Issuing your very own currency is nothing new. Anyone who has traded cards, marbles or any other collectible is no stranger to the phenomenon of private entities (as distinct from elected or other form of government) creating tokens, which whether by design or chance come to be adopted for use by people to transact amongst themselves.
Take a casino, where fiat currency (otherwise known as REAL money) is exchanged for chips (otherwise known as TOKENS), which are issued by the establishment and are typically stylized to reflect the branding of the establishment (otherwise known as TRADEMARKS), which in turn are exchanged within the premises between people of different roles, such as players, staff members and a whole range of different “service providers” of varying credibility, all of whom rely on the casino to back up the promise that the chip represents. The casino is therefore entrusted with the responsibility of ensuring that it can authenticate which chips are its own and which are knock offs made by a cheap competitor. Since Vegas is very much in business, it is safe to presume that it is possible for private entities to have a mechanism to authenticate physical tokens they issue. The mechanism is typically good enough that a taxi driver with some experience of a gambling town will likely be able to distinguish a real chip from one of the big casinos from a fake one you brought with you from back home and will correspondingly accept a chip as payment for your ride back, though usually not unless you’re inebriated and are offering a chip of a higher value than the fiat price.
Or take the example of baseball cards (replace with WWF Trump cards, if you were in my neighborhood). There have been instances of cards becoming vintage items of the order of paintings or sculpture, and inheritors have been known to be able to make retirement on old relatives “hobbies”.
Or take the case of the innovative neighborhood store owner who overcomes the perennial shortage of change by issuing, literally, plastic tokens with numbers printed on them to represent smaller denominations, which he is willing to take back as payment at a later date for the face value.
Or the multi billion dollar Sodexho, which does pretty much the same thing.
What all of the models above share is that each of them has a trust model that is modeled on currency, except that instead of trusting a central bank as the issuer, participants are willing to trust other issuers. The reason that none of these models represents a viable replacement for fiat currency or even an alternative is because the size of the community that is willing to use the token as a tool of trade is typically a minuscule fraction of an average country’s population.
The question boils down to – how many people trust the issuer of the currency. In each of the above cases the answer to that question varies based on how people will answer the following questions when asked to accept the token as a representation of value –
1. How well do I know the issuer, i.e. what is my estimation of the probability that the issuer of the token will honor it at the agreed on value at the time of presentation. If the probability in my estimation is high, I will be likely to accept the token at face value, i.e. I will be likely to trust it. The estimation of this probability is based on a number of factors.
2. Assuming I am willing to trust the issuer, the next question is do I trust the community of users already transacting in that currency. The size of the community reflects the number of people willing to trust the issuer. However, the conduct of the community as a whole is also relevant to the addition of new members.
Here’s a nice simulation model for trust in communities –
In my opinion, the reason for the huge bubble that currently exists in the cryptocurrency marketplaces of the Internet is simply that the answers to these two questions are rapidly changing for people in the face of global events. More and more people are trusting computer algorithms at par or even more than the fiat currency issuance and accounting systems. Some of this can be alluded to the fact that fiat currency and accounting systems are becoming increasingly digitized, narrowing the gap in usage experience for even relatively non technical users between cryptocurrency and fiat currency. Another probable reason is that increasingly transparent and accountable governance models are being sought by democracies, which in turn is exposing more and more inefficiency in the centralized model followed by fiat currency banking. A third influence is increasing globalization which is quickly eroding the relevance of “central” or “national” banks. The global economy already allows for the peaceful coexistence of many currencies.
In the face of this, a natural question is, how much distribution is too much distribution, to which the answer is, well…there ain’t no such thing as too much distribution. Distribution is part of the natural law of entropy. The better question to ask is, what’s the least amount of centralization that we can do with at the moment?
Following this line of reasoning, it’s not hard to see that democratic nations, in the interest of equality and efficiency, would logically gravitate to a model where technology can be leveraged to create a system where everyone can trade their unique self expression and the products thereof in a public barter system.
To be honest, this has always been the case. We always trade time, energy, data or matter, which are all fungible. The monetary systems of the world, including blockchain and cryptocurrency simply allow us to engage in this trade at a finer tuned level. If money is nothing but a token store of value to facilitate exchange, then the most efficient form of money is the one with least intermediaries.
With the Internet it became possible to have your very own media channels in the form of Facebook, Twitter and YouTube.
With blockchain it’s become possible to similarly have your own currency, backed by nothing but your own word, which could be verified by your peers.
At the very bottom of it all, a currency note is a negotiable instrument, which in turn is a form of contract. The legal contracts that make up monetary and consequently financial agreements are enforced by the judicial system of a country and the laws that are referred to for said enforcement are agreed upon by consensus, through a democratic electoral process.
