'Money' Interview on Australian Broadcasting Corporation

The Australian Broadcasting Corporation (ABC) has just released a two-part series on the topic of money and its future direction. Future Tense, hosted by Anthony Funnell, is a weekly half-hour program/podcast that takes a critical look at new technologies, new approaches and new ways of thinking.

In Part One (February 25, 2010) of 'Money', Anthony Funnell examines the changes underway in the finance and banking sector. In Part Two (March 4, 2010) of this series, he looks at the changing nature of currency. Is traditional state-issued tender now losing its monopoly? And how widespread is the use of alternative currencies - be they digital or virtual, or both?

The guest panel for part two includes: Douglas Rushkoff, author of the book Life Incorporated; Edward Castronova, Associate Professor of Telecommunications at Indiana University; Stan Stalnaker, Founder & Creative Director of Hub Culture; and Art Brock, Co-founder of the Meta-Currency Project.

Here is an interesting exchange excerpted from part two which revolves around the notion of alternative currencies threatening the authorities' control of economic policy:

Antony Funnell: One thing we haven't really focused on so far has been the response of government to the development of alternative currencies.

While things like frequent flyer points might be deemed OK, would central government really be prepared to let alternative currencies develop to the point where they threaten their control of economic policy?

In China at least there's already been a backlash, with the government in Beijing last year introducing new regulations to restrict the use of virtual money.

The crackdown was prompted after large numbers of people began using a form of online game currency called QQ coins to buy real world products and services.

Edward Castronova from Indiana University, says the Chinese example should give us pause for thought. Because, he says, along with the benefits, there are potential dangers in the development of virtual and alternative currencies.

Edward Castronova: Let's say a virtual currency sort of got out of control. Now everybody's using the virtual currency to do their day-to-day transactions. I don't think we are anywhere near that now, but let's say, it's something that could happen and in that case the people who are managing QQ coins are very influential in the real world economy. And who are they? People who developed a game. They're not elected officials, they're not appointed by any government, they're not trained necessarily in anything. And so that would be a case where the people who run a virtual environment has significant influence on what happened, out here in the real world.

And in the longer run, I think it's something to think about with that you imagine future generations of people who, they grow up and they spend some time in virtual worlds, and they spend some time in the real world, and are sort of back and forth, and they sort of develop this idea of what an economy should be and how things should work, partly by being in the real world and partly by being in the virtual world where the way people have set up the rules, can be totally different. And that might affect their expectations.

So for example, in a virtual world everybody starts out with nothing, equal playing-fields, and everybody starts out poor. Now what if that became kind of a standard cultural expectation? As you went through your life you sort of expected the real world to be like that also. The true worlds and the way they're designed could start to have an effect on what we expect the real world to look like.

The Gold Wars

Published on July 28, 2009, Gary North's short online book, The Gold Wars, examines the hatred central banks have for gold and also anticipates the dawning of private money systems based on digital gold. North writes:

"Gold bugs believe that there will be a voluntary return to the use of gold by the general public. The computerized technology now exists to create private money systems based on gold -- digital gold. There can be 100% reserve banking. The digits allow us to make exchanges in the range of one dollar’s purchasing power."

"Hostility to the traditional gold coin standard has been the mark of Establishment economists and editorialists ever since the U.S. government confiscated Americans’ gold in 1933. The Establishment hates gold. Its spokesmen ridicule gold. They want responsible fiscal and monetary policies, of course -- all of them publicly assure of this fact, decade after decade -- but the national debt just keeps getting bigger, and price inflation never ceases, also decade after decade. Somehow, fiscal and monetary responsibility just never seem to arrive."

"Why do they hate gold? Because gold represents the public. More than this: gold is a powerful tool of control by the public. A gold coin standard places in the hands of consumers a means of controlling the national money supply. A gold coin standard transfers monetary policy-making from central bankers and government officials to the common man, who can walk into a bank and demand payment for paper or digital currency in gold coins. This is the ultimate form of democracy, and the Establishment hates it. The Establishment can and does control political affairs. They make democracy work for them. They are masters of political manipulation. But they cannot control long-run monetary policy in a society that has a gold coin standard. They hate gold because they hate the sovereignty of consumers."

Interview: Trubanc Creator Bill St. Clair Explains Value Transfer Software

Interviewed by Mark Herpel
Digital Gold Currency Magazine
May 2009

http://www.dgcmagazine.com/dp/node/95

Bill is an extraordinary software designer/creator with a love for gold and silver. His informal value transfer software (IVTS) is called Trubanc and allows anyone to create their own private online ‘banc’ with easy to use, easy to install and highly adaptable software. Once the banc is online, anyone can then also create as many digital currencies they desire for any particular purpose they desire. Bill is also big fan of digital gold and digital currency. Here is my email interview.

