money hacking: gamification

This is the third article in a series. The previous ones are

Computer technology opens up some interesting possibilities in the design of currency. When currency is bound to paper, it can only do the things paper can do, but if you have computers at your disposal, you can add interesting behaviors and dynamics.

These are some interesting ideas one could apply. I like a couple of them, and one I haven’t decided about.

the you standard

This is a concept from Thomas Greco’s ‘The End of Money and the Future of Civilization.’ My name, his idea. This is not all of his idea. His book has a lot more interesting details. I highly recommend it.

The ‘you standard’ is a modification of mutual credit. In the you standard, when your balance goes negative, you are actually issuing a currency you back with your own goods and services. You are obligated to accept your currency at full face value. No one else is. This diagram shows how currency would flow:

Adapted from Thomas Greco's 'The End of Money and the Future of Civilization'

Bob wants to buy a drum set from Dave. So Bob initiates some new currency, and pays him with it. Dave buys dinner at Penelope’s restaurant with Bob’s currency. Penelope buys something from Xavier, and so forth, until the currency circulates back to Bob, who is obligated to accept it and retire it. Bob can then issue new currency. The rest of the chain has no obligation, but if they trust that Bob will make good on his obligation, they should accept it.

Note: no interest paid, no growth imperative. If Dave makes better drum sets, he can charge more if he likes, but if not, there’s no dynamic in the economy to force him to. If Xavier has kids who grow up and start circulating currency, the economy also grows. But if he doesn’t, no one goes bankrupt.

currency rating

With the you standard you would have a currency rating system. When someone buys from you, they give you a rating. This rating gives others a way to judge the value of your services and whether your prices are reasonable. If your customers think you aren’t giving good value for their money, they can give you a low rating, which will reduce the value of your currency. Likewise, if they think your prices are reasonable and/or your services are excellent, they can give you a high rating and increase the value of your currency.

And if you refuse to accept your own currency, the buyer can mark you as ‘in default’ and crash the value of your currency. This would need to be a little complicated–you’d have to be able to reverse it, for example, if there was a misunderstanding, that kind of thing. It would need to be verifiable and auditable.

When you pay in someone’s currency, your electronic wallet checks the ratings online and proposes a payment, based on the issuer’s rating. The seller doesn’t have to accept it at all, and they don’t have to accept the default values, but it should be easy to transact.

A given transaction might use currency issued by a number of people. There would need to be an easy user interface to review those currencies and accept the default proposal, or begin negotiations on that basis. There’s an example below.

If you happen to accept a lower-rated currency, that would give you an incentive to reach out to the issuer and see if there’s any way you can help them improve their rating. The system could include social networking facilities to help people support each other. This would constitute a cooperative incentive.

Fairness of ratings is a cultural issue. In your community, you would need to establish a culture of trust, and establish standards for ratings. You would also want  to provide some kind of meta-moderation mechanism–some way for a community to establish and maintain fairness in ratings.

I’ve thought about allowing ratings above 100%. I’m not sure it’s a good idea. It’s a subject for experimentation. I think of 100% as a rating of ‘satisfactory or better,’ and anything lower as an indication of some kind of problem. That would be a way to head off the inevitable ‘grade inflation’ problem–define an upper limit, and define the semantics of different ratings well.

design for recirculation

The system could also include a social network that would know the network of relationships, including the seller and the issuer. Part of the buying process would be to find the currencies you hold that are issued by others in the seller’s network, and default to spend the ones with the shortest chain of relationships.

Maybe that’s confusing.  Here’s an example:

Say Dave wants to buy a stereo from Alice for $80. Dave holds $30 issued by Petula ($Petula30), $60 issued by Bob, and $50 issued by Xavier. Bob and Xavier are in Alice’s network, but Petula is not. Xavier’s rating is 100%, but Bob is at 92%. Say Dave’s smart wallet offers Alice $Bob60 and $Xavier24.8o, for a total of

60 * 92% = 55.2

+   24.80 *100% = 24.80

= $80.

Dave’s smart wallet would automatically generate the offer. Thus the system would try to circulate someone’s currency back towards them, so they could retire it and issue new currency easily. If Alice had had bad dealings with Bob or Xavier, she could counter with a lower rating or refuse their currency altogether. Most of the time you’d accept the default offer.

One problem such a system would need to solve at some point is insurance: if an issuer dies or goes out of business for some reason unrelated to its ability to deliver, you’d need to have some way to make the holders of their currency whole.

separation of measure

OK, so we all can circulate our own currencies together. We need a common yardstick for everyone to measure their currency against, so we can exchange it conveniently. Initially, you’d probably use the local currency (dollars where I’m at). That would allow sellers to post prices in one currency, and would minimize the mental adjustment as people got used to circulating a new currency. If (when) the local currency became unstable you’d have to switch that measure to something else, probably some commodity.

Note: I’m using the word ‘measure,’ not ‘standard.’ A ‘standard’ implies backing–someone somewhere has an obligation to accept your currency and give you gold or dollars or services or whatever, on demand. ‘Measure’ is just, well, a measure. You’re saying ‘I’d exchange this amount of gold for this amount of currency in an open market.’ And you’d be free to make that exchange.

The other nice part about measuring value that way is that you can have different kinds of currencies circulating within a system, and still allow people to post a single price, if they so choose. People could even exchange currencies of different designs on that basis, and apply discounts to values in negotiation as they saw fit. It would make for an experimentation-friendly system. Think you have a good idea for a currency system? Implement it with a separated measure and plug it in to the broader system.

It would be useful to have some of the measured commodity in circulation, to ensure stable prices. It’s one thing to say ‘I’d exchange this currency for some commodity’ in the abstract, but quite another if you could go down the street and get some of it. If you’re using dollars, that would be easy (now), but with silver, for example, you’d probably want actual coins widely available.

loop finding

Loop finding would help a new currency expand in a population. Basically, as people join, they identify buyers and sellers they already do business with in the network, and others who aren’t in the network, and recruit people to close loops of circulation.


Bernard Lietaer describes the counterintuitive appeal of demurrage better than I can. Basically, it’s currency that decays in value over time in a scheduled way. So if I pay you $100, in a month’s time that money would become, say, $99. This creates a ‘hot potato’ effect on currency–people don’t want to hold it long, they want to spend it, which forces circulation, and discourages hoarding. I think there are pros and cons to the concept. I haven’t decided at this writing whether I endorse it or not.

It’s a controversial idea. Some have said it’s ‘not capitalism,’ which is not something I feel strongly about either way. Basically, it drives the value in the economy towards assets other than money–in demurrage, money is for exchange of value, not storage of value. I think of it as sort of the purest notion of  ‘monetary system as social operating system,’ emphasis on ‘social.’ I haven’t decided if that’s a good thing.

It’s comparable in effect to inflation, though its effects are more evenly distributed. If it was all that was in circulation, it might be successful, though people might tend to circulate other things as currency. In a mixed-currency, experimentation-friendly environment (which I do endorse), I’d predict people would be reluctant to accept it. It might circulate at lower than face value.

I like the idea of a currency that models the depreciation of things. It would tend to make the $5 in your pocket approximate the value as the $5 thing you wanna buy, not just now, but in the future. That would make the relationship between buyers and sellers more equal. I like that, but I’m not convinced demurrage is the best way to do that.

The next chapter: money hacking: my politics.



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