As I understand it, e-currency is not quite ready for primetime because the algorithms don't seem secure enough to prevent massive fraud...

But nothing is theoretically preventing any of us from starting our own e-currency, using whatever crypto we choose, and issuing it according to whatever principles we decide...

For example, Slashdot might decide to reward good posts with 'Slashdot dollars' which might be honored by other sites for some privileges...?

Or Epinions could pay their reviewers in their own e-currency, which Epinions might redeem for cash from e-merchants.

Where might this lead?

-- Jorn (jorn@mcs.com), March 22, 2000

Answers

There have been small communities and nationettes distributing their own currencies before; I suspect that you might get some idea from there. For some reason, I'm reminded that Disneyworld has its own internal currency; also of the company scrips that mining companies used to use to keep their workers tied to the mines. 'Course, I'm also of the opinion that microcurrencies are a threat to personal autonomy. Offhand, I can't see it being that much of a revolution for simple reasons of value, not the technical issue. A 'Slashdot dollar', for example, would have to be backed up by the perception that I could get something of value out of it; so, if I'm a third party merchant, and you come to me with a slashdot dollar, it's got to, at some point, be converted into a concrete measure of wealth - what can slashdot offer me that, as a disinterested manufacturer, might appeal? General Motors or Toshiba could pull this off, because they can redeem your currency for something concrete. At some point it maps to barter, and at the moment the only items I think slashdot can sell are advertising space and editorial favor. If we go by your suggestion for slashdot above (slashdot dollars = privileges), I think you mix up reputation management with currency. Awarding privileges to folks recognized as 'mature' by slashdot is a fine concept, but are these privileges sufficiently scarce that they have to be paid for by a scarce medium? Spendable reputation seems a bit odd.

Similarly, the epinions suggestion seems to map more to coupons than anything else. Again, epinions would have to sell this idea to other organizations, back up the epinion-dollar with something tangible, such as pegging an epinion-dollar to an American dollar. Of course, at that point, they're just offering to redeem epinion-dollars for American dollars, and we're back to the 'not an innovation' stage.

In my most cynical mood, I'd suggest that it'd lead to another kind of feudalism. An epinion dollar, or /dollar might be accepted only by a limited sector of services, and once you're there, I see nasty limits. If the /dollar is only partly convertible, it's not going to do me much good to have a million /dollars in the supermarket. Much like the partly convertible corporate scrips I muttered about at the start of this.

-- mpc (mc7f@andrew.cmu.edu), March 23, 2000.

As we already have a fiat, rather than commodity, economy, this seems inevitable.

What really needs to happen for a microcurrency economy to take off is the adoption of standard metrics for commoditizing information and relationships. If we have an information/knowledge economy, then knowledge production could be a new, somewhat anarchic form of "money supply." As a successful musician, you can convert your new MP3 song into MP3.com dollars, say. But the boundary between stock/bonds/currency/bartering would be blurred, and you could possibly trade out on a new-world currency exchange. Money's social function must be remembered; there's a big cultural difference between buying 1000 loaves of bread and investing 1000 dollars, and each of these currencies would be aligned with a different set of cultural goals.

I imagine then that daytraders and stockbrokers, like self-interested ambassadors, will open currency such currency/stock exchanges, purely digital. Perhaps you trade your MP3.com dollars, which you receive from listeners, for Vatican Dollars, and then trade the Vatican Dollars for American Wu-Tang Yen. You then convert the profits into Microsoft Digital Sterling for safekeeping. Or trade out into dollars or rupees, etc.

The government will be helpless in the face of trillions of transactions, since they won't be able to control the transacting software, but remember that the IRS already taxes barter - there will be an element of accountability required in all of this. The role of the SEC & Fed might become enlarged as they end up moderating between exchanges; there might also be an entirely free market between given sites.

There are surprisingly few resources on this aspect of the "information economy"; most economists consider the current approach to money supply, with Banks + Fed + Treasury, and the need to convert stock into currency for most transactions, to be the right approach; the blur between cash, digital cash, and shares in information properties as well as physical ones, will be a fascinating place to explore.

Actually, it's something I've been pretty obsessed by the last month or two; the possibility of the exchanges for information-backed "currencies" are mindboggling.

-- Paul (ford@ftrain.com), March 23, 2000.

The question of an Internet currency really interests me. As an owner of an E-Commerce site in the UK, I face real barriers for trading with other countries (which is where an Internet-currency would be of most immediate value, IMO) - mainly exchange rates, and the actual difficulties in carrying out transactions with people outside my country.

The only real possible barrier that seems to stand in its way is accountability. If I set up my new E-Commerce dollar tommorow, get 100 sites to adopt it, and put in place a system for the conversion of existing currencies to and from mine, there will be nothing to stop me just changing my personal balance to whatever the hell I choose. (Because the whole point of setting up an Internet currency would be to isolate it from any country's existing monetary or tax system, and so it would be outside any 3rd party's control). This in turn would obviously reduce the consumer's trust in the currency.

I think the only organisations in place to really make this work are Visa and Mastercard, who already have global coverage for their payment system, but currently rely on their transaction being converted to and from the local currency of the purchaser.

