Traceable to ‘WHAT’?

While many non-traditional currency design promotes currency that is traceable to a community or individual, satconomy’s emphasis is traceability to a market entity or organization. This emphasis leads to design issues that are not considered important in currency projects that promote self-sufficient collectives or personal currencies as issued by autonomous individuals. One very important issue is that each entity-issued currency brand is tracked in its own ledger (a collection of  entity-owned accounts and NOT just one account.) The one-to-one correspondence between an owner and an account in a mutual-credit system may be practical for an individual, but not for an entity with many ongoing budget and organizational concerns.

HOW will it be Traceable?

An entity’s budget effectively becomes its currency. As is common practice today, each entity will be expected to administer its own ledger/budget without a requirement to open an account in a centralized database. In the OCAUP accounting model, a flow transaction results in the corresponding cancellation of the payer’s expense budget and the recipient’s revenue budget. Credits are not reusable and do not circulate among entities. Each entity independently manages the life cycle of its currency brand, including account organization, budget creation (i.e., currency issuance), assignment, use and reporting.

WHY should it be Traceable?

Currency traceability, in the context of a dynamic currency index, enhances the ability of an entity to determine the currency brand reputation of other entities. The focus is on being able to reject payments from disreputable currency brands and thus exert pressure on the entity that issued the rejected currency brand. This focus is different from systems that track reputation to guide participants to decide which currency system to join (membership in a community currency) or which network node to extend credits to (lending to a creditworthy participant). In satconomy, participants can support and pressure each other even if they do not belong to the same community or are not networked in some way.

“If everyone has the ability to issue money, then that particular currency would soon be worthless due to inflation.”

This assertion is true only if market participants unconditionally accepted that particular currency, regardless of how much was issued. In fact, it is possible to design a currency system where published information about potential over-issuance helps regulate the behavior of currency issuers. The design should make currency traceable to particular issuers, so that market participants would have the informed option of rejecting over-issued currency. The design requirement for traceability led to the core concept of independent currency brands in satconomy.

“All currency systems involves notes or credits that circulate in a market.”

This assertion is true only for commodities and reusable, or transferrable, physical representations of credits such as coins and currency notes. However, in ledger-based currency systems which do not require physical representation of credits, it is quite easy to design a system where credits are not transferrable between currency issuers. There would be different motivations for issuing currency, especially in light of the fact that — if everyone could truly act as an indepedent currency issuer — no one would need to receive currency from others in order to accrue credits. The budget-centric OCAUP accounting system was conceived to provide a currency lifecycle framework for bona fide currency issuers.

“It is possible to design a large-scale currency system that is technically and administratively much simpler than current systems.”

It is tempting to look at the simplicity of a mutual-credit system and assume that its design could be scaled easily with minor tweaks and network or sociotechnological features.  I had the same hopes about five years ago when I started looking at currency systems, but I have since learned to embrace the challenges of dealing with complexity. It is true that the basis of any system might be simple and easy to understand. However, the policies and technical standards that are required to implement a simple system into large-scale, decentralized setting imply continous effort towards solving small and complex problems that come up regularly. In my opinion, a decentralized currency system that does not have an effective approach to auditing and indexing a diversity of issuers will not scale and influence anyone other than its limited membership base.

To summarize the counterpoints to the above myths:

- Even if currency issuance is decentralized, it is possible to encourage self-regulation and discourage inflationary tendencies by making currency traceable to specific issuers and not having guarantees of future currency acceptability between issuers

- It is possible to design a currency system where the currency lifecycle (e.g., budget creation, assignment and cancellation) is emphasized instead of currency circulation (e.g., credit transfer and velocity)

- Emergent complexity is inevitable in large-scale currency systems or frameworks, and must be carefully considered in the design of supporting  information systems, policies and standards.

What if there is a requirement to have someone else approve your content before you could put it on your web page? This requirement presents a burden to the author’s provision of content, and is analogous to having an unnecessary approval process for issuing one’s own currency brand. The proper approach that we see on the web is to let anyone write what he or she wants, and others do not have to read or visit that web page. Similarly, let anyone issue their own currency – if you don’t believe in what that currency brand represents, don’t accept it. 

Additionally, the pre-approval requirement presents an unnecessary burden to the content reviewer as well. Let us say that I agreed to be the reviewer. Instead of worrying about the quality of my own content, I also have to worry about reviewing and approving someone else’s content. This concern is analogous to: Instead of worrying about my own budget, I also have to decide what someone else’s budget should be as it relates to me. Let each currency issuer worry about setting its own limits and others could decide on the acceptability of a currency brand later if it gets offered as payment.

What if there is a requirement that registration with a certain web page is necessary before you could read its contents? While this requirement is understandable in a social network context where privacy is an important issue, it does not make sense in requiring co-membership if the purpose of publishing a web page is to share information.