(Q) In terms of digital gold currency and freedom, how would you describe yourself?

First off, thanks for the kind words. As it says on my blog, I self-classify as crypto-anarcho-libertarian. Crypto because I program computers and like cryptography. Anarcho because I believe in rules, but not rulers, the primary rule being self ownership. Libertarian because I practice, to the best of my ability, the Zero Aggression Principle: no one has the right, under any circumstances, to initiate force, nor to advocate or delegate the initiation of force. I believe people should be able to trade using whatever currency makes that trading easiest and most convenient for them. Precious metals, e.g. gold, have historically been widely found useful as a trading medium. Making them digital increases ease of use.

(Q) How long have you been using digital gold currency and other digital currencies?

I read David Chaum’s digital cash papers many years ago. I dabbled in e-gold when it was new, but never did anything with my account. I discovered Patrick Chkoreff’s Loom system (https://loom.cc) in December of 2007. Loom was the first digital gold currency system in which I did any real trading. I used a Pecunix account to pay for my new web host, hub.org, and the fact that they accepted Pecunix was a big selling point.

(Q) For online commerce, do you also use a credit card to make purchases?

I use a debit card to do most of my online commerce. Most of the places I buy stuff don’t take DGCs.

(Q) So in your opinion, will digital gold currency replace online banking and the US Dollar?

Though I’d love for that to happen, I don’t see DGCs taking over any time soon. The credit card system is a huge entrenched market. And most people have no concept of the problems of fiat currencies. One would hope that they’d learn from the current economic crisis, but I doubt that they will.

(Q) Right now in about 6 U.S. States, there are honest money bills pending that would allow the use of digital gold as a voluntary system of payment for citizens. The bills would also allow some states to accept actual gold and silver as payment for certain taxes and fees. Do you agree with these bills that gold and silver honest money legislation is a good thing or should we all just shut up and use what the Federal government tells us is money?

I wish them luck. The U.S. Constitution gives the federal government the authority to mint gold and silver coins. Period. No mention of any authority to print fiat money, backed only by “In God We Trust”, nor to delegate control of the money supply to a private company like the Federal Reserve. So these honest money bills are a welcome return to Constitutional money.

(Q) Which do you prefer for online business, the plastic or digital gold? Why?

I like the idea of digital gold, but have some reservations, given the theft by government of e-gold and Liberty Reserve assets and the prevalence of fraud by some DGC providers. But I think the DGC world is maturing, and hope one day soon to be able to direct my employer to deposit my pay into a digital gold account, and to be able to use it at amazon.com and at the web sites of other mass-market vendors. For now, though, my only choice for auto-deposit of my paycheck is a conventional bank, and my only choice for paying most online merchants is a credit or debit card, or PayPal. So I use them.

(Q) Has anyone ever gained control of any digital gold account you operate and used it without your permission?

No.

(Q) What is the main reason you would use digital gold currency? Safety, privacy, speed etc?

Privacy is paramount, hence my work on Trubanc. Also, credit card systems are pull systems. The merchant tells the credit card company that a purchaser has given permission for a debit. And the credit card company believes it. The customer can contest the debit, and the state’s guns supposedly prevent losing more than $50 to fraudulent use, but fraud is basically built in to the system. With a reputable DGC provider, it’s much different. Every spend must be approved by the customer, and, an advantage for the vendor, spends are final. PayPal actually does a pretty good job of making credit card purchases safe. They prevent you having to give your credit card information to the merchant. But you have to trust PayPal, just as you have to trust your DGC provider.

(Q) When did you first begin to develop the Trubanc software?

My first commit was on July 29, 2008. My first blog post about Trubanc was on July 31, 2008. The idea grew out of online chat discussions with Patrick Chkeroff.

(Q) What exactly is a ‘Trubanc’ and what can I do with one?

Trubanc is an anonymous digitally-signed vault and trading system. It’s account-based. Each account be split up into a number of named compartments, sort of like checking and savings in a conventional bank, but named whatever you want. Each compartment tracks balances in any number of digital assets. Like Loom, anyone can create their own digital asset (currency), backed by anything or nothing. Though I think that assets backed by gold or silver are more likely to be accepted. You create an account on a Trubanc server with a PGP public key. The corresponding private key is stored, encrypted with a passphrase, on your PC, or on a client web server. All messages between client and server are digitally-signed, a virtually unforgettable validation method, unless somebody steals your private key and passphrase, and assuming that PGP has no backdoors and is practically impossible to break, valid assumptions as far as I know.

