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  #1  
Old 02-04-2010, 10:00 PM
Cardinal Cardinal is offline
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Can you counterfeit electronic money?

So I open up a bank on Naru. Since no records are required, why can't I just invent money in my electronic accounts and transfer it to more respectable banks, allowing me to spend it? I assume there's some real answer, but I don't know what it is.
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  #2  
Old 02-05-2010, 02:27 AM
Mangetout Mangetout is offline
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What makes you think no records are required?

A bank balance is expected to be the same as the total of all transactions that have ever happened to that account - and those transactions are always expected to have two sides - i.e. one number somewhere increases by the same amount that another decreases.

Of course, that's not to say that electronic accounting systems are infallible, or that it isn't possible to cheat them by some obfuscated method, but basically, if you just increase the number representing your bank balance, it will be detectable as a variance between the balance and the total of transactions, or a variance between where the money came from and where it went.

In terms of pure database design, it is often considered improper to discretely store a calculated value such as an account balance, so it may be that some, many or or all banking systems in fact only show your balance as a calculated result of the total of all transactions.
-In which case, the only way to change it would be to insert a transaction, and that transaction needs to have balanacing credit and debit sides.
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Old 02-05-2010, 03:55 AM
ivn1188 ivn1188 is offline
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Mangetout's answer is technically correct but doesn't address your main point.

The real issue is that your bank (Cardinal Bank, hence CB) doesn't give any other banks reason to trust that CB's currency is worth anything.

To oversimplify, currency is nothing more than an IOU that everyone agrees is valid. If CB (your bank) has tons and tons of gold sitting in a vault and every CB dollar is worth X amount of gold, other banks will likely take your CBs and convert them to whatever currency you want.

A real life example of this is WOW gold. WOW gold is not backed up by anything except the fact that people will pay "real" currency in exchange for WOW gold. Thus, there are banks (using a broad definition of bank) that will accept WOW gold in exchange for other currencies. WOW gold only has the value people assign it.

So if Cardinal Bank says "Hey I have 10 million Cardinalbucks!", the real barrier to using CBs as currency is only that other people believe CBs are worth anything.

Thus, your question about counterfeiting as two simple answers.

First, does the other bank/nation/investor consider your promise worthwhile?
Second, if so, are you actually making the promise or is someone counterfeiting your promise?

The first part is explained above. The second part depends primarily upon encryption. If you have some way to authenticate yourself and other banks trust you, you're good. Encryption in the case of electronic money means nothing more that "I am who I say I am". (Encryption might be the wrong term, but this is sort of a thought-experiment-olnly realm so far.) If you use crappy encryption and people can fake out other banks, that will soon lead to no one accepting that your currency is worth anything. With strong encryption, your promises (aka currency) are uncounterfeitable, thus the value of your currency still only depends on how much others trust you.

So the short answer to your question is that no one is going to trust Cardinal Bank without you showing you have some sort of real value; in other words, you have to prove that your promises issued via currency have value. Encryption is how you keep your currency valid -- that you make sure the other bank(s) know your currency was issued by you, the trustworthy bank, instead of vlad the russian hacker.

But really, every bank and every currency is based on some sort of promise that it has value. Even if the value is not based on physical goods (the US dollar or WOW gold), this promise is the basis of all currency.
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Old 02-05-2010, 08:12 AM
md2000 md2000 is offline
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I believe there's some sort of threshold of proof that any bank has to provide to join the banking system and pass around money as electronic chits.

Often this also involved certification of some sort by the local country's watchdogs. Also, if an area is known to be questionable, the banks accepting your CB's will want some sort of assurances (bonding? Certification? Deposits with other known banks?) to ensure that they don't get left holding the bag.

The recent banking collapse and rescue was specifically due to this. When a MAJOR player in the banking world was allowed to go under, basically everyone who had a negative balance with them was SOL and lost money. Suddenly the scenario you ask about hit everyone - how do I know BoA or Bear or whoever is really good for all the money we hold? Especially since, in the days or weeks leading up to a bak going under, odds are it becomes a sinkhole desperately spitting out IOU's. Suddenly no bank wanted to play hot potato, so the bank system ground to a halt.

Up until then banks habitually bounced IOU's back and forth to keep things running. As things ground to a halt, nobody had the liquidity (spare money) to issue loans or extend lines of credit, which would cause other businesses to not pay their bills; plus a lot of the parked assets like bonds were suddenly worthless, meaning many honest loans no longer had the backing they were supposed to have.

Because nobody trusted anyone else the US government stepped in and became the lender for all those banks, so they could be sure they were going to be paid back. Meanwhile, they had to untangle which of th assets were worth anytihng and who was seriouslyin the hole.
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Old 02-05-2010, 10:03 AM
Cardinal Cardinal is offline
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OK, so my current balance is only a calculation from the transactions in my records. (I'd still like an explanation of the differences in record keeping in Naru, though.) How hard is it to insert deposits in my records? Is anyone actually checking that there's a corresponding debit at Vladimir's First National Bank and Grill?

