Letter to Adam

Rohit Khare (rohit@bordeaux.ICS.uci.edu)
Sun, 26 Oct 1997 17:21:54 -0800

From: Rohit Khare <khare@xent.ics.uci.edu>
Date: Sat, 25 Oct 97 23:28:13 -0700
To: adam@cs.caltech.edu, rohit@uci.edu
Subject: A letter to adam

I'm a pig.

Last night, I rediscovered why to lose weight. I've been plateaued
at 268 since leaving boston, basically. After arguing with you I
went off to the in-n-out anyway. Group of a half dozen club babes
looking spectacular all out for their apres-dance fries, I suppose.
One was this gorgeous Indian chick in a black miniskirt, strappy
platforms and a silk army camouflage halter top (I don't know what
they call it -- with the knot in front and all). Anyway, I was
looking particularly out of it in trademark grad student ratty
sweats, ratty shorts, and five-day stubble, so I just stared. But I
walked out knowing what might be a next goal.

Except I must not really believe it.

Today was shopping day. I dropped off the compaq armada for repair
(finally - after four months with a faulty keyboard -- and thus
finally back to mci). Bought shelves, utility and book. Bought
bathroom stuff, but not a scale, since the cheap scales only go to
260 lb, and the only model for fat asses like me was 7 times as
expensive (analog: $7; digital: $49). Then I went to Lucky, on the
theory that since I had my grapenuts and diet coke when I got up at
1pm, I was equipped to shop rationally. I bought lots of frozen food
and spent 10x time reading nutrition labels than I used to.

So far today, I did 1300cals at the gym, but added 1 box of tuna
sushi, 1/3 of a low fat pizza, one veggie pocket, 6ix slices of
wonder bread, a slice of cheese, a half-pound of celery, and a pound
of carrots.

Not as bad as the time I stumbled in boston and had a deep-fried
uno's pizza folded over chicken and fries. But still, it's a sign
that I still can't control what may or may not matter to me. But now
I've got two internal shibboleths. One: I'm going to get laid in
Tokyo. Two: I'm not going to get laid until I hit 200. Which at this
rate is a loooong time off. If ever. And you know what I mean: not
the sex, the

On the upside, I can be the first centimillionaire virgin on the
cover of Upside.

My knee is killing me today too. I think this may be the end of my
gymming for a while too, which is the final straw.

fuck you too,

Oh shit. Your phone call made me totally forget why I was writing.
You and your interruptions. Anyway, here's the stripped down
economic hypothesis:

In the munchkin world, regardless of who invents munchkins or how,
each new munchkin in the world is a new asset, a new printing press
of money. It's analagous to a new human being: it is a
self-regenerating asset with value far out of whack with its
creation cost. Each munchkin is born with a NEW surplus supply of an
initially valueless commodity: its air time. Traditional economics
is about scarce resources, not infintely expandable ones. And modulo
some basic physical limits, munch bandwidth IS infintie. Cell sizes
just keep decreasing; spectrum reuse keeps increasing; fiber
reevolves, etc.


In this sense, I'm edging up on a FUNDAMENTAL economic question
many paths lead to: microcurrencies of all kinds -- all attention
economies -- lead to this question.

However munchkins are invented, protected, or sold -- actually, as
long as they ARE, indeed sold rather than rented -- in which I must
trust the US antitrust laws in much the same way they slammed IBM
for leasing mainframes -- there will be N(munchkins) incompatible
local currencies around. And every new munchkin is a new printing
press. How do us gnomes control the supply?

Well, we have to presume that due to marketing we control yet
another prestigious currency: Roebucks. Assuming perfect management,
Roebucks are accepted as a standard store of bandwidth value -- but
the supply of Roebucks, in equilibrium CANNOT be fixed. You can't
control your own printing press of Roebucks, either. It's like
playing the second-derivative of the Fed today. Roebuck supply HAS
to float with the absolute number of bits/second available on the

Decentralized currency creation does NOT obviate the need for a
central reserve currency -- but there is NO POSSIBILITY of a gold
standard to externally measure the expansion of local currency

In practice, our agents have to sit around the world and operate as
independent local exchanges, setting the prices of Roebucks per
local conditions -- but enforce UNIVERSAL value measures. I.e. there
should NOT be arbitrage opprtunites in local roebuck spot markets
(we absorbed all of them already). It's a little like letting
stockbrokers run your monetary policy.

