Making Money in Digital Money

[R. A. Hettinga]

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At 10:30 PM +0200 4/28/03, Nomen Nescio waxed all Fermi on us and
popped his bulb with the following bit of incandescence: 

>Well, here's a clue, folks: information goods are free today. You
>can't build a digital money system on paying for information goods,
>in a world where people expect to get their information goods for
>free. 

Who here actually believes that digital goods and services are
actually free to produce?

Hands?

Anybody?

No?

I thought so.


Right now, the way things are going, according to the popular wisdom,
there is *one* way to have auction markets for digital goods and
services on a public network. You can have digital rights management
and book-entry is-a-person transaction execution, clearing, and
settlement all the way through I/O: *through* the processor,
*through* the display device, *through* the keyboard. Sniffers and
bugs everywhere, biometrics everywhere. Internet property as
perpetual proctology.

I say that that's too expensive, no matter how you count the cost. 

So, yes, using *1992* era ideas, you can have digital bearer cash
settled auction markets in the internet for anything you can digitize
- -- the only stuff that matters in an information society where the
price of raw materials is fast approaching 1% of GDP, where the cost
of manufacturing is falling through 15% of GDP, and where, frankly,
the cost of even *software*, stuff you can copy, by definition, heck,
even digital financial assets, the assets that matter, even now, all
of that, is going to fall in the same direction, because copying and
distribution costs are almost perfectly efficient across a, say it
again, class: ubiquitous geodesic internetwork.

So, how do you do this? Easy. For software, the first copy is
auctioned for cash. Then the second copy, wherever it is on the
network, is auctioned for cash, and so on, until nobody's buying any
more copies, across the whole network. This is the oldest model of
trade there ever was. It's how red ochre from Maine ended up in
Neolithic tombs in Ireland. It's how Homo Habilis traded raw rocks
for finished hand axes across hundreds of miles of African savanna.
The Agorics guys called it the "digital silk road" for obvious
reasons.

For most digital goods, you just need to digitally sign the copies,
and you're done. Look Ma, no lawyers. Okay, no legislators and
regulators. No intellectual property attorneys. No "is a person", or
"know your customer", or other mystifications of identity. Funny
thing about this is, you'll notice the people who make the most new
stuff the most often get the most money in a single product's value
chain. Which is, oddly enough, exactly what we do now -- ask a movie
star -- only we'll be doing it cheaper.

For financial assets, you use the same kinds of financial
cryptography protocols that you used to do the cash, only you trade
some other asset using another, or even the same, protocol, depending
what kind of asset you want. Actual bits that can only exist on the
net in a single place at a time and keep their value accordingly.
Just like we used to do before the dominance of the telegraph and the
Hollerith card, only cheaper than we do Master Card, SWIFT, or DTC --
or PayPal. Only cheaper.

For digital services, discrete (single opinions) or continuous
(streaming telepresence or -operation), the person whose key has the
best reputation in the market gets the most money. Just like now.
Only cheaper.


So, like Fermi said, why isn't it here, already? 

Easy. We haven't *really* built it yet. For any of a number of
reasons, including what I think is the most important, the book-entry
networks hadn't grown themselves into the internet well enough yet.
Maybe, by now, they have. I think so, personally, but like the
proverbial orifice, everyone's got an opinion, and most people don't
want to hear them.

They want to see code. More to the point, they really don't give a
damn about code, really, either. They want to see money on the net,
dramatically cheaper than money on the net is now. Money that enables
them to buy things they couldn't buy before. Even if they got it for
"free". What they "expect" now has nothing to do with what they
"expect" in the future. That, boys and girls, is a fundamental fact
of financial economics: The price of something today, or in the past,
has absolutely *nothing* to do with the price of that same thing in
the future. Go run a few scatter plots and figure that out for
yourself; though you're too late for the economics Nobel. That's so
1970's. 


So, let me ask you this, folks: the second there *is* money in what
you do, *exactly* what you're doing now for free, do you think you'll
do it for free anymore? 

Show of hands?

Anybody?

No?

I thought not.


Cheers,
RAH

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-- 
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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'