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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!