Digital Money as new way to Benefit Society, and a new risk to Oppress and Defraud Society

Abstract: Money is seen by us as individuals, as power, security, convenience, respect, freedom. Alas money is a product of society and should be set up to meet societal needs first and foremost. Digital money technology gives society an unprecedented power that can readily be abused and become counterproductive. In setting it up society should be very careful to ensure digital money benefits society as a whole, which it can do by creating high levels of positive business development motivation for members of society, by unleashing hidden potential for innovation by creative members, and by enabling society to accommodate those that need societal support.  The power of tethering.  This article analyzes digital money, as a societal tool, as an opportunity to be highly beneficial to it. To the extent that society counts extremely wealthy individuals, society is under the risk of being silently manipulated by them for the purpose of controlling money distribution for their interests (to keep wealth where it is at), rather than optimizing distribution for the benefit of society as a whole. Will society prevail or will the wealth class take over?

Introduction

Money was developed bottom up. It emerged as a means to relieve the pre-money barter system with a system that allowed for easy exchange, store of value, and offered an accounting unit. Until the Renaissance money carried its own value: comprised of precious metals valued per the stamp on the money coin. It was when paper money was invented that money became an entity of no self-value, claiming its value by virtue of societal trust. The paper written IOU issued by the House of Medici in Italy in exchange of stored items of self-value, became a unit of exchange despite the fact that the IOU piece of paper had no self-value. Payees accepting the paper written IOU as payment, expressed trust in the issuer of this piece of paper, being confident that upon presentation, the item against which the paper was issued will be delivered.

The appearance of self-worthless money, drawing its full value from societal trust, may be viewed as the second most important milestone in the evolution of money, the first being the very idea of a universal money, which is desired by all, because they will buy whatever their holder wishes to buy.

To mint a gold coin, the mint needs a supply of gold and is limited by its holding. But lo and behold trust-based money can be issued at any amount, where the sole logical reason to stop minting trust-based money is the risk of deflation. A trust-based mint is inherently tempted to issue more and more money, thereby becoming richer and richer. Alas, if the minted money loses value then the added coins of self-less money (money with no self value) are countered by the deflation, to turn the mint poorer rather richer.

Since the Renaissance the chief mints of trust-based money were nation states. States were always tempted to mint more, hoping for inflation to be mild, and in panic minted much more causing their currency to collapse.

Late in the last century with the advent of cyber space the 3rd major milestone in the history of money occurred. While in the Renaissance money lost its self-value, in the late 20th money lost its material make up. For many decades now money migrates from physical expression to cyber expression. Most of the money in the world is stored and transacted as a digital exchange.

Throughout the 20th century the digital money was set up to be a number representing its value, and next to this number was meta data: data that is written in order to substantiate the written number as representing its value in dollars or in any other monetary count. A 20th century digital money indicated $X, associated with meta data MD_x, [ X - MD_x] such that when the current owner of that money paid it to a payee, the payee was examining MD_x to develop trust that this action actually provides them with money valued $X, which will hence forth be associated with a different meta data expression MD'_x so that the current payee will be able to generate trust in their payee when they wish to pay X or part thereto further.

This is what is called today ‘legacy money’ and it works pretty well.

The idea of money "by itself" (the value X) and associated meta data MD_x may be compared to passing digital coins in a box, and writing on the box the succession of owners from the mint (owner 0), O₀ through owner one (O₁), owner 2 (O₂), ... O_n. If the box contains minted metal coins then nothing bad happens if the history of ownership is lost. The coins carry their value by their material (precious metal) expression. Alas, if the cumulative meta data for a cyber coin is lost -- the money vanishes. The number X has no self value, cannot be traded on its own, it is no longer money.

This important distinction between material money and cyber money puts cyber money in a very precarious situation. We have a record of an elaborate history of fraud and abuse on account of the fact that the money per se, in digital form, was just a number that carried no value without a valid string of meta data.

