Thanks for your kind words! This post is actually a bit outdated as I (and the Bitsapphire team) have simplified and extended the system considerably.
The IOUs would be based on a specific delivery of XYZ good or service correct? This is the same model for the DigitalCoin & Ripple system. Your personal trust network or supply chain can better evaluate your 'credit rating'. The supply and demand of the specific IOUs as well as the risk is decentralized/distributed. The major failure in modern banking is that bad debt is centralized and effectively collectivized by government bailouts, guarantees, and money printing. Hence collective public debt grows to unmanageable levels beyond the level that would represent productive credits, and eventually can lead to currency collapse.
The IOU represents the debt of the issuer in terms of an external unit of account (which in our model is the Perpetual Coin). It does not represent any good, service, hour, or anything of that sort that currently is in use with LETS.
Ripple has an in-build commodity money (XRP) which cannot function as a stable unit of account. It is the same as Bitcoin in this regard, or any commodity money. Our proposal creates a stable unit of account similar to bitAssets, but which track an internal ratio rather than some arbitrary commodity or basket of commodities. Rather, it tracks all goods and services on the market.
One of the major modifications to the system we've made so far is that the bitAsset (i.e. the perpetual coin) is not created as a CFD, but rather through simple contracted collateralization. In our current model any percentage of collateralization can happen. We calculated that at about 300% collateralization (all based on IOUs, nothing else) is the maximum statictically significant security that can be had.
We have also been able to form a very new and I think elegant definition of money and credit:
"Credit is a time-delayed split barter contract. Money is credit without counterparty risk." It's that simple really.
Interesting. Look forward to seeing how it works.
Yeah from what I recall XRP is the intermediary asset without counterparty risk between user-issued IOUs that have counterparty risk so it seems to have a somewhat similar function, but your perpetual coin idea doesn't involve IOUs of anything specific like dollars/gold/time... Interesting. Just like Bitcoin & Bitshares and other blockchains can be seen as a global ledger or DACs that can satisfy subjective value theory/Mises regression theorem because it is a piece of something tangible (ie. ledger or company) I can see how a perpetual coin DAC can be similar, but wouldn't the value depend on how useful it is and wouldn't adoption increase value just like Bitcoin/Bitshares and wouldn't that make value unstable? What makes Bitshares much easier to value is because it can be seen a stream of dividend payments from transaction fees.
I like your elegant definition of money. I like simple and it does make sense when using 'credit' & 'exchange' as the main reference point. The 'store of value/commodity/asset' aspect that is typically associated with 'money' can be put in a different category because that is not necessary for exchange whereas the narrow definition you have confines the definition to the 'exchange' aspect of money. A broader definition may include the 'wealth/asset/store of a value' aspect of money. If you build a boat and I build a house and we exchange the net 'wealth' in the world is increased by a boat + house and so wealth is not a zero-sum game (in case you include Mother Earth than it is zero-sum..lol).... Exchange & credit and a narrow definition of money is a zero-sum game. Anyways...fun to think about. Look forward to your progress.
Store of Value happens through Money, not credit (by our definition). Because money has no single counterparty, meaning it is backed by everybody (or everybody participating in the credit creation process), you can "store" value in it. However, by definition the default rate of all credit creation participants is the debasement rate of Money (=counterparty-less credit). This results in either inflation or as in our proposal demurrage. We believe that this is mathematically the basis of the inflation tendency in all moneys (excluding market order books and first degree positive feedback loops of inflation itself).
Credit always happens before Money, as otherwise that money would not have existed in the first place.
The Perpetual Coin could not have a changing value because it only represents the median exchange value (i.e. ratio) between all Credit Coins on the system. This ratio is generated within the blockchain and therefore requires no external data feed such as USD or EUR, etc. It is a Unit of Account composed of the exchange value of all goods and services being traded on the system. This means you don't need to create an external data feed for an arbitrary basket of goods and services anymore, it is generated anyways by the Blockchain as a natural byproduct.
Interesting connection with inflation and default rates. That theory could fit in well with modern banking since we are on a credit money system and inflation may be a result of default rates more so than increases in base money supply. The Fed has increased base money supply to the tune of $4 trillion, but it seems to have limited effect on both inflation (at least so far) and credit money supply. We are in a credit bubble (consumer/mortgage/corporate), but the largest amount of bad debt is government/sovereign debt. Most countries are like Greece. In any case the current credit money system seems like it's coming to an end.
I've been thinking about gold standard stability in the US between 1880 - 1913. The inflation rate was 1.6% per year which is extremely low. It could be that the default rates were much lower because eventually something real like gold backed the elastic credit money system so the entire credit expansion system was limited with higher quality debt. Back then no one could create money the way you were able to this decade based on no verified income and no down payment. Credit money during the gold standard could not fund massive government programs with the idea that governments would always so easily be able to confiscate people's wealth via taxation.
