[118093] in Cypherpunks
Re: ecash means anonymous & untraceable
daemon@ATHENA.MIT.EDU (Anonymous)
Sun Sep 19 19:43:09 1999
Date: Mon, 20 Sep 1999 01:20:11 +0200 (CEST)
Message-Id: <199909192320.BAA17730@mail.replay.com>
From: Anonymous <nobody@replay.com>
To: cypherpunks@cyberpass.net
Reply-To: Anonymous <nobody@replay.com>
ADam Back writes:
> Real ecash would be something which is really bearer, the value should
> lie solely in the instrument. (Though clearly it's market value may
> alter, the value should not be revocable by the removal of an entry in
> a data base or book entry system.)
I am still unclear on how DigiGold differs from e-gold.
Someone suggested that the relationship was similar to that between the
original gold-backed banknotes and real gold. But that analogy doesn't
work too well.
The reason people started using banknotes was because gold had so many
disadvantages as money. It was heavy, it was bulky, it was not easy
to subdivide. Passing around paper tokens which represent ownership
in gold was a major improvement. Of course this soon led to fractional
reserve banking, where more paper was issued than there was gold, which
is another matter. But the basic process of substitution of paper money
for gold money had many benefits in terms of convenience and practicality.
But these improvements don't seem to apply in the case of DigiGold
vs e-gold. E-gold is not heavy, it is not bulky, and it is easy to
subdivide. It already has all of the convenience attributes that paper
money offered over gold money. Why, then, do we need DigiGold backed
by e-gold? DigiGold is an electronic token or symbol which represents
value, but that is what e-gold is already.
What am I missing here?
Is it that DigiGold plans eventually to move away from 100% gold banking?
They only guarantee 25%. This way they make money off the float and so
users don't get charged storage and transaction fees.
But if you look at the big picture, is it clear that this is an
advantage???
After all, ordinary banknotes were 100% backed by assets, even in a
fractional reserve system. They just weren't backed by gold. The bank's
assets included property, mortgages and business loans, in addition
to gold in the vaults. The bank's books always balanced; these assets
matched the liabilities in the form of deposits and circulating banknotes.
If and when DigiGold starts backing their e-notes with commercial paper
in addition to gold they are no different from a fractional reserve
bank which backed its notes with the loans it made in addition to its
gold reserves. DigiGold guarantees redemption in gold but only promises
to hold 25% as gold reserves. They face the possibility of bank runs
just like any other fractional reserve bank.
And since DigiGold notes are denominated in grams of gold, what happens if
gold shoots up in value as it did around 1980? If it hits its historic
highs that would be something like four times what it is worth today,
adjusted for inflation. If they had, say, $4M in notes outstanding
backed by $1M in gold and $3M in commercial paper (loans), and gold went
up by this amount, they'd suddenly have $16M in liabilities and only $7M
in assets. Beyond that, DigiGold holders are dependent on the personal
financial reserves of Doug and Barry. Hope they have deep pockets.
All this is not to say that fractional reserve banking is fraudulent
or evil, as some extremists maintain. Nothing's wrong with any such
relationship as long as everyone understands what is being offered and
agrees with the terms.
The main question is whether supporters of DigiGold are fairly describing
its characteristics. The amount of privacy offered is left vague.
The name DigiGold suggests a degree of gold backing which is not
necessarily being maintained.
The principals behind DigiGold need to do a much better job of explaining
exactly how their system works. As they move into a public beta phase
they must make this information available. Otherwise they are going
to have more articles like the one in World Net Daily which are full of
mistakes and misleading statements. This will just lead to trouble in
the long run.