It was in 2007 that the vision of digital money comprising not just of a spelled out number, but also a unique identity, was filed as a patent application with the US patent office; resulting in US Patent 8,229,859. The idea was to emulate material money that was bearing a unique identity (the material it is constructed of), and design a digital coin that would carry a value combined with an identity. Soon after Bitcoin came to the scene offering a different way to trade with a coin that bears value and identity fused together. This upgrade of a digital coin from a flat numeric expression (as in legacy money) to value + identity  (like Bitcoin and BitMint) may be regarded as the 4th high level milestone in the history of money.

This new digital money comprising value and identity (identity bearing digital money, IBDM) carries its value like material money does, even if its associated meta data is lost. But IBDM offers an option that is not offered by identity bearing material money. IBDM opens the door for cryptography to carry it to unprecedented dynamics, and new types of money handling, maneuvering and storing, giving the minting society new tools for upgrading itself up and beyond.

Cryptography unleashed on identity-bearing digital money (IBDM) offers:

1. Security (better than physical vaults)

2. Privacy Control (enabling society to decide when to grant privacy and when to deny it)

3. Tethering

Cryptography today offers two key strategies to ensure the security of IBDM. The popular one, led by the US National Institute of Standard and Technology, NIST, which builds ever more complex 'digital vaults' to match the ever more powerful vault-cracking computers used by the security busters. The nascent strategy is led by BitMint and is based on injecting equivocation to the traded bits (that represent money) so that any attacker will, at most, list a series of possibilities for the value of the subject coin, but will remain unable to decide among them.  These two strategies combined offer a good answer to the security challenge.

Privacy is an issue with subtle importance. Some say that trading with zero financial privacy is akin to trading with zero freedom. Alas, society needs to be equipped with tools to defend itself against its dangerous enemies, and 'follow the money' has been proven as the most effective law enforcement methodology.   Using either Bitcoin or Bitcoin-style money or using BitMint LeVeL money will allow society to extend privacy to its trading members while spelling out means to examine a suspect transaction or a mispaid coin.

Tethering is the silent giant in the identity-bearing digital money realm. Money with a unique identity can be tethered to terms and conditions, can be controlled by its payor long after the money was handled over to the payee. Tethered money, can be taken out of circulation by the prevailing authorities. No similar capability is possible in any prior form of digital money. Tethering is the single most important advantage of identity=bearing digital money.

It is tethering which makes the mint so powerful. It is tethering which should be handed carefully because this is the aspect of digital money that abusers and evil dowers can abuse as much as the good society can use. With tethering one could control trade privacy, enhance coin security, help digital accounting, boost innovation, and carry out accommodation of the members of society that need societal help. See the book "Tethered Money" published by Elsevier.

Identity bearing digital money is trust based.  Because it is digital any one can declare itself a mint and issue coins.   The best for society is that the mint will be a democratically elected government, that is how the public retains controls on the money that runs its society.  

But money being what it is,  every power within society, outside the elected government, will find it in its interest to become a mint and enjoy the range of power and control mentioned above.  The danger is that the powers that be who desire to become mints will handle the issue of trust badly but effectively.   There are ways unfortunately to create a trust illusion in the pubic, and use this illusory trust to attract people to this non democratic coin.   Self-serving powers that be may suppress all other available digital money options, so that the public eager to enjoy the benefit of digital money will have no choice but to trade with this imposed currency.

As argued above it looks that the only good mint is a central bank of a stable nation run by a democratically elected government.  This specter is daunting because digital money is such a potent tool that one would wish the entire public to take part in its development.  The imagination  used by the public overshadows the imagination used by even the most creative government. 

It is our good fortune that Bitcoin ushered in a remarkable innovation, perhaps the finest innovation in the digital money saga after the idea of identity bearing digital money.  Bitcoin introduced the idea of a public ledger: allowing the public to view all the coins minted by a given mint, and read and study all the terms (the tethering), evaluate the security, and notice the level of privacy -- it is all on that ledger.

