Money and cloning

I’m thinking about money lately and I want to share with you a definition of money related to cloning. It may be relevant to virtual currencies.

What is money in an exchange transaction? In such a transaction there are two parts, say Alice and Bob. There are two items involved in the transaction, call them A and B.

Before the transaction:

  • Alice has A
  • Bob has B

After the transaction:

  • Alice has B
  • Bob has A

The question is: which one, A or B, is money? Mind that there are exchanges where none of them is money.

The proposed answer is the following: the money is that item which is hard to clone for both Alice and Bob and the transaction is made for the other item, which is hard to clone for only one part, Alice or Bob.

More clearly, say Alice has the money, item A. She cannot clone it, nor can Bob. So she exchanges it for B (say a pair of shoes), which is hard for Alice to clone (that’s why she obtains it from an exchange), but is easier for Bob to clone (that’s why he sells it, getting in exchange a hard to clone item).

So if we have a system where p2p exchanges are possible, then the money will be those items which are exchanged because they are hard to clone by everybody, and they will tend to be exchanged for items which are easy to clone by at least somebody.

If any of the hard/easy cloning properties change, then money disappear:

  • mints are cloning devices for real money, but if it becomes easy to mint money otherwise then that’s no longer money
  • for real or virtual money, of one can double spend a money item, it means it can be cloned, so it ceases to be money
  • money has to be scarce, as an effect of the fact it can’t be cloned
  • if a coin made of gold, minted by a king, is in circulation, then at some point the technology allows to clone it, for example by taking from each coin a minute amount of gold and mint new coins from this extra gold, by using a forged mint (for a virtual equivalent see  the Ethereum gas-related hacks)
  • money has to be hard to clone “objectively”, i.e. it is not enough to declare that money is hard to clone. There has to be some provably hard way to clone it.