Account balances are time stamped, digitally-signed by the customer, and counter-signed by the bank, so each can prove to the other that they agreed at a particular time on the balance in each asset. If the customer can prove that his balance at time X was Y grams, and the bank cannot prove it was different at a later time, then the bank must believe the customer and adjust his balance accordingly. I haven’t yet implemented that correction mechanism. Trubanc storage is paid for with “usage tokens”, a bank-issued asset. The storage is file-based, and one file costs one usage token. I expect the cost of one usage token at most banks will be somewhere around one U.S. cent, but that isn’t built in to the software anywhere.

As with most DGC systems, you can make a spend to another Trubanc user, on the same server, if you know their ID. Trubanc allows you to attach a note to the spend, and allows the recipient to accept or reject the spend, again attaching a note. So it’s also a simple messaging system, since you can do a zerospend whose only purpose is to deliver a message. The usage tokens reduce spam, since making a spend costs 2 usage tokens, which you get back if the recipient accepts the spend, but which go to the recipient if he rejects it.

A spend can be cancelled until the recipient accepts or rejects it, but once accepted, the spend is final. The bank takes the 2 usage tokens if you cancel a spend. You can also mint your own Trubanc “coupons”, which you can mail or chat to someone outside of a Trubanc server, and which they can redeem on the server. A coupon for usage tokens is how most people will gain the ability to create a new account. Asset issuers can charge storage fees, a percentage of each account balance, collected on each transaction, and periodically by the bank, at the issuer’s request.

I plan to build a merchant interface, which will work much like PayPal or Pecunix, allowing an internet vendor to enter a proposed payment into the customer’s Trubanc client, which he must approve before the sale can be completed.

(Q) The Trubanc software for creating a value transfer system is free, correct?

Yes.

(Q) Would you call it open source?

Yes. The source is available on Trubanc.com and in the GIT archive at github.com/billstclair.

(Q) Is the Trubanc system available to anyone who wants one? How does a reader get one?

Yes. Go to http://trubanc.com, and you should see how to get it. There’s an INSTALL file that explains how to set up the PHP version. I’m currently working on a Lisp version, which will have a one-file executable for client or server, complete with a web interface for configuration. The PHP version works, but I consider it a prototype. The lisp version will be more bullet-proof, and easier to use, though it requires a stand-alone server, or virtual server, not just a PHP web host.

(Q) What features of digital gold currency and Trubanc do you feel are the most important?

That’s really two questions. I’ll answer about Trubanc. Privacy and security are Trubanc’s claim to fame. You don’t need to tell the bank anything about yourself except your PGP public key. And the bank cannot change your balance without your permission, though it can post storage charges to your account, which you have to accept to be able to do any more spends from that account.

(Q) Why would anyone around the world, use Trubanc over say...Bank of America’s online banking?

Privacy and security.

(Q) What countries do you feel are the biggest markets for products such as Trubanc?

Trubanc itself isn’t really a product; it’s free. I hope I can earn some assets supporting Trubanc installations, but I intend for the code itself to remain free and open source. As to which countries are the best places to host Trubanc servers, I haven’t thought about it. Trubanc.com is hosted in Panama by a Canadian company.

One of Trubanc’s biggest hurdles is that governments do not like anonymous banking. If they can’t track your spends, they can’t collect taxes on them. So though I think that lots of United States residents would want to use a Trubanc, hosting one on a US server is a really bad idea, since the US government is likely to shut it down. Whether they’ll make it illegal to USE a Trubanc, hosted outside of the US, remains to be seen.

I’d like to thank Bill for taking time to answer my questions and provide us with this valuable information. If you would like to try out your own Trubanc we encourage you to download from his web and set up your own bank. Reprinted with permission.

For further reading:
"Anonymous internet banking", Wikipedia, the free encyclopedia
"Trubanc The Newest Secure Value Transfer System", Mark Herpel, DGC Magazine, January 2009

Are We Merely Unsecured Creditors at LBMA Banks?

By Adrian Douglas
Gold Anti-Trust Action Committee
Monday, March 1, 2010

http://www.gata.org/node/8388

Recently I have written several articles that have discussed how much "paper gold" has been sold, principally through the unallocated accounts of the London Bullion Market Association, though there are other vehicles that achieve the same end, such as pool accounts, unbacked exchange-traded funds, futures, and derivatives, etc., but the LBMA dwarfs them all.

See:

http://www.gata.org/node/7911

And:

http://www.gata.org/node/7908

I estimate that as much as 50,000 tonnes of gold have been sold that do not exist. That is equivalent of all the gold reserves in the world that are yet to be mined -- or, put another way, 25 years of gold production.

That is the granddaddy of all short positions.

The fractional reserve operation of the LBMA is likely to be the next Madoff scandal, except multiplied by 100 -- a $5 trillion fraud as opposed to a $50 billion fraud.

