From: tcmay@netcom.com (Timothy C. May)
Date: Tue, 10 Aug 93 13:52:05 PDT
To: kent_hastings@qmail2.aero.org (Kent Hastings)
Subject: Re: ADICO: Anarchist FDIC
In-Reply-To: <199308102022.AA10924@aerospace.aero.org>
Message-ID: <9308102050.AA04016@netcom5.netcom.com>
MIME-Version: 1.0
Content-Type: text/plain


Kent Hastings writes:

>                       ADICO: Anarchist FDIC#000#
> When someone objects to free banking (in gold, for example) on 
> the grounds that unregulated banks will have fractional reserves 
> and have no incentive to stay honest, perhaps describing an 
> Anarchist Deposit Insurance COmpany (ADICO) will ease their fears.
> 
> A new or relatively obscure offshore bank would gain the trust of 
> potential depositors by agreeing to cooperate with surprise 
> inspections of their gold supply. Depositors would pay a small
> premium to cover loss from bank failures due to theft or fraud.
> 
> Cryptographic protocols would need to be developed to allow the 
> ADICO to see a verified total amount on deposit, without revealing
> anything about any particular depositor. The total should match 
> the physical amount of gold in storage, assuming 100% reserves.

I suspect that verification that a physical quantity of gold is held
is much less important than that depositors can freely get back their
deposits. I suppose this means I don't see a real need for gold-backed
money. (At the national monetary system level, hard assets may be a
good idea, but at Joe's Bank I don't see any rationale for it having,
say, 132.74 kilos of gold in its vaults!)

The success of Swiss banks comes more from their reputation for scrupulous
honesty than from independent verification of their gold holdings. Their
"reputation capital" (a term Dean Tribble uses) is what matters.

Interestingly, a future crypto system will increase security by
allowing large deposits to be split into many smaller, anonymous
deposits. Some of these will be "pinging" tests from deposit-rating
services, some will be money being moved around, etc. A bank intent on
committing fraud will have a tough job ahead of it, and will be
quickly found out (thus, it is likely that people will split their
deposits into many smaller pieces, at many banks...and movve them
around based on the latest deposit ratings).

-Tim May


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Timothy C. May         | Crypto Anarchy: encryption, digital money,  
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