Blockchain: Blueprint for a New Economy (2015)
Chapter 5. Advanced Concepts
Terminology and Concepts
The blockchain economy is triggering the invention of many new ideas and the reappropriation of existing concepts and terminology in innovative ways. It prompts investigating the definition of terms that have been taken for granted and passed unquestioned for years, such as money,currency, property, government, sovereignty, and intellectual property. The questioning of underlying definitions and the reappropriation of terms position these concepts more openly and accessibly for application to current situations. Blockchain-related concepts are more actively in people’s minds and ready to apply at the generalized level. For example, consider a library. At the more generalized conceptual level, a library is a system of value exchange; there are product and service offerings, like books and research, being taken up by those with whom the value proposition resonates. New models like blockchain technology force us to consider reality at the more generalized level of the concepts behind a specific instantiation. This leads us to imagine other specific situations that could be realized with those concepts. For example, a blockchain is a technology for decentralization. Bitcoin is the instantiation of decentralization as a digital currency, but decentralization could be instantiated in many ways, such as smart property, delegate democracy governance services, and community-based credit bureaus. In short, we start to see the world of possibility, or the world as possibility, as French philosopher Deleuze would say.162 Further, we need to have tools for realizing this possibility; in the generalized conceptualization process, blockchain-related concepts become ready at hand or available to us, as Heidegger would say.163
In this fomentive environment, we can more easily create new conceptssuch as GoToLunchcoin or Whatevercoin, applying a fuller conceptualization of coin in the cryptocurrency sense to a new situation. A coin or apptoken becomes a signifier that facilitates some application. I as a community member have earned some coin or token by performing some service like mining (transaction ledger administration) or via crowdfunding that I can burn, spend, or use in the network to acquire or consume something of value. In this sense, GoToLunchcoin is earned free time from work completed in the morning that can now be spent in refreshing and re-energizing. The economic principle of a cycle of resources expended and replenished is invoked. In this more elemental mode of concept generation, we can more immediately and intuitively understand the innovations of other ideas as we hear them. For example, if we heard of Precedentcoin in the legal setting, it would be easy to quickly intuit that it would likely be the apptoken or remunerative coin for performing the function of establishing precedents, and that there is probably some sort of new decentralized peer-based method for doing so.
New conceptualization can shift thinking back and forth between the levels of the general and the specific. An example of specific versus general thinking is the notion of an economy. An economy at the immediate, already-specified level is people buying and selling things, but at the higher, more generalized conceptual level, it is the production and consumption of things of value. Blockchain technology at the immediate, specified level is a decentralized public ledger for the recording of cryptocurrency transactions. Blockchain technology at the higher, more generalized conceptual level is a new class of thing like the Internet, a society’s public records repository, a high-resolution tracking system for acknowledging human activity, a revolutionary organizing paradigm for human collaboration, an anticensorship mechanism, a liberty and equality enhancement tool, and a new organizing model for the discovery, transfer, and coordination of all quanta or discrete units of anything. These are just some of the things that blockchain technology is at this higher level. Comprehending blockchain technology at this more generalized level—with so many meanings of “what it is” conceptually—helps to demonstrate its significant potential impact.
Currency, Token, Tokenizing
Currency is just one idea that the cryptoeconomy is forcing us to rethink. One traditional dictionary definition of currency is “a system of money in general use in a particular country.” This definition is already almost humorously and hopelessly outdated by Bitcoin’s transnationality, not to mention that a “system of money” connotes centralized top-down issuance and sovereign control over money supplies. A secondary definition is perhaps more useful: “the quality or state of being used or accepted by many people.” This claim is more applicable for cryptocurrencies, as we notice that although there is nothing backing Bitcoin like a gold standard, there is also nothing backing fiat currencies. What “backs” currency is the high adoption rate, being accepted by many people, the populace buying into the illusion of the concept of money. If more people were to accept the notion of cryptocurrencies and begin to use and trust them, they too could become as liquid as fiat currencies.