Like all financial scandals before it, this one will be exposed just as surely as night follows day. Gold is unique among all commodities. It is the only commodity that is not bought to be consumed. Rather, it is purchased as a store of wealth. Because it is not consumed, the buyer does not need to take possession of his gold but can be persuaded to trust the seller to store his gold on his behalf.

This unique wrinkle allows bullion bankers to sell gold that does not exist. This allows them to make huge profits, since they have very little cost, as they don't have the inconvenience of actually having to purchase the gold before they sell it.

The consequence of this illegal activity is that it suppresses the price of gold because the "paper gold" supply has the same effect on prices that would happen if real gold had actually been supplied to the market.

Such racketeering is extremely beneficial to the central banks, which are hostile to gold because a free-market gold price would blow the whistle on their perpetual inflationary actions. A suppressed gold price makes fiat currencies appear to have higher purchasing power.

The central banks do not just turn a blind eye to the bullion banks' fraud but actively assist it; the central banks lease gold at a pittance of a lease rate to make sure there is always enough liquidity so the scam is not exposed from the bullion banks' inability to deliver real metal when asked.

There is nothing new about gold bankers selling gold they don't have. The goldsmiths invented the scheme in the 16th century. As recently as 2005 Morgan Stanley was sued for selling imaginary precious metals. Morgan Stanley even had the audacity to charge storage fees on metal that didn't exist. The firm settled the lawsuit out of court but no criminal charges were ever filed. Morgan Stanley maintained that it did nothing wrong because none of its clients had lost any money in the scam. That was innovative. I will try stealing a billion dollars from a bank and then I will pay it back the following day and see what the FBI thinks of that legal defense.

The LBMA operates a fractional reserve system. It sells much more gold than it has. The LBMA keeps on hand the amount of gold that it estimates, in the worst-case scenario, it will be called upon to deliver.

In a recent article I analyzed data from the LBMA's own Internet site that shows that a net of approximately 20 million ounces of gold are traded every day:

http://www.gata.org/node/8248

This means that we are meant to believe that the equivalent of 25 percent of global annual gold production changes hands each day on the LBMA. On a gross trading basis this probably represents the whole of annual worldwide gold production traded every day. In dollar terms it represents $5.7 trillion of net trade annually. That is almost 60 percent of the entire U.S. economy or 10 percent of the entire global economy being traded through a handful of gold bullion banks.

It is simply mind boggling. You don't have to be a rocket scientist or a market regulator to smell something fishy. To back that level of trading on a 100 percent reserve ratio, the bullion banks would have to own almost 40 percent of all the gold ever mined. There are simply not enough London Good Delivery bars for that to be the case.

You don't have to rely on me to tell you that the LBMA is running a fractional reserve gold racket. This is from the LBMA's own Internet site:

http://www.lbma.org.uk/london/accounts

"Unallocated Accounts

This is an account where specific bars are not set aside and the customer has a general entitlement to the metal. It is the most convenient, cheapest, and most commonly used method of holding metal.

"The units of these accounts are 1 fine ounce of gold and 1 ounce of silver based upon a .995 LGD (London Good Delivery) gold bar and a .999-fine LGD silver bar respectively. Transactions may be settled by credits or debits to the account while the balance represents the indebtedness between the two parties.

"Credit balances on the account do not entitle the creditor to specific bars of gold or silver, but are backed by the general stock of the bullion dealer with whom the account is held. The client is an unsecured creditor.

"Should the client wish to receive actual metal, this is done by 'allocating' specific bars or equivalent bullion product, the fine gold content of which is then debited from the allocated account."

There are some real peaches in this description. For example: "Credit balances on the account do not entitle the creditor to specific bars of gold or silver, but are backed by the general stock of the bullion dealer with whom the account is held."

They don't say that the bullion dealer has to hold the amount of gold he has sold, just that these unallocated accounts are backed by the bullion dealer's stock. His stock could be a thousand ounces or none at all.

Note the statement: "The client is an unsecured creditor." So this really spells out what "unallocated" means. It means that there is no gold allocated to the customer. The customer owns only an IOU for gold.

If the LBMA were running a system that had on hand 100 percent of all the gold being sold but just didn't want to assign specific bars and serial numbers, then all creditors would be secured. But the LBMA spells out that all clients are unsecured creditors. The buyers have no gold guaranteed against the IOU from the bullion dealers.

Who exactly are the members of the LBMA? The clearing members are as follows:

-- HSBC Bank USA National Association

-- JP Morgan Chase Bank

-- The Bank of Nova Scotia

-- Barclays Bank

-- Deutsche Bank

-- UBS AG

HSBC and JPMorgan Chase are the biggest short sellers on the New York Commodity Exchange. Together they own 95 percent of the over-the-counter precious metals derivatives. They are also custodians of the bullion supposedly held by the GLD and SLV exchange-traded funds, respectively, and they are clearing agents for the LBMA.

