Saturday, April 25, 2009

Open Source Social DNA

Biologists have known for a while that DNA plays a critical role in determining how an organism develops. Many have called it the blueprint of life. While this analogy does partially reveal the role DNA plays, a “blueprint” implies a plan generated from an outside source. Recent research has suggested that DNA works more by facilitating patterns of chemical relationships that play out over time, and in the process create the organism as a whole.

This distinction may sound small, but think about a blueprint. Everything is planned out ahead of time by the architect, leaving no room for spontaneous creativity on the part of the building itself. Hence, the building is not alive. If there is one thing we know unequivocally about life, it is that it is fundamentally creative. While DNA can set up patterns of interaction, it cannot dictate with any certainly how an organism will react to unpredicted environmental stimuli. Organisms face unique and unpredictable challenges all the time, and as such must constantly evolve both their genomes and the neural connectivity in their brains.

So what does all this have to do with currency? Groups of humans that have a shared purpose can be thought of as a social organism. Genomes, brains, and immune systems are all examples of adaptive networks within a single organism. And, memes serve a similar function in social organisms, since languages allow the formation of adaptive social networks. Ant colonies, bee-hives, and dog packs are all examples of social organisms in the animal world using rudimentary memes to enable group communication. Single organisms become part of social organisms through various forms of coordination. To explore all the ways this can happen here would be unnecessary since there have been countless excellent books and blog posts written on the subject. However, for the purposes of this blog post, it is interesting to note that one of the most influential forms of social coordination in our society is currency.

We know with certainty that different types of currency create different tendencies in the types of collective behavior human social organisms exhibit. A currency design cannot predict this collective behavior in the sense of a blueprint, but rather it sets up a series of possible discrete interactions that, when taken as a whole, manifest as a collective behavior. Nothing can predict with accuracy how a social organism will react to a new set of circumstances. However, once it experiences a certain threshold of stress, it usually evolves new social contracts and currencies that fit the new circumstances. In this light, currency can be thought of as a one form of social DNA.

Sexual reproduction gave eukaryotic cells the ability to have much a greater range of creativity than their prokaryotic forbearers. Creativity and novelty were introduced into the DNA in each generation, and successful adaptations were passed on to subsequent offspring. Our current social organism has many fudmental flaws that can be traced to the fact that our current monetary system is stuck. It keeps reproducing the same dysfunctional behavior in the social organism, and it badly needs to adapt. But it doesn’t just need to adapt into a newer version of the same fundamental process. It needs to adapt the way it adapts. Open source currencies will do for social DNA what sexual reproduction did for biological DNA. They will radically increase the ability of the social organism to adapt to new and changing circumstances. What’s more, we will almost certainly need this capacity to deal with the challenges the 21st century has in store. Please visit The MetaCurrency Project to see how we might actually make this happen.

Sunday, April 12, 2009


I do not claim to be an expert on reputations systems. There are many who have gone way deeper on this subject than I. Instead, I hope to seed a conversation about the complex interplay between reputations currencies, exchange currencies, and the marketplace. While there are a whopping variety of reputations currencies in play today on the web, I see two basic categories.

Do I live up to my promises?

When two parties come together to make a transaction, both sides make a variety of promises. As a player in a given marketplace I get a reputation about whether or not I live up to my promises. Some of these promises are explicit and some are implicit. The seller explicitly promises things about their goods or services, such as “This mouse works with USB.” If I get home and the box has been incorrectly labeled, I am legally allowed to return it, since the seller’s explicit promise has been broken. If the seller frequently breaks their explicit promises, they earn a bad reputation and buyers avoid them (they may even be sued). Ebay makes excellent use of this principle with their “thumbs up / thumbs down” system that allows buyers to rate sellers.

On the buyer’s end, the story is a little more complicated. In some marketplaces, the promise might have to do with timely payment. When I receive an invoice, I have until a certain date to settle my account. If, as a buyer, I stop settling accounts on time, I develop a bad reputation.

However, if we look a little deeper we see there are explicit promises backing up the exchange medium itself. Money is an IOU, and, as such, someone had to make an explicit promise to a bank to pay back a loan (with interest) in the future for it to be issued in the first place. While that kind of explicit promise is at the foundation of exchange currency, we rarely perceive money that way. If I develop a bad history as a borrower of money, my credit rating (a reputation currency) is negatively affected, and I lose access to exchange currency.

Reputations outside the explicit promise

Let’s say I own a pizza place. I advertise that, because I care about the environment, I will only employ people who deliver pizzas with their bicycles. You care about the environment too. You order a pizza, but when you get it, the delivery person is driving a Hummer. You feel cheated. Part of what you were paying for was benefit to the environment. This is an example of the first kind of reputation. I as a seller broke my explicit promise.

