Where's my cyberdollars?

February 11, 2008 10:39 AM

Will a online, untraceable, virtual currency reshape the world as we know it? And if so, why hasn't it happened yet?

I firtst learnt about virtual currencies through Neal Stephenson novels. In 'Cryptomonicon' our heros are searching for a colossal amount of gold to use as collateral for starting such a currency. Then in 'The Diamond Age' it is mentioned that it was the use of such an untraceable currency that destroyed the nation state as it meant governments could no longer collect taxes. Exciting stuff.

However, I've since spent a bit of time googling the issue, and have discovered that while currencies like this do already exist, they haven't taken the world by storm. Has Stephenson's idea of virtual money changing the world simply been proven false, or are we still waiting for some technological piece in the puzzle? And what would be the advantages to such a currency anyway?

posted by greytape to work & money (15 answers total)

My guess is that people would be hesitant to use it for fear of it being insecure or not having a "physical" representation.

Along those lines, I know people who won't do their banking online and would rather use a checkbook for that reason.

On further thought, I don't think a virtual currency will come along until everyone is online with a connection better than dial-up.
posted by o0dano0o at 10:53 AM on February 11, 2008

I think Stephenson was hopelessly naive about the resistance the entrenched financial powers have put up against the idea of a "virtual" currency. Look at the steps the US goverment has taken to stop overseas online gambling for example.
posted by Oktober at 10:54 AM on February 11, 2008

A currency is useless without a place to use it. The closest thing to a virtual currency is the gold/credits/gil of online games that is "exchanged" for real currency.
posted by Loto at 10:55 AM on February 11, 2008

at a guess -- I would say that part of what restricts the viability of virtual currency is the relative lack of backing assets. Any form of cyberdollars is essentially monopoly money unless it can be redeemed for something of real value. Hence Cryptonomicon's plot element revolving around looted Axis gold (it's been years since I read Cryptonomicon, so forgive me if the details are foggy)

In the real world, short of discovering Yamashita's lost trove and/or Google deciding to turn their cash reserve into a critical mass fund for virtual currency, the closest you're possibly going to get is something like Second Life money or the QQ Tencent -- where supply of the currency is either backed by real-world cash or controlled by a single entitiy. You're certainly not going to get something that is untraceable as this would raise issues around enforcement of contracts and property law -- which are drawbacks that are not outweighed by the privacy concerns of a few cypherpunks looking to dodge taxes.
posted by bl1nk at 10:56 AM on February 11, 2008 [1 favorite]

On reread, not sure if I answered the question..
posted by o0dano0o at 10:57 AM on February 11, 2008

Traceability is too valuable a concept for it to be let go without a fight.

If you however want a good explanation about how untraceable, anonymous might work, there is a case study in Bruce Schneier's Applied Cryptography.
posted by mmascolino at 11:00 AM on February 11, 2008

Currencies are a good example of a "natural monopoly". Currency acceptance is governed by the network effect - the currency's "value" (aside from it's trade value) is determined by the number of people willing to accept the currency. Untraceability is offset by the fact that no one accepts it.

Also, unlike in fiction, government are willing and able to tax whatever they feel they can get away with. Cf. Wesley Snipes.
posted by GuyZero at 11:02 AM on February 11, 2008

Stephenson is writing from the cypherpunks utopianism from the 1990s. Cryptocash was going to change the world and let Internet libertarians be free. Or something.

Governments won't allow large amounts of money to change hand anonymously, and those governments regulate our financial systems. The small-scale cryptocash systems that have been established are all way too difficult to use to be practical. About the only large-scale virtual currency I know of in common use is e-gold, and its use seems to be essentially for crime and fraud.
posted by Nelson at 11:12 AM on February 11, 2008

Just to add to Nelson's closing comment -- a friend of mine who used to work as a portfolio manager for a small outfit in the Grand Cayman islands would tell you that 9/11 took a lot of fun out of the world of obfuscated finances.