Just as the term Bitcoin can be used in a threefold manner to denote the underlying blockchain ledger, the Bitcoin transaction protocol, and the Bitcoin cryptocurrency, the term currency is being employed similarly to mean different things. In the cryptoeconomy context, one relevant way that the word currency is being used is in a generalized sense to connote “a unit of value that can be earned and used in a certain economic system,” which is then likely to be fungibly tradable into other economic systems. The nomenclature coin could just as easily be token—that is, a digital token or access or tracking mechanism for different activities. There could be Appcoin, Communitycoin, Apptoken, or other terms all referring to different kinds of economic operations taking place within a community.
For example, the Counterparty currency (XCP) grants access to special features such as the ability to issue new assets, like a new appcoin, with the Counterparty protocol or economic system, that will be at any time convertible to XCP or Bitcoin, which is therefore convertible to USD, EUR, CNY, or any other fiat currency. Similarly, LTBcoin is a Counterparty-enabled coin issued by the Let’s Talk Bitcoin media network to support its “local” economy. LTBcoin is used to transact incoming sponsorships, donations, and tips, and compensate outgoing listener rewards, community participation acknowledgment, content creation, reviews, and other forms of contribution. LTBcoin functions in the context of its own local economy, and is always immediately convertible to Bitcoin.164 Other currencies could have similar use in their own local economies—“local” in the sense of interest community, not necessarily geography. In fact, one benefit of cryptocurrencies is their potential use as a tool for managing globally dispersed interest groups. Additionally, Communitycoin like the BoulderFarmersMarketcoin could provide additional features in its locality beyond just economic transactions, helping to build community cohesion and a more coordinated effort toward shared goals. Community cryptocoin could be a mechanism for increasing the resolution of interest group activities by being a more specific means of organizing and coordinating group behavior toward some goal.
Communitycoin: Hayek’s Private Currencies Vie for Attention
The explosion of altcoin and Communitycoin, tokens or coins enabling economic function in a specific community context like the LTBcoin just described, suggests that some of the aspects of the world envisioned by Austrian School economist Friedrich Hayek might be coming to fruition. In Denationalization of Money, Hayek advocates a competitive private market for money instead of an arbitrary government monopoly.165 He articulates other foundational thinking for the blockchain industry by arguing against Keynesian inflationary money in his essay The “Paradox” of Savings,166 and points out the improved ability of vendors to respond in decentralized markets.167 Regarding decentralized currency, Hayek posits a model in which financial institutions each issue their own currency and compete to maintain the value of their currencies through earnest productive activity.168 There can be multiple concurrent currencies. This model could be deployed on a much wider basis in the blockchain economy, with the possibility that not just every financial institution, but every person, organization, and society, would issue their own currency or token (which could have a completely legitimate use within its locality and always be fungibly convertible to other currencies like Bitcoin). The idea would be to let a million currencies bloom; everyone could have their own coin, or multiple coins, just like everyone has their own blog, Twitter, and Instagram account. An example of this is Tatianacoin, a musical artist coin issued by singer-songwriter Tatiana Moroz on the Counterparty protocol (@tatianacoin). Just as everyone became an author in the information revolution and their own personal health advocate in the genomic revolution, now everyone can become their own banker in the blockchain revolution. Some groups of currencies could and should compete, whereas other classes of currencies could coexist cooperatively as complements in discrete and separate venues.