But what happens if everything is the same, except I didn’t promise bicycles for delivery vehicles? You might still be outraged that a Hummer was the delivery vehicle, but I didn’t promise anything to the contrary. This situation is an example of the second kind of reputation. This kind of reputation may have been what Adam Smith was talking about with his prescription for successful markets: there must be symmetrical information between buyers and sellers. I didn’t know I was supporting a pizza place that used Hummers. I accidentally caused an environmental externality that could have been avoided if I had had access to better information. We could solve this problem by introducing a reputations currency that measured buyers’ perceptions of sellers’ ecological impact. Buyers who cared could go to only those sellers who also cared (or more precisely, imbued buyers with that perception).


This situation gets murky very quickly, however. What happens if, in the above scenario, I advertise that I, as a pizza seller, care about the environment, but don’t make a promise about delivery vehicles? Perhaps I compost all my waste, or recycle soda cans, or use environmentally friendly cleaners. Since, you as a buyer sitting at home don’t see those behaviors, you are not getting the whole picture. Again, we have asymmetric information.

I might incur an unfair reputation as an ecological monster, since the people who contribute to my reputation don’t see most of my environmentally friendly behavior. A buyer-issued reputations currency would therefore bias me towards enacting environmentally friendly practices that were visible to buyers. However, many of the most important environmental practices might not be things that buyers normally see.

Enter the third party rating service. I, as a seller, can choose to be environmentally audited by a disinterested third party. An auditor gets a thorough look at all my practices and issues credentials to me based on them (another reputations currency). However, there is a tricky balance in this transaction. Since I, as a seller, probably have to pay for this service, I want to make sure there is a good chance I will receive the credentials in question. Therefore, I am biased towards hiring less stringent auditors. However, buyers are not served by this arrangement, and if word gets out that the auditors aren’t stringent, the auditor loses its reputation as an auditor. This means that auditors are trying to appeal to sellers as likely to grant credentials, while simultaneously trying to appeal to buyers as stringent.

One way to solve this dilemma might be to have the buyers rather than sellers pay for the auditing. However, sellers still need to grant access to the auditors. They might only want to grant access to auditors who are less stringent. And if auditors don’t get access to a broad enough swath of businesses, how can they charge buyers for their service?

Also, there are clearly situations where sellers make implicit rather than explicit promises. I might, as a seller, imply something about my practices or my product without making an explicit promise about them. Into which category should we put reputations around these promises? Due to the subtle nature of these reputations currencies, an open source development process that includes the communities that make use of them is the only way to ensure they can be sufficiently dynamic.

Domains of Trust

One final complication: Let’s say we are aggregating reputations about the first kind of reputation (do I live up to explicit promises?). Because (in a hypothetical near future) we have transitioned into a fully open data context, we can see the Ebay seller rating of someone as we buy something from them on Craigslist. But, does an Ebay rating have any meaning in a Craigslist marketplace? It does, IF AND ONLY IF, the rating can travel in the other direction as well, and I incur a consequence on Ebay as a result. If I transact with someone on Craigslist, and they decided to trust me on the basis of my Ebay rating, I could very easily abuse that trust unless they have the ability to post a rating about that transaction back to Ebay. Therefore the consequences of my actions must be applied across all relevant domains.

This gets even more complicated though, because how do we know that the person on Craigslist is rating me based on the same criteria? If they weren’t, we would be comparing apples and oranges, and my Ebay rating would cease to have any meaning at all. The only way to solve this problem is to have open standardized reputation currencies that could be imported and exported across domains.
Meta-currency project, here we come!

Wednesday, April 8, 2009

Value, Values and the New Economy

Currently value is primarily associated with scarcity. Things like breathable air and drinkable water do not become valuable until they are scarce. This is clearly a problem if we want to have values which reflect the real value of things within a living system.

Also, our models of wealth are completely upside down. Real wealth (derived from "weal" referring to wellness) is not a function of how much stuff you can accumulate. This is like thinking that becoming as fat as possible is to be healthy, or that cancer is a model for healthy systems. (Cancer uses all of its resources to grow more cancer until it kills its host.)

Real wealth is a function of how quickly people's needs are met. You only NEED a few things at a time. You don't need the car when you're not driving it, or the extra house, or the boat or the closets full of clothes you're not wearing. You just need access to those things at the time that you do. This means that scarcity should be dealt with exactly the opposite of how we currently do. Currently, scarce things become costly and hoarded by the wealthy so that even fewer people have access to them. We need currency systems which optimize effective sharing of scarce things so that they can be where they're needed precisely when they're needed.

