Tethered Money

Managing Digital Currency Transactions

Gideon Samid

• Publisher: Academic Press
• Year: 2015
• Print ISBN: 9780128034774
• eBook ISBN: 9780128034972
• Topic: Economics
• Subtopic: Banks & Banking
• Index: Economics

Tettered Money: Managing Digital Currency Transactions presents a comprehensive discussion of financial transactions using digital currencies, with the author, Gideon Samid, making the case for their expansion in tethered money. Exploring the technical, legal, and historical aspects of digital money, the author discusses how the emerging technology of money specified for a specific need or to perform a particular task will affect society. The ability to dictate, Samid argues, how money is spent could increase control over our lives and resources, enabling us to practice a certain efficiency that would, in due time, become a pillar of civilization. Informative and thought-provoking, the book describes an evolving future that, in some quarters, has already arrived. - Delivers an in-depth picture of security issues related to financial transactions - Explores recent regulatory developments regarding digital currencies - Considers existing cryptocurrencies and alternative payment schemes

Chapter 1

Money: An Irreverent Analysis

Abstract

To understand the impact of tethered money, we need to remind ourselves how powerful, mysterious, and convoluted money is. On one hand, money is a universal invention repeated with few conceptual differences by all human societies everywhere, and credited with allowing society to evolve through division of labor. On the other hand, after five or even seven thousands of years of use experience, we are still debating what this invention is, how to measure it, how to handle it, and how to appraise it. Is money gold? Is money energy? Is money an illusion? Some serious thinkers claim each of the above. As much as we praise money and its clear societal benefits, we also castigate it as the “tool of the devil,” the “root of evil.” Let’s touch base with the notion, the power, the thrill, the promise of money per se, and then sort how our money can be “tethered” and what does it mean.

Keywords

money

reconciliation

cascaded digital money

security

currency

mirage

tethered money

fraud

Ponzi scheme

central banks

federal reserve

cryptography

money power

Chapter Outline

Money: The Numeric Residue of Society 1

Money: Mightier than the Sword 2

Money: The Great Invention 3

Money is Power 4

Money: Man-made Mystery 7

Money: Mirage 10

Money: Mirage Fraud 11

Short Range 11

Reconciliation 12

Confusion 13

Self-anchored Money 14

Money on Behalf of the People (Central Banks) 16

Cascaded Digital Money 22

The Internet of Things, Avatars, and Robotics 22

Money: Changed by Cryptography 23

Is It Working? 24

Security 26

The Off-Currency 27

Money: Tethered 27

Interest Rate 29

History 30

Money: An Innovation Turtle 30

“Catch me if you can”: The Ultimate Currency War 30

Conspiracy Theories 32

To understand the impact of tethered money, we need to remind ourselves how powerful, mysterious, and convoluted money is. On one hand, money is a universal invention repeated with few conceptual differences by all human societies everywhere, and credited with allowing society to evolve through division of labor. On the other hand, after five or even seven thousands of years of use experience, we are still debating what this invention is, how to measure it, how to handle it, and how to appraise it. Is money gold? Is money energy? Is money an illusion? Some serious thinkers claim each of the above. As much as we praise money and its clear societal benefits, we also castigate it as the “tool of the devil,” the “root of sin.” Let’s touch base with the notion, the power, the thrill, the promise of money per se, and then sort out how money can be tethered and what does it mean.

Money: The Numeric Residue of Society

Money is the numeric residue of society, its mirror, and its hammer. It is indispensable; it is mysterious, complex, and emotive. Its scarcity is depressing, its pursuit invigorating.

Money is the rope that ties us to each other and renders individuals into a society. When that rope is pulled, the jolt reverberates. We vote daily with the disposition of our money. We pay for what alleviates our fear, provides for our necessities, or promotes our comfort, play, joy, and well being. For the gain of money, we fit ourselves into a limiting box, and with the power of money, we get ourselves out of the box.

Money has no intrinsic value; it’s worthless for complete loners, stamps mutuality on strangers, pokes the mystery of trust, and engenders suspicion among close ones. Money fulfills its function well only if it maintains its buying power by measurably shrinking its supply when the economy shrinks and proportionally increasing its supply when the economy expands. Both inflation and deflation are self-fulfilling – posing a daunting difficulty on society as it tries to keep money stable. Money used to be passed on in exchange of equal value, or say, money used to be earned, but modern economies promote transactions wherein money is handed over as charity, endowment, welfare, chance expectations, or otherwise, not as an exchange that terminates when the money changes hands. This new reality further complicates the crisscross flow of money. The law of unintended consequences hits time and again, harming anyone trying to manage that flow.

