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Freicoin: bitcoin-like currency from the Occupy movement
- vlasta2 14y agoInteresting, but I am still waiting for something that would be positioned between Bitcoin and Freicoin with inflation controlled democratically, not set by an authority (developers behind respective currencies). Every user would choose how fast coin mining should be, making the inflation/deflation react to the people using the system.
- maaku 14y agoThere were people on the Bitcoin forums that proposed such schemes, but not one has been found to be free of exploitable attacks. In the end, I decided the security of a fixed rate was better than the uncertainty that someone might come along and figure out how to game the system.
- vlasta2 14y agoSorry to hear that it is so hard to come with a balanced reliable solution in this area. But it is a good thing that you are trying to address the bitcoin's problems. If there were such solution, it would attract different kind of sellers and buyers than bitcoin attracts now.
- hogu 14y agohow does one prevent someone from trading in their demurrage currency for something that holds its value when they do want to store value?
- maaku 14y agoNothing, in fact that is encouraged. I could imagine having a “checking account” in demurrage currency that my paycheck is deposited into, but at the end of the week or month I sweep excess funds (my savings) into a “savings account” backed by treasury bonds, gold, bitcoin, or similar. The point is to keep cash itself in circulation, regardless of economic circumstances. Had we a demurrage currency in 2008, we might not have had as severe a “credit crunch” as we did--people would still want to loan or invest even in bad times. Demurrage removes, through negative incentive, the “sinks” where money can end up in unproductive storage on the ledger of some company or individual somewhere, and instead keeps it flowing through the economy.
- kiba 14y agoI don't see the point of using demurrage currency when I can just use bitcoin for everything(store of value, exchange, etc). I am happy to be proven wrong, though.
- debacle 14y agoThat's not how economics works. We had a 'credit crunch' because billions of dollars in market value was disappearing, sometimes overnight, devaluing securities. A new currency that no one wants to hold for longer than they have to isn't going to change that.
- pacaro 14y agoThis is Keynes argument against Demurrage Currency, the fees can be evaded by using a competing currency. When demurrage has been used successfully in the past, the main competing currency has been broken (30's Austria, depression era USA)
- maaku 14y agoI'm the primary person behind this, and will answer questions here. Since it's a donation campaign I wasn't sure if it was kosher to self-post it to HN, but raising funds isn't why I did it. I know there are a lot of people here with finance experience, and I'd be interested in engaging with you if you have something to say.
- eupharis 14y agoThe first question that comes to mind: why not just use bitcoin? Have you explored adding the features you want to see to the (open-source) bitcoin project?
- kiba 14y agoIf you try to propose deviation from the essence of bitcoin monetary policy, you probably won't get your change into the network.
- maaku 14y agoThat's exactly what I have done (for the prototype) and will do (for the actual client). However adding demurrage is a protocol-level change and would represent a hard-fork. It's better for everyone involved to simply start a fresh block chain. EDIT: But yes, the client would be an open source fork of bitcoin.
- eupharis 14y agoInteresting. I guess I was mostly just focused on the bittorrent integration and block-chain pruning elements, both of which sound great for bitcoin. Just did a very quick skimming trying to understand demurrage currency. Sounds very, very different from normal currency. From a practical standpoint, would a two-step process make more sense: 1) Widespread adoption of peer-to-peer commodity currency (bitcoin). 2) The implementation of a second peer-to-peer currency on a different basis (demurrage). Both of these seem like very difficult undertakings. And doing both at the same time seems like it would compound the difficulty. Apart from Woergi, has there ever been a real-life implementation of a demurrage currency? Excepting of course the natural cost of storing gold (vaults, guards, etc.). Which is easy for people to accept on a wide scale because its necessity is self-evident.
- runeks 14y agoInteresting experiment. I do think that people are not interested in money that does not work as a store of value (to the best of its abilities at least). But in the end the market will decide, and maybe my expectations will be proven wrong.
- maaku 14y agoIt has been an uphill battle for me in trying to explain this that there really are two uses for money: store-of-value and medium-of-exchange, and that it is possible to cleanly separate the two. It's even been done successfully before, most famously in the town of Wörgl between 1932 and 1934. Keynes centered his attention on the macroeconomy and used inflation to grease its wheels. Hayek focused on the individual and the value of a deflationary currency at that scale. Gesell showed that these are not, in fact, competing visions and by separating store-of-value from medium-of-exchange you could have your cake and eat it too.