Money does not do that.

In fact, commercial economies don't do this very well at all (although capitalists loudly exclaim that they do).

As far as I know, the most efficient models for doing this are gift economies. Things are given to who needs them most when they are needed, rather than hoarded by whoever can acquire the most and always underutilized.

To people thinking inside of traditional economic mindsets, this sounds ludicrous at first, but consider this everyday phenomena: Families. Can you imagine if all the things that are shared within families needed to be transacted through commercial exchanges. I need to use the car to run errands, so I have to negotiate a price and pay you for 45 minutes of use. You need to use my shower. You want to watch my TV. Shall we charge for square footage of foodstuffs stored in the refrigerator? Think of how much less efficient a family would be if it didn't operate on a gift economy but actually had to negotiate and process payments for every item shared.

We are one big family. We live in a big house called Earth. We share our house with all other life on the planet, and in turn it shares with us. Our whole commercial economy is built on plundering this gift economy. What does the earth charge for oil, trees and fish? What does the sun charge for growing our food?

So, our challenge lies in designing currencies that facilitate gift economies so that we can maximize the efficiency of our resources and have healthy models for wealth instead of cancerous ones.

There is no such thing as a value-neutral currency. (Yes, I'm speaking of currencies not of markets.) Every currency embodies particular values. It does this by what it measures and what it ignores. Taking care of your own child is not valued in our commercial economy. But as soon as you pay someone else to do it, it becomes a part of our GDP. It is taxed and measured. Only then does it become "valuable."

If currencies are tools for facilitating currents or flows, having one global currency would be like all organisms having one shared bloodstream. There are good reasons that human blood is different than that of fish or tree sap. Currencies can and do (even if we fail to recognize it) fill value niches to support a great diversity of living social systems.

We are witnessing the death of our industrial age economy, and all of its embedded values and financial systems. This is a good thing, because it has become a cancer that is destroying the planet, our lives, our health and itself. About 98% of daily dollar volume of financial transactions occur in the speculative markets (stocks, bonds, currency trading, futures, derivatives, insurance, etc.) rather than in the productive economy. And we think this doing us a service? And this isn't going to skew the whole system out of balance? And that the people who gamble with our money deserve to be paid 100+ times more than people who take care of our kids?

I've got a post brewing about the principles and dynamics of the new economy. I'll try to get it up here soon.

Monday, April 6, 2009

Monetizing Social Media with Community Currency

Recently, I have been reading a number of blog posts about how to monetize social media. Twitter, for instance, has yet to monetize its service even though it has rapidly become integrated into our social fabric. Despite Twitter’s leagues of users, if they tried to charge for their service, people would likely switch to one of its free and open source competitors (like Identica).

The traditional approach to monetizing social media has been to sell advertising (as on Facebook or YouTube), but this puts the social media providers in a slightly antagonistic relationship with their user base. In addition, advertising itself is becoming less relevant when word about the existence and quality of products can spread so easily. Just look at Yelp! Social media has empowered word-of-mouth over traditional mass advertising, prompting the neo-marketing mantra “the best advertisement is the quality of the product itself.”

This leaves social media providers in a difficult position vis-à-vis monetization, since one of their few viable income streams is rapidly being made irrelevant by social media itself. So what can social media do to be financially sustainable?

To answer this, lets first look at why people don’t want to pay for these services. No social media provider will ever be able to charge for its services in scarce dollars since there will always be free alternatives. But what about charging in a currency that is not scarce by design? What if people had a completely different relationship to the money they had to pay? What if this new money was backed by the reputation of the users of the social media itself? Social media has already empowered user-generated reputation to the point of threatening the relevance of advertising. What if it could do the same to banks’ exclusive monopoly on issuing money?

This new process of issuing money would have to be open, distributed, and transparent. ‘They’ wouldn’t be issuing the money, but rather ‘we’ would. The social media providers would simply be the platforms on which these agreements were tracked and played out.

Traditional advertisements work by generating a sense of scarcity for whatever product is being advertised. When the quality of the product itself replaces perceived scarcity as the primary reason people want to buy, consumerism can, at long last, mature beyond adolescence. Similarly, when money itself is not
kept artificially scarce by a ‘them," a new sense of sufficiency will make the prospect of paying social media providers seem more than fair. For anyone who thinks this would be “funny money,” Facebook is expected to have 200 million users by the end of 2009. If Facebook were a country, it would be one of the biggest in the world.

Imagine a mutual-credit-card without transaction fees and with little to no interest. People could pay for any social media service with the currency they helped enable. Given social media’s colossal user base, providers could pay their expenses with this near universally accepted money. Sounds much better than what banks can offer.