Society exercises itself as a healthy entity by providing frictionless any-which-way flow of its currencies. Money must be stored, moved, and paid so efficiently that from the decision to the action, the process will be instantaneous, effortless, and, of course, secure and accountable. This can only be accomplished by moving forward boldly and promoting the expression of money to its ultimate state of versatility, mobility, handleability, and abstraction: a string of binary digits – just a sequence of ones and zeros.

We tried it before, but our approach was badly flawed. We used a clever formula that we knew is breakable; we employed an algorithm that was to last only until its hidden mathematical vulnerability is discovered. It is not a way to manage the numeric residue of society. Now we know better. We construct money as an open platform; we set up the underlying protocols and expect a wave of developers to fit the payment function into everyday’s activity and transform banking into a global outreach, optimized risk, and credit regimen.

Money: Mightier than the Sword

Social power is smartly exercised with money. Abusive power brokers ill steer the flow of currency, hide the source of their cash, conceal the track record of their wealth, misapply the treasures in their custody, circumvent the disposition of payments, muscle and abuse the economic leverage of loans, grants, and credit, and ruthlessly procure and purchase that which should never be bought with money.

The genius of money as a weapon is in its nonviolent appearance, in one’s ability to exercise it brutally without raising the full force of its victim’s resistance, without attracting the same backfire with which the sword, the chain, and the despot have been toppled. Money is so effective because it is necessary and unavoidable. Money functions as societal clay. It constitutes the bolts that hold together nations and states.

On the contrary, money may be regarded as a serious candidate for the most ingenious invention ever. It comprises the idea of trust-based value associated with a carrier that has no intrinsic utility – only “by agreement” it rises to become a medium for trade and wealth accumulation. Money communicates, money binds, money facilitates, and it is the same money that is being turned into a powerful and universal weapon to dangle over all of us.

All that power is hinged on the attribute of universality. Since its inception, money functioned as a storage mechanism for value, for desirability – universal desirability. Whatever your underlying wishes were, money helped. Money facilitates noble causes and evil causes alike. Whether your desires were ordinary or deviant, legal or otherwise, money, universally, is something you want more of. Money moves people to work, sweat, and exert themselves for you. Money moves people to flatter you, offer and extend friendship and love (sincerely or otherwise). Money works regardless of where it came from, independent of what means were used to accumulate it, uninfluenced by any better use thereto. Money has no smell, no history, and no unavoidable moral constraints: if you are in possession of $100, you can readily buy anything that is priced for $100, no questions asked.

Money: The Great Invention

There is nothing in nature that we all ever want more of, and we all can readily give to each other. That something will have to be unambiguous and measurable. It is safe to say that we all treasure happiness, but we cannot pass two pints of happiness powder from one to the other, can we? Longevity is another viable candidate for universal desire, alas we cannot hand over extra 10 years of longevity. Similarly, for health – who wants to be sick? Only that we cannot transfer a pound of health even to a loved one. Items that can be unambiguous, well measured, and universally desired are not there. Let’s consider oxygen – universally needed for all breathing creatures, no doubt about it. And it can be measured as to exact quantity and can be clearly given from Alice to Bob. Only that once we have enough oxygen to fill our lungs, we need no more. Few of us are obsessed about accumulating oxygen tanks in our basement. Same for food, universally consumed, but, like oxygen, our desirability for it trails off from a given point. Most of the things we covet are nonuniversal. Alice may want a nice necklace, but Bob desires a workbench. Neither Alice nor Bob will be happy receiving the other’s desire. It may be surprising, but so it is, there is nothing that we all desire, regardless of our particular station in life, age, race, culture, religion, gender, wealth, and that can be readily transferred from one to the other and that we are absolutely certain that whomever we pass that valuable to, will be receptive to it. Nature does not meet our need, so we had to invent it ourselves. And we did. We call it money.¹

The standard textbook definition of money is medium of exchange, a unit of accounting, and a store of value. Very true, but in a deeper sense money is a humanly invented entity that reflects our unity as a society in as much as it is both universally desired and readily passed around among members of our society. Money galvanizes a bunch of separate individuals into a collaborative community. Money is how we motivate, influence, and, yes, manipulate each other.

Exactly because money is so readily transferrable, there is never a rational reason to reject untethered money – money with no restrictions of use. A challenger will claim: some people hold on to some spiritual beliefs that demonize money. Indeed so only that most of those who think so, still desire money, claiming necessity, in this corrupt world of ours. And for the very few who return earned money away: if money is no good, why return it to the payer to whom it would continue to do harm, take it as payment, then destroy it, it’s yours, you can burn it, if you wish! Generally, as long as someone around us does not have all the money he or she could use for good purpose, it makes no sense to refuse an offer of earned money (pass it to the needy, if you like).