Take 2.

Bits/second, as a currency, increases with every new munchkin on
the planet. EXCEPT, tower-of-babel like, there is no automatic
convertibilty of bandwidth claims. Three atoms of gold might buy 36
baud from and 100 baud from my neighbor. And each new munchkin adds
to the 'money supply' of bits/second.

To have a viable planetary telecommunication system, there must be
a reliable store of value that allow local bandwidth swaps (packet
transit rights, eg) to be convertible across days, months, years,
and across locations.

The world economy of bits, thus, has been born as a myriad of tiny
local exchanges. 'Local market area' has meaning again! -- what
irony! Of course, within my own physical territory, I completely
control prices -- it's an internal currency for household or campus
bitflows. Across borders, I can only make meaningful promises for
exchanging future capacity with my local neighbors.

YET-- we believe in the interconnectedness of all locals. There is
a single monstrous simultaneous equation being solved here. We can
hypothetically compute the price of a universal currency from the
residual data -- but can we actually create that currency, reify
that stable point moment-to-moment as an actual product: Roebucks

Worst case is that the exchange currency normally evolves out of
the chaos on its own -- then no one makes any money on it! :-)

I expect that because some users have REAL needs for bandwidth
COMMITMENTS, there will be a MARKETING niche for a new currency.
Roebucks will have to be backed by an insurance policy -- we
guarantee that bit transactions will clear at the stated price even
if we have to use our own equipment to reroute over wirelines or
wildly expensive Teledesic links. This is the same INSITUTIONAL
commitment as a stock exchange has.

So Roebucks, a premium product, will be priced ABOVE the mythical
stable-point exchange currency. We will make money on the arbitrage
- -- the value of the insurance of our brand name.

The consequent goal is to aim for market SHARE -- to persuade more
contracts to be cleared in Roebuck-denominated terms than any other.
Clearly, this only applies to the fraction of bit-barters that
occur ACROSS trust boundaries.

Intra-hong-kong xactions can be freely denominated in kongbucks --
but we all know that if a deal REALLY matters, it's done in
greenbacks. Greenbacks have a brand-name premium. Only the british
pound and swiss franc might make similar claims. What we need to do,
what hasn't been done before in the history of central banking, is
to privatize the branding of currencies and translate that prestige
into profits.

Take 3

Will a micro-example help? Suppose I buy two munchkins, and program
them to trust each other. One is at my apartment, one is at the
lab. They can set up a line-of-sight connection. Within this link,
bits are auctioned off between email, video-mail, and quake sessions
in terms of some completely private munchkin-specific currency:
Xentimes, say. Now, if UC Irvine installs a munchkin network along
ring road, I have a problem. I have to also bid for the airtime in
contention with official UC transponders. In the end, they own the
land, so they should also own the spectrum rights across it, and I'm
screwed. They could even go so far as to require all airtime to be
paid for in Zotbucks, so I have to trade some real-world currency
for the right to continue retransmitting.

In fact, though, I have a valuable asset to barter with. My
munchkin pair COULD add to the total supply of baud for sale on
campus. So if I relay enough zotpackets, I really should be able to
earn enough to 'pay' for my own transmission needs. I'm still at
UCI's mercy for the exchange rate. They may say I have to relay ten
packets to send one: a 10:1 zotbuck to xentimes ratio.

Free markets are the proper response to state-controlled
allocational nonsense.

