From: Hal <hfinney@shell.portal.com>
Date: Sun, 21 Aug 94 10:07:06 PDT
To: cypherpunks@toad.com
Subject: Re: In Search of Genuine DigiCash
In-Reply-To: <199408210218.WAA15544@zork.tiac.net>
Message-ID: <199408211706.KAA05754@jobe.shell.portal.com>
MIME-Version: 1.0
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rah@shipwright.com (Robert Hettinga) writes (quotes are Eric Hughes):

>Digital cash has to be issued by someone, who
>*really should* back it up with real money, and should thus receive real
>money as collateral for the digicash on the net.  Thus, there's a float.
>Thus it's really a loan with a security (ecash) to prove it, with the
>collateral in the bank of the issuer earning the issuer interest.  Thus
>it's a bond. And since it has no maturity date, and it's not a perpetuity,
>then it has an implicit call provision. Thus, it's a callable bond.

One difference between ecash and bonds is that bonds generally pay interest
(to the bond holder, not to the lender!), while ecash may not.  I also
suspect that most ecash will have a fixed maximum lifetime beyond which it
is no good, due to technical problems in keeping lists of spent notes.  So
it would not necessarily be callable in theway Bob describes.

>>   The issuer gets to
>>   keep the interest accrued on that money while the ecash is in circulation.
>>
>>Perhaps in some systems this is so, but not all.  The unit of account
>>must be fixed, but the unit of account may not be constant currency,
>>but rather currency at a fixed interest rate.

>Is "unit of account" a formal term here? Could you define it?

I think Eric is referring to how the notes are denominated, and the possibility
that they may bear interest.  A note could be marked as worth $1 + 6% per
year past 1994, expiring in 1998, for example.

>The problem about not keeping the interest on the float is, who do you pay
>it to otherwise? If you have a truly anonymous digital cash system, you
>couldn't find the original purchaser if you tried.  If you want to treat
>this like a settlement problem in securities operations then you have to
>track each owner's interest share for the time they held the instrument and
>pay them back. Again impossible. If you pay back the accrued interest on
>that specific ecash certificate to the person who "walks in the door" with
>it, is it fair?

Fair?  Who cares?  The question is, is it useful?  Sure it is.  I'd rather
use cash which bore interest than that which didn't!  Sure, it's a little
more complicated to buy something with notes which are worth $1.05 - $1.10
than $1.00, but that's what computers are for.  The value increase accrues
to whomever holds the note during the time they hold it.

>The solution is, keep the interest, use the money to fund the issuer's
>operations. If that's not enough, charge exchange fees. A competitive
>market will sort out who's got the most efficient operations, and thus
>ecash users get ecash at its most efficient price.

Sure; just don't say "the solution is".  You issue non interest bearing
notes and live on the float; I issue interest notes and live off the
exchange fees.  Let the market decide.

Hal