1996-03-28 - What backs up digital money?

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From: tcmay@got.net (Timothy C. May)
To: cypherpunks@toad.com
Message Hash: b8e0bc087268267f4bf341384137bfdad8b39956f838cc4fec7541698eb8d75c
Message ID: <ad7ede961f02100418d5@[]>
Reply To: N/A
UTC Datetime: 1996-03-28 14:18:33 UTC
Raw Date: Thu, 28 Mar 1996 22:18:33 +0800

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From: tcmay@got.net (Timothy C. May)
Date: Thu, 28 Mar 1996 22:18:33 +0800
To: cypherpunks@toad.com
Subject: What backs up digital money?
Message-ID: <ad7ede961f02100418d5@[]>
MIME-Version: 1.0
Content-Type: text/plain

I apologize for changing the thread name, but the existing name, "Re:
(X:x)e$ 's other use," seems unrelated to these points.

At 1:46 PM 3/27/96, Scott Schryvers wrote:

>If e-cash were backed by gold would that make it more reliable than say the

This question, and much of the debate that appears here about digital money
in its many and confusing forms (e-cash, digicash, bitmarks, e$,
cypherfrancs, chaums, etc.), displays a "type error" in thinking about
digital money.

No form of digital money extant is an actual currency in the conventional
sense. Nor does this seem likely. Nor necessary. Nor useful. Nor important.

Rather, think in terms of _checks_ or _wire transfers_ and the like. An
order to transfer funds from one account or place of holding to another.

Eric Hughes was our local resident self-educated expert on commercial
paper, notes, bank drafts, etc. Bob Hettinga has also written extensively
on this. A nice little book I use is "The MIT Dictionary of Modern
Economics," 4th, edited by David W. Pearce, 1992. Nothing yet on digital
money and how various forms of it fit into the taxonomy of financial
instruments. I expect by the 6th edition, in a few years, we'll see some

But here are just a couple of definitions, to tell you all that an actual
taxonomy does exist, that "money" is not the all-inclusive type.

* "currency. Strictly, that component of a country's money stock that
literally circulates from hand to hand, i.e., coin and banknotes...."

* "cheque. A document, normally supplied in printed form by a bank,
ordering the bank to transfer funds from the drawer's current account to a
named payee...."

(more wrinkles about negotiability, endorsements, counter checks, etc.)

So, what are the classifications of the schemes offered by CyberCash, First
Virtual, Digicash, Mark Twain Bank, and so on? A useful project for any of
you out there with banking or finance interests.

Most of these are currently variants of credit card transactions, and the
best of these (in cryptographic terms) appears to be a variant of a
straight bank. I might give instructions for Union Bank to transfer X
amount of gold, or Swiss francs, or dollars from Account X to Account Y,
where Account Y might be in the same bank, might be in another bank, or
might be to anyone who showed up at the bank and produced the claim...

The point being that talking about "what backs up digital cash?" is
misleading. (What really backs it up is the reputation of the entities, but
I digress.)

--Tim May

Boycott "Big Brother Inside" software!
We got computers, we're tapping phone lines, we know that that ain't allowed.
Timothy C. May              | Crypto Anarchy: encryption, digital money,
tcmay@got.net  408-728-0152 | anonymous networks, digital pseudonyms, zero
W.A.S.T.E.: Corralitos, CA  | knowledge, reputations, information markets,
Higher Power: 2^756839 - 1  | black markets, collapse of governments.
"National borders aren't even speed bumps on the information superhighway."