Such a mentality of restricted usability also does not make sense when it comes to currency and budgets, which should be used based on perceived needs and not on having preconceived agreements to share and use a particular currency with others. This flexibility and openness is an important aspect of entities that cater their products and services based on goals to serve the general public or market. For consumers, currency that is limited to a particular community leads to limited market access. For providers, limiting service to pre-specified beneficiaries implies a conscious decision to limit potential sources of revenue.

The mentality that is advocated in satconomy is to minimize the barrier for an entity to independently issue its own currency brand. Issuing currency should be as simple as issuing unused expense and revenue budgets.  A fledgling entity should not have to determine beforehand who is going to accept or reject its currency brand, but should work steadfastly to establish a good brand reputation and increase its likelihood of being accepted by other entities. If an entity’s currency brand is found acceptable as payment, its unused expense budget and the unused revenue budget of the other entity is reduced by the same amount.

Some of the implementation concerns involve the technology for providing reliable and auditable information related to currency brands. There should be accounting conventions when currency is issued as budgets – this concern is addressed by the ocaup accounting model. Payments should be facilitated between accounting systems of different entities – this concern is addressed through the evolving protocol that is now tentatively called Inter-entity Payment Protocol (IPP). Finally, just as a search engine helps a reader decide which web resource to visit, a currency brand index should also be available to help entities decide whether to accept or reject another entity’s currency brand. The hope is that, just as there has been an explosion in the number of web resources due to the ease in which web pages, blogs and profiles are set up, there would also be a surge in the number of independent currency brands that are established using easy to use accounting software, uniform payment protocols and effective currency brand indexes.

In other words, a currency system could be attacked by participants whose purpose is to accumulate durable products to be sold later for profit. If that happens, sellers might become more sensitive to the perceived loss in conventional profits when participating in implementations of alternative currency systems. This concern might become prevalent enough that transaction offers are rejected by sellers without even considering the buyer’s currency brand reputation. Since transactions involving conventional money are not tracked under the information system proposed here, it would be difficult to detect such attacks and side-channels.

A deeper consideration of this issue reveals the fundamental shift in perspective required in trusteeship-oriented currency design. It is important to recognize that this attack does not apply to strictly nondurable products such as services and product consumed at the point of purchase (e.g., meal at a restaurant.)

For durable goods such as a mobile phone, a study participant does not have to sell but could rent or lease it out instead. The recipient would be restricted from selling the rented phone for profit since ownership was not transferred in the transaction. As long as potential side-channel attacks exists, leasing would be preferred for durable good transactions which results in the cancellation of self-accrued debt (such as accounted in the ocaup model.)

On the one hand, this type of transaction favors a recipient who likes the flexibility of being able to easily upgrade to newer product models. On the other hand, leasing would force the owner to be more involved with the whole product lifecycle, including eventual recycling and disposal, instead of simply transferring that responsibility to the recipient. The predicted effect is that only dedicated owners would want to deal with the lifecyle responsibility of durable goods, leading to better product traceability and accountability.

In the long run, independent currency brand transactions will likely flourish in a service-oriented economy, where ownership transfers or trade boundaries are less emphasized.

Owner reputation is a primary basis of lender-oriented currency design. The benefactor evaluates how likely the recipient is to return or compensate a trade. For example, the recipient might own cash and thus immediately return a favor by giving the seller reusable currency tokens. The currency design is, therefore, aimed at facilitating direct reciprocity.

Member reputation is a primary basis of community-oriented currency design. The benefactor evaluates if a recipient benefits a common cause or resource and how likely that member’s contribution to the community will continue. Even though indirect rather than direct reciprocity is facilitated, there is a strong expectation of a closed-loop circulation of currency within the community. 

Trustee reputation is a primary basis of brand-oriented currency design. The benefactor evaluates if a potential recipient belongs to an entity with a worthwhile specialization and acceptable market performance. The emphasis is on indirect reciprocity without any expectation of closed-loop currency circulation within a predetermined boundary.

To illustrate the concept of trusteeship, imagine a hospital whose mission is to provide healthcare. If the hospital has a reputation for effectively allocating its limited resources to serve patients, then a benefactor would have a good reason to support and accept that hospital’s currency brand. The benefactor should not be concerned whether or not it would eventually benefit directly from using the hospital’s services. Rather, the benefactor should focus on establishing its own reputation as a trustee by effectively fulfilling its specialization.

The preceding comparison does not imply that reputation currencies may emphasize only one conceptual basis. Different reputation bases leads to different approaches to improving market access. On the one hand, it is easy to see that a brand or trusteeship-oriented currency design provides access to the widest market possible since currency use is not limited to direct reciprocity or within community boundaries. On the other hand, it may be argued that a trustee’s reputation offers the least guarantee on redeemability since trusteeship is not as easily qualified or quantified in comparison to ownership or membership.

