System Utility

System Advantages

The digital P2P voucher payment system offers these advantages to the world at large:

• It facilitates the return of money minting and exchange to the marketplace.
• It creates an opportunity for profitable business enterprises.
• It allows external value to be utilized as currency within a virtual world or online community.
• Conversely, it allows value established within a virtual world or other online community to circulate outside the normal boundaries of that community.
• It separates the issuer of a currency from the payment system.
• It provides a means by which regulatory concerns regarding "anti-money laundering" provisions can be addressed.

Let us briefly examine each of these elements in turn.

Free Market Money

The modern global economic system is dominated by national "fiat" currencies which are declared legal tender but are backed by nothing real. Before money issuance was centralized, first by kings stamping "coin of the realm" and then by central banks, money was minted by private parties. Their products competed against one another for soundness and public acceptance. Today this pattern is being repeated, as local community currencies spring up all over the world, in the wake of a growing loss of confidence in national monies. This is also inherently the case in virtual worlds and online games, which frequently have their own currencies circulated as money within their own communities.

Because a voucher only represents value stored somewhere else, any system for the private, cash-like exchange of that value between parties invites the establishment of a number of Issuers and Publishers. In theory, anyone could be an Issuer provided that:

1. Whatever asset they are warehousing is deemed valuable by the users.
2. They can satisfy the users that the stored value indeed exists, and that vouchers are not being issued in excess of the backing.
3. A mechanism exists through which users can bail/purchase and unbail/sell the backing asset into/out of the system. That is, an interface to the rest of the world must exist.

This inherent capability returns the definition of "what is money" and how it exchanges versus other types of money, back to the free market, where it belongs.

Profit Opportunities

New ideas seldom gain much traction as mere theoretical expositions. Only when someone is able to profit from their application will they take root and grow. The P2P voucher system provides opportunities for profit in the following ways (and probably in others we simply haven't thought of yet):

• An Issuer can make money on value storage fees, just as ETFs do with precious metals.
• An Exchanger can earn profits by providing a broker service between an Issuer and customers to perform bails and unbails.
• A VP operator can supply the interface between an Issuer and the payment system. The VP earns tokens on payments, pickups, and the splitting or merging of vouchers.
• A SDS or DHT operator provides services under contract to a VP. These online businesses run servers for the permanent (SDS) or temporary (DHT) storage of data, and earn a token every time a record is placed there.
• An OFS likewise provides services for one or more VPs, supplying the interface between a VP and its customers. An OFS earns tokens under the same conditions as the VP.
• Customers, whether buyers or sellers, gain the benefits of performing private, digital cash transactions settled immediately in a currency they have chosen to accept, for micro fees. This is very close to the ideal of frictionless commerce.
• Fair witness third-party auditors could be employed to attest to the Issuer's value and the integrity of the payment system.
• Contractors could set up voucher systems for their operators, and provide assistance to website operators who wish to integrate them as a payment option, much as e-commerce websites are provided.

Virtualizing Value

Over the course of human history, many things have been used as a store of value: metals, stones, shells, grains, livestock, fuel, land. Indeed the modern word "pecuniary," having to do with money, derives from the Latin word for cow, pecunia. Many exchanges in the modern economy however are not performed face-to-face, but online, where it is very difficult to swap a pig for a bushel of grain or a piece of silver. Moreover as molecular manufacturing nanotech comes of age, digital information itself will become the main value constituent of many products. Digital blueprints for assembling molecules into 3D objects will always be exchangeable online, and such information will itself possess inherent value.

A voucher payment system makes it possible for any value located in one place to be spent somewhere quite different. This allows for "real world" value to get exchanged in virtual contexts. Services performed in online games, for example, would not need to be paid in that game's currency, but instead could be paid in vouchers backed by something else, perhaps even real gold or silver in a bonded warehouse somewhere in 3D.

Valuing the Virtual

The reverse is true as well. A future MMOG like World of Warcraft could make its in-game gold coin convertible into vouchers, which could then circulate outside the game world entirely through a voucher system. So long as both parties to the transaction deem the vouchers inherently valuable, anything is theoretically possible.

Sequestering the Mint

For most existing online currencies, such as e-gold, Pecunix, c-gold, GoldMoney, and Liberty Reserve, the issuer of the currency and the payment system are one. This can create serious legal problems, as the prosecution of e-gold for money laundering committed by its customers clearly demonstrates. But in fact the functions are distinct: a mint issues currency, but has nothing whatsoever to do with payments once that currency has been introduced into circulation.

Because the P2P Voucher System is designed to emulate the model of circulating cash in the digital world, it works similarly. The Issuer holds the stored value and creates vouchers up to but not exceeding the available backing. It has no knowledge of anything beyond the amounts and serial numbers of the vouchers currently in circulation. The Publisher (VP) is merely the mechanism through which vouchers are introduced or withdrawn from circulation. It too has no idea which voucher safes (wallets) contain which vouchers, except within the context of a particular transaction at the moment it is performed. Once vouchers are minted, their value circulates in the wild, just like with paper money.

This is extremely important for the operational safety of the system operators. Their accountability ends with running an honest warehouse that does not indulge in fractional reserve accounting. They bear no responsibility for the actions of individual voucher users, and can bear none, because it is physically impossible for them to track those actions, even as a national mint cannot. The Issuer and VP together constitute a digital mint. They are not a bank, and they are not a payment system. The open source software and the users are the payment system.

Meeting Compliance Goals

This may sound like a strange thing to claim for an anonymous, untraceable digital bearer system (especially given the foregoing section), but the design of the P2P Voucher Payment System actually anticipates the needs of regulatory authorities, and complies with their stated design goals for implementing "AML" (anti-money laundering) strategies in virtual worlds and online payment systems. This file contains a presentation made to the 5th Annual European Anti-Money Laundering Conference, held in Prague in November, 2008. It asserts three basic principles for simple due diligence using a risk-based approach:

1. Reduce risk by limiting turnover, transaction size etc.
2. Allow money to enter system but largely not to exit without verification.
3. Implement systems to detect abuse of limits by multiple account opening etc.

These are all policies which could easily be implemented by Issuers, or by the exchange brokers who deal with their customers, if the Issuer does not deal with the public directly. Anyone performing such services would typically be classified as a MSB, or Money Service Business, which must be licensed and implement a KYC (know your customer) regime as required by law. Thus a user can accumulate as many vouchers as he or she wants, but should they ever need to unbail the value to their bank account, they would need to have a fully identified account with a licensed MSB in order to do so.

The voucher payment system itself is transaction agnostic, just as it is agnostic as to the nature of the backing asset. It is merely a mechanism for exchanging the digital equivalent of cash. Paper cash transactions still make up a large portion of total global economic activity, higher in some countries than in others. (In Japan, for example, it is estimated that as much as 16% of all sales are conducted in cash.) Cash exchange systems continue to exist, and they are readily tolerated because the authorities well understand how to control them: at the interfaces to the banking world. Simply put, cash deposits must be accounted for as to source of funds, and cash withdrawals must require identity verification.

For these reasons, a P2P voucher system does not inherently violate accepted principles for preventing money laundering, and would not do so unless an Issuer or Exchange broker failed to implement required AML policies. In which case the responsibility would belong to that party.

Newly published guidelines from FinCEN clearly exempt carriers of financial transaction information from responsibility for knowing the nature of those transactions. One would expect that to apply doubly when the information is encrypted. Even the law may not compel the impossible, and if the operator of a system component (OFS, SDS, DHT, even a VP) were to receive a subpoena, it would be physically impossible for them to provide any useful information in response.

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