That is one fine set of credentials. These banks are so arrogant and confident that their racketeering will not be exposed that the quarterly publication of the LBMA is titled "The Alchemist."

Unlike the alchemists of the middle ages who tried to turn lead into gold, the alchemists at the LBMA turn paper into gold. (Well, gold IOUs, to be exact.)

In 2003 Graham Tucker, chairman of Gold Bullion Securities, made a presentation to the annual LBMA precious metals conference about his firm's new gold-backed ETF that today trades on the American Stock Exchange under the ticker symbol "GOLD." The transcript of his speech can be found here:

http://www.lbma.org.uk/docs/conf2003/2e.tuckwellLBMAConf2003.pdf

In that speech Tucker said:

"There are three essential components of [a] listed security, in our opinion. Firstly, ownership of the gold; investors want allocated gold, not a third-party credit risk, which is what unallocated gold is. In fact, you could argue unallocated gold isn't gold; it's just a piece of paper issued by a bank, and in most cases, unsecured risk."

You have to remember that this is a speech being made in front of all the members of the LBMA. You simply can't make such a statement in front of such a crowd if it isn't true. And we know it is true because the LBMA says the same thing on its Internet site. They say their clients are "unsecured creditors."

The LBMA peddles gold promises to those gullible enough to trade off convenience against title.

Many people do not understand what fractional reserve accounting means. I will give you an example of a less important real-life case.

Commercial airlines routinely sell more seats on a flight than the airplane has. If the plane holds 200 passengers but from statistics the airline knows that on average only half the passengers with ticket show up for check-in, the airline can sell 400 seats and be confident that the plane will fly full, which increases the airline's profitability. If the airline sold only 200 tickets, the plane would fly half empty. Occasionally the airline gets caught when, say, 210 passengers check in. In such circumstances the airline offers a free night in a hotel, a first-class upgrade, and some cash for any 10 passengers volunteering to fly later or the next day. But all the people who purchased tickets believed that they were buying actual available seats, not unallocated virtual seats.

This is exactly the same situation with the LBMA; the LBMA sells more gold than it has. It knows from statistics on average how many clients will ask for delivery and that determines the LBMA's minimum stock level.

But just like the case of the airlines, this scheme is destined to be discovered. When more gold is demanded than the bullion banks can deliver, they try to lease or buy gold from central banks. If this can be done in a timely fashion, the bullion banks' clients are none the wiser. If the central banks cannot provide supply, then the bullion banks are obliged to offer premiums over the spot gold price to encourage clients to accept cash in lieu of metal.

We are hearing anecdotal stories that recently there have been cases of premiums of up to 25 percent being offered for gold buyers to settle in cash instead of metal. It would seem that the bullion banks have pushed the game too far and are on a collision course with default. In addition the central banks have dishoarded a large proportion of their gold and are not in a position to come to the rescue of the bullion banks as much as in the past.

I recently made an analysis of the Comex warehouse inventory of gold and silver in an article entitled "Alarming Trend in Comex Gold and Silver Inventory Data":

http://www.gata.org/node/8373

One of my conclusions is that in the last six months there has been a dramatic decline in the inventory held by the dealers on the Comex (the registered category), while over the same period the open interest has increased. This essentially means that each open contract has less warehouse gold or silver backing today than it did six months ago.

This is a classic reduction in reserve ratio. It is a sign that the gold cartel is running out of physical gold and silver.

This observation is supported by other data. During the last two years the U.S. mint has periodically suspended production of gold and silver coins due to shortages of bullion, and the Comex futures have displayed contracting contango and/or mild backwardation, which is indicative of physical market stress.

There is anecdotal evidence that the LBMA OTC market in London has been having difficulties in making deliveries and requiring central bank gold to do so.

There are also rumors of large premiums being offered for cash settlement in lieu of the bullion.

Sources active in the London market tell us it is difficult to find large amounts of bullion.

The central banks have stopped selling and have become net buyers of gold. Further, at the end of last year the politically connected miner Barrick Gold announced a panicked buying back of its hedges.

The clients of the LBMA are not speculators or gamblers. They have bought gold that they believe is being held in a vault for them by the LBMA members. As the suspicions about the LBMA rise, more clients will ask for delivery, which will expose this fraudulent operation.

As I wrote here earlier, I estimate that as much as 50,000 tonnes of gold have been sold that do not exist. That is equivalent to all the gold in the world that is yet to be mined, or, put another way, 25 years of gold production, the granddaddy of all short positions.

