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Re: What backs up digital money?
Regarding "What backs up digital currency/cash", a hypothetical situation
just to see what you guys think. Can this happen ? I honestly have my
doubts, mostly I see logistical problems (finding a mechanism, etc, if
you recall my mini-rant just a few days ago). Anyway, these are some of
the things I honestly feel would have to happen for a true Internetwork
currency to take off, if that's even possible.
Situation 1-
You're a company, "Bug Boy Video" (my apologies to the real Bug Boy Video
if it exists). This national video chain decides to get involved on the
net and sees that there is a token standard- they figure they can get
people to visit their website by offering a "web hunt". Anybody who can
solve any of the puzzles gets a token worth, say, a free video, a 19.99$US
value- just redeem the token.
Token Backing-- 19.99$US video from Bug Boy
Situation 2-
You're a bank, "1st Netherworld". You use the same token system to make
digital coins worth a penny each and issue them to your customers in
exchange for 0.01$US - only to account holders of course. Now you have
the "real money" to invest while the users of the system store and
transfer these tokens around the net to each other (in reality I guess you
use a net-cheque ?)
Token Backing-- 0.01$US with 1st Netherworld
Situation 3-
You're a mining operation, "Money Pit". Your product is gold and silver
refined to be 99.99% pure (24K in gold). You decide to issue some tokens
on the net worth an ounce of gold and another kind of token worth an oz
of silver. Some would call you a total nut corp, but they don't call you
Money Pit for nothin.
Token Backing-- 1 oz silver (approximately 7$US?) with Money Pit.
1 oz gold (approximately 490$US?) with Money Pit.
Situation 4-
Some group of hackers, "BizHack", decide to issue a private currency
among themselves for the purposes of trading vulnerability information,
services, etc. They come up with a standard, "an hour of work", and
someone runs the bank. Anyone with currency can use it to buy goods
and services from anyone who will accept the money.
Token Backing-- 1 hour of service from a BizHacker.
Situation 5-
A bunch of kids on the net play this game, "Tragic: The Addiction", and
they use rec.games.trading-cards.marketplace.tragic.sales to do their
trading. Somebody gets the keen idea to set up a "holding company" that
people can send their cards to and get a "token" out that represents
the Tragic: card. They trade these tokens on the net until someone wants
to redeem his/her "Black Lilly" token in for the real card that it
represents. Some sort of redemption charge applies, of course.
Token Backing-- Tragic: cards with holding company.
Situation 6-
You're a beer manufacturer, "Smart Foam", and decide to skip all the
market middlemen and sell stock directly on the Internet. You set up
your super-keen promo page and users buy stock directly from you. Now
you hear about this other company that is doing electronic transfers
of stocks on the internet in the token system, each stock represented
by a single token. People trade them at will. You suggest to your
buyers that they might want to look at the system as a way of trading
your stock and offer to send the buyers stock directly to the exchange
so it can be withdrawn by the buyer as tokens. As a beer brewery, we
don't want to get in trouble with the SEC for offering the trading
place for our own stock, we'll let somebody else have the liability.
Token Backing-- One share of "Smart Foam" stock.
Situation 7- (doubtful)
You're running an exchange where people can send stock certificates to
a third party bank and you'll mint them a token that represents that
piece of stock so that it can be traded freely on the Internet. Your
clients use your non-anonymous system so that trades can be tracked
and reported, you make a few bucks at registration time, but don't
charge for transfers (to cut out the brokers). You deal with the SEC
directly to make sure all the exchange rules are being followed to the
letter, and make the service as user friendly as possible- you are a
place that people come to trade, a market square as it were.
Token Backing-- A share of common stock in a particular company.
Situation 8- (the "big mental leap")
You set up a market square for tokens. In this online place the users
can offer tokens for sale to the general public (other users) and the
service acts as an "escrow" so that both parties have to make their
transfers through the service. You track "prices" of the tokens, maybe
users are on average trading 1 BizHacker token for 2 Bug Boys. Some
sort of "trend" starts to emerge at your market. This BIG LIGHT comes
on inside your head and you decide to issue your OWN token, this token
is based on the MARKET VALUE of all the tokens that are traded at your
exchange. You call them "market credits" and you "sell" them on your
own market.
Token Backing-- One market credit equals 1.5 BizHackers
equals .5 Bug Boys
equals 4 silver Money Pits
equals etc, etc, etc ...
the value changes constantly.
Market tokens have now taken on a new characteristic, that they are
going to be accepted much more widely because they can be used to
purchase many more goods and services, they are accepted in the market
which you have provided.
Situation 9-
Other people see how cool your market is going and decide to set up some
of their own. These markets have their own clients, tokens backed by
everything from stock, state currency, services, pizza coupons, car wash
tokens, and Darla's special backrub tokens (worth 2 gold Money Pits each!)
The bright idea pops up in somebodies head to link a few of these markets
together and .... the rest is future.
Followup- There are a lot of "trust" assumptions in this, but in the end
the market always sorts things out. That's not to say a few people won't
be holding valueless tokens on occasion or that people won't figure out
ways to hurt the system, but thus is real life. Internet economy won't
come from the top down, it'll come from little bits of trust that build
up between people who do business together-- it'll come from that little
group of consultants issuing their own "value tokens" backed by their
personal service .. when they get together and issue a common currency
which ALL of them will accept, that currency becomes more widely accepted
in this new marketplace. It's in the best interest of everyone involved
to retain the utmost professionalism when distributing tokens because
they represent your good name and the name of those who join in. THIS
is how trust develops, you can't dream trust up, trust just happens. An
exchange fails if people stop trusting it, so they are by nature self-
governing entities.
Global currencies and Internet economies aside- even if "the big leap"
above couldn't happen, I'd sure like to see some companies issuing tokens
like they were gift certificates or coupons, those have good trade value
if the name is well known (mostly for lack of something better to trade
with I'm afraid).
No mechanism can replace trust, trust just is. You trust the guy that
fixes your porch because he's the guy you trust to fix your porch. You
trust your consultants, your lawyers (maybe not them), and your accountant
because they are the people you rely on, you just do.
Anyway, just my 0.02$US/MTB -- Jeff.
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http://www.blackmagic.com/people/jeff Simply Be. SKYDIVE!