Here are some thoughts:
Is the value of the the gold standard really just that it was a reference point for each person to easily compare the subjective value of other goods/services they could exchange for? The IOUs of all goods/services within the entire set of credit/debit exchange needed a common asset to reference. Hence the reference asset can be anything, whether a grain of rice, gold, BTC, BTS. Every other asset would just fluctuate around that reference asset. It would be preferable if the reference asset was chosen that was common to the people. It may not be that people compared the metal value of gold or silver to other goods & services, but it was that a certain weight & fineness represented some amount of grain seeds. It would be easy for the average person to compare their labor or other assets against grain seeds because it could represent X number of meals. Hence a pound sterling was legally defined as 5,400 grains of 92.5% fine silver, and a grain was legally defined "as the weight of a grain seed from the middle of an ear of barley"
http://jpkoning.blogspot.com/2012/12/a-history-of-pound-sterlings-medium-of.htmlSo the value attached to gold/silver was more about the amount of grains it represented. Although the # of grains attached to a certain weight/fineness of gold/silver was set by government decree, the free market value of gold/silver vs grains may not have fluctuated that far off from the official decree. Let's say the metal value of pound sterling could have fluctuated between 4000 - 7000 grains depending on the supply/demand of silver & grains, but for the sake of price stability the monarchy may have decided on 5,400.
The US dollar was derived from the Spanish dollar that was based on the 16th century Joachimsthalers that weighed 451 Troy grains ( 29.2g) of silver. "Troy grains were nominally based on the mass of a single seed of a cereal."
http://en.wikipedia.org/wiki/Spanish_dollarSo today's seemingly stable US dollar is based on credit money, but the credit money has a past with a link to silver & further back grains. Does that reference & history help keep the stability of the current dollar? If I got a haircut for a dollar backed by gold in 1880, it would be hard for me to think it was worth that much more in 1885. Overtime because of inflation (or default rates of credit money) a haircut costs much more now. However the reference point has always been past experience more so than a comprehensive study of comparing the money value of all goods & services. (Mises ponders this when he discusses credit money and his regression theory in his Theory of Money and Credit.)
The entire set of credit/debit exchange includes a time component as well since some credit is short-term and others are much longer (30yrs for a mortgage). Of course a mortgage loan is ultimately an exchange of the labor/material to build a house in return for an equivalent 'value' of goods and services the borrower can provide in return over a presumably long time period. The entire volume of credit/debit exchange is elastic and ever-changing continuously just as the average maturity of credit in the entire system. All credit is created and then destroyed precisely when an exchange is complete. (Money & credit is unnecessary if you live in autarky of course.) The reference point of credit could be anything, but it was grains/gold/silver for a very long time.
You can use any other reference point such as BTC, but even a global ledger should have a common real world object as a unit of account should it not? Sea shells, clams & beads with early native americans were not just ledger systems without a referenced asset, but each shell or bead must have represented 'something'... whether labor time,an ounce of meat or flint etc. People just trusted the ledger or accounting system, but that did not represent the unit of account in itself. Talley sticks were also used as a ledger at various times in history. In medieval England the tally cuts represented pounds of grain:
"The manner of cutting is as follows. At the top of the tally a cut is made, the thickness of the palm of the hand, to represent a thousand pounds; then a hundred pounds by a cut the breadth of a thumb; twenty pounds, the breadth of the little finger; a single pound, the width of a swollen barleycorn; a shilling rather narrower; then a penny is marked by a single cut without removing any wood."
http://en.wikipedia.org/wiki/Tally_stickDoes credit money just need a reference asset as a peg so people can easily compare and subjectively assign relative value?
A redemption mechanism allows people who are skeptical to leave the entire credit/debit exchange system (rightly so when it's modern banks giving credit to unworthy borrowers and governments), but it's not really necessary to have a real amount of gold or grain. It's just a reference point. The credit is always based on value people create so that would not be limited by constraints of supply in any commodity. We create wealth. Gold & grains are real world reference points and nothing more.
Hence if you create a system like your Perpetual Coin or Grignon's version (or even BTC), does it not face difficulty in having a real world reference, if anything just to help adoption? Grains may seem a bit awkward in this modern age, but it's probably an easier one for me to use as a reference. After watching that Grignon video again with credit coin/perpetual coin, it still seems to me everyone will still be confused about what subjective value to place on any credit coin or perpetual coin compared to any other good/service they can provide. Otherwise it would be like comparing 100ABCs vs 10,000XYZs vs 1,000,000 Credit Coins to 1000 Perpetual Coins to an apple and pair of shoes. I can easily compare the apple to the shoes, but the others I would immediately have difficulty with. If anything a real world reference just makes adoption easier.
The second point is any system, who creates the credits? Right now we have centralized banking institutions who monopolize credit creation and do an extremely poor job of it. A lot of loans go to unqualified borrowers. A lot of loans go to wasteful and unnecessary governments. On the other hand qualified borrowers and good projects have a harder time receiving credit. Our current system also creates systemic risks because credit creation is highly centralized and when bad credit bubbles go bust, everyone goes down. A purely decentralized system would have a 1:1 relationship where if a borrower is unable to pay, the one creditor loses out. The lone creditor must calculate the risk. You can have any M:N relationship with credit (M debtors/N creditors), but the N creditors would collectively have to evaluate and manage credit risk. Hence at least default risk would be isolated. A decentralized system such as bitShares UIA's or other altcoin LETs systems could work well. However I still think decentralized credit should be backed by assets such as gold/grain/land/company shares or anything more easily recognizable to the average person. It would be up to each issuer. We wouldn't see Annie, Bob, or XYZ company credits floating around, rather there would be Annie's apple credits and Bob's orange credits and XYZ smartphone credits or just Annie/Bob/XYZ gold credits.
Anyways just curious to know your thoughts.
Show Posts
Silence is better than obfuscation so I hope no one here tries to master fedspeak. There is also value in community engagement so hopefully we're thrown a bone or two every once in a while... or at least some cute puppy pics. 