Bear writes: > If the banker > goes broke, people want to be able to make a claim against the banker's > future earnings for whatever worthless currency they were holding > when it happened, and they cannot do that from a position of anonymity. > People want a faithless banker punished, meaning jail time or hard labor, > not just burning a nym.
More precisely, they want their banker to face such threats in the event of misappropriating the money in the bank, so that he is motivated not to do so. > The sole method for any truly anonymous currency to acquire value is for > the banker to promise to redeem it for something that has value. So the > banker, if it's to have a prayer of acceptance, cannot be anonymous. Not necessarily. There are other ways for an anonymous currency to acquire value, which I will describe below. > Look at the possibilities for conflict resolution. How can the anonymous > holder of an issued currency prove that he's the beneficiary to the > issuer's promise to redeem, without the banker's cooperation and without > compromising his/her anonymity? He shows the certificate with the bank's signature on it. Why would this require either the cooperation of the banker, or compromising the holder's own anonymity? Or more specifically, how would either of these elements make his proof easier? Suppose the holder gives up his anonymity. How would that help his case? The currency is just a digitally signed data structure, it has nothing to do with the name of the holder. That information seems utterly irrelevant to proving ownership, any more than the holder's hair color or waist size. > And if s/he succeeded in proving it, who > could force an anonymous banker to pay up? And if you succeeded in making > the banker pay up, how could the banker prove without the cooperation > of the payee that the payment was made and made to the correct payee? This is another issue. The bank's anonymous currency is backed by some commodity. But that commodity cannot be transferred non-anonymously, we will suppose (otherwise we don't need an anonymous bank). This is a problem with your whole model of basing your anonymous currency on some other commodity. But if you do stick with this model, you must accept that the people involved in the non-anonymous transaction will lose their anonymity. A client who wishes to remain anonymous must stay in the anonymous world, he can't cash in his anonymous currency for the non-anonymous backing commodity. > We use a long-accepted fiat currency, so we're not used to thinking about > the nitty-gritty details that money as an infrastructure requires. It > is hidden from us because our currency infrastructure has not broken > down in living memory. We shifted from privately issued currency to > government-issued currency largely without destabilizing the economy. > Then once people were accustomed to not thinking of a promise to redeem > as being the source of value, we went off the gold standard. Our economy > hasn't broken yet, but you have to realize that this situation is a little > bizarre from the point of view of currency issue. We're not thinking > anymore about the promise to redeem currency for something of value, and > the implications of failure to honor that promise, because we live in a > sheltered and mildly bizarre moment in history where those things haven't > been relevant for a long time to the currency we use most. But any new > currency would have to have a good solid solution for that issue. You are commpletely wrong about the nature of our currency and what gives it value, and this is why your analysis is incomplete. I will describe below the correct analysis and show how it points a way towards an anonymous currency that has value, without the banker having to be non-anonymous. > The only way I found to decentralize the system, at all, was the model > where all the actors are pseudonymous rather than anonymous, each user > has the power to issue currency, and different issued currencies were > allowed to fluctuate in value against each other depending on the degree > of trust or value of the underlying redemption commodity. Money becomes > a protocol and a commodity and labor exchange in raw form, rather than > a simple sum - it's back to the barter system. This is badly broken. Letting everyone issue currency doesn't solve any of your problems, it simply magnifies them. Plus it introduces enormous costs in terms of keeping track of what everyone's currency is worth in terms of everyone else's. There is no advantage to having 6 billion currencies that you could not gain by having 6 thousand. All right, here are some better ideas. First, our money supply is mostly created by bank loans, and most of those are real estate and business loans. The loans which create our money are secured loans, they are claims on valuable business and personal property. Our money is not backed by fiat, it is backed by real, tangible property that you can go out and touch. The mortgagees and borrowers are bound by contract to honor the claims on their property by the lenders, and it is those claims which back the currency. That's your main mistake, that you don't realize why money ultimately has value and why the system is stable. You, like many people, believe that it is all a collective delusion which could evaporate overnight. That is false; long-term loans, whose cumulative value equals the total money supply by no coincidence, provide the anchor and the foundation on which the value of our money is based. So what does this tell us for anonymous currency? Simply that there are more people than bankers who can back the currency. You are worried that bankers must give up their anonymity. Not necessarily. Anyone can promise (non-anonymously if necessary) to redeem valuable property for the currency and in this way help it to gain value. This may involve working behind the scenes with the bankers, or otherwise having independent reason to trust them. But it allows there to be a legal firewall between the currency issuers, who would otherwise be encumbered with enormous regulatory restrictions, and the backers, who are ordinary clients who have received loans and pledged their property to back those loans. It's also possible to pursue the idea of private coercive agencies to enforce banker's promises outside of the legal system. What you really want, as noted above, is to let the bankers face the threat of legal punishment in case they manage to steal some of the currency's value. With your conventional mind and limited imagination you think this implies that the banker must be non-anonymous so that some judge can issue a warrant and a policeman arrest him. But it will be possible to go outside this system and directly provide coercion via private means. Let the banker reveal his identity to the local organized crime syndicate or other private protection agency, which then pledges to track him down and punish him if he violates his contractual pledges to protect the currency. This allows him to make credible promises of reliability, without subjecting himself or the currency to invasive government regulation. We have unbundled the function of enforcing contracts from the government monopoly, thereby increasing the efficiency of the marketplace and allowing more flexibility in contractual provisions. Yet another possibility is to do without the banker entirely. In the context of digital currency backed by its holders, the function of the currency issuer is not actually to be a bank at all. It does not need to make loans, to accept deposits, to pay interest, give away toasters, or most of the other accoutrements of a modern bank. All it really needs to do is to facilitate anonymous transfers of the currency via a "refreshing" operation that erases the record of previous holders. This doesn't necessarily have to be done on every transaction; some are relatively routine and there would be little interest in trying to track the serial numbers of each piece of digital currency. But periodically, and certainly for large or sensitive transactions, there has to be a refreshment. This requires some kind of cryptographic operation that needs the aid of the "bank", which would better be called the mint or just the currency issuer. Given the routine, mechanical and mathematical nature of this operation, there is no point in entrusting it to human beings. An automated issuer would be a better choice, one which could be trusted to follow certain rules so as not to debase the currency. To facilitate trust, this could be done via a distributed calculation where many systems would cooperate to perform the operation, so that cheating would require all of them to agree and work together. If many of the parties involved are themselves anonymous to each other, this would provide a high degree of assurance to the holders of the currency. By reducing the role of the mint to this mechanical operation of facilitating transfers, we open up the possibility for private parties to supply other financial services, including banking. Private banks can take deposits, pay interest, offer loans and perform other functions, all based on the same underlying virtual currency, just as banks today do with national currencies. As with banks today, these private banks will actually increase the size of the virtual money supply by making secured loans and mortgages, and the property which secures these loans becomes part of the backing for the virtual currency. Likewise, businesses can offer ownership shares of the company in exchange for the virtual currency, and these can trade on a stock market, denominated in anonymous cash units. Other financial services will arise as well, just as we have today in the regulated, non-anonymous sector. Of course, any such business will face its own problems of reliability, trust, and reputation if it attempts to operate anonymously itself, or with anonymous clients. But with a variety of organizations in place, each can experiment with different methods to strike a balance between security and privacy.