If untraceable cash was difficult to implement when Cryptonomicon was released, it's been a bete noire since the War on Terror.
posted by bl1nk at 11:24 AM on February 11, 2008

The answer to this is similar to the answers to "why hasn''t online grass-roots journalism supplanted traditional news sources?" or "why are paper books still being printed?" or "why hasn't the web caused a grassroots revolution where the hackers run through the corridors of power with guitars and VR-headsets?"

Answer to all of the above: because the web is just as embedded in traditional relationships of power as everything else is, and so it perpetuates a lot more than it changes. Certainly there are impacts: monks in Burma can upload photos of protests, and hippies in college towns can use their homemade currencies on-line... but both take place in contexts where these actions do not have transformative power.

We could all start using Stephenson-pesos tomorrow, but since we are all imperfect people who don't live in a utopia, we would use those Stephenson-pesos to buy goods made in Chinese prison factories, to pay for vaginal plastic surgery, to buy influence from politicians, and to do all the anti-democratic, anti-environmental, and anti-change things that we do with our current monies. Changing the currency isn't the problem; it is changing what we do with it that is the real issue.
posted by Forktine at 11:26 AM on February 11, 2008 [1 favorite]

There's the whole host of the "*-gold" folks out there, but looking at what's happening to E-Gold (US federal lawsuit, relocation to Africa) makes it look like any similar efforts that gain traction are doomed to suffer the inevitable nuclear lawsuit. Even all the weird physical versions that have popped up in the last few years - liberty dollars and a few of the others - all seem to hit a certain growth level before somebody from treasury shows up and shuts it all down.

Total opinion: systems that obfuscate the transaction of existing currencies (a la loom.cc, or even the developments going on with cellphone-to-cellphone currency transfers like Mwallet) seem to have more going for them than an entirely new e-currency - physical or e-* - ever springing up. I think there's a lot more promise there - (portability, crypto, stealth, device ubiquity, pre-networked, etc) - than there is of somebody taking over an island and opening an e-bank using an enormous Fed-like cache of gold.

(p.s. If you're looking for more reading material on the cryptoanarchist/currency tip check out the saga of Jim Bell out if you haven't already. And you've probably already found them but these folks have written about many of the systems kicking around and their various issues)
posted by bhance at 11:54 AM on February 11, 2008

Its a high risk situation. Using virtual currency means:

1. The sudden devaluation of your money could happen at any time. Who exactly is the authority to make this currency work? Currency is a product like anything else and needs quite a bit of work to keep going. Its not 'build it once and forget about it.'

2. Who is going to protect this currency? For instance who protects the master database of accounts and transactions. What impact does this have if someone starts editing tables. Hello, who do you trust to run this thing?

3. Virtual currency is no different than regular currency and there are many fringe currencies out there. You may as well be asking why the Flax Dollar isnt everywhere. There's nothing real special about virtual money other than it introduces more risk and alienates technophobes.

4. In the modern world the development and protection of a trusted wordwide currency is very much connected with the idea of the nation state. You also could be asking why we dont allow private militias to get a-bombs.
posted by damn dirty ape at 12:03 PM on February 11, 2008

Also electronic currency has been here for quite some time in the form of credit cards and paypal, so the idea of building a brand new currency just to use it electronically isnt very appealing.
posted by damn dirty ape at 1:22 PM on February 11, 2008

The situation with Paypal provides a good basis for thinking about this. Paypal - along with the banks and credit card companies that work with them - has become increasingly concerned about money laundering, fraud, and possible terrorist financing. The result has been more and more connection between 'virtual' money and real world things like bank accounts that can be audited and doors that can be smashed down by the FBI.

You aren't going to see international financial institutions signing up for any kind of anonymous currency while the 'Global War on Terror' persists.
posted by sindark at 2:52 PM on February 11, 2008

>the use of such an untraceable currency that destroyed the nation state as it meant governments could no longer collect taxes.

Maybe this is too obvious, nobody seems to have addressed it, but money is only untraceable until you spend it.

If I live in a 100-room mansion and drive a Ferrari, the government is going to take a keen interest in how I'm doing it on my declared salary of $50,000 a year. If I don't have a good explanation, they'll throw me in jail/seize my assets etc.

So how much fun is this untraceable currency going to be?
posted by AmbroseChapel at 3:06 PM on February 11, 2008