[cryptography] Digital cash in the news...

Nico Williams nico at cryptonector.com
Sat Jun 11 18:53:32 EDT 2011


On Sat, Jun 11, 2011 at 3:13 PM, John Levine <johnl at iecc.com> wrote:
> (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.)

+1.  A fiat currency with no capital controls and reasonably free
trade is probably the best currency system yet.  Details do matter
though.  It helps when the issuer doesn't inflate, for example.
Still, the U.S. dollar has been that sort of currency since the 70s,
and it's worked out rather well.  (Which isn't to say it will
continue, but if it doesn't, it won't be due to any flaws in this
currency system.)

> 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.

A simple digital coin would be one with double spend detection, and
blind signatures for anonymity.  Double spend detection is a problem,
because it requires online infrastructure, which then becomes a
super-critical part of the economy, but I'm not sure how we can avoid
it.  The proof of computation idea is a total waste of precious energy
(check the news, energy shortages are likely to be a common problem in
Japan and Europe as a result of Fukushima, and probably elsewhere
too).

> 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
> currencies.

Good point.  It's all in what's in that basket, and the rate of
transactions (i.e., whether people use this thing).

Nico
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