(This is my response to the Money as Debt thread. Since it is rather long I thought I better open up a new thread. Find out about Digital Coin at
http://www.digitalcoin.info/)
For me, both Bitcoin (BC) and Digital Coin (DC) are amazing projects and I agree with Bruce Wagner that they seem to be very compatible. I'd like to show how I think this might work.
The DC system requires a "base currency" (called Perpetual Coin (PC)) as a unit of value on which to base its Credit Coins (CCs). It's the foundation of the system and needs to be something everybody can fall back on if they are uncomfortable with any CCs for whatever reason. Therefore, this currency needs to be reliable, decentralized, stable, digital etc. ... in short, everything that BC does.
While Paul is very clear on his ideas for CCs, his concept of PC still seems somewhat nebulous. From his proposal I can't tell whether PCs will be used for trade at all, whether or not more PCs will be added to the money supply and whether the government will be allowed to do this (clearly, a worst case scenario, IMO)*. What I did gather is that he wants the software developer of DC to issue PC in exchange for any major currency based on a ratio between the most valuable currency to the dollar. To me this has some obvious problems: You still have a "central bank" issuing the money that can, in principle, choose to withhold it or spend it secretly. Even if we assume it to be perfectly benign and competent, still the (arbitrary) decision when to delink the PC from other currencies (i.e. when to stop selling PCs) has to be made. Further, this way the growth of the money supply is unpredictable and in fact closely linked to what happens to the other currencies. To me, the automated, decentralized, gradual growth of the money supply with a fixed permanent cap that BC uses seems much more preferable.
*(It is possible that he was referring only to issuing physical cash. However that is still something that's better privatized: Companies could set up "ATMs" that, for a small fee, deduct an amount of PCs from your account and hand out a token that can eventually be fed into the machine again with its value added to the account. Companies would compete for issuing the most reliable tokens and the most difficult to counterfeit.)
The other advantage of using BTC as PC is that in the BC community we already have a (growing) group of people who understand the problems of the current monetary system and who have adopted a digital currency as a possible solution. Competition between systems does have some advantages (if it furthers innovation etc.), but since new currency systems depend on a widespread use, an interlocking pattern would be better than isolated systems. In fact, if for any reason BC should fail, users might resort to CCs to bridge the time to build a new money supply, and vice versa.
Unfortunately, judging by his response to Bruce, Paul doesn't seem to agree. He considers BTC a "commodity", insisting that the PC will be "very different". Nanaimogold has suggested that this is simply because he dislikes Bruce. I hope he's joking.
In any case, I think there are three possible scenarios for building a system of CCs on a system such as BC:
1. DC uses BTC as PCs.
2. DC uses PCs directly linked to BTC and/or facilitating easy exchange between the two.
3. DC uses PCs independent of, but very similar to BTC (i.e. its own money supply grown in a similar way).
The difference between these three might be purely technical. For the following considerations I will assume that DC will use PCs essentially the way BC uses BTC and refer to them as PCs.
Using Digital Coin in Addition to BitcoinThe first thing to understand is that the CC system is entirely optional. You could do whatever you do now with BTC, using PC, and use CC to whatever extent you like. Your software would by default refuse to accept any CC except those you explicitly choose to accept (put on your Accept List).
The other thing is that the software would do a lot of work for you. The issue of complexity came up, having to manage many different currencies. This is meant to be automated, so that you don't even notice what CCs you trade with, unless you are specifically seeking to buy one (I explain this in more detail further below).
A third point that is often overlooked or misunderstood is that the total amount of CCs doesn't have any effect on the value of any other currencies (including PC), because every single CC is reliably tied to a real product or service.
Why use Digital Coin?Then what advantages would DC offer, in addition to those already offered by BC? Here's a list of examples:
-No shortage of money. Wherever there are people with goods and service to trade, CCs can be issued to facilitate trade.
-No loans, no interest, no money debt. The only way to go "bankrupt" in this system is for an Issuer to fail to deliver his goods or services on request. Note that this is rarely the reason people go bankrupt under the current system.
-CCs are backed by actual goods and services. Every CC is worth at least 1 PC when redeemed at the Issuer even if its market value drops below that.
-Profits can only be realized by spending them, i.e. a profit is always a product or a service purchased. Profit is not the result of an inflated sense of value ("bubble"), for example.
-For customers, it means ubiquitous discounts with virtually no hassle. (Using CCs in principle does carry a higher risk than using PCs, however.)
-For companies (i.e. Issuers) it means the ability to spend first and to deliver later and also to provide strong incentives for costumers to redeem their products at a specific time.
