet implemented. All it takes is for someone to incur a legal obligation to return money for digital cash, which means a functioning digital cash business, of which there are not yet any. Right now, digital currency only works by being a pointer to a token, not the token itself. This is an insightful comment. Its truth is unavoidable with any open digital money transfer system. The security of the scheme cannot rely upon secure channels controlled by the bank (since it is an open system), so the items transferred must be entirely informational. Information doesn't obey conservation of mass, and so can't act as a token. Eric
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