There has been lots of chatter lately about bitcoin, blockchain technology, and crypto-currency. Everyone, including me, is trying to wrap their head around it all. This is what I’ve come up with so far:
- Bitcoin is a virtual commodity that is created by running some obscure algorithm. The people who get rewarded are the “miners” who burn up enormous amounts of computer time and electricity to create Bitcoin. That makes it akin to mining gold or silver—not a very useful pursuit, and like any commodity, people will prefer to use it as a savings medium or hedge against inflation rather than circulating it as a currency. Bitcoin is NOT the answer to the money problem.
- The important thing about blockchain technology is what it can do, what functions it can perform. You hear a lot about “smart contracts” and a secure trail of transactions. It seems to be something that is needed when using digital forms of contracts and transactions conducted over the internet, but provides no new functions compared to what has always been done with paper trails and records, but maybe I’m missing something.
- The term “crypto-currency” is ill defined and there is much confusion about the characteristics of such a currency and what it can achieve.
- The fundamental principles of reciprocal exchange still hold. The substance of a currency or payment medium is CREDIT. Claims still need to be authenticated and promises need to be guaranteed.
My grand, audacious vision is this:
TO ENABLE ANYONE, ANYWHERE TO USE WHAT THEY HAVE TO PAY FOR WHAT THEY WANT.
What they might have is skills, abilities, products, services and credit that is advanced by a circle of people who know them and trust that they are ready, willing, and able to deliver value on demand in the near term.
I have argued that the truly disruptive technology of exchange is a global network of small credit-clearing circles that provide “a means of payment that is locally based and controlled yet globally useful. It makes money and banks, as we’ve known them, obsolete.
My talk in Malaysia in October at the International Forum on Inclusive Wealth (http://ifiw.my/) will be on that topic and will build upon the framework that I laid out in my book chapter, https://beyondmoney.net/excerpts/chapter-17-complete-web-based-trading-platform/. –t.h.g.
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Blockchain technolgy will not only be used for monetary transactions, but it can also be implemented in everything conceptually carried by a ledger, or rather, a transaction history. The power of this is basically decentralization and can not be modified once the chain is processed.
The core problem the block chain solves is duplication. I can’t email you money without some external transaction-manager entity, because I can just send the same email to someone else. The block chain gives you the ability to prevent double-sending (or spending) without a central account system.
There are additional smarts you can add–‘smart contracts,’ that sort of thing. There are limitations on what such contracts can do–otherwise you can subvert the protection.
I think it would be possible to create a block-chain based currency of the kind you described in The End of Money. The tricky problem there is distributed identity. Your system would need a way to say ‘this currency was issued by that identity, that identity is that business or person, that person has these identities within the system and has issued this much currency through these identities….’ Distributed identity for such a system would be hard to design. Too easy to create new identities and issue currency via those identities.
if you have a block chain but a centralized identity manager, then you might as well not bother with a block chain. I’ve given it some thought. It’s a hard problem, and I’m not close to it.
Hi Tom, like very much your reflections, thank you for coming up with them in a time where many are confused. Looking forward to establish it! By the way YES started successfully!!!
Sesto, I’m very happy to know that your YES project (Youth Europe Self-Empowerment ) is moving forward and that you had a productive Workcamp. I hope your full report will be posted soon.