Some of the most obvious communities with their own economies for which currency issuance makes sense are business and university campuses. There should be an open source, templated solution for any university (administrators and student groups alike) to easily issue Campuscoin (e.g., ASUcoin). The same templated altcoin issuance could extend to groups within these communities, like DeltaChiCoin or NeuroscienceConferenceCoin, to support any specific group’s activities. The Campuscoin issuance template could have specific prepackaged modules. First, there could be a module for buying and selling assets within the local community, an OpenBazaar- or Craigslist-like asset exchange module. Second, there could be a sharing economy module, a decentralized model of Airbnb for dorm rooms, Getaround for transportation including cars and bikes, and LaZooz peer-based ride sharing. Third, there could be a consulting or “advisory services” module for all manner of advice, mentoring, coaching, and tutoring related to classes, departments, majors, and careers. Recent graduates could earn Campuscoin by consulting to job-seeking seniors with specific services like advice and mock interviews; freshmen could provide counsel to high school seniors; and former students in a class could provide advice to current students. Campuscoin could provide a remunerative mechanism for these activities, which have been supplied on a volunteer basis and thus have been scarce where they could be abundant. By providing remuneration and acknowledgment, Campuscoin could provide a much more dynamic and connected network of those who have had similar experiences. In addition to remunerative economics, Campuscoin can be used to connect communities. A fourth module could be a “peer-to-peer learning network” for notes sharing, book sharing (solving the problem that a certain book is checked out until the end of the term), finding team members, forming study groups, studying for tests, and providing other kinds of support. Fifth, there could be a RealJobs module connecting local employers with students for topical internships and jobs with industry exposure and job force readiness training, all in a rewards-structured environment.
There are several efforts under way to support students learning about and using cryptocurrencies on university campuses. The student-founded Campus Cryptocurrency Network counts 150 clubs in its network as of September 2014 and is a primary resource for students interested in starting campus cryptocurrency clubs. In the future, this network could be the standard repository for templated Campuscoin applications. Likewise, students founded and operate theBitcoin Association of Berkeley and organized their first hackathon in November 2014. MIT, with the MIT Bitcoin Project, has made a significant commitment to encourage the use and awareness of cryptocurrency among students, and it plans to give half a million dollars’ worth of Bitcoin to undergraduates. Students were invited to claim their $100 of Bitcoin per person in October 2014.169 Stanford University has made an effort to develop cryptography courses, which it offers for free online.
Coin Drops as a Strategy for Public Adoption
The MIT Bitcoin Project is effectively a coin drop, the simultaneous distribution of Bitcoin to entire populations to spur mainstream learning, trust, and adoption. A similar but larger-scale coin drop, the BitDrop, is scheduled for the Caribbean island nation of Dominica for March 14, 2015, as part of the Pi Day mathematical festival. Bitcoin will be sent by SMS via Coinapult to all 70,000 residents.170 The goal is to create the world’s largest and highest density Bitcoin community. The project began as a brainstorming exercise to facilitate adoption and put Bitcoin into the hands of as many people as possible. Dominica was chosen as optimal because the country has a relatively small population, a high cellular telephony penetration rate, and a position as a regional education center, and it is the center of an active intraisland, intracurrency trade and remittance economy. Bitcoin ATMs and merchant point-of-sale (POS) systems are to be installed as part of the project to help foster ongoing use of Bitcoin after the coin drop.
Coin drops or airdrops have been used in other situations; for example, “Nationcoin” has been used to shore up national identity. Iceland targeted residents with free cryptocurrency in the Auroracoin project, and similar efforts include Scotcoin, Spaincoin, and Greececoin, although there does not appear to have been a high degree of ongoing activity with these Nationcoin cryptocurrencies.171 One reason that Ecuador banned Bitcoin was because it plans to launch its own national cryptocurrency.172 Nationcoin could help bolster a sentiment of national patrimony, especially as many Eurozone nations have suffered from European Central Bank regulation impositions as a result of participating in the Euro. The same kind of Nationcoin benefits could be available in the idea of Tribecoin as the patrimony-supporting coin issuance of native peoples. The Pine Ridge Indian Reservation in South Dakota was the first American Indian tribe to launch its own cryptocurrency, MazaCoin, using the tribal nation’s sovereignty to set its own rules on cryptocurrencies.173
Currency: New Meanings
The key point is that the term currency could begin to mean different things in the cryptoeconomy context, especially much more than in the basic money sense of serving as a payment mechanism for goods and services. A second important sense of the word currency in the cryptoeconomy context is emerging as “something of value that can be usefully deployed in some situation,” or, as described previously, “a unit of value that can be earned and used in a certain economic system.” There is the general idea of a token, currency, or appcoin allowing access to certain features of an economic system. Having Bitcoin, for example, allows access to performing transactions on the blockchain. Privileges are accorded to users in some cases just by their holding Bitcoin, as this confirms ownership, and in other cases by their actually spending the Bitcoin. Considering currency more broadly in these ways starts to widen its applicability to many other situations. A currency is a token of value that can be earned and deployed. A currency stores value and is transmissible. This generalized definition supports the claim that there can be many nonmonetary currencies that are conceived in the same structure. For example, reputation is a unit of value that can be earned and deployed in certain situations; it is a nonmonetary currency in the sense that it is a proxy for status or some kinds of tasks that a person can do. Likewise, health is a commodity of value that may be earned and can be deployed in specific situations. This broader notion of currency as an earnable and deployable commodity extends to many other nonmonetary currencies beyond reputation and health, such as intention, attention, time, ideas, and creativity.
