Re: Virtual Cash

["Perry E. Metzger" <perry@snark.imsi.com>]

"Mark W. Eichin" says:
> (In spite of perry's objections, the economic discussions *are*
> relevant here...  many readers seem to not understand the complexities
> of money systems, without which *using* e-cash won't be practical, so
> we need some major cross-breeding here.)

In the context of digicash, economic discussions are relevant.
However, I think that general questions on subjects like "is the Fed a
conspiracy by the Bavarian Illuminati" and the like are probably not.

The differences between free banking and central banking are likewise
difficult to explain -- it would overwhelm this list to discuss them.
We could discuss nothing else all day for weeks.

Anyway, the real reason none of the test e-cash systems here have
taken off is multifold.

1) The market is illiquid.
2) The currency is difficult to use -- more difficult to use than
   alternatives.
3) There is nothing of value to trade for. (I wouldn't take many of
   the offered items for free, so why would I spend time trying to
   figure out the digicash system to get them.)

Basically, you need a commodity to be widely recognised as having
value and widely tradeable for goods and services, or easily converted
into something you can trade, before it can be used as money.

Something people have to remember is that digital cash is not money --
its more like "digital anonymous bank drafts". Just as a check can be
USED for money but is in fact a way of TRANSFERING money, so digicash
isn't in and of itself the source of value -- its a bookkeeping
system for something that is. That something could be dollars, gold,
cocaine futures contracts on the Bogota Commodity Exchange, girl scout
cookies, or anything else people decide is a good medium of exchange.

The choice of medium largely depends on what people want to trade
with. Right now, for whatever reason, thats generally dollars. The
savvy digital banker, therefore, will likely set up shop to allow
people to move dollars around.

Even this will not guarantee success, unless the system becomes quite
widely deployed. Of course, the incentives to do that come from the
payoffs you would get for doing so in the free market. That also
likely means that digital cash systems will involve fees -- either on
the purchase of digital cash the way Travellers Checks are handled, or
in some other similar manner.

Perry