originally a post on onionforum
Posted on Aug 23, 2008, 3:53 am by Guest
there are three types of currencies relevant to this discussion: fiat, pegged, and commodity-backed.
fiat currency depend on a stable supply (federal mint) and a stable demand (taxation). price of all other goods and services can then be measured relative to that fiat currency. a fiat currency is worthless if the government drastically lower taxes (rapid drop in demand) or drastically print more money (rapid raise in supply). since there is no implicit trust in the anonymous network, virtual fiat currency does not work well since trust depend on use and use depend on trust. there is none to regulate the supply of virtual fiat currency and taking taxes also.
pegged currency has a fixed exchange rate to another currency. some currency are pegged to the USD, some are pegged to the EURO. since pegging a currency require holding reserves to the currency being pegged, this requirement eliminate the anonymity of the organization providing the pegged currency. a known organization reduced anonymity of everyone using that pegged currency. there is also the issue of anonymity when exchanging virtual pegged currency to the physical currency since physical currency can be traced. not to mention the fact the virtual pegged currency violate laws regarding tax evasion, money laundering, etc.
commodity-backed currency is simply an advance form of bartering. the commodity can be silver, gold, or even postage stamp. the only way to make sure that any commodity-backed currency is not fraud is to exchange a virtual token of a commodity back to its physical equivalent, but this could potentially eliminate anonymity. there is a possibility of using computing power as a commodity-backed currency. we could be bartering with the teraflop of a supercomputer. we will need a company that sells access to computing power in the form of digital certificate. the digital certificate of computing power of a certain date can then be bartered on any anonymous market. since the digital certificate has a specific date attached to it, whether it is fraud or not can be quickly discovered. the drawback of this certificate-access of commodity-based currency is rapid inflation. this should be just legal enough in most countries.