Unmet Needs

There are three categories of problems with existing currencies and payment systems that I’m looking to solve with AEIOU: micropayment issues, privacy issues, and trust issues.

Micropayment Issues

Micropayments are very small payments, denominated in units of one tenth of a cent or smaller.  They were proposed as an alternative to the advertising-based business model used by most internet content providers.  The idea is that if, for example, someone operating a website can charge visitors a tiny fee per page viewed or unit of data transferred, they’d be able to recoup their hosting costs and possibly even profit.  Assuming the micropayment system itself is transparent enough, the burden imposed on the site’s visitors is negligible.  Micropayments could also be used to alleviate resource scarcity issues in filesharing networks, wireless hot spots, anonymous proxy/routing networks, etc.

Unfortunately, the promise of micropayments remains unfulfilled.  Existing micropayment systems are either tied to the products and services of the company running them, or require you to sign up with yet another middleman that gets to track your web usage and purchasing habits.  Since most people don’t want the hassle of signing up with a (potentially shady) micropayment service just to spend $0.0047 on reading a couple dozen pages of a single webcomic, content providers just opt for ads instead.  Micropayments need to be a feature of the same payment systems that people use for larger purchases.  They need to just work, without extra effort on the purchaser’s part.

Privacy Issues

Ideally, an electronic currency should be as cash-like as possible.  You should be able to keep your transactions secret from those who do not participate in them.  You should also be able to keep secret the amount of the currency that you possess.  As far as I’m aware, there is no method of transferring major national currencies via the internet while keeping the transaction secret.  Payers can use pre-paid “credit cards” to keep their identities secret, but this incurs hefty fees, and does nothing to hide the payee’s identity or the transaction itself.

The privacy situation is slightly better with alternative currencies: some “digital gold currency” services allow users to hold accounts without disclosing their identity, or do not bother to verify identities.  One could also (in theory) use a time bank system pseudonymously, depending on the policies of those running the system.  The problem with both of these is that they’re still based around accounts.  The system administrator can see every transaction that each account participates in, even though they may not be able to tell who owns the accounts.  This is very weak anonymity, too.  Someone analyzing the transaction data for an account may be able to correlate it with its owner.  Alternatively, if the account owner makes a non-anonymous transaction (by giving a shipping address, for example) with anyone, the other party to the transaction can reveal this ownership to others.

Systems based on “digital bearer certificates” don’t have this problem, as they lack any sort of accounts.  These are probably the closest analogue to cash that can be achieved with an electronic currency (I’ll explain how they work when I get around to talking about AEIOU’s design).  Trouble is, existing DBC systems are a bit lacking.  Ricardo is closed-source and defunct.  eCache is closed-source and limited to a single issuer.  iCASSH is closed-source, limited to a single issuer, and possibly defunct.  Without a robust open-source implementation, the DBC currency market will remain stunted.

While writing this, I did manage to find two open-source DBC systems: Lucre and Lucrative (which is based on Lucre), though both projects ceased development many years ago.  The source code for Lucrative is still available on SourceForge, so I’ll spend some time later and see what design ideas I can glean from it (yay open source!).

Trust Issues

Quite frankly, fiat currencies should not be trusted.  I’ll refrain from the broader argument that governments generally should not be trusted, and merely point out that governments that issue fiat currencies tend to maintain, as a matter of policy, a steady rate of inflation.  This effectively transfers wealth from the majority of the population to those who are wealthy and politically connected, as well as to the government itself.  Inflation is achieved by increasing the supply of the fiat money in question.  The inflationary effect is not uniform:

New money injected into the economy has an inevitable ripple effect; early receivers of the new money spend more and bid up prices, while later receivers or those on fixed incomes find the prices of the goods they must buy unaccountably rising, while their own incomes lag behind or remain the same.

Once wages do catch up to prices, wage-earners are pushed into higher income tax brackets and end up paying more taxes, despite not receiving any more real income.  Governments issuing fiat currency have too much of a conflict of interest to be trusted with the maintenance of that currency.

As an alternative, consider a representative currency, backed by a specific commodity and issued by any number of independent parties.  These issuers would sell units of this currency for the price of the backing commodity, plus a fee to cover their cost of operation.  Unlike with fiat currency (where the issuer has a captive market, due to tax requirements), it’s in the interest of each issuer not to devalue the currency units that they issue.  If they do, they’ll simply end up losing their customers to their competitors.