Imagine the possibilities Visa must be considering for allowing anyone in the world to purchase VISA-DOLLARs with their Visa card, which they can then spend anywhere on the Internet. They could offer incentives for employers to start paying employees in VISA-DOLLARs.. and it would throw open the Internet-currency. The implications of this are enormous, and I don't see any reason why Visa couldn't do it if they chose to. Can you?

(PS, I don't think secutiy is a major part of the issue. As an independant currency, it would have to be self regulated, and employ whatever secutiy current banks and online traders employ)

-- James Lewis (mrethix@hotmail.com), March 25, 2000.

Before European monetary integration, fluctuating exchange rates were causing big headaches for companies that did business across European borders. Imagine a factory in Germany that takes in raw materials from France and sells the finished product in Spain. It had to pay its workers in deutschemarks, pay its suppliers in francs, and collect from consumers in pesetas. When the exchange rates between deutschemarks, francs, and pesetas fluctuated, so did the factory's costs and income -- and some of these fluctuations might put a competing factory in a different country at an advantage. So any long-term planning (e.g., deciding whether or not to build a new wing on the factory) had to account for the risk of fluctuating exchange rates.

E-currency raises an analogous problem. Suppose you get two job offers: one denominates your salary in Slashdot Dollars and one uses Epinions Points, while your landlord wants rent paid in Wu-Tang Yuan. If all three of these currencies fluctuate relative to one another (and if they don't, what's the point of having separate currencies to begin with?), how much time do you want to spend estimating the relative long-term values of these currencies in order to pick an offer and budget your expenses?

On the other hand, I can see a certain value to e-currencies that are backed by specific commodities, or clearly defined baskets of commodities. For example, if gas-station credit cards allowed you to carry a credit balance denominated in "barrels of light sweet crude oil", you could buy lots of oil in advance, or buy options based on the price of oil, to hedge against spikes in the "spot price" of gasoline. Of course, this is only useful if the conversion costs (brokerage fees and such) are extremely low.

-- Seth Gordon (sgordon@kenan.com), March 27, 2000.

Seth, that seems to bring us back to square one - all forms of currency require backing, either in a sufficiently beefy entity (Visa, Microsoft, The Government), or a scarce resource (oil). In the latter case, you're leaving yourself open to the vagaries of scarcity - one of the reasons the gold standard isn't very popular.

One thing that bothers me is that I keep feeling we're mixing up currency and coupons. What makes your second option (buying barrels of LSC ahead of time) a currency, or are you looking more for a personal commodities brokerage? Could I, frex, have a company that just stores raw commodities for me, and then various companies might redeem a certain amount for manufactured goods, like e-gold is trying to do with gold? (disclaimer, I find e-gold deeply silly).

-- mpc (mcollins@cs.cmu.edu), March 27, 2000.

Bah, the url is http://www.e- gold.com. The other one is a domain-name speculator.

-- mpc (mcollins@cs.cmu.edu), March 27, 2000.

mpc -- My message above focused on the *relative* value of two currencies against each other, rather than the *absolute* stability of one currency. Two countries may have perfectly stable governments and perfectly sober central banks, but their currencies can still fluctuate relative to each other. (The relative values of currencies are affected by things like national productivity and the balance of trade; I'd have to dig through a macroeconomics textbook to find the details.)

-- Seth Gordon (sgordon@kenan.com), March 28, 2000.

Highly interesting community and forum I've stumbled onto. All coinage to the earlier postings!

The thrill of money comes from it's function as a neccessity in all capitalist states. Currencies are often valid only within a certain geographic territory, and it's value is derived from the economic valuation of the geographic area where it's based. These money are National Currencies, and are always under control by a Central Bank.

There are other systems for handlings goods and services, traditional exchanges, barter (already mentioned), or subsitutes like coupons, checks and smartcards. The transaction of money from one owner to the other are under control of a third-party, the government or private holders of interest in this information. Collect a fee for every transaction, or a tax of central bank. A typical pyramide scheme.

We need a system for complete anonomyous economic autonomy. Nobody other than me and my businesspartner should gain from our transfer and I alone should be the judge of what social service I will finance.

See: http://www.plausiblefutures.com/economy.html for an introduction to current challenges for the global monetary system.

-- Ole Peter Galaasen (olepeter@kairosfuture.com), April 03, 2000.

I believe that one distinction needs to be made in the originating post: there's nothing stopping anyone from starting their own currency, paper or electronic. In other words, you can start your own paper or electronic IOUs and if people are willing to accept them as payment, you're all set. The distiction between you issuing money and the govt issuing money is that money issued by the govt is legal tender that, at least in theory, has to be accepted as payment. If you owe someone $5 and offer that person a $5 bill he is legally obligated to accept it. If he doesn't, the debt is null and void. (unless the originatinating contract specified different acceptable methods of payment).

Applying this to e-commerce, one needs to answer a few questions: Is the trouble and effort worth it? What are the benefits of this? Will people use it? Certainly, such a system can be used as a means to keep customers from shopping repeatedly at a given set of sites. But what is the benefit to the customer? Why should American customers trust some newly established "currency" instead of the dollar?

In short, why should merchants go though the trouble, and why should customers go though the trouble? What do they get in return?

-- Witold (me@witold.org), April 09, 2000.