The fractional reserve operation of the LBMA is likely to be the next Madoff scandal, except multiplied by 100 -- a $5 trillion dollar fraud as opposed to a $50 billion fraud. Those holding real bullion will see the price multiply many times as the price adjusts to the supply and demand fundamentals of real metal.

There is only one way to protect yourself and to profit. You should own physical bullion. Simply don't trust intermediaries like the LBMA that purportedly sell you gold but label you an "unsecured creditor." Anyone who thinks he holds gold at the LBMA should demand delivery.

The major desirable and unique characteristic of gold is that it is no one else's liability, unlike almost every other financial asset. If you own a credit risk, like IOU gold, you have not achieved the principle objective of owning gold.

Are you a gold owner or an "unsecured creditor"?

You cannot be both.

Adrian Douglas is publisher of the Market Force Analysis letter and a member of GATA's Board of Directors. Reprinted with permission.

Virtual Money Presents Real Legal Problems

By Thomas Claburn
InformationWeek
Monday, March 1, 2010

http://www.informationweek.com/news/software/showArticle.jhtml?articleID=223101009

Introducing a virtual currency in an online game or social Web site isn't simply a way to print money without paper.

Virtual money has real value and companies that operate online games, having recognized that selling nothing for something can create a profitable revenue stream, are rushing to cash-in on the imaginary economy.

The signs are everywhere. On February 25, social monetization company gWallet introduced the gWallet Brand Bar, an interactive banner ad that appears at the top of browser-based game screens to make interactions involving virtual currency easier. Gurbaksh Chahal, CEO and founder of gWallet, called virtual currency "a thriving industry."

On February 18, Facebook and PayPal said that PayPal had become a payment option for Facebook Credits, the virtual currency used in a rising number of Facebook games.

"Today more than 500,000 applications exist on Facebook, and the virtual goods within those applications (particularly games) have become an increasingly valuable part of the user experience," explained Deborah Liu, a product marketer on the Facebook Developer Network team, in a blog post last week week. "By providing a single, cross-application currency, our goal is to making transactions simpler for users, leading to a higher conversion rate for developers."

Facebook has been testing Facebook Credits with a select number of large developers, including Crowdstar, Playdom, Playfish, RockYou, 6waves, and Zynga. It plans to invite additional developers into its program in the months ahead.

On February 9, Offerpal Media, a virtual currency distributor, introduced "Offerpal Tasks," a way for consumers to collect virtual currency for online games and social networks in exchange for the completion of Amazon Mechanical Turk jobs.

Dax Hansen, a partner in law firm Perkins Coie's Electronic Financial Services practice, observes that "points," "coins," "bucks," and other forms of virtual currency are becoming commonplace at online gaming sites, social media sites, and among retailers and other businesses.

Read the rest of the article.

For further reading:
"Seed Money", Douglas Quenqua, OMMA, March 1, 2010
"Virtual Currencies: Real Legal Issues for Retailers", J. Dax Hansen, RetailingToday.com, February 26, 2010

Toward A Private Digital Economy

In April 2004, Wavyhill and Andre Goldman published a landmark achievement in the movement towards anonymous digital cash entitled, "Toward A Private Digital Economy: Trusted Transactions in an Anonymous World". The video presentation from DEF CON 12 can be seen here. It is significant in that it is one of the few written pieces that anticipates the forced closure of digital-issuing mints by the authorities. What is explored is the establishment of a trusted central mint that operates anonymously and therefore can remain operational in the face of direct governmental threats and assaults. From the abstract:

"Currently available financial privacy tools have drawbacks arising from centralized ownership and control, and the limitations of presenting specific services. A better approach would be to construct a fully distributed environment for economic activity which mimics the way cash is used in the physical world but is private, anonymous, trusted, and indestructible. A key to this variety is the element of locale, which we will explain in some detail."

"We will introduce a 'Farmer's Market' model of anonymous commerce and expand it into a detailed functional description. We will explore business models viable in this environment and ways to connect them to the transparent banking world."

"An anonymous economy must resolve issues of trust and reputation to be practical. We show how properties of number can be used to derive an 'algebra of trust' and exploited to reduce risk in anonymous transactions. Once reduced to a number, trust, like any other asset, can be quantified, evaluated, commoditized and even used as a currency. Algorithms that distribute data storage can distribute risk and trust once they are reduced to data. These things may overcome some of the barriers to the wide adoption of a private digital economy."

