The Genesis Book: The Story of the People and Projects That Inspired Bitcoin by Aaron van Wirdum

Author:Aaron van Wirdum [Wirdum, Aaron van]
Language: eng
Format: epub
Publisher: Bitcoin Magazine Books
Published: 2024-01-15T00:00:00+00:00

Backing Digital Cash

Throughout the next couple of years—the mid-1990s—topics like the nature of money, value, and currency backing would pop up on the Cypherpunks mailing list with some regularity. It made sense that Cypherpunks were discussing these issues; in order to create electronic cash, they had to understand what would actually give it value. Why would anyone give up real products or services in exchange for a number on a screen?

It turned out that various list members had very different ideas about this.

Some didn’t really consider digital cash to have any value at all, and even thought that it was a bit of a misnomer to speak about it in monetary terms. Software developer Perry Metzger, one of the more active list contributors on topics related to digital cash, for example argued that something along the lines of “digital anonymous bank drafts” would actually be a more accurate description.

“Just as a check can be USED for money but is in fact a way of TRANSFERING [sic] money, so digicash isn't in and of itself the source of value — its [sic] a bookkeeping system for something that is,” he wrote. “That something could be dollars, gold, cocaine futures contracts on the Bogota Commodity Exchange, girl scout cookies, or anything else people decide is a good medium of exchange.”[175]

Others, like Eric Hughes, didn’t have an issue considering digital cash a form of money, but did agree that the bits and bytes had to be backed by something of value; in most cases a conventional fiat currency like the dollar or pound would be the obvious choice. He believed that for electronic currency to catch on, users would need a guarantee that they’d be able to exchange their digital cash for a fixed amount of “real” money.

Yet another perspective came from Robert Hettinga, a Cypherpunk who (in his own words) used to work in “Morgan Stanley’s cage in Chicago.”[176] As another very active participant in discussions about money and electronic cash on the Cypherpunk mailing list, Hettinga argued that the need for convertibility to “real” money would disappear over time, as people would slowly learn to trust the new digital currency.

Drawing an analogy from evolutionary biology, he wrote:

“Remember, proto-wings were evolved by pond-skimming insects so they could skim across ponds faster. Eventually, when those proto-wings evolved into actual wings, flying insects didn’t need ponds anymore. With that idea in mind, digital bearer certificates are going to have to interface with the book entry world of meatspace for a while, in order to be [convertible] into other assets.”

But, Hettinga predicted: “Eventually, at some point, those assets won't be book-entries anymore.”[177]

Tim May, meanwhile, didn’t believe money needed to be backed in the first place. In line with Hayek’s freebanking far-sight, he argued that it ultimately all came down to future expectations: people just needed to have confidence that money would maintain its purchasing power.

“I believe _all_ forms of money, whether hard, fiat, whatever, come from the expectation that the money will be of the same value, more or less, in the future,” he wrote.

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