Big Bang Thought Experiment

[jamesd at echeque.com]

    --
James A. Donald:
> > One could of course have a pile of gold, and physically
> > and in person exchange coins for physical gold

On 25 Dec 2001, at 9:44, Tim May wrote:
> 1. Must money be tied to intrinsic stores of value? I think
> the answer is clearly "No." The U.S. dollar is not in any
> direct way tied to anything except _other dollars_.
> Obviously. True, there are already many things already
> valued in dollars--land, things, houses, loans, taxes,
> salaries--so there is a somewhat circular argument that
> echoes what Danny DeVito said in the recent movie "Heist":
> "Money is money, that's why they call it "money"!"
> (paraphrased)

I fully agree that a server sustaining play money is a good
start, but I see no prospect that e-cash could be introduced
without convertibility.

Cato recently had an article discussing the same matter as
Danny DeVito, at somewhat greater length.

The point that they made was that even if everyone was better
off for adopting some arbitrary form of fiat money as money,
it would not be adopted, because of the critical mass
problem.  With all existing examples of fiat money, this
critical mass problem was overcome by first issuing it as
convertible, non fiat money, then later suspending
convertibility.

Suspension of convertibility was accompanied by some other
form of free lance confiscation, in the form of legal tender
laws that guaranteed that debts contracted for silver could
be paid by paper, even though the value of the paper had
fallen well below the value of the silver, with the result
that creditors suffered dramatic losses, and debtors dramatic
gains.

While issue of a purely fiat digital currency without state
backing would be an interesting experiment, such a currency
could never gain value, never become useful as a medium of
exchange.

> Comment: I'm not trying to trivialize the issues. There are
> issues with dealing with double-spending ("first to redeem"
> is a good fix), transfer deadlock (when Alice and Bob
> exchange something for some token...what if one walks away?
> A deadlock issue with real money, as with exchanging
> suitcases of cocaine for suitcases of dollars), and other
> issues.

With an in person transaction, this is not a problem.  If
either party defaults, violence will ensue, and the cost of
the violence will greatly exceed the value to be stolen.

E-gold now supports this capability.  Since one can now do
e-gold transfer's through one's sprint cell phone, one can
now exchange e-gold for suitcases of cocaine, though because
e-gold is somewhat traceable, one would be unwise to do this.

However the niche market where most people expect the
introduction of digital cash is internet transactions, where
breaking the defaulter's neck is not a viable option.

e-cash will be most useful for sales of information,
especially pornography in its more controversial forms, and
sales of rights over assets that do not involve any
accompanying physical movement of assets.

    --digsig
         James A. Donald
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