Building on the Digital Monetary Trust due largely to J. Orlin Grabbe, the authors further anticipate that in order to have a reliable trusted issuing mint that is both anonymous and not geographically locatable, it is necessary to provide a mechanism for distributed trust and auditing provisions that do not compromise the anonymity or location of the issuing entity. This function is accomplished through a series of third-parties known as a guild of bondsmen, escrow agents, and fair witnesses. The bondsmen have access to an auditing process that does not put the assets at risk of seizure while still providing enough assurances to the financial integrity of the currency issuance. From the article:

Bondsman - This is a special case of insurance but one that merits special treatment. An insurer sells safety. A bondsman sells trust, the most precious commodity in the anonymous world. He sells it in the form of a promise to pay for losses incurred by a third party due to the non-performance of his client. The client posts a bond, assets worth some fraction of the amount at risk, depending on the bondsman's perception of that risk. There will be a non-returnable fee for the service. Where does the bondsman get his stock in trade? Some of it comes from his track record. In this business, reputation is literally as good as gold. Risk and trust are two sides of the same coin. He can distribute his risk (and gain trust) by posting secondary bonds with other bondsmen. The promise of 10 people to cover an obligation conveys more trust than the promise of any one person, hence the value of co-signers to a loan, trust is additive. Others have used the term “web of trust”. We introduce a related concept, the “web of bonds”. A guild of bondsmen backing each other generates more trust than the sum of the parts, because trust is associative. A bondsman's profit margin must be relatively large, in proportion to his risk. In section V we show how that proportion can be formally derived.

Escrow Agent - Escrow is another form of trust management, assets deposited with a neutral trusted third party to be delivered under contractually specified conditions. Like Bondsman, it is a service well-suited to the anonymous world because it can be transacted electronically. Like Bondsman, it is another way to rent trust, which may be acquired in the same ways. Escrow Agent doesn't pay as well as bondsman, because there is almost no risk.

Fair Witness - The professional witness sells truth, as a trusted reporter of fact. Unlike Heinlein's Fair Witness, an eidetic memory and hypnotically trained powers of observation are not required. Though a contract can be digitally signed in a non-repudiable way, the recording of it in a trusted neutral place has value. Likewise testimony about associated conditions and events not recorded in any contract (Johnny Carboncabin sent 12 threatening and intimidating messages to Clarke Kent after Clarke's whistle-blowing expose' was published). The Witness may verify Dark Side events, objects, conditions (Wolfie's Toy won today's trifecta, that 1909S VDB penny is in mint condition). There may be conditions on disclosure or limits on scope and audience. The witness may take the role of auditor: “I attest that on this date, 'The Anonymaker' proxy's logs were kept for no more than four hours. I reviewed their code and it was so configured. I probed their server and it was running the code I reviewed”. There is also the role of Notary: “I attest that the same individual signed both of these documents, though I can't disclose the content of the documents or the identity of the individual.”. Another valuable Witness service is putting a time stamp on identities, coins, messages, contracts, and so on. The Fair witnesses fee should be in proportion to the reputation of the Witness, and the amount or issue in contest.

For further reading:
"The Digital Monetary Trust Part 1: Introduction", J. Orlin Grabbe, November 15, 1999
"The Digital Monetary Trust Part 2: The Anonymous Account System", J. Orlin Grabbe, November 22, 1999
"A Brief Guide to Digital Cash Articles on My Webpage", J. Orlin Grabbe, February 28, 1998

South Carolina Bill Seeks to Refuse Federal Reserve Notes as Legal Tender

By Joe Wolverton, II
The New American
Monday, February 22, 2010

http://www.thenewamerican.com/index.php/usnews/politics/2987-sc-bill-seeks-to-refuse-federal-reserve-notes-as-legal-tender

As South Carolina State Representative Mike Pitts walked into the Greenwood (South Carolina) Chamber of Commerce annual Legislative Breakfast Friday morning, he knew what the local small business leaders gathered there were most anxious to hear about. Anybody listening to the radio or reading the paper had heard reports that Representative Pitts wanted to outlaw paper money in South Carolina. That sort of dust up is better than donuts at drawing at a crowd at the Chamber.

On February 2, 2010, former college baseball coach and retired police officer, Mike Pitts submitted bill number 4501 to the clerk of the South Carolina House of Representatives. The title of the bill, “Gold and Silver Coins as Legal Tender,” reveals the constitutional and controversial purpose of the measure. Representative Pitts, a dedicated constitutionalist, wrote the bill to fight what he describes as “constant federal intrusion into states’ rights.”

Section 1 of the proposed bill succinctly proclaims the impetus and spirit of the measure, “The South Carolina General Assembly finds and declares that the State is experiencing an economic crisis of severe magnitude caused in large part by the unconstitutional substitution of Federal Reserve Notes for silver and gold coin as legal tender in this State. The General Assembly also finds and declares that immediate exercise of the power of the State of South Carolina reserved under Article I, Section 10, Paragraph 1 of the United States Constitution and by the Tenth Amendment, is necessary to protect the safety, health and welfare of the people of this State, by guaranteeing to them a constitutional and economically sound monetary system.”

