From: "Amanda Walker" <amanda@intercon.com>
Date: Thu, 17 Nov 94 12:51:52 PST
To: cypherpunks@toad.com
Subject: Re: Islands in the Net
Message-ID: <9411171551.AA34415@elfbook.intercon.com>
MIME-Version: 1.0
Content-Type: text/plain


Tim May writes:
> We "locally clear" (approximately the same as "readable on its face") 
> cash and commercial paper because of an assumption that forgery 
> is difficult and unlikely. When forgery becomes common in some 
> area, merchants carry lists of suspected numbers, IDs, etc., and 
> the "readable on its face" criterion erodes. 

Exactly.  What allows something to be used as an economic unit are
its uniqueness and liquidity.  Real assets are unique simply by virtue of 
being physical objects, and are liquid (in the long run) by virtue of having 
inherent value.  I don't worry about someone forging my house, for example, 
and even things like gold coins or other precious metals are much easier to 
verify than to forge, and once verified can be exchanged for real assets 
without reference to the entity which originally issued them (for example, the 
value in a Krugerrand is that it's gold, not the fact that it was issued by 
South Africa).  Precious metals and the like are borderline, for all practical 
purposes we can view them as having inherent value, since people have assigned 
them value for all of recorded history.

Currency, however, has no inherent value.  Its only value lies in its being 
made up of unique tokens which can be exchanged for real assets.  If a token 
ceases to be unique, it ceases to have value (except perhaps as a curiousity--
there may well be people who collect counterfeit money, for all I know).  
Also, if it loses its ability to be exchanged for real assets it likewise 
loses its value (e.g., Confederate dollars from the Civil War).

Digital cash poses two problems.  The first is that digital information is 
easier to duplicate than to verify, and a successful forgery is absolutely 
indistinguishable from the original, since it is the information itself that 
is the token, not any phsyical instantiation of it.

The other is that to be successful, digital cash needs to be liquid.  For a 
token to be liquid, it must be backed by real assets.  Governments are the 
classical examples of entities which have sufficient resources to back a 
currency, although cartels in the private sector can also do so (VISA/
MasterCard, for example).

So far, though, no one has solved either the uniqueness problem or the 
liquidity problem for digital cash.  As a result, it might be more 
realistically be called "digital scrip", at least so far.

> This is the sense in which I meant that "Money sure isn't like this." 

Indeed, mainly because existing currency is either physical objects or data 
controlled by the banking system and overseen by governments.  Right now, 
digital currency only works by being a pointer to a token, not the token 
itself.

> We need to find a way to get back to exploring the various nifty 
> systems that are being described in the crypto papers, but which lack 
> any real implementation. 

Speaking as someone who has a sharp interest in such things, and the resources 
to apply to them, I have to say that the current regulatory environment serves 
as a large barrier.  If industry's hands are tied, then this all has to be 
done in "free time" or academia...  This slows things down immensely.

If it weren't for the Department of State holding the export-control sword 
over our heads, we'd already have things like digital purchasing, online user 
registration, digital sigs & encryption by default in email, and so on.


Amanda Walker
InterCon Systems Corporation