I too admit of having done some imbibing (Belgian ale I'm afraid). I was thinking about this on the heels of your last lubricated missive, and a very similar thing occurred to me. Actually, something far less ambitious (in the short run)... First of all, I see no deep reason why some bank acount (or, more likely, a whole bunch of 'em) can't be auto-administered like a simple mini bank. It would be auto-administered via the votes of its "owners", who have never met, and who are unaware of the real names of the other owners. Owners vote to lend money out of this account to whomever. As for the administration, well that's 'obviously' handled by a proxy program somewhere, that translates the votes into actual decisions about the account (including loan amount, interest rate, debt-to-liquidity ratio and so on). Needless to say, since this account is tied to one or more denominations, it could eventually be shutdown through the concerted actions of various governments. But the mechanisms of such a "bank" are (I think) independent of the possibility of reliability of a future digital currency. (And of course, there's a lot such a "bank" could do before getting shut down.) The tough thing (or perhaps not..someone here must surely know) is the possibility of lending money to persons who are unidentified in "meatspace". (But then again, even in the non-Cyber world, 'meatspace' is very rarely an issue when lending money...it all boils down to credit records anyway...)

But do we need a bank? I'd guess we need an issuer, but why can't it be a distributed issuer without central control (or even distributed control?)? Can't the protocol deal with the problem of issue?

(We'd have to write a damn good one, of course)

-- Peter Fairbrother

bear wrote:

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On Thu, 5 Dec 2002, Peter Fairbrother wrote:

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OK, suppose we've got a bank that issues bearer "money".

Who owns the bank? It should be owned by bearer shares, of course.

Can any clever person here devise such a protocol?

I thought about this problem for several months.

The problem I kept running into and had no way around is that if the holders are truly anonymous, then there is no way for them to seek redress for fraudulent issue or fraudulent transactions. If the banker goes broke, people want to be able to make a claim against the banker's future earnings for whatever worthless currency they were holding when it happened, and they cannot do that from a position of anonymity. People want a faithless banker punished, meaning jail time or hard labor, not just burning a nym.

The sole method for any truly anonymous currency to acquire value is for the banker to promise to redeem it for something that has value. So the banker, if it's to have a prayer of acceptance, cannot be anonymous.

And the minute the banker's not anonymous, the whole system is handed on a platter to the civil authorities and banking laws and so on, and then no part of the system can be reliably anonymous because the entire infrastructure of our legal system requires identity.

Look at the possibilities for conflict resolution. How can the anonymous holder of an issued currency prove that he's the beneficiary to the issuer's promise to redeem, without the banker's cooperation and without compromising his/her anonymity? And if s/he succeeded in proving it, who could force an anonymous banker to pay up? And if you succeeded in making the banker pay up, how could the banker prove without the cooperation of the payee that the payment was made and made to the correct payee?

We use a long-accepted fiat currency, so we're not used to thinking about the nitty-gritty details that money as an infrastructure requires. It is hidden from us because our currency infrastructure has not broken down in living memory. We shifted from privately issued currency to government-issued currency largely without destabilizing the economy. Then once people were accustomed to not thinking of a promise to redeem as being the source of value, we went off the gold standard. Our economy hasn't broken yet, but you have to realize that this situation is a little bizarre from the point of view of currency issue. We're not thinking anymore about the promise to redeem currency for something of value, and the implications of failure to honor that promise, because we live in a sheltered and mildly bizarre moment in history where those things haven't been relevant for a long time to the currency we use most. But any new currency would have to have a good solid solution for that issue.

The only way I found to decentralize the system, at all, was the model where all the actors are pseudonymous rather than anonymous, each user has the power to issue currency, and different issued currencies were allowed to fluctuate in value against each other depending on the degree of trust or value of the underlying redemption commodity. Money becomes a protocol and a commodity and labor exchange in raw form, rather than a simple sum - it's back to the barter system.

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I'd guess that all the Bank's finances should be available to anyone

who

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asks. That should include an accounting of all the "money" issued. And not be reliant on one computer to keep the records.

An interesting idea, but it more or less prohibits offline transactions involving a currency issue. It also means the entire market must be finite and closed.

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Or the propounders wanting to: make a profit/control the bank?

I do not think that there are profits to be made as an issuer of anonymous or hard-pseudonymous money. That's one of the reasons I advocate the "everyone is potentially a mint" model -- the expenses of issue, and the cost of doing business uphill against trust until one's issue is trusted, should be shared in something like equal proportions by people who undertake it voluntarily.

Bear

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