Currency Multiplicity: Monetary and Nonmonetary Currencies
Altcoin multiplicity is just one venue of currency multiplicity in the modern world. More broadly, we are living in an increasingly multicurrency society with all kinds of monetary and nonmonetary currencies. First, there is currency multiplicity in the sense of monetary currency in that there are many different fiat currencies (USD, CNY, EUR, GBP, etc.). Second, there are many other nonfiat, non-blockchain-based currencies like loyalty points and airline miles; one estimate is that there are 4,000 such altcurrencies.174 Now there is also a multiplicity of blockchain-based cryptocurrencies like Bitcoin, Litecoin, and Dogecoin. Beyond monetary currencies, there is currency multiplicity in nonmonetary currencies too (as just discussed), such as reputation, intention, and attention.175
Market principles have been employed to develop metrics for measuring nonmonetary currencies such as influence, reach, awareness, authenticity, engagement, action taking, impact, spread, connectedness, velocity, participation, shared values, and presence.176 Now, blockchain technology could make these nonmonetary social currencies more trackable, transmissible, transactable, and monetizable. Social networks could become social economic networks. For example, reputation as one of the most recognizable nonmonetary currencies has always been an important intangible asset, but was not readily monetizable other than indirectly as an attribute of labor capital. However, social network currencies can now become transactable with web-based cryptocurrency tip jars (like Reddcoin) and other micropayment mechanisms that were not previously feasible or transnationally scalable with traditional fiat currency. Just as collaborative work projects such as open source software development can become more acknowledgeable and remunerable with GitHub commits and line-item contribution tracking, cryptocurrency tip jars can provide a measurable record and financial incentive for contribution-oriented online activities. One potential effect of this could be that if market principles were to become the norm for intangible resource allocation and exchange, all market agents might begin to have a more intuitive and pervasive sense and demonstration of exchange and reciprocity. Thus, social benefits such as a more collaborative society could be a result of what might initially seem to be only a deployment of economic principles.
Demurrage Currencies: Potentially Incitory and Redistributable
Currency is one such core concept in blockchain technology that is being stretched, extended, and reunderstood: currency as a digital token, a facilitation mechanism for quantized transfer. Within the notion of currency is the idea of a demurrage currency. Demurrage means carrying cost—that is, the cost to carry an asset. The term originated in the freight and shipping industry to indicate the extra charge or cost associated with the detention in port of a vessel by the ship owner, as in loading or unloading, beyond the time allowed or agreed upon. In the cryptocurrency sense, demurrage can mean being deflationary (value losing) over time, thus incitory (stimulatory) in that it incites some form of action taking (i.e.; spending) in the shorter term to realize value before it is lost. The currency itself thus encourages economic activity. Demurrage, then, is the compact concept of an attribute, the idea of an automatic motivating or incitory property being built in to something. Further, another aspect of demurrage currencies (or really all digital network–based asset allocation, tracking, interaction, and transaction structures) is the notion of periodic automatic redistribution of the currency (the resource) across all network nodes at certain prespecified times, or in the case of certain events. Demurrage features could become a powerful and standard currency administration tool.
