Provenance of digital money

The point I needed to make more of in my last posting is that all sorts of spurious things are done in the financial sector to  make digital non-money look like real digital money.  This is indeed how, since the 1970s and the increasing use of digital methods of moving money around, the whole stock of world money has been able to breed just like fruit flies far beyond the quantity required to buy, sell and insure the goods and non-financial services in the economy.

The essential fault of digital money as it exists at present is that, unlike paper  banknotes, each unit can’t be identified with a number. Once a unit of digital pound or dollar comes into existence by one doubtful method or another then, because it has no identity, it looks the same as any genuine pound or dollar printed on the instruction of a country’s central bank.

This, in fact, was the only good feature of bitcoins.  Each bitcoin that is made is given an identity number which either follows it for the rest of its life or is scrapped when the unit is absorbed into a larger bloc of bitcoins under a new aggregate number.  But this could never be a safe system for world-wide digital money because each bitcoin, as it is repeatedly recycled, acquires a growing raft of validation information — its past history — which, in due course, would become so large that it would need enormous electrical power requirements when passing through an individual’s smartphone or personal computer when buying or selling an item.

The only way of using digital money whose provenance can be relied upon is if every single one of them was numerically locked into a specified share of a valuable asset kept in a secure depository.  If necessary at any time — say during a financial panic — the share of the asset could be redeemed by the owner.  This numbering system can remain in the depository and, unlike bitcoins, doesn’t have to be carried around when each unit of digital money is used and re-used every time it passes through a smartphone or personal computer.

2 thoughts on “Provenance of digital money

  1. I wish we were going to see our nephew soon. He was recently working on security for bitcoin, may still be, for all I know. On the other hand, I don’t always follow what he talks about. This is the young fellow who lectures at MIT, even though he never graduated from college. We have some interesting relatives!

    1. Anne, It would be very interesting to know. I get the impression that Bitcoin is somnolent at present. If so, what is the reason. Bitcoin started off so grandly that I ought to be world-wide by now. Keith

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