[cryptography] Digital cash in the news...
johnl at iecc.com
Sat Jun 11 16:13:26 EDT 2011
>Unlike fiat currencies, algorithms assert limit of total volume.
>And the mint and transaction infrastructure is decentral, so there's
>no single point of control. These both are very useful properties.
Useful for something, but not useful for money. I can't help but note
that the level of economic knowledge in the digital cash community is
pitifully low, and much of what people think they know is absurd.
(Anyone who thinks that a gold standard is better than what we have
now, or that the supply of gold is fixed in any but a purely
hypothetical sense, is either ignorant of economic history or shilling
for gold speculators.)
Anyone who's interested in this stuff should study the economic
history of the US, because we've tried everything, from gold to
bimetalism, to bimetalism plus private paper to bimetalism plus public
paper to a central bank with a formal gold standard, a central bank
with an implicit gold standard, and the current central bank with no
formal backing. The greatest impetus for the creation of the Federal
Reserve in 1913 was that US business interests found themselves at a
disadvantage in international trade because, due to no central bank,
our currency was so flaky that nobody in other countries would write
contracts in it, demanding pounds or francs instead.
ObCrypto: it would be interesting to figure out how to create a
digital currency that has the characteristics of real money. One
possibility is to set up a sufficiently credible central bank that can
manage the supply, but I doubt that would work unless that central
bank was a national central bank, which would make the digital money
fully convertible with real money.
Another interesting model is ETFs, exchange traded mutual funds. They
are tradable in arbitrarily small quantities, but only convertible to
and from the underlying assets in large chunks by parties who have to
register with the issuer. The trades are close to anonymous, fully so
if you use an offshore bank, the conversions are not. The idea is
that the conversions are done by arbitrageurs who track the prices of
the asset and the ETF and buy or sell when they are sufficiently out
of line. This works pretty well, and other than in chaotic markets it
is quite rare for the values to get more than a fraction of a percent
apart. The underlying asset can be anything with an easily
determinable price such as a single currency or a basket of
John Levine, johnl at iecc.com, Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. http://jl.ly
PS: If you think that the fixed supply of bitcoins is a good idea,
look at closed end mutual funds, which issue a fixed number of shares
that can never increase. They are as much a payment system as
bitcoins are, since there are parties known as "stockbrokers" who
stand ready to convert them into a form usable for third party
payments at any time, at a price you won't know until you try it.
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