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.

Twollars (why they are an important step forward)

About a month ago, Eiso Kant and Mac Taylor released Twollars. Twollars is a twitter-based “thank you” currency that allows users to join by simply participating. To participate, you only need tweet in the following format: Give [amount] Twollars @[twitter user] for [reason]. The Twollars server continually searches the global twitter stream for text matching this description. It downloads the tweets (to prevent them being deleted), and tallies a user balance based on the tweets the user has given and received in this format. The user balance and transaction history is completely open, meaning anyone can see it. This helps prevents fraud. After all, how different might have Enron behaved if their books had been open?

Eiso and Mac have set the arbitrary amount of fifty twollars (TWs) as the starting balance for anyone participating. They have also proposed a non-profit fundraising component where Twollars donated to charity are matched by conventional money donated by a business once a certain Twollars threshold is reached.

However, what makes Twollars an important evolution in currency design are not the surface level details. Twollars is using a very popular existing platform (Twitter) for transacting and accounting. Most currency efforts to date have depended on a separate platform specifically designed for currency exchange. While this has yielded some limited results, people who want to participate have been forced into walled gardens. Twollars gives added functionality to an existing user identity thereby lowering the entrance barrier. There are numerous Facebook applications that make use of this principle, and many of them could be thought of as a kind of currency. However, few people think of them that way, and their use value is somewhat questionable (do I really gain any value from having a sheep thrown at me?).

Community currencies have frequently charged a yearly fee (in conventional money) for membership in their “currency club.” With the advent of Twollars, this approach has become outdated. Lowering the cost of failure for participating in a community currency will likely make the idea far more appealing for the potential user. The fact that Twollars is on an existing platform, where the use of the currency promotes the currency itself gives Twollars a viral quality that other currencies simply don’t enjoy.

Even more significantly, according to Eiso, they are close to releasing a version of Twollars that allows for user generated currencies. People would be able to define their own currency by simply defining a hash-tag for it. For instance a Portland based time-bank focused on the film community might use “#pdxfilmtb”. The Twollars server would tally transactions bearing this hash-tag separately from others. A simple mutual-credit architecture would give the power of a time-bank to any and all people willing to participate for free. Here finally we see the dawning of what many of us have been waiting for: a free, multi-currency platform that demystifies money / currency, and empowers the user to define their own economic exchange networks.

Eiso and Mac are also very wisely using the K-I-S-S principle (keep it simple stupid). Many of us (myself included) in the currency world have a tendency to over-complicate matters, especially when it comes to the user experience. Someday soon, we will need a nuanced platform that can describe any currency imaginable, but for now a simple mutual-credit architecture (like LETS or a Time-banks) will be able to engage a wide array of people who haven’t considered the possibility of using community currency before.

In addition, Eiso and Mac have both been very open to the ideas and input from other members of the currency world. By releasing their beta version and soliciting input from the community, they have adopted one of the key success strategies of social web innovators. I can’t overemphasize my enthusiasm for the Twollars project.

Congrats!