It is a simple and powerful realization: this mysterious entity that we invented, created, and socially agreed upon, and which we call money, is the one and only entity that is universally desired, measurable, and readily passed around. And as such, it is a prime societal enabler.

Money is Power

If you were projecting violence, you could have taken from people their possessions and could have forced them to act according to your will. That is exactly what money does – it enables you to take possession of everything that is for sale (few things are not), and it allows you to move people to work for you. And as all rational people desire money, all rational people may be made to do what you want them to do, provided you have enough money to dispense with. The genius of money – as compared to the despot who projects violence – is that money exercises power without raising its subjects to mutiny. This is because, unlike violence that clearly works against its victim’s will, money maintains the impression that all is free exchange, free will, and on equal footing. In reality though, the majority of people on earth suppress their free will and act and do to satisfy the will of the one who pays them. The other means for money to be such an accommodated power projector is via the very clever idea of self-reference: Alice makes Bob do what she wants him to do, by paying him money, which, in turn, Bob can use to force Carla to do what he wants her to do. And Carla accepts her fate because with the money she receives from Bob, she gets David to follow her command. We all participate in this transactional dance, so we are not inclined to complain, but rather wish to have more of this thing called money, so we can play king or queen more and longer.

Designating money as power does not by itself imply a moral value. The power of money can be used for good, or it can be used for evil. In reality, it is being used for both.

The power associated with money is inherently social: it is power over other people. Moreover, if money is forcibly kept in strictly equal distribution, then it loses its power because Alice then cannot induce Bob to comply with her will, by paying him, as Bob will have to let go of any extra money he accumulates. On the other extreme, if Alice and a few others grab hold of all, or most of the money in circulation, then the other people in her society will have to come up with a different currency to do business among themselves, and Alice’s currency will lose its broad societal value. So the power of money comes to an impactful social expression when it is distributed in some way between these two extremes. And society should rightfully ask: what is the distribution of money that will be most beneficial for us as a whole? Namely, not for Alice and Bob as individuals, but for the community in a scoping view.

Society progresses when talented individuals are able to use the power of money (1) to support their living needs, and (2) to invest in their innovation, and exercise their creative initiatives. The first use of money allows the social innovator the time to innovate by being able to have food without being a farmer, and by wearing shoes without being a cobbler. The second use allows him, or her, to tinker, experiment, try, retry, and eventually succeed in gifting society the gift of his, or her, genius. Society will conclude then that such individuals should be given the money they need to succeed.

Now, if all of us would have been tagged with a notice that says how much money we need, and what exactly will be our contribution to society for that investment, then it would have been a dry mathematical challenge to allocate money power to the members of society so that society benefits the most. Alas, no such tags exist. We look at individuals and we have to guess what good they would do to society if given a certain amount of money. And similarly with the moral aspect, society may wish to honor military veterans, retirees, and victims of all sorts, who may have contributed to society for decades, or otherwise are deserving, and the question is: how much will be morally satisfactory to so allocate, without choking societal progress for the generation ahead?

Over the years, two major schools of thoughts have developed to address this challenge of optimal distribution of societal money power. One such economical philosophy, called capitalism, says, let society practice mutual trade. Some will grow rich, others will lose their shirt. Those who became rich via such trade, are obviously the talented ones, and hence, society should keep these nouveau riche attached to their wealth, trusting that they will do the most good with it in the next round. The other economic philosophy, called socialism, says that becoming rich is a matter of luck, probability, and happenstance, and too often, an unfair advantage – no proof of special talent. Hence, the bulk of social power should be siphoned away from the few at the top to give the many at the bottom a second chance to prove themselves. They argue that money corrupts, and much money corrupts more. Hence, it is a good idea not to let any one individual accumulate too much of this corrupting elixir. People with money have a built-in interest to freeze society where it stands, because in the current configuration they are on top. And the more money the rich have, the less money is available to the rest of society – a population with no less probability to include future contr...

Table of contents

• Cover
• Title page
• Table of Contents
• Copyright
• Dedication
• Purpose
• Prologue
• Roadmap
• Quotations
• Introduction: Tethered Money – a Game Changer
• Chapter 1: Money: An Irreverent Analysis
• Chapter 2: Tethered Money: Use and Impact
• Chapter 3: Digital Money: The Security Nightmare
• Chapter 4: Anatomy of Digital Money Products
• Accompanying Essays
• Glossary
• Further Readings
• Index
• About the Author