-The system enforces balance of trade. Whether a company issues too many or too few CCs, either way they pass on their potential profits to their customers. If the government issues only CCs, there is no way it can spend more than it collects in taxes. There are many options to rebalance the budget, including simply buying back issued CCs (which would then disappear automatically, see further below).
-Decreases in value of any given CC are evenly distributed among those who trade them ("hot potato effect"), making big losses less likely.
-Voting with your wallet. This system adds a strong democratic control to the use of money. BP has had another oil spill? In addition to not buying from them, just remove their currency from your Accept List as well. This will devalue it and, if enough people do this, force them to cut spending. Corporations would have to be a lot more sensitive to their reputation and public opinion. (Note that this won't apply to government CCs, however, if the government forces you to pay your taxes with them.)
-If wages are paid in the company's CCs (which is to be expected), risks, profits and losses are (to a degree) shared by all of its employees, encouraging efficiency, solidarity and teamwork. (However, this system alone won't prevent CEOs from paying themselves huge bonuses, for example.)
-While transactions will be anonymous, huge amounts of data could be collected by the software that could reliably reflect almost anything of interest to an economist, investor or customer. (Regarding some possible applications this is obviously a question of transparency vs privacy and needs to be considered carefully.)
-Flexibility. The very same software could be used to issue national legal tender (by which I mean "the money you pay your taxes with") or a local currency in a small town.
-Banks will become redundant.
In short, the DC system constantly insists on the exchange of real goods and services, facilitates and rewards honesty and efficiency while making speculation more difficult and punishing reckless spending and parasitic behavior.
So, what's a Credit Coin?A CC is self-issued credit backed by your promise to redeem it for your goods or services. Its base value is equal to 1 PC and you promise to accept it in the place of 1 PC. Unlike a PC, it has an expiry date as well as a redemption curve. This means that you can specify at what time and for how long how much discount you offer for the redemption of your CC (more specifically by how much more you honor you own CC over PC).
The CC is a digital object, specifically a serial number. This number contains a variety of information: who issued it, possible restrictions on its circulation (p.e. for local currencies), denomination, redemption curve and current owner. All but the last are always transparent to anyone (like information written on a banknote), with anonymity of the owner maintained at all times. (To be clear, since only the owner can manipulate a CC you know that the person offering a CC IS the owner, but not WHO he is.) A transaction is effected simply by changing the owner in the serial number.
How will this work?DC is meant to be implemented using Maidsafe's emerging Perpetual Data technology, which will be like a massive global P2P network, with the difference that actual transfer of data will be unnecessary, the data being accessible from anywhere. This will free huge amounts of disk space and CPU power.
(Bruce has already provided the link in Paul's response:
http://www.paulgrignon.netfirms.com/MoonfireStudio/PAGES/PD/Perpetual_Data_homepageFlash.html)
The DC software, on the other hand, will be required to do a lot of very sophisticated calculations, which might not seem possible today. But for now, let's look at what we want this software to do and then at when it might become available.
(As an aside: DC is meant to provide you with an account that let's you manipulate your coins, while they are stored within the system itself. While this is different from having a wallet file, if the Perpetual Data system catches on, the difference will become much smaller as soon as BC users start to store their wallet files on it.)
One of the most important features to understand is that the software reevaluates each CC after each transaction, establishing their value in PC based on their buy/sell ratio. This is what enforces balanced budgets and some of the other benefits mentioned above (check out the DC proposal for a more detailed explanation).
Because of this mechanism, even though the proposal mentions online market places for trading CCs, these are actually not needed. CCs could be traded as simply as BTCs are traded now within the user software itself.
What happens if an Issuer fails to redeem his CCs?This depends on whether CCs are based entirely on trust or whether they truly are enforceable contracts. In the first case, the PC spent would be lost. This is the risk that accepting CCs carries. One could still go to a special Internet forum and post the complaint, corroborated by other complaints and users could put the Issuer in question on their blacklist, refusing to trade with him entirely. Unfortunately, there would be a strong incentive not to report the Issuer until one has sold the (irredeemable) CCs. Still, word would spread quickly. However, if CCs were actual contracts that a court would enforce, then the CCs would be redeemed with the Issuer's assets, similar to a bankruptcy procedure. There still needs to be a mechanism though to make sure that the software recognizes those CCs and makes them void-for-trade as soon as possible.
What might the interface of the user software look like?Here is how I picture it (based on the proposal and what I've mentioned so far):
When online, you would open your software and login. Your software will display your current balance in PC prominently at the top. You can click Send and transfer any amount of PC or CC that are in your account, basically the way BC works.
Below there are four tabs: Accept, Sell, Buy and Issue.