I guess my attitude and suspicions come from the idea that everything I know of in the music/entertainment industry has been hacked, and that's from the outside. The temptation to hack the system from the inside somehow for so much more profit must be enormous. Maybe there's a point that you can abuse it until no one trusts you and the system collapses, but you can either stay under the radar by not attracting too much attention, or move on to your new shell corporation, which opens another bank.
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Old 02-05-2010, 10:24 AM
Ruminator Ruminator is offline
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Originally Posted by Cardinal View Post
How hard is it to insert deposits in my records? Is anyone actually checking that there's a corresponding debit at Vladimir's First National Bank and Grill?
The USA banks are all tied into the Federal Reserve system. In this way you can think of the Federal Reserve as the master bookkeeper of money (both hard currency and digital). It would be near impossible for a rogue bank to create fictitious deposits undetected by the Federal Reserve. If a disgruntled computer worker with security clearance tried to add a few dollars here and there to various bank accounts, he would be detected.

To do what you're describing, it would have to be an inside job at a higher level -- the Federal Reserve itself. Then the question becomes what kind of internal controls keeps that from happening. My guess is that the major member banks controlling the Federal Reserve audit each other.
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Old 02-05-2010, 11:39 AM
Cardinal Cardinal is offline
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OK, but what about my personally founded bank in Naru or the Caymans? Is there real checking going on to match the debits with the credits? If I could invent credits to my account there, then there would be a "correct" debit for the deposit to a US bank.

I admit there probably is strict control, because I've not heard of it being caught. I just thought that maybe I wasn't reading the right things. I'm not anywhere near the banking industry.

On a related note, how are these drug dealers and mobsters banking their profits? I guess there are banks that really don't ask questions if you bring in duffel bags of cash. Is this how it's done? My source is the documentary movie "The Firm", with that scholar Tom Cruise.
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Old 02-05-2010, 11:52 AM
Giles Giles is online now
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Quote:
Originally Posted by Cardinal View Post
So I open up a bank on Naru. Since no records are required, why can't I just invent money in my electronic accounts and transfer it to more respectable banks, allowing me to spend it? I assume there's some real answer, but I don't know what it is.
I presume you mean Nauru. If you open up a bank in Nauru, you need to do so under the Banking Act 1975, which seems to require the keeping of records: if you didn't, you would be keeping the Registrar of Banks happy.
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Old 02-05-2010, 12:01 PM
Ruminator Ruminator is offline
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Originally Posted by Cardinal View Post
OK, but what about my personally founded bank in Naru or the Caymans? Is there real checking going on to match the debits with the credits? If I could invent credits to my account there, then there would be a "correct" debit for the deposit to a US bank.
But to create the bank in Caymans, you have to have real assets. If Caymans had very light regulatory enforcement of their banking system to allow you to create banks out of thin air, a few things would happen: #1 they'd be kicked out of the IMF and #2 the global trading for their currency (KYD) would plunge because its integrity cannot be trusted.

There are several barriers to injecting fictitious money into the worldwide money supply. Although you can bet if someone like you is thinking about ways to do this, there are other criminals trying to do the same thing with clever mechanisms trying to outwit world banking system. Likewise, there are constant bank security procedures and audits that try to stay one step ahead of the criminals.
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Old 02-05-2010, 12:44 PM
si_blakely si_blakely is offline
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There are also ratings systems (Standard and Poor's, Moody's) which banks use to evaluate other banking organisations - without a suitable ranking, noone will trust you for your electronic transfers.

Nauru has a very lax banking system coupled with strict secrecy laws, and Cardinal is correct - it takes very little in the way of documentation and infrastructure to set up a private bank there (just money). However, to interface with the real banking system requires a trusted interface - a clearing hose to monitor transactions in and out and hold collateral on transactions in progress, and some trusted partner banks around the world. You can be as lax as you like, keep your records on post-it notes and create all the private money you like, but no-one will exchange it for real-world money until you can convince them that it has real value. And until you can prove that (by audits, proof of initial transfer, etc) you are out of luck.

What Nauru can be used for is laundering real money of uncertain origin into money that can be used without questions being asked - the russians have pumped millions through Nauru, with enough hard currency greasing the officals to make many questions disappear.

Of course, if you are a Central bank, you can do this all you like - Quantitative Easing.

Si
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  #11  
Old 02-05-2010, 05:21 PM
Lumpy Lumpy is offline
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While I'm certain that an attempt to create money ex nihilo would soon be caught, I wonder if it would necessarily be caught fast enough. That is, if you could extract fifty million in cash through some scheme, and be on your private plane out of the country half an hour before the alarm bells went off.
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