From 401ba0a58561953d48d3f250ec166a5128933a92 Mon Sep 17 00:00:00 2001 From: 0xb100d <25261452+0xb100d@users.noreply.github.com> Date: Wed, 17 Apr 2019 01:59:57 +0000 Subject: [PATCH] Create The bootstrapping of Thorne, Magic Money, and Cyberbucks: three pre-Bitcoin monetary experiments --- ...ks: three pre-Bitcoin monetary experiments | 266 ++++++++++++++++++ 1 file changed, 266 insertions(+) create mode 100644 The bootstrapping of Thorne, Magic Money, and Cyberbucks: three pre-Bitcoin monetary experiments diff --git a/The bootstrapping of Thorne, Magic Money, and Cyberbucks: three pre-Bitcoin monetary experiments b/The bootstrapping of Thorne, Magic Money, and Cyberbucks: three pre-Bitcoin monetary experiments new file mode 100644 index 0000000..ae920e2 --- /dev/null +++ b/The bootstrapping of Thorne, Magic Money, and Cyberbucks: three pre-Bitcoin monetary experiments @@ -0,0 +1,266 @@ +https://jpkoning.blogspot.com/2017/11/the-bootstrapping-of-thorne-magic-money.html +jp koning + +Bitcoin boasts many technical achievements, but none is more interesting + to me than they way it was successfully bootstrapped. How did a small +group of cypherpunks—activists interested in widespread use of +cryptography and digital currency—manage to get an intrinsically +valueless token to have a consistently positive price? Hal Finney, a +cryptographer and early adopter of bitcoin, put it this way in 2009: + + + + +"One immediate problem with any new currency is how to value it. Even +ignoring the practical problem that virtually no one will accept it at +first, there is still a difficulty in coming up with a reasonable +argument in favor of a particular non-zero value for the coins." +The bootstrapping of bitcoin seems to have been achieved with some care. William Luther + has gone through old bitcoin message boards to show how early adopters, + including Finney and bitcon-creator Satoshi Nakamoto, coordinated to +'enter the network' at the same time, thus generating a positive value +for worthless bitcoin tokens. A token that is already valuable, perhaps +because it is useful for some non-monetary use like jewellery, or +because it is directly convertible into an already-existing money, is +much easier to launch than one that isn't already valuable. Bitcoin +didn't have the benefit of non-monetary usefulness. + + + + +----- + + + +By way of Timothy May's Cyphernomicon, + I recently discovered that bitcoin wasn't the first attempt by +cryptographers to launch an intrinsically worthless digital token into +positive-value space. Similar bootstrapping attempts occurred back in a +previous era of digital currency experimentation, the mid-1990s. + + + +In 1993 the extropians—a + group that believes in the technological possibility of immortality +(among other things)—set up an experimental market called the Hawthorne Exchange + where individuals could trade units of reputation. There seems to be +some crossover between extropians and cypherpunks with the reputations +of folks like Timothy May and Nick Szabo, both key contributors to the +Cypherpunks electronic mailing list, being listed on the Hawthorne +Exchange. Trades were made using the exchange's own native currency +called thorne, which had a fixed supply. Not only did the +extropians succeed in generating a positive price for twenty or thirty +reputation tokens, but by extension the native currency—thornes—was also + bootstrapped. + + + +As part of the experiment, people began to sell stuff for thornes, including copies of digital cash papers and old books. They made bets in thornes and even established a U.S. dollar price for the nascent digital currency (it was somewhere between 100 and 1000 thornes per dollar). + + + +The problem with the whole endeavour is that—as Hal Finney would point out + not long after it had begun—the tokens were essentially worthless. By +convention each unit was supposed to represent a person's reputation, +but there was no independent force that could possibly make a token +correspond to a reputation: + + +"It is important to understand that Thornes are not like dollars. Unless + HeX shares can be given a grounding other than the whim of their +owners, the market will surely collapse, because there is nothing to +support it." +Finney would be proven right, since the Hawthorne exchange was shut down sometime in 1994. + + + + +----- + + + +In their next effort the cypherpunks would bootstrap a set of play +currencies that had been created using a toolkit called Magic Money, a +digital cash system programmed by the pseudonymous Pr0duct Cypher and made available in February 1994. Here is Pr0duct Cypher in the introduction to the software: + + +"Now, if you're still awake, comes the fun part: how do you introduce +real value into your digicash system? How, for that matter, do you even +get people to play with it? + + + +What makes gold valuable? It has some useful properties: it is a good +conductor, is resistant to corrosion and chemicals, etc. But those have +only recently become important. Why has gold been valuable for thousands + of years? It's pretty, it's shiny, and most importantly, it is scarce. + + + +Digicash is pretty and shiny. People have been talking about it for +years, but few have actually used it. You can make your cash more +interesting by giving your server a provocative name. Running it through + a remailer could give it an 'underground' feel, which would attract +people. + + + +Your digicash should be scarce. Don't give it away in large quantities. +Get some people to play with your server, passing coins back and forth. +Have a contest - the first person who (breaks this code, answers this +question, etc.) wins some digital money. Once people start getting +interested, your digital money will be in demand. Make sure demand +always exceeds supply." +From the cypherpunks mailing list we learn that over the course of the +next few months four or five unique tokens were created using Magic +Money, including Tacky Tokens, GhostMarks, DigiFrancs, and NexusBucks. + As in the earlier case of thornes, an attempt was made to sell goods +and services in these new currencies. One poster on the Cypherpunk +message board offered to pay coders to write software with NexusBucks, +and another tried to sell GIF art of tacky tokens. + + + +After a flurry of activity, however, interest died off. "It appears that + the Magic