- runeks 14y agoI guess my main question is: why would people voluntarily choose to use a medium of exchange that loses value over time? Does it require force by government to make people use this currency, or is there a reason they would start using it by themselves? Said another way: how would I benefit from using a medium of exchange that slowly loses its value?
- aidenn0 14y agoI agree there are two uses for money. If I have a choice between being paid in a form of currency that can do both, why would I voluntarily accept a form of currency that can only do one? That is why would anyone voluntarily accept Freicoin over any other currency?
- debacle 14y agoOn paper, it sounds like a great idea, but the issues of adoption (why would anyone use this?) and liquidity (why would you keep a balance of freicoins any larger than you had to?) really defeat it before it even gets out the door. This is something that needs to come from the top - governments need to stop taxing liquidity (sales and income taxes) and start taxing net worth.
- mindslight 14y agoEconomically, this is utterly backwards. To those without access to the cheat-code of newly created money, USD basically is a demurrage currency through inflation. In any environment where currency loses value, those with the most assets (your "1%") can best manage their investing to avoid losing value, while the people with modest amounts of savings get screwed either directly by inflation or through encouraged patronizing of the fraudulent consumer-financial industry. "Hoarding" assets by the middle class is what gives people the freedom to turn down specific jobs and hence puts them in a much better bargaining position for favorable working terms. If you want to even the wealth distribution, you have to empower the middle and lower classes to become financially self-sufficient, not simply try to attack the upper class.
- daenz 14y agoIn theory, couldn't one gain of demurrage be that the fees could be proportional to the amount of money being "secured" (stored)? Inflation is across-the-board, but demurrage could be more targetted.
- mindslight 14y agoI think you mean to say 'non-proportional'. Fees higher than linear -> sybil attack brings them back to linear. Fees lower than linear -> store value in shared accounts aka banks.
- kiba 14y agoBut now people can prove if a currency is worth using by inventing new cryptocurrencies instead of just merely saying "this is utterly backwards". I am skeptical too, as I don't see why freicoin is worth using over bitcoin. The only other currency I would use is namecoin, but that's because it actually occupy a different niche.
- mindslight 14y agoI think you're vastly overstating the efficiency of the battle for symbols.
- DiabloD3 14y agoThis doesn't make any sense, many members of the #occupy movement already use Bitcoin because the cops often try to hold the money for "evidence in an investigation".
- nix 14y agoHow is demurrage different from inflation? Isn't the financial system already set up to encourage savers to invest their assets rather than storing value as bills under mattresses?
- maaku 14y agoDemurrage drives the velocity of money up, and the interest rates down. These have other beneficial effects, such as easy access to credit (as long as you're creditworthy). More noteworthy, demurrage is assessed immediately whereas inflation is delayed. Under a demurrage system, this places an incentive to invest in assets which lead to longer-term sustainable growth. Inflation can instead incentise nearsighted short-term growth (and all the ramifications that has).
- kiba 14y agoThis is irrelevant if people don't want to use your currency. When you invent a currency, you can't just think about monetary policies but also incentives for using it.
- maaku 14y agoOne step at a time ;) Some groups have had success in introducing local currencies with similar features. One path we've looked at is getting communities of people (perhaps starting with some #occupy groups and their supporters) to use it and convince local businesses to accept it, hence the subtitle of being the worlds first “global-community currency”. We're open to other ideas as well.
- debacle 14y agoIs the local pizza shop going to be able to purchase sauce, cheese, flour, and pepperoni with it? Unlikely.
- runeks 14y ago> Under a demurrage system, this places an incentive to invest in assets which lead to longer-term sustainable growth. One of these assets being money that acts as a store of value? :)
- enoch_r 14y agoYou need to ask yourselves why anyone would choose to use this currency. Why would I request payment in Freicoin instead of USD or Bitcoin? Why would I choose to be paid in a currency that is specifically designed to not "store value"?
- sp332 14y agoIf real money becomes a "hot potato" how does that encourage long-term investment? And if the wealthy transfer their stagnant wealth to something other than currency, like gold or real estate, their dollar value will skyrocket over time as the value of the dollar plummets.
- maaku 14y ago> If real money becomes a "hot potato" how does that encourage long-term investment? Because, for example, building a business that achieves steady positive cash flow would be better than a short-term one-off opportunity, since that one-off would only delay the issue of demurrage. > And if the wealthy transfer their stagnant wealth to something other than currency, like gold or real estate, their dollar value will skyrocket over time as the value of the dollar plummets. There's nothing in that argument unique to a demurrage currency. That same is true for inflationary currencies like the dollar. You've taken a rather extreme case of a bank-run, which is disastrous no matter the circumstances, but doesn't prove anything.
