How do we trust bits to represent money? Someone asked this (Mike
Rosing, I think it was).
I argue that the question is, as stated, not well-grounded at this time.
No one is asking for bits to be trusted, from first principles, absent
real products and a real embedding in a financial system. Perhaps in N
years, when Chaum/Brands kinds of digital money are actually being used,
such a question will be more meaningful. Then we can ask Mary Jones why
she trusts that the numbers being sent between her smart card or
computer to her bank or moneychanger are really trustable. Until then,
asking Mary why she should trust bits as money is inappropriate.
However, even then, in N years, the question will be problematic.
Consider this: we 'trust" bits flowing between credit card verifiers,
banks, and vendors. And we trust the welter of bits flowing in and
amongst computers handling bank accounts, checks, traveller's checks,
international clearing houses, SWIFT, etc.
None of these systems are handling "money" in anything but a bookkeeping
or accounting sense. Money is marks.
Trust. Trust is a misleading concept.
I recommend (and have done so for a long time...this is not new) doing a
coordinate shift and recasting discussions about "trust" into
discussions about "belief."
* At a very early age most children learn that the coins given to them
by their parents may be exchanged for ice cream cones and rides on
ponies. (Or for vials of crack, translating this experience into the
inner cities.) Do they "trust" that a quarter is "really" a quarter, or
is really money? No, they merely have an _expectation_, a _belief_, that
the future will continue to look very much like the past and that the
quarters in their pocket will very likely, almost with certainty, be
accepted by store owners.
* At a somewhat later age, most children are introduced to the ideas of
bank accounts. Often through school-sponsored Savings Bond programs or
passbook savings accounts. (These fell into disfavor during the
inflationary 70s.). In any case, children learn to _expect_, to
_believe_, that the markings in their passbooks mean that a bank will
let them take dollars and quarters out with the appropriate incantations
to the bank teller. Whether the money in the bank is real or imaginary
is not at issue, only the expectation of a future.
* And so on. Nearly all forms of money we encounter in the modern world
are based on this pattern that the future will, in most cases, look a
lot like the future. When there are exceptions, as with bank failures or
frauds, this modifies the belief function.
(Children learn, most of them, that lending money to other children and
expecting to get it back is much different than depositing/lending money
to the Big Bank and expecting to get it back. Children of the 1930s or
of Weimar Germany may have suitable tweaks to this model, but the larger
point is the same.)
Bayesian reasoning, in other words. Experiential learning, with
actors/institutions embedded in a larger matrix. The Big Bank is
_expected_ to be more reputable, more trustable, because of a bunch of
connections it has to other actors, to the past, and to its future. Some
of these things we call "reputation" (or "reputation capital"), some we
call "trust." But belief is the ultimate fabric, the ultimate currency.
We place _bets_ on whether loans will be repaid (risk, loansharking,
vigorish, etc.). We _discount_ certain financial instruments based on
our expectations or beliefs about the future.
Furthermore, the entire "is-a" object model, where "is-a bank" and
"has-an account balance of" can and SHOULD (IMO) be replaced with a more
realistic and more interesting model of "believes." All of digital money
is recastable in terms of Alice believes, Bob believes, Charles
believes, etc. All of finance is about belief.
(And there are very intriguing semantics of these models. Saul Kripke is
one place to look, as he pioneered the "possible worlds semantics"
approach. All of human and animal behavior is largely based on building
internal models of how the world works, what other people and animals
will be doing ("will be doing" in a possible worlds sense), and what the
implications of various courses of action will likely be.)
We don't "trust" that the sun will rise tomorrow: we _believe_ it will
rise, because it has for every day for the past several billion years
and we see no causal reason to doubt that 0.9999....947365 of all
possible worlds involve the sun coming up. Operationally, we will lay
heavy odds with anyone that the sun will come up.
Likewise, we don't "trust" that Bank of America will give us our money
back when we ask for it (modulor the right incantations and such): we
_believe_ very strongly that it will.
When people gain experience with a complex protocol, for example, and
they start to see the same behavior, then they start to "trust" (=
believe, = make bets) the protocol. Such was it when we were children
making our first purchases with coins, such was it when we were
teenagers, perhaps, and first began using checks ("You mean I can just
write down a number, sign my name, and that's _money_?!").
Such was it with our first credit card usage, our first purchase of
naked puts (don't ask), our first SSL-secured onlline purchase, our
first use of Mark Twain Bank systems, and our first use of the First
Bank of Cypherspace's newfangled blinding scheme.
So, this is why asking whether people will "trust" abstract bits is the
wrong question to ask, for at least two major reasons.
--Tim May
""Guard with jealous attention the public liberty. Suspect everyone who
approaches that jewel. Unfortunately, nothing will preserve it but
downright force. Whenever you give up that force, you are ruined."
--Patrick Henry