There are many ways to design a currency index, but the approach advocated in satconomy is to represent and track the diversity of specialized market entities and their activities through the concept of independent currency brands. Each entity issues currency as unused revenue and expense budgets. In a transaction between two entities, the unused expense budget of the payor’s entity decreases by the same amount as the unused revenue budget of the recipient’s entity. Both entities publish and report depersonalized transaction information to promote traceability and auditability.  This approach has the following advantages with regards to the design of a currency index:

Tracking by currency brands leads to diversity in both quantitative and meaningful terms. Each brand represents a specific entity that contributes and takes from the market. In contrast, other approaches emphasize the potential diversity in different currency designs, which would naturally have less diversity than the number of market entities and be of interest only to currency designers and not the general public.

The OCAUP currency life cycle in satconomy aligns closely with a market entity’s typical use of “money”: to budget for organizational goals, to make or receive payments and to evaluate market performance. In contrast, other approaches emphasize other aspects of currency design such as a common means for storing or expressing wealth. Although these design aspects are important, they are not emphasized in satconomy.

A currency index in satconomy represents the existing  diversity of market entities that issue independent currency brands. The accounting systems and interoperability requirements are intended to be as simple as possible. In contrast, other approaches attempt to put a new layer of accounting configurability and/or currency type diversity on top of existing entity diversity.

In all of the currency systems, platforms or frameworks that I have surveyed, I have not observed any that emphasize the utmost importance of currency indexes. In contrast, the research, development and establishment of relevant, sustainable currency indexes is a unifying theme in satconomy. A dynamic, reliable and informative currency index is an essential component and goal in satconomy. A brand index is not simply an option – it is a mandatory feature that promotes public monitoring and self-regulation of market entities that issue currency.

Think about it. A church needs construction material for a shelter that it is trying to build – would a hardware/lumberyard company accept that church’s self-issued currency as payment for its products? How about a grocery store accepting a school district’s currency brand to support the school’s lunch program? The main requirement is for the lumberyard or grocery store to also issue their own currency as unused budgets, so that they could use the payer’s credits to cancel equivalent units of unmet revenue budgets. In this way, an entity accepts currency from another entity to cancel its self-determined obligation to the market, and not to have more ‘spendable money’ .

Looking deeper into this dynamics, it is easy to see the importance of knowing which entities to support or avoid. A lumberyard could instead accept stolen money for construction material used in building a mansion for a con artist (such as Bernie Madoff) — would it have been better if the lumberyard accepted a church’s currency to support a more worthwhile economic activity? With generic currencies that are not traceable to specific market entities, it is difficult to answer such questions. To make such determinations easier, tyaga.org is attempting to develop practical implementation of the concepts of independent currency brands, OCAUP accounting and auditable reporting.

…getting this far has required enormous determination to overcome the periods of self-doubt. Wiles describes his experience of doing mathematics in terms of a journey through a dark unexplored mansion. “One enters the first room of the mansion and it’s dark. Completely dark. One stumbles around bumping through the furniture, but gradually you learn where each piece of furniture is. Finally, after six months or so, you find the light switch, you turn it on, and suddenly it’s all illuminated. You can see exactly where you were. Then you move into the next room and spend another six months in the dark. So each of these breakthroughs, while sometimes momentary, sometimes over a period of a day or two, they are the culmination of, and couldn’t exist without, the many months of stumbling around in the dark that precede them.” … “I really believed that I was on the right track, but that did not mean that I would reach my goal.”

Andrew Wiles spent 7 years of dedicated effort to prove Fermat’s Theorem, plus another year fixing a subtle error in the proof. Significant progress, even an outright solution to a problem, is bound to result from the right combination of skills, dedication and detachment from thoughts of rewards or hardship.

The above was taken from an exchange between Gandhi and the quoted book’s author, which had sought advise from the Mahatma. If the reader doubts that people could effectively work together despite having fundamental differences, I would recommend reading the short book by Gora. No one denies the idealism of these men, and yet what really stands out in their discussions is the importance of having concrete results to back theories. 

Through Gora’s endearing recollection of his time with Gandhi, I could imagine myself receiving advise directly from eminent practical idealists. More than once, I have used the following curt advise to pull myself above recurring doubts: ”Go and work. Work solves your difficulties.” On the other hand, when I feel getting carried away by words and flights of ideas, I find this quote brings me back on solid ground: “You are too theoretical. I am not so intellectual. Go to professors and discuss.”

Immediate relevance and clarity of insight more than makes up for the lack of eloquence in the preceding advise.

Traceability would also be extremely valuable in enabling targeted noncooperation with disreputable market entities. In light of AIG’s woeful neglect of its responsibilities , those who disagree with AIG’s intent to award bonuses to its executives could easily refuse to accept AIG’s currency brand  in interentity trades – if currency is indeed to be traceable to independent currency brands.  Without currency traceability, those who end up accepting any payment from AIG’s executives would be unaware that their products and services are being redeemed with inappropriately earned, anonymous currency.