Steve Schear wrote:

[snip]

One problem is the holders could collude and play a "shell game".
Suppose that 30% of the holders were going to be asked to reveal their
assets, then the company could back only 30% of the currency, and
redistribute the assets to the selected holders before the auditors come.

How about this method?

1.) Auditors meet at a defined place and time.

2.) Courier arrives and presents a fraction N of M of the backing, once at a time, to the auditors

3.) Auditors verify the fraction, account for it and enclose it in a container with a unique hard to forge seal

4.) Courier leaves

5.) Step 2-4 are repeated until the total of M has been presented to the auditors

6.) In the second round, the auditors request the same fractions N of M again. Not all N have to be presented, but can be

7.) One after another the couriers with the respective fractions present them again to the auditors

8.) The auditors verify the seals, and remove them

9.) The couriers leave

There are two disadvantages to the process:
1.) It takes quite some time.
2.) It is expensive

The advantages are:
1.) It is secure for the auditors and the operators
2.) It presents the full backing

Although your schema is quite good I think it fails to account for the underhanded nature of some humans and the benefits to be gained under some situations.

Think about the counterfeiting of all currency (even US) by the British during WWII, think about counterfeiting in general, stocks, bonds, salted mines, and the host of other scams that have happened over time. One common factor is that as the protections get better, the skill of the nefarious improves.

The other limitation of your schema is that the fractions without seals on the second round can not be verified until there is a third round, and then the unsealed fractions on the third round can not be verified until the fourth round, etc. Because of this you have to seal all assets and leave them sealed until the next audit to prevent the same unsealed package from being presented twice.

Simply put if there are 100 fractions alleged and the auditors request 30, which are then sealed. On the second round they request 30, if the math was perfect and no randomness crept in, the second lot of 30 should contain about 9 sealed packages and 21 unsealed. This could be met by having only 51 fractions total. So you add a few more for safety and you need maybe 60, quite a shortfall from 100.

For a quick look at the other schema proposed using cross signed transactions and other cryptographic methods, there is the human arrogance factor to consider. Some people, like the Yellow Kid, are very convincing in their lies and will happily sign any document alleging that the moon is made of green cheese and that the Lunar Landing was a fraud foisted off on a gullible public because they figure the odds of them being caught are so small and so far in the future that they will have been able to high themselves off to an untouchable spot like some overthrown tin pot dictator from South America and live in splendor the rest of their natural days. It is only a very short step from this to stock fraud and other financial scandals that we have seen over the last few years.

As I see it, cryptography is an excellent tool to raise the barrier to the less skillful, but it is, like all tools, manipulated by humans. Some are more skillful in their use of tools than others and find creative ways to solve problems.

A small sample. Do you know what a dent puller is? It's a slide hammer with a screw on the tip that you screw into the sheet metal of the dents in your car to render the surface flatter so it can be treated with Bondo and paint to make it look like it was never there. Guess what? Some clever person realized that some common door locks could be broken with the same device so for a while there was a lot of breaking an entering with this tool.

Another, and more recent, case is the Kryptonite bike and motorcycle lock. Thick, hardened steel not easily cracked, except by some 17 year old bike shop kid with a 19 cent Bic pen.

This is a great subject with lots to explore, both technically and socially. I love it and all the wonderful thinking it brings out.

Best,

Allen

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