Monday, March 16, 2009

Intro to Currency Platforms

I was recently forwarded a question about the difference between LETS, time-banks, and Open Money. I struggled hard to find the right response and decided that the fundamental shift was from “currency designs” to “currency platforms.” What follows is my attempt to describe that shift.

LETS, time-banks, commercial barter exchanges, and HOURS (Ithaca or otherwise) are all currency designs. Open Money is a currency platform. Those in the currency design world have tended to focus on coming up with the best design to maximize the chances of success. There was good reason for this focus since roughly 90% of attempts at implementing currency systems quickly fail. The most successful designs have been built around the concept of “mutual-credit” as in LETS, time-banks, and commercial barter. While each of these employ different subtleties, the core design principle is the same.


Even when currencies employ the relatively successful core design of mutual-credit, the odds of success are still slim. More importantly, however, is that the cost of failure is high. Until recently, if you wanted to harness the power of currency creation for your community, you had to invest many long hours in organizing. Frequently, these hours were uncompensated and underappreciated. Given the odds of success, only the most zealous even bothered to try.


To date, currency designers have tended to try to find the design that will finally take the idea of community currency to its full potential. The goal has been to raise the success rate thereby making those long hours of organizing worth it. However, what if instead of success being more likely, failure was less costly? Enter the currency platform.


As Michael Linton has pointed out “we all belong to many tribes.” This means that there are countless communities we already belong to that might benefit from some kind of currency strategy. But who in these communities is likely to spend the hours of organizing needed to implement such a strategy? What if creating a currency was, as Linton says, “as simple and easy as starting an email group?” Then, there would be little to no cost of failure. If people used the currency, great. If not, no one sacrificed long hours to make it happen. By lowering the cost of failure, countless numbers of communities will gain access to the power of currency creation without the risk of anyone wasting their time on a wild goose chase.

Some of these currencies will be measured in hours (as in a time-bank); some will be measured in the national money (as in LETS). Some will involve complex formulas for calculating credit limits; others won’t have credit limits. Some will have open account balances; others will have private account balances. The specifics of the design will depend on the needs of the community in question, just as the specifics of how email groups are implemented depend on the needs of the group.


This evolution represents a PROFOUND shift in how currency designers will operate. For those wanting a taste of what this might be like, Twollars is about to release a multi-currency platform. While still in its infancy, Twollars will allow users to generate their own currencies by simply defining a hash-tag for them. Hopefully, other currency platforms such as Open Money will also soon be operational (and interoperable), so we can really get this party started.

9 comments:

Mark Herpel said...

Excellent article.

Mark

King of the Paupers said...

Jct: When I visited Europe in 1999, I paid for 39/40 nights of accommodations with an IOU for a night back in Canada worth 5 Hours.
It's only a matter of time until all systems based on the Time Standard of Money will use the internet to intertrade globally. I did.
We need the United Nations Millennium Declaration UNILETS Resolution C6 to governments for a time-based currency to restructure the global financial architecture. Barter Timebanks are economic lifeboats.
See my banking systems engineering analysis at http://youtube.com/kingofthepaupers with an index of articles at http://johnturmel.com/kotp.htm

Just a Demo said...

Hi, I have enjoyed reading your recent posts. I agree that lowering the cost of failure would be a good platform goal. However, if there are too many unsuccesful attempts that affect the same community, there would be a serious risk of immunizing potential participants due to overexposure to too many failed om initiatives. In other words, instead of getting people used to the idea of cc, they might instead become more critical of new attempts as something that would lead to the same failed result.

Alan Rosenblith said...

@just a demo:
Thanks for the comment (and everyone)!
I would include the risk of a potential community becoming jaded as part of the cost of failure. That has been one of the reasons currency practitioners have put a lot of pressure on themselves to "get it right the first time." I think, however, that "lowering the cost of failure" also means lowering promises and expectations about what currency can do. In order to rally support in a community, currency practitioners have often made outrageous (and completely impossible to fulfill) promises about what will happen once the community gets on board with the new currency. When these promises are broken, the community loses faith in currency as a tool. Wouldn't it be better to lower everyone's expectations a little? Think email groups. Some work, others peter out. No one has lost faith in email groups because they were in a couple that went no where. This is because no one has made outlandish promises about email groups turning a community around overnight. When community currency as a tool becomes organically infused with culture, then it will make a big difference in society. However, until then, our primary goal should be about enabling it to happen organically rather than psyching everyone up for it.

Anonymous said...

I totally agree with the need to lower expectations, or at least make realistic ones. I came to the same conclusion just recently, as I am currently strategizing how to conduct a market trial for a Prowl-based system.

However, I disagree with the notion that anyone could or would want to be a currency issuer. It's not that I want to deny that right or responsibility to others - anyone could do that now without any software at all and regardless of what I think. But it is also obvious that certain conditions must be met to have a reasonable expectation of mild success.

So even though you might have an open platform that anyone could easily package, there is a responsibility on the platform provider to announce the required skills and best practices that are likely to lead to a successful implementation.

In particular, all implementations should have some sort of study objectives, in order to systematically collect data that could be used to generate an implementation knowledge base. For example, certain conditions that coincided with a successful or failed implementation could be processed to give useful information to guide subsequent attempts.

For me, lowering the cost of failure is important because better knowledge about trends could be gained from a larger set of implementation data. Otherwise, the success to failure ratio would remain the same or perhaps even worsen if there were more trials that have no study objectives.

edgar (aka just a demo)

Alan Rosenblith said...

Edgar,
I have seen PROWL. Great work! (http://tyaga.org/prowl/ for others). I totally agree with the need for a clear set of best practices, or at the very least a clearer matrix of understanding for what kinds of currency designs are appropriate for what kinds of communities. I also fully agree that collecting information about how different designs are correlated with different outcomes will be very valuable. It may even bump the field of economics into the realm of science :D (I think Michael Linton made this joke once).

With all that said, I think fear of failure is one of the biggest obstacles to creativity. And, if there is one thing we need right now to solve our current problems, it is creativity. One thing I love about science when it is done right is that it can have a very light and playful feel; kind of like kids experimenting with the world around them. I fully support bringing that ethos to the world of currency, as well as the subsequent rigor.

Anonymous said...

"It is not a mistake to commit a mistake, for no one commits a mistake knowing it to be one. But it is a mistake not to correct the mistake after knowing it to be one. If you are afraid of committing a mistake, you are afraid of doing anything at all. You will correct your mistakes whenever you find them."

from http://www.positiveatheism.org/india/gora13.htm#CHAP_VII.

Unknown said...
This comment has been removed by the author.
Unknown said...

Great post, Alan, and nice points, everyone. Emily was just telling me about how clothing swaps in Portland have gotten really organized of late, even to the point of having size-specific groups.

Sounds like a great idea, right? BUT: What if you want go to a clothing swap and you just, say, lost a bunch of weight?

You want to give big clothes, but you also want to receive small clothes. So which swap do you go to? What do you do??

No problem! You just start an inter-size clothing swap currency, and go on your merry, clothes swapping way.

If only it were as easy as #size 12 to size 10: 6 garments.

With that kind of thing, the "failure" part of the equation doesn't really even enter into it, I don't think. The focus is just convenience and simplicity.