Freicoin and Healthcoin are two examples of uses of a demurrage currency with a built-in mechanism for action taking in the form of spending. Demurrage currencies might be ideal for the implementation of Guaranteed Basic Income initiatives (GBIs), systems whereby all citizens or residents of a country would regularly receive an allowance—a sum of money sufficient to meet basic living expenses. GBIcoin or Freicoin could be a straightforward currency for basic living expenses that runs out or resets on a periodic basis such as weekly, monthly, or annually to keep the system streamlined and efficient without artificial overhangs created by hoarding. The money would be more like a coupon, expiring after certain amounts of time. The currency loses value, so the incentive is to spend it or just not use it.
A GBIcoin like Freicoin would likely not be the only currency, but would be a special-use currency, like Healthcoin, and would exist in the context of a Hayekian complementary or multicurrency society. This is the idea of having multiple currencies (not just multiple asset classes), but different currencies for different purposes. The Freicoin Cashcoin might be like a debit card for short-term consumable basic living expenditures. Spending could be in one coin and savings in another. Different classes of coins could have features adapted to specific contexts for savings, investment, and real estate transactions, and so on. The concept of GBIcoin or Freicoin is essentially a Spendcoin, Cashcoin, or Debitcoin that could be denominated in the basic national currency (Nationcoin) like UScoin or Americoin for supporting basic day-to-day living expenses, or perhaps more administratively efficient at the state level in Statecoin, like NYcoin.
More broadly, complementary currency systems and multicurrency systems are just the application of the same phenomenon that has been used to reinvent many other areas of modern life. Multicurrency systems are the granularification of currency, finance, and money; the seemingly infinite explosion of long-tail power-law personalization and choice making that has come to coffee (Starbucks), books and movies (Amazon, Netflix), information (blogs, Twitter), learning (YouTube, MOOCs), and relationships (polyamory). Now is merely the advent of these various systems of personalized multiplicity coming to money and finance.
Healthcoin could be similarly conceived as a demurrage currency. Health-services spending could be denominated in Healthcoin. In the United States, many health plans such as Health Savings Accounts (HSAs) and Cafeteria Plans are already demurrage currencies in that they are set up to expire each year. The system resets, so strange bubbles and artificialities are not introduced. All national health services could be denominated and paid in Healthcoin.
In addition to the potential value loss and therefore “incentive to spend” aspect of a demurrage currency, another feature of a demurrage currency, which could be a feature of any cryptocurrency, is the possibility of periodic redistribution across network nodes. This also incentivizes currency holders to spend out the currency. At the more extreme end, and as an indication of connecting currency operations to policy objectives, this feature could provide the means for a society to periodically redistribute income across the populace.
An obvious limitation of managed demurrage currency systems is that because enterprising human agents are the constituents, it is likely, if incentives were not aligned, that they would find all manner of clever mechanisms and loopholes to circumvent the system—for example, to get around the antihoarding property of a demurrage currency if there were some benefit or perceived benefit to hoarding. However, the goal would be to appropriately align incentives, and really to move into a world in which circumvention incentives would be irrelevant because the currency distribution system would be able to meet the panoply of personalized needs a society has with money for basic expenditure. The certainty of GBIcoin, Freicoin, or Cashcoin reissuance in subsequent time periods, assuming not inconsequentially that the system is stable and that there is trust in the system, could create a mindset of abundance, which together with the demurrage or value-losing aspect of the currency obviates the need for hoarding and antiscarcity measures. This would be a conceptualization of money and the means of meeting basic survival needs that is unprecedented in human history—a trustable source of having basic needs met such that individuals do not even have to think about this. The great potential benefit of having basic survival needs met could be that it might usher in not just an era of abundance, but also free up human cognitive surplus to work on other higher-order interests, challenges, and concerns, thus architecting a new era of human society, collaboration, and productivity.177
Extensibility of Demurrage Concept and Features
The action-incitory and dynamic redistribution features of a demurrage currency are not just useful for developing special-purpose currencies in a multicurrency society, but, like many blockchain concepts, potentially extensible on a much broader basis beyond the context of currency, economics, and financial systems. The presupposition is that many things are in some way a currency, an economy, or a network, and that we are living in an increasingly multicurrency society, literally for monetary systems and also in the sense of currency, reputation, intention, attention, and ideas as currency.