- Frozenlock 14y ago1. A short term one-off opportunity is as important as a long term one. Want to take your truck and go sale a hundred generators? Could work, but it would work way better after a hurricane. 2. A bank-run is a good thing. It permits to see which banks have overextended themselves and, ultimately, punishes them (unless you have a government giving them cash through the backdoor...). It's like going to the dentist. Not necessary pleasant on the spot, but it can save you a lot of pain later.
- daenz 14y agoI think the first step to a new currency is to create the groundwork to experiment with a new currency. In other words, if you can create a network of independent people and organizations who are willing to do some of their not-so-important transactions with currency X, then you stand a much better chance of discovering and vetting the best currency X. Find individuals, artists, independent businesses, etc, etc and get them registered into a database so that this network can internally experiment with currencies.
- ef4 14y agoDemurrage is a solution in search of a problem. Where is all this alleged currency hoarding? Who's sitting on piles of cash? The rich certainly aren't. Does anybody really think that rich people keep vaults full of cash? They keep their money in stocks, bonds, and real estate. The only people who do hoard actual cash are the poor and unsophisticated, who are often unable to take advantage of banking services. The only other significant chunk of hoarding going on right now is actually being perpetrated by The Fed itself. They created vast quantities of new money in 2008 and gave it to the banks to patch up their balance sheets. The Fed is paying good interest on that money so the banks will keep it on deposit with The Fed instead of loaning it into the economy -- because that would obviously spark a firestorm of inflation.
- maaku 14y ago“Banks Promise Loans But Hoard Cash” http://www.forbes.com/2009/02/03/banking-federal-reserve-business-wall-street-0203_loans.html http://www.forbes.com/2009/02/03/banking-federal-reserve-bus... “Firms' Cash Hoarding Stunts Europe” http://online.wsj.com/article/SB10001424052702304724404577297610717362138.html http://online.wsj.com/article/SB1000142405270230472440457729...
- runeks 14y agoI think you are missing the positive sides of money-hoarding. Whenever someone doesn't spend the money that person has earned, she saves resources for someone else to use (because she doesn't consume them). This increases the availability of resources in an economy, arguably a good thing, right?
- nhaehnle 14y agoLet me point you to something important you have to understand about the monetary system in order to evaluate stuff like QE properly: http://neweconomicperspectives.org/2011/09/mmp-blog-15-clearing-and-pyramid-of.html http://neweconomicperspectives.org/2011/09/mmp-blog-15-clear... Basically, there are two different circuits of money: central bank money (aka reserves), which is what the banks have in their accounts at the Fed, and regular money, which is what you and I have in our bank accounts. Those circuits never cross. The money in a central bank account can never move into a regular bank deposit, and vice versa. Therefore, the banks are actually incapable of loaning out all that money that they have, because the design literally doesn't allow it. To talk about their willingness to loan that money out is completely nonsensical. What banks actually do when they give a loan to a non-bank is that they simply create a deposit for that entity, which means they create money out of thin air by adding an appropriate entry to their accounting system. The system as is actually makes a lot of sense. It is a very logical design, which becomes very clear when you really trace where money shows up on balance sheets. The first circuit is central bank liabilities/bank assets, the second circuit is bank liabilities/non-bank assets. It's no wonder they can't cross. Unfortunately, we don't learn such things at school, so pretty much everything you read about the monetary system in the media is an incoherent and illogical mess.
- gojomo 14y agoIn 2009, N. Gregory Mankiw (Harvard economist, advisor in the GWBush administration) passed along for consideration an demurrage-like stimulus idea from one of his students. Namely, that the Fed could declare that one year forward, some percentage of existing currency, randomly chosen by serial number, would expire worthless: http://www.nytimes.com/2009/04/19/business/economy/19view.html http://www.nytimes.com/2009/04/19/business/economy/19view.ht... I've also seen the idea that a stimulus tax rebate could be offered in the form of expiring debit cards to have a similar macroeconomic effect.
- nhaehnle 14y agoBesides the somewhat strange economics, the greatest problem of any scheme like Bitcoin is that it is a gigantic waste of resources. Mining, which is needed to operate the system, basically amounts to an arms race between miners. If Bitcoin were actually used as a global currency, it seems realistic to suspect that a significant fraction of all global computing power would be used just for mining. Does that seem right to you?