The
Accept tab simply lets you manage which CCs you accept, being able to specify a range of maturation and expiry dates for each (this is explained below). To accept a currency, all you need in principle is to know the name of its Issuer. You should also be able to sort the CCs by priority.
If you select
Sell, you get a complete list of all CCs that you currently own, with their current value in PC, updated constantly (every second?), next the date of its maturation (perhaps, optionally, as a countdown timer?), as well as the date of its expiry. If you select an amount (up to the amount you currently own, of course) and click the Sell button to the right, you broadcast your desire to sell the selected amount of CCs of that type for the current price, and will continue to keep broadcasting it until it is sold or you hit Cancel. If, while your offer is still valid, somebody hits Buy, your CCs are sold for the price in that moment, not for the price when you offered to sell (i.e. it's not ask/bid). The CCs are transferred to the buyer's account and his PCs added to yours. (The software would sell those CCs first that have been on offer the longest.) You can also specify any amount of CCs as "not for trade", which will not be used for any transfer unless you unblock them first.
If you click on the
Buy tab, you can enter a search term, usually the name of the Issuer whose CCs you want to buy. Ideally, there should be a whole range of ways to gather current information about CCs, their price development etc. though perhaps displayed on a website rather than within your software window. At the very least, you should be able to enter a range of maturation and expiry dates (earliest-latest). It is very important that the software does not only keep track of the buy/sell ratio of CCs as suggested in the proposal but also is able to distinguish between matured and expired CCs and, ideally, between, for example, a CC one day from expiry and a CC one minute from expiry. Since many users will want to drop their CCs before they expire (assuming they are not interested in the goods they redeem), it would be worthwhile to search not just for matured CCs but also those close to expiry. Ideally, the software does the calculations for you, with you simply entering the amount in matured CCs and receiving a suggested "basket" of matured and almost-expired CCs that are available that is the most cost-effective. If you are happy with the selection, you hit Buy, and the equivalent amount is deducted from your PCs.
Issuing new CCs would require a login with a separate account name that has been created with the help of a(reliable!) identity verification service. If a case can be made for the anonymous issuing of CCs, this login could be made optional, but I don't see it. People need to know with whom to redeem their CCs. A website would list the identity of all Issuers whose CCs are in circulation. (Identity could mean personal and/or corporate identity. Many companies might actually like the idea of being able to tell which of their employers has issued any given CC).
If you want to issue CCs, you can set the redemption curve as described in the proposal (the exact possible parameters would have to be worked out) and create as many CCs as you like. However, the Issue tab acts as a sort of "sandbox" where CCs can be programmed without the software acknowledging their existence. The software stores these "virtual CCs", visually distinguishable from the others and does not keep track of them in any way, although they can be stored together with the "real" (or "activated") CCs. Once created, you can transfer them to anybody who has your CCs on their Accept List or simply broadcast your desire to sell them. Of course, in both cases you need people who know about your CCs and trust them. Only once the first transfer is made is the CC truly created and the software keeps track of it like of any other. Whenever one of your own CCs is paid back to you, it disappears instantly, although the program keeps a log of received payments for you. (In fact, it might keep a log of all transactions or those you specify.)
If you
send money to another account, you can specify which combination of PC and CCs to send or do an automated transfer. In the second case, the system checks all your CCs available for trade against the recipient's priority of accepted CCs, by default trading CCs in that priority and adding PC if necessary. If you specify a transfer whose accepted CCs do not add up to the desired amount and/or if you run out of PCs, you'll get an "insufficient funds" or similar message.
ExampleLet's look at a simply example of using CCs with the software I have described:
Suppose I have auctioned a few books on eBay for 20 PC. The buyer's software automatically offers a basket of CCs at current price level which is compared to the CCs on my accept list. If there is a sufficient match, they are transferred, and the CCs will show up on my account. However, if the sum offered of PCs and CCs that are also on my accept list don't add up to 20 PC, the buyer has no choice but to sell his CCs on the market and come back with PCs or CCs that I accept.
After the transaction I click on Sell All to convert all my current CCs into PC (a habit that many users might get into). Now, I want to spend my 20 PC and buy a product from a company that also issues CCs, say a movie from Disney. I check on their website and see that the movie costs 20 PC or 16 Disney-CCs (at maximum maturation). I could just transfer the 20 PCs and be done with it; instead, I click on the Buy tab on my DC software and search for a basket of Disney-CCs that are matured and/or nearing expiry, totaling the value of 16 matured Disney-CCs. The software presents me with a basket of such CCs that totals 17 PC. I click the Buy button, happy that the minute or so that I spent on the search has yielded 3 PC in savings.
These are my thoughts on how to implement a Digital Coin system, based on Paul's ideas. Let me know what you think!
