http://archive.is/DDjum What do banks do that we can't? Create debt. Oh wait, we can create debt too, it is called an IOU. So why don't we do this? Why do we abdicate our own ability to create debt and instead have banks create debt for us?
Because everyone trusts that the bank will repay debt that they issue. But I don't think this is so true anymore. I would venture to guess more people dread going to the bank than to the dentist or doctor. Banks are showing their cards in their fees, how petty and backstabbing they really are while claiming it is free checking or some other BS. This is a symptom of an industry in upheaval, banks can't reliably make money on interest anymore and have to resort to nickel and diming. Or more like jackson and hamiltoning us to death.
There is no reason for friends to use bank issued debt to pay each-other back. Doing this is just bending over for the banks. Friends don't let friends use banks.
So how can we use IOU's in an efficient way? Pen and paper anyone? Apps now exist that allow you to keep track of who owes you what. But what I have seen does not let debt automatically be cancelled when someone owes you and you owe them back. So we need to design a system that can cancel debt automatically. Also a ledger to keep it all in that can be accessed anywhere by anyone on any device and trusted by all parties.
Blockchain anyone?
Here's how it could work.
Everyone gets a private key(s) and each private key is free to create as much debt as they want on the platform, or there could be a debt limit per key. In order to create debt you would need two signatures. A signature from the private key who is creating the debt, and a signature from the private key who is accepting the debt. So say for example Bob owes Sally a jug of maple syrup (maple syrup explained later). Bob creates a debt of 1 in a transaction, signs it, and includes sally's public key. Sally sees this and signs the transaction as well. Now the blockchain miners record this as a completed transaction. The “1” will be stored in the blockchain as being owed from Bob to Sally. Call it a “bob to sally coin”. No one else can extinguish this debt with sally except sally (exceptions later). To do this she has to create a “sally to bob coin”. Once bob has paid sally a jug of maple syrup then sally creates a “sally to bob coin” (signed by both parties) which extinguishes the debt. Or Sally could owe bob a jug back for something and she sends Bob a “sally to bob coin”, and this act also extinguishes the current debt. By doing this maple syrup or anything else doesn't have to physically change hands. Just friends paying back a favor.
Miners keep track of all of these transactions and append them to their ledger for mining the next block. Miners can use any proving system the software allows like Proof of work or proof of stake or other method or combination to win the block reward and append their transaction ledger onto the blockchain. The block reward can be anything but preferably denominated in jugs of maple syrup (more info on this later), say 10 jugs of maple syrup worth of coins. Now these miners coins are signed by the blockchain itself and the miner. They are a sort of master key that can extinguish any debt on the blockchain. Lets call them Mastercoin's. The way this should be viewed as slight and predictable inflation; debt will be worth a little less because miners can extinguish some of it. This is the cost of using the platform, you are paying this to the miners to keep the ledger for you. The problem here is that no one would want a miner or apparent miner from owing them anything because they would always just be able to extinguish the debt; the friends of miners would bear all of the inflation on the network. Ouch. So how do we get around this and make the miners coins (mastercoins) not wreak havoc to their close friends? The solution is to allow the mastercoins will continue to work after given, but at a reduced rate. So say a miner has a mastercoin. For example this mastercoin would be able to extinguish say 4.4% of 1 jug (.044 jugs) of maple syrup debt. Now this coin when given will forgive the miner of 4.4% of 1 jug of debt to a friend. Then this friend will be able to use this mastercoin to forgive 4.3% of a jug's worth of debt to their friend, and on and on. When all is said and done 99% of 1 jug's worth of debt (.99 jugs) would be extinguished from the network from that one mastercoin. So people will actually want to be friends with miners. Why? Because being friends with a miner will allow you to pay off your debts for free (well a small fee) for just forgiving the debts that miners have with you.
Why jugs of maple syrup? Because we need a consistent value of each unit of debt. If you say you owe me a car so you owe me “1” then when that person gets a mastercoin they can extinguish that car debt much too easily. We need everyone to value a unit of debt the same, so we need to find an item that is valued similarly no matter what country and currency you use is. Enter maple syrup.
Why maple syrup?
Liter Glass Jug of 100% pure Grade A maple syrup
- It is easy to produce without technology, and technology doesn't give such a great advantage. There aren't a lot of disruptive technologies in maple syrup production that would change it's relative value against other things. There are no GMO maple trees. No pesticides or herbicides or fertilizers will give you a significant competitive advantage. It is non-destructively harvested, the trees stay alive. It is possible to be used and traded interchangeably with syrups produced in other biomes like Agave Nectar, sugarcane syrup, honey, etc.
- It can be verified by simple technology. The simplest technology is taste or density. Or light: http://www.agr.gc.ca/eng/science-and-innovation/research-centres-and-collections/quebec/saint-jean-sur-richelieu-research-and-development-centre/safeguarding-maple-syrup-quality/?id=1519066161077
- It is required biological energy. Hunting produces protein and fat, edible weeds can produce vitamins and minerals, but carbohydrate is precious and difficult to come by in nature.
- It is hypoallergenic. Many people are allergic to it's competitor, honey.
- It is non-perishable. You can HODL it and not worry about it going bad or changing in any way. Not damaged by air (unlike oil), not irreversibly damaged by moisture (just reboil it).
- Common value: the cost of a jug of maple syrup is around one hours worth of labor which is a convenient amount and similar to the price of a meal or other things that people would typically owe someone.
- Self contained and easy to transport or ship. If the value was less than it may not be worth the shipping cost of an individual item.
In conclusion we have developed a blockchain based system of tracking IOU's with your friends.
Downsides:
Each mastercoin would have to carry a dataset. For example mastercoins will have the be signed by each receiving and giving party, and the value will lessen depending on how many times they have been signed. This could potentially, but not likely, cause fungibility issues.
IOU's will have to also have a dataset, ie: this coin is only valid between sally and bob.
Benefits:
Anyone can use the system without having to buy coins or mine them. You simply just start using the system. The mining just causes a small fee for using the platform, and not a monetary fee, just making you forgive a little bit of other peoples debt. Not a problem.