Blockchain technology by no means replaces ALL of this machinery. For example, you can write a smart contract that represents an agreement to protect physical property, but even if you’re using a robot security force out of a science fiction book (or a defense research lab), the physical fulfillment of the contract would necessitate interfacing with state machinery. Whether that interfacing takes the form of conflict or cooperation is a matter of circumstance. At present, this limits smart contracts to being enforceable only on digital assets. As digital assets increasingly get enmeshed with physical ones, state machinery will likely evolve to enforce this new kind of contract, provided the state machinery is given an incentive to do so, likely through channels of taxation or by providing enforcement as a paid service or both.
So how would this play out for regular folk who don’t chew bits for breakfast?
Here’s a real world example. I have a niece who will turn 1 this year. She is growing up in an increasingly digital world and a lot of her early life is already documented in digital format by way of pictures and videos. These are shared on a private family WhatsApp group at the moment, where they are of immense value to the participants. As a responsible geek godfather, one of the questions that I often chew on is – Who owns these photos? Who has the right to share them? As she gets older and gets onto social media, who owns her media then. How much control does she have on her own “digital self expression”. And….can I do something that will give her more control over it.
If her digital footprint was limited to her cute photographs and baby videos, I would be well advised to not waste a lot of time on such pipe dreams and focus on something more productive. However, given that biometric authentication is becoming the norm and stored biometrics are digital assets, I’m increasingly convinced that I’m not wasting my time.
So, as an experiment, I’m going to begin work on a private blockchain, using free and open source tools, to be maintained by stakeholders in my nieces life. The purpose of the blockchain will be to track her digital assets, and will allow her parents to track the transactions they make on her behalf (such as sending people photos and videos). The access can be transferred to her as her coming of age gift, allowing her to query who has received authorized copies of which of her data over her lifetime. The cost of maintenance of the blockchain will be covered by folks who want to contribute to her digital future by sending her gifts in cryptocurrency, in exchange for tokens issued in her name. All of this will be done on a completely private network shared only by trusted members of her community as designated by her family.
In the short term, this will also serve as a test of the current state of blockchain technology, and my competence to develop on top of it. It will also serve as a nice example of a personalized blockchain and its utility if any.
My goal will be to have the blockchain ready for ICO (to family and friends of my niece only!) by her 1st birthday.
Watch this space for updates….
Links and Refs –
Markets and Computation: Agoric Open Systems – https://e-drexler.com/d/09/00/AgoricsPapers/agoricpapers/aos/aos.0.html
Crypto Tokens: A Breakthrough in Open Network Design – https://medium.com/@cdixon/crypto-tokens-a-breakthrough-in-open-network-design-e600975be2ef
Etherscan Token Tracker – https://etherscan.io/tokens
How to issue your own Ethereum token in less than 20 mins – https://medium.com/bitfwd/how-to-issue-your-own-token-on-ethereum-in-less-than-20-minutes-ac1f8f022793
Bokky Poo Bah’s blog – https://medium.com/@BokkyPooBah
Issue your own ERC20 token – https://github.com/bitfwdcommunity/Issue-your-own-ERC20-token
MyEtherWallet.com – https://www.myetherwallet.com/
Startups test a brand new crypto-currency: ICO – https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/startups-test-a-brand-new-crypto-currency-ico/articleshow/61938744.cms
Wiki Page on Smart Contracts – https://en.wikipedia.org/wiki/Smart_contract
Nick Szabo’s Wiki Page – https://en.wikipedia.org/wiki/Nick_Szabo
ICO Basics, To Invest or Not? Cutting Through The Bullshit – https://blockgeeks.com/guides/ico-basics/
Build Your First Smart Contract – https://medium.com/crypto-currently/build-your-first-smart-contract-fc36a8ff50ca
Etherwallet – https://github.com/kvhnuke/etherwallet/releases
Here’s how I built a private blockchain network, and you can too – https://hackernoon.com/heres-how-i-built-a-private-blockchain-network-and-you-can-too-62ca7db556c0
How To: Create Your Own Private Ethereum Blockchain – https://medium.com/mercuryprotocol/how-to-create-your-own-private-ethereum-blockchain-dad6af82fc9f
Can I create a private BlockChain in my own computer? – https://www.quora.com/Can-I-create-a-private-BlockChain-in-my-own-computer
Use Geth to Setup your Own Private Ethereum Blockchain – https://medium.com/blockchain-education-network/use-geth-to-setup-your-own-private-ethereum-blockchain-86f1200e6d40
What is stopping scamsters to fake sodexo meal passes ? – https://www.reddit.com/r/india/comments/2b54f8/what_is_stopping_scamsters_to_fake_sodexo_meal/
Fake food coupon racket busted; 4 held – http://www.dnaindia.com/mumbai/report-fake-food-coupon-racket-busted-4-held-1104556
The Evolution of Trust – http://ncase.me/trust/
Coins, Tokens & Altcoins: What’s the Difference? – https://masterthecrypto.com/differences-between-cryptocurrency-coins-and-tokens/