By placing the lion’s share of the blame squarely at the feet of the federal government, particularly its unrepentant, unchecked, and (most importantly) unconstitutional manipulation of the monetary system of the United States through the creation and perpetuation of the Federal Reserve system, Representative Pitts is reasserting the sovereignty of the state of South Carolina and re-enshrining the Tenth Amendment to the Constitution wherein the Founding Fathers intended to erect an impregnable barricade around the self-determination of the sovereign states.

Specifically, Representative Pitts bill would prohibit the state of South Carolina including all the departments, agencies, and political subdivisions thereof) from accepting “anything other than silver and gold coin as a legal tender in payment of any debt.” The bill also sets out the precise standards of measurement to be employed in determining the legal weight and purity for the specie of coin to be accepted as legal tender.

According to the author’s interview with the sponsor of this bill, the local Columbia, South Carolina media is firing a steady volley of arrows at him and describing him as a “wing nut.” Predictably, the news media using Representative Pitts as a bulls-eye have recruited “experts” to deconstruct the measure and label it as “unconstitutional.” Representative Pitts respects the opinion of genuine economists, but questions the qualifications of the local political science professors whose assessment of the bill has been offered by the media as determinative. “I’ve had Harvard trained economists tell me that this bill is constitutional,” responds Representative Pitts.

Regardless of the battle of expert testimony, Representative Pitts reckons that the only way to finally and fully establish the constitutionality of his bill is to pass the bill and then wait and see if the federal government challenges it’s mandates in the Supreme Court. “The Supreme Court is the forum for determining the constitutionality of a bill, not the media,” states Representative Pitts.

As a retired police officer, Representative Pitts has first hand experience with the federal government’s efforts at shackling the hands of local law enforcement through regulations promulgated under the Commerce Clause. “Everyday as a police officer I ran up against the federal government’s attempts to use the Commerce clause to get into every avenue of law enforcement,” reports Representative Pitts. After being recruited by his local Republican Party to run for office, Mike Pitts was determined to bring his life experience and his constitutionalism to bear during his service to the people residing in the three counties he represents.

In the General Assembly of South Carolina, representative are seated geographically, rather than by party affiliation. During a meeting of the House of Representatives Republican Caucus, Representative Pitts was seated next to state representative Jeff Duncan (now a candidate for a U.S. House seat) himself a staunch constitutionalist, when House Majority Leader Kenny Bingham announced that he was “making standing up to the federal government a top priority” of the caucus. Upon hearing this, Representative Pitts leaned over to his seatmate Duncan and whispered, “That’s news to me. They haven’t supported any of my state sovereignty bills in the past.”

Mike Pitts is the first Republican elected in the 14th District to serve in the South General Assembly and from day one he has devoted his time and talent to challenging the federal government’s constant encroachment on the rights of states to govern themselves. Since taking the oath of office in 2003, Representative Mike Pitts has written or sponsored several key pieces of legislation aimed at reaffirming the principle of state sovereignty.

Although several of these bills were admittedly mere declarations of state sovereignty without any legal force, there is one act “with real teeth” of which Representative Pitts is particularly proud: the South Carolina Illegal Immigration Reform Act of 2008. This act, signed into law by Governor Mark Sanford, has been described as “one of the nation’s strongest immigration laws.” The section of the bill co-authored by Representative Pitts requires that all parents enrolling their children in public school must provide proof of residence, regardless of immigration status. Representative Pitts also contributed to the part of the act restricting all but emergency health care from being provided to those illegal aliens living in South Carolina.

Despite the slings and arrows of outrageous fortune being hurled at Representative Pitts, he has no plans to run for cover. “There are two groups left that can challenge the federal government’s power grab and make a change: the voters and the legislatures of the fifty sovereign states,” Pitts explained. The recent election in Massachusetts and the growth of the Tea Party is evidence to Representative Pitts that the voters are expressing their distaste with the federal government’s plans to nationalize health care and continue spending taxpayer money on billion dollar bank bailouts. “We may have to defend this bill in federal court, but it’s worth it,” Pitts stated.

Representative Mike Pitts believes that the real value of his bill to restore silver and gold as the coin of the realm in South Carolina by refusing to accept Federal Reserve notes as legal tender for payment of debts cannot be weighed today, but in coming generations. Accordingly, Pitts thus soberly admonishes all of his fellow Americans, “If we allow the federal government to continue printing paper money in order to pay the interest on all the foreign loans that are funding their unconstitutional schemes, and if we don’t stand up and fight then our grandchildren will live either broke and in abject poverty or as Chinese citizens.”