Using the ledger, any one and their brother can mint any coin they imagine -- the terms are in the open, all the circulating coins are listed.  The risk, the opportunity, the attraction are all in the open for traders to decide.  So now an owner of a public building may issue digital money that represents ownership of a portion of that building.  An innovator may issue digital money representing equity in the financial revenue generated in the future form this particular innovation.   Anyone and everyone can become a mint and issue digital coins that create a money flow for a particular cause.  Once this becomes common, society will be more alive, will allow entrepreneurs and innovators to raise money for a variety of causes.  These digital coins would not be a national currency of course, they will be claim checks against a well defined claim, all the while having the natural advantages of digital coins: speed, settlement, security, convenience etc.

Such claim specific coins take the concept of money a step further.  Allowing individuals and companies to mint public coins is enabling public innovation to flourish.

We note that this claim specific money is becoming possible because digital money today is identity bearing, which in turn means that these coins are cryptographically handled,  and thereby enjoy the security that cryptography offers, the speed, the convenience, and most of all cryptography enable tethering.  And tethering is open ended, imagination-bound range of innovative actions.

Claim specific digital coins will fall under government regulatory oversight to ensure the interests of the public are served.

When it comes to general not specific money, the stakes are different, much higher.

Here society needs to recognize a great danger.  The power that mints money for society at large should be a society well-wishing power.  The risk is that self-prioritizing  powers will stand behind the money the public uses. Almost the entire wealth expressed in Bitcoin is owned by a tiny one percent of traders -- these well-hidden traders run Bitcoin for their own benefit, not for society's well-being. These hidden Bitcoin leaders saved the coin countless times when its value collapsed, and they will do whatever it takes to keep Bitcoin alive.  And when Bitcoin will reach its end of the road,  these money powers will go elsewhere, protecting the current distribution of money.

The mint of a nationally traded public coin must be in a position to be held accountable for its action. A central bank is.  The Bitcoin algorithm is not, neither are the unelected cabal members who tweak it.

To protect society from the ills of Bitcoin government should aggresively identify shady deals, and blackball the coins that were transacted in this deal.  Blackballing means that the government will not honor such coins as money. Furthermore, government will not do business with anyone who accepted such a blackballed coins in their business.    Blackballed coins will quickly become unpayable everywhere.

It is an exciting specter to have a democratically elected government issue society oriented well tethered digital money. Albeit, such powerful tool can readily be misused once a different government comes to power.  The mint of national currency digital money will have unprecedented power over the population.  They will be able to remove any privacy, follow on citizens through their minute use of money.  They will be able to tax the coins in the ledger they run, and do so at any level they wish.   Taxed people will have no possibility of hiding or objecting.  Central bank digital currency (CBDC) can be used to paralyze any political opponent by disabling their coin holdings.

It is this risk of abuse that would cause even a very stable democratically elected government to give it a pause.  Sometimes the people elect badly, and if the wrong power comes to the helm, they will engineer their staying on by abusing the power of digital national currency.

This risk of abuse is enough of a motivation for a country to leave its currency as it is now, as it has been for decades, legacy -- not digital.  In turn governments will encourage entrepreneurs to mint ledger-based publicly exposed claim-specific digital currency.  The full power of the new technology will come to the fore:  the security, the convenience, the tethering -- all is there. And it will be a lively marketplace with market pressures selecting the best offer,

Anything transactable can be made to back up digital coins in the form of claim checks for the transactable value.  It can be a piece of real estate, revenue from a future event of a performing artist,  success of an innovative idea, sales of a future movie, etc.  Anything transactable can be held for an auction at a schedule date, and the money collected will be divided to the digital claim check holders to ensure that at the end of the road the digital claim check will be exchanged for a sum of the prevailing currency.

The magic of the marketplace will bring up winners that will become popular and function as a central bank digital currency without the risk thereto.

The potential of digital currency in terms of elevating society to new heights is enormous but still in exploration mode.  We must remember that money is a societal tool, and should be fashioned to help society.  And in parallel remember that digital money comes with a built in  power to subdue and oppress society, and some damage may be irreversible.  So for now let the central banks stay out of it, let government encourage claim-specific digital money to flourish so that the technology will do its good.

All the while, learning from the accumulated experience, a deep academic analysis should be carried out to understand how this wonderful new form of money can pull society to new heights.