“The Problem”

“Nothing will stabilise the rupee unless we stabilise its general purchasing power.” The Problem of The Rupee: B. R. Ambedkar

Lately, there has been a lot of talk about alternate currencies. Not just talk but attempts for a general solution of the “problem of money” as rightly noticed by the Indian constitution’s architect.

When we speak of money as a driver of an economic system, stability becomes the most required property and the community becomes the most dominant beneficiary, in ideal circumstances of course. We must throw Traditional Economics out of the door as there is no Reason in pure self-interest and “enlightened self interest” is a fallacy as big as the utopian ideologies.

The safest assumption, assuming that economic systems work on assumptions, is that everyone else is lying and cheating and pursuing their greed. That way, a system which comes out is, truly accountable, open and admissible, somewhere around the stairway to the future of block-chain.

Monetary systems evolve as a reflection of the community and there is a slight difference between the money of India and money as came to be in western society. Before the arrival of the British, the money of India consisted of both gold and silver coins, which circulated freely without any fixed ratio of exchange between themselves but were fixed to the Mughal’s copper coins which allowed them to appear to circulate at a fixed ratio.

“In the general scramble for independence which followed the fall of the Empire, the right to coinage, as one of the most unmistakable insignia of sovereignty, became the right most cherished by the political adventurers of the time. It was also the last privilege to which the falling dynasties clung, and was also the first to which the adventurers rising to power aspired.”

The Right to Coinage

Money is the machine that governs the industrial life of people. With the widening scope of industrial automation, we are already seeing the advent of machine-to-machine payments and barter. Considering coinage as the insignia of sovereignty, the appeal of crypto-currencies lies in the fact that each individual can have a coin of his own, tied to his own assets or work, wherein the exchange ratio can be dynamically decided by the autonomous network.

This hypothetical scenario is exactly why the “decentralized ecosystem” stand opposite to the traditional government system, because effectively it gives a right of coinage to everybody.

Now coinage provides sovereignty to governments because money provides autonomy to people. The homo-economicus likes discretionary income, pursues individualism in community and in order to work towards his goals, needs a greater or lesser degree of autonomy. And assuming that the industrial society survives, it is likely as Unabomber noted, that technology will eventually acquire something that approaches complete control over human behavior, maybe something like coinage and money.

Money & Autonomy

“The evil of the system had already made itself felt in Bombay, where the Government had been obliged by a Proclamation dated April 9, 1824, to declare the Furrukabad rupee of 1819 standard as legal tender within its territories on a par with the Bombay rupee, in order to facilitate the supply operation from Bengal.”

The above example simply illustrates the system’s degree of autonomy vis a vis how it is handling its money. Human population today has become so large that it cannot even feed itself without the use of advanced technology. There is a valid reason why people are putting so much effort in enabling en-mass migration to Mars or modifying the biological human through genetic and neurological techniques. Man has modified his environment and is now modifying himself in ways that he needs a lesser degree of autonomy so as to survive with the autonomously thinking machines.

Therefore it is only a matter of time that a universal basic income should be in place not very far in the future.

Money’s evolution towards a form of “smart contract” is a good system for the automaton and the “outcome economy” for it replaces an entire class of the intermediaries and does not work without a proof. And since AI systems have a reward mechanism to continue and improve upon their work, a coin that represents the value of their outcome seems like a harmless reward and also suitable for scenarios where the machine has to make a purchase, the machine for example could buy its own computing power and electricity.

A “transaction” is not the correct terminology to use for such events which are essentially reflecting an agreement, although there may exist a transactory nature to it by the incentivization of work which is promised and expected from all the parties, to generate some “coins” that can be shared as agreed upon through the contract and exchanged as per the wishes of “the network” upon the proof that the event did indeed happen. Only thing is that those coins should yield purchasing power to the parties.

Viable crypto-currencies by the nature of being based upon a decentralized network, should have and strive towards following properties of the ecosystem: 

Satisfy the needs of the commerce through the network; 

Incentivise the consumption of goods/services they are attached to; 

Carry a proof of consumption or utilization of those goods/services; 

The ecosystem should accept the right to coinage of all nodes and assets; and 

The coin should be able to represent an asset that is off the block-chain. 

In such systems benefits are generally derived upon showing Proof of Work or Proof of Stake or a combination of both to show that an agreement has been reached and possibly subsequent events can now occur. But there is a bigger event in the economic cycle which overshadows work or stake, that is consumption.

Proof of Consumption?

Establishing consumption from a purely self-interested party requires the consuming party to agree to communicate openly the state of the party and the object of consumption before and after the event of consumption, in order to initiate the coinage representing the item being consumed as well as the value of the object with and without going through the state of consumption.

This is tricky and mostly not feasible for most goods and services. Most.

For example it may be possible to establish the consumption of information, at least through digital channels. And for most information, its consumption should increase its value. And if so, do you think a writer could be paid through a smart contract upon establishing the proof of reading?