From: anonymous@extropia.wimsey.com
Date: Tue, 3 May 94 23:07:35 PDT
To: cypherpunks@toad.com
Subject: Giving Value to Digital Cash
Message-ID: <199405040552.AA02485@xtropia>
MIME-Version: 1.0
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Rant: Creating Value for Digital Cash

Someone recently fed me my words from the Magic Money intro, in which I 
predicted that digital cash could take on value by itself. I knew when I 
wrote the program that giving the system value would be the hardest part. 
I'm glad to see interest in digital cash resurfacing. I thought it was 
dead.

Most major economies are using fiat money today, so it is clear that fiat 
money will work. But you could not create a new economy with fiat money. 
The money has to start out having real-world value and convertibility. 
After it has been in circulation for a while, it can be "decoupled" from 
outside standards.

There are three problems involved.

1> Getting people started. From clueless to having a working Magic Money 
client on their system.

2> Distributing your digital coins.

3> Exchanging your digital coins for something of value.

One at a time.

1> Getting people started. The software has to be readily available. The 
Magic Money server should be able to mail a uuencoded copy of a DOS binary 
or the source code to anyone who requests it. The binary needs to be 
compiled with the new pgptupd.zip file. This has a fifo.c dated in April, 
which fixes a bug in the old fifo.c. I have asked MPJ to integrate this 
with the pgptl10d on his site. In any case, look for a fifo.c with a date 
in April. Someone with better Unix skills than me needs to write a proper, 
system-independent makefile for the Magic Money package and include it with 
the source code release. Magic Money is not really that hard to use once 
you get it installed.

2> Distributing your digital coins. The properties you want here are: it 
should be easy for any newbie to get a few coins to play with, but it 
should be hard to manipulate this system to stockpile a lot of coins 
without effort. One way to do this is with a for-pay MUD. Digital coins 
would be distributed for successful play in the MUD. The free "guest" 
account would allow anyone to play for a short time (15-30 minutes or so) 
and get a few coins. The specific actions required would change every time, 
so someone could not write a program to repeat the same actions over and 
over to stockpile coins. To get into the deeper levels of the MUD and win 
more coins, you would have to pay for access.

There could be other ways to get coins too. All should be fun or 
interesting in themselves, but not too easy. For example, hunts through the 
Usenet. Post a puzzle with some encrypted coins. The solution to the puzzle 
is the passphrase to decrypt the coins. Post innocuous-sounding messages to 
various Usenet groups. Each one has a clue to the puzzle, and pointers to 
further clues. The first one to solve the puzzle and exchange the coins 
wins them.

And how about a digital bookmaking operation, and a simulated stock market? 
Take real stock prices, and allow users to buy and sell with digital cash. 
You should also have margin accounts (what was that about developing 
digicash credit and debt?) with automatic margin-call and sellout if you 
lose, and short-sale capability. Take bets on sporting events, elections, 
anything which can be publicly verified.

3> Exchanging your digital coins for something of value. This is the easy 
part: give away prizes in exchange for digital coins. The prizes paid for, 
of course, by the profits from the MUD. The best prizes are probably 
consumer electronics ranging from small stuff like Walkmans to major items 
(if the system is successful) like TV's and computers.

This is really no different from arcades where you put in quarters to play 
bowling games, and then use the tickets to get prizes if you are good. Or 
games at fairs. It's not gambling, so it should be legal.

This approach could give your digicash value. Some people will play the MUD 
for the fun of it (make it a good MUD) and will start to collect coins. 
People will want to win the prizes, either by playing your contests, or 
wheeling and dealing with other people. Eventually, when your system is 
seen as trustworthy, your coins will take on a value of their own. Some 
people will exchange them for prizes, but many more will just use them as 
money on the net.

One advantage of this from the operator's point of view is that the risk 
starts out small and rises with success. When only a few people are 
involved and the prizes are Walkmans, the risk is low. When the MUD is 
making good money and everyone is spending your coins, and you are giving 
away TV's and computers, the risk is higher but so is the payoff. When you 
are successful, you can profit by minting and spending your coins. Here you 
have to be careful to put money into the system only as fast as the 
digicash economy is growing.

Your server needs to be online, and quickly accessible. It can be run 
through a remailer, since the bandwidth would not be too high. Use a 512 
bit key, just in case it becomes popular. And if you are going to publish 
the address of the server, you will need a firewall between the net and the 
machine with the secret key.

                                          Pr0duct Cypher

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