I would rather possess universally-recognized fiat currency than an illiquid, more risky (in most cases) IOU. Most would consider the former to be more money-like.

LETS-style arrangements will be less vulnerable to inflation than group “fiat” currencies (that might also suffer from multiple-identity attacks). But if inflation could be controlled in a non-LETS-style currency, participation would probably grow faster than in mutual credit systems.

As to trading with people you don’t trust in a prediction market, one way is to mimic the real-money world: assume everyone trusts the market maker and avoid the need for credit lines in the other direction by having traders deposit money. If that’s not an option for legal or other reasons then you can just start trading with credit limits of zero, meaning people will be exceeding their credit limits — eg, some user Alice will owe/pay me yootles and I’ll have no faith that having those IOUs will ever do me any good. This will initially dampen trading as you fear, Bo and Chris. Later, as the social trust credit network builds up, a trust path will be found between Alice and me and those IOUs will have real value to me.

Daniel

(PS, the following may be obvious to this audience but I found it subtle and slippery at first: there’s no fundamental distinction between owing someone money and paying them. When you owe someone and issue them an IOU, that IOU is truly money in every sense that dollars and euros are, except for the liquidity.)

However, I would bet that the Yahoo! guys have thought about that and have a secret weapon.

The whole reason that these markets have flourished lately is that the contracts can be standardized and traded electronically. If the contracts are non standard, because you’re not sure of people’s trustworthiness, seems like that will destroy the market.

- [...] In a yootles ledger system, can someone gain an advantage by creating many fake identities who all extend credit to their real identity?

- [...] The answer is no for an even simpler reason — you can only spend money with people who have given you credit or through whom there’s a chain of credit (I can pay with an IOU to Alice if she trusts Bob and Bob trusts me).

Since no one but Carol trusts Carol’s fake identities, the boosted credit does Carol no good.

This is what is meant by a Ripple-ified ledger system, which the new yootles ledger will support. (The current ledgers support it too in the sense that for each ledger everyone trusts everyone, or there is one person who trusts and is trusted by everyone — usually me but on some ledgers Bethany, or Dave Morris, or Monica Stephens, or whoever started the ledger.)

See ripplepay.com/about for more about this or see the FAQ in the appendix of the yootles paper.

What about the 5.375% interest rate?

If the Yootles account is related to your main Yahoo! account, Yahoo! could have rules that say that… for instance… Yootles accounts are open only to serious Yahoo! users… the ones who use Yahoo! Mail everyday for instance (like a certain Jason Ruspini). That way, Yahoo! would exclude trouble makers.