In this framework, we can see that Fitbit and smartwatch are demurrage health currencies. A demurrage currency is an action-inciting currency, a stimulatory currency, because it gets you to do something. Fitbit is a demurrage (action-inciting) health currency, a currency that prompts you to take action. The demurrage (incitory) mechanism is that perhaps in the evening, you see a notification on your Fitbit or smartwatch telling you that you have taken 19,963 steps today, thus encouraging you to reach 20,000; the way that Fitbit and smartwatch present information is a demurrage mechanism that encourages you to take action. Thus, health as a demurrage currency can be used as a design principle in developing technology to facilitate action taking that is in the interest of the agent.
The dynamic redistribution property of the demurrage concept can also be applied to many other contexts, such as when resources are distributed across networks. Networks are an increasingly pervasive feature of the modern world. A clear use case for the demurrage dynamic redistribution feature is in the case of resource allocation through automatic networks or tradenets. Here, more efficient, larger, more scalable, more trackable systems are sought for the distribution of consumable resources like gas and electricity, transportation quanta (i.e., Uber/LaZooz, self-driving vehicles, or automated pod transport systems envisioned in the farther future), clean water, food, health-care services, relief aid, crisis-response supplies, and even emotional support or mental-performance coaching (for individuals permissioned in consumer EEG rigs). This is the idea of using the demurrage concept in other network systems to dynamically, automatically redistribute resources for optimization. The concept is combining networks and demurrage currency to enable new functionality like dynamic automatic redistribution across network nodes and enable the predictive and on-demand smart clustering of resources where needed. Some examples are predicting and delivering an increased load of Ubers and cabs to the airport when more flights are due to arrive, and preparing available electricity units on hotter days and fuel oil units on colder days. This is the idea of automatic resource redistribution in smart networks, possible using demurrage as a design element.
There are other examples of deploying the demurrage concept in smart networks. Health is itself a network and a demurrage currency; an earnable and spendable commodity; a linked, continually autoredistributing enabler operating fractally at multiple organizational levels, among synapses, cells, organisms/humans, and societies. We can start to see the body and brain as a Dapp, DAO, or DAC where already many systems are automatically operating at the unconscious level, and where more systems like cognitive enhancement, preventive medicine, and pathology treatment could be explicitly managed with Dapp AI systems. This concept combines a demurrage resource-allocation system with a Dapp, enabling the functionality of the automatic redistribution of any resource commodity within a system. This could be useful, for example, in the case of neural potentiation in a brain, increasing nerve impulses along pathways, for which systemwide resource redistribution could optimize performance. We want to redistribute and equalize potentiation capability among synapses in a physical brain with our cognitive enhancement technology or in an artificial intelligence or software-simulated brain. Different kinds of brain-based resources—such as potentiation capability, optogenetic excitation (manipulating living cells with inserted genetically adapted proteins and light), or transcranial direct stimulation—could be the demurrage currencies targeted for redistribution across a brain or mindfile. Another example of demurrage redistribution in the health context could be for cellular resources such as oxygen, waste removal nanobots, and circulating lab-on-chips as the physical enablement currencies of the body. Likewise, ideas could be the redistributable currency of collaborative teams, and liberty, trust, and compassion the currency of society. Bitcoin is already effectuated as a demurrage currency and smart network resource allocation mechanism in the sense of redistributing the currency of liberty across society.