<take another slug of tequila>

Suppose MCI, which has the UCI payphone contract, wants to use
munchponders to run their payphone network on campus. NOW it gets
interesting. MCI has links to the EXISTING datasphere: fiber and
microwave links to the existing Internet. UCI is salivating over
trying to use its munchnet to move Internet traffic as well as
Intranet traffic. MCI can now treat UCI like an end-terminal say
that well, we'll take one of your zot-packets around the world for
every five you allow us to transmit locally. So now MCIbucks are at
5:1 with Zotbucks. UCI might smiff at the price, and may even
decline to clear any barters at this expensive rate. We can buy
traditional Internet bandwidth from Teledesic at x dollars per baud,
and frankly, we think (pull number out of ass) that's cheaper than
our wireless zotpackets (cost of network / total baud density of

Two things happen. As the number of zot munch nodes goes up,
spectrum reuse and baud density goes up. The 'price' of zotbucks
goes down enough that they may take MCI's 5:1 over continuing to pay
Teledesic (or some tradeoff function thereof). Second, MCI may
treat UCI as a transit node, not just a bitsink. If they install
payphones in University Marketplace AND in Newport Beach, zotpackets
become valuable to them for transit. So they could change their
offer to 3:1.

Multiply this by MCI negotiating with millions of land-owners, and
MCI bucks slowly gain currency <pun> as the gold standard <irony>.
Now, MY transmitters get back in the game. Sometime during these
market fluctuations, it may have been advantageous for me to exploit
the floating rates between xentimes and zotbucks and zotbucks to
mcibucks to directly arbitrage packets from xentimes to mcibucks.
This is a *nanomarket*. But suppose my roommate, the only person
within range who might realistically choose between using XeNT
munchkins and Zot munchkins to reach the outside MCI net, can help
me create a viable COMPETING exchange market in xentimes:zotbucks
alternative to the campus's artifically mandated 10:1.

Such disputes will eventually be appealed back up the chain of
conversion transactions to a single, commonly trusted reserve
currency. Initially, when the ultimate competitor was teledesic, it
would be dollars, since that's what Craig and Bill want. If MCIbucks
are reliable (and plentiful enough for peak demand -- like a run on
a bank), then we can both denominate our service in MCIbucks. And
if MCI is really, really, on the ball, well, we could just decide to
abolish xentimes and zotbucks in exchange for a BILATERAL agreement
where we can just mint our own MCIbucks -- we sign over the
branding agreement so that what our munchkins, whether owned by
Rohit or the Univesity of California -- simply denominate all
cross-domain transactions in MCIbucks. In exchange, MCI gives up
epsilon control of the currency, since the global value of MCIbucks
(how much baud & QoS you get in exchange) is partially at the mercy
of the infrastructure now owned by others. MCI earns its 'master
franchising fee' by insuring that whatever bonehead mistakes happen
to UCI's physical infrastructure or mine, they will route Bank of
America's traffic from Irvine to Newport by way of fiberline if need

And if their advertising geniuses can continue to portray MCIbucks
as the friendlier alternative to Vaderbucks from New Jersey, well,
MCI stands to make a big profit. Because, somewhere, some schmoe
just realized he ABSOLUTELY, POSITIVELY needs a videoconfernce from
Omaha to Pasadena and never bothered to play into the communal pot
by stockpiling his own packet chits by selling transit rights. And
MCI will sell from its reserves in exchange for DOLLARS --
converting the ethereal exchange value of surpulus baud capacity
into real-world goods and services.

Or maybe not -- that schmoe might want to barter with some
Buffetbucks good for accessing his stock-picking newsletter. And
that might be the death of the greenback.

EPILOGUE. The question of how a reserve currency gets its hump is a
fundamentally open one. Any theory that can actually predict the
value of reserve premia out of the parameters describing the volume
and fragmentation of local markets could well unravel the mystery of
the dollar's power -- and net a nobel prize. Like most economics
nobels, it's probably a subtle consequnce of some basic operations,
in this case, the future market for bandwidth and the insurance
costs of 'bridging' fragmented local markets in crisis (by analogy,
the cost of actually moving productive capacity amongst national
currencies -- like shipping wheat). This is an essential and
compelling question because the decreased friction of the net WILL
create a boom in cooperatively-valued currencies outside the control
of any central bank -- at worst, we'll have to wait for Chaum's
patents to expire. The economic theory to return control appears to
be utterly unexplored.

[How much of this should I FoRK?]

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