Money/Tacky Token experiment is not succeeding in producing +an informal digital currency," wrote Hal Finney in May 1994. "People have offered services in exchange for this money but have had no takers." In a post entitled Why Digital Cash is Not Being Used, + Tim May blamed the failure of Magic Money on the lack of items to buy +with tokens and confusion about how to get them and send them. It's +worth a read. + + + + +----- + + + +No sooner had the Magic Money experiment died when a new new opportunity for bootstrapping digital tokens emerged. David Chaum, + an early advocate of privacy, had established a company called Digicash + in 1989 to commercialize the use of blind signature technology in +electronic currency. In a trial that was first announced in July 1994, +Digicash offered the first 10,000 applicants one hundred free +cyberbucks, or e$, up to a maximum issue of one million cyberbucks. + + + +Despite the fact that these tokens were intrinsically worthless—they had + neither commodity value nor could they be redeemed into U.S. +dollars—people soon began to transact with them. On its website, +DigiCash listed around 100 shops that accepted cyberbucks, including those that sold postcards and various types of information services. Zooko Wilcox-Hearn, who recently founded the anonymous cryptocurrency Zcash, offered to sell his PGP software for cyberbucks. A coding contest + by the omnipresent Hal Finney offered cyberbucks as a prize and Adam +Back, a cryptographer who is currently involved in administrating +bitcoin, sold "export-prohibited" cryptographic t-shirts for a price of e$250. In the same way that a pizza was the first good to be bought with bitcoin, Back's t-shirts may have been the first to be bought with cyberbucks: + + + +i guess those t-shirts were the first pizza. digicash coins however are +defunct- their SPOF failure is why B-money/bitgold/Bitcoin were p2p. pic.twitter.com/uJ2GIR3HU1 + +— Adam Back (@adam3us) October 24, 2017 + + + + +To Digicash's surprise, several primitive financial markets emerged + to trade cyberbucks for genuine currency. On the Ecash Exchange Market, + which was hosted on the website of company called Firecloud Solutions, a + price of around five cents per e$1 was established (see image below), +effectively valuing the entire market capitalization of cyberbucks at +$50,000. + + + + + +Source: A Common Currency System for Spontaneous Transactions on Public Networks + + + + + + +For those with long memories, the above Ecash market looks very similar to New Liberty Standard's bitcoin-to-paypal market, the first bitcoin exchange that was established in 2009. + + + +The cyberbuck trial did not last. While there was plenty of discussion +about the topic in 1995, there are only a few mentions of cyberbucks on +the Cypherpunk mailing list in 1996, but almost nothing in 1997. When I +asked Zooko if he still had cyberbucks, he told me he had long since lost his. Who knows? They might still be worth a lot as collector's items. + + + + +----- + + + +Like cyberbucks and the other mid-90s experiments, bitcoin began as a +mere play thing among a small coalition of technologists interested in +privacy. Why did bitcoin get successfully boostrapped while the others +failed? How did one form of monopoly money spread over the entire globe +while the others were never used by anyone other than a small band of +cypherpunks? + + + +One answer is luck. Perhaps nothing more than a fortuitous flap of a +butterfly's wings in Brazil set the whole thing off. Another is +experience. After three failed efforts to bootstrap electronic tokens, +perhaps the cypherpunk community had developed a better understanding of + what not to do to get the ball rolling. Hal Finney for one participated in all four digital currency experiments. + + + +The technology was different as well. Because it utilized David Chaum's +patented blind signature protocol, Magic Money was technically illegal, +and thus unlikely to spread to more timid adopters. As for cyberbucks, +once the trial was over the server running the software would have to be + shut off, at which point there would be no way to verify cyberbuck +transactions. Knowledge of this imminent shutdown would have handicapped + the ability of cyberbucks to propagate beyond the core group of +hobbyists. Bitcoin, on the other hand, used a decentralized (and +unpatented) method of verifying transactions, so the threat of winding +up the system was less salient. + + + +I'm not sure these technical factors were as important as the different +macroeconomic environments in which the various digital currencies were +issued. Cyberbucks, Magic Money, and thorne all appeared when the global + economy was humming along and interest rates were high. Owning these +zero-yielding tokens meant that users had to make a large sacrifice. In +2009, interest rates around the world had fallen to near zero, so +holding a digital currency like bitcoin did not involve forgoing much in + the way of interest income. + + + +If usage of an intrinsically worthless token is to spread beyond an +inner clique of hobbyists, a whole army of dreamers and speculators has +to be encouraged to jump onto the bandwagon. What better pool to recruit + from than the ranks of unemployed and underemployed in the wake of the +2008 financial crisis? This pool of downtrodden simply didn't exist in +the humming 1990s. Folks back then had no need for a bubble asset to get + them ahead—they enjoyed full-time jobs and plenty of opportunity. + + + +Perhaps we were all a bit innocent in the 1990s and didn't understand +how much our privacy could be invaded by governments and corporations. +Magic Money and cyberbucks, which promised protection from these +threats, arrived too early. When bitcoin was finally introduced, it may +be that we had all become a bit wiser and thus more willing to endure +the hassles of switching some of our wealth into cludgy digital +currency. + + + +Lastly, people weren't upset with the finance establishment back when +thornes, Magic Money, and cyberbucks were being introduced to the world. + While recessions had hit in the early 1980s and 90s, they weren't +accompanied with large-scale financial meltdowns. But in 2009, the +credit crisis and bailouts were just in the rear-view mirror. Many were +furious with banksters, and justifiably so. Turning to bitcoin was a +protest vote.