Re: [sudo-discuss] Virtual currency question? In detail...

Sonja, Rabbit, Ryan, and Yo's- Re. alternative currencies: I've given a lot of thought to this subject over the years. A currency is not only a transaction medium but a measure of wealth in an economy: real resources that have economic value. There are basically three types of resources: natural resources, labor, and capital. Natural resources include: Renewable energy sources (solar, wind, geothermal, tidal, biomass), non-renewable energy sources (fossil fuels, uranium, thorium), minerals (nonliving matter that's taken from the ground), and agricultural products such as food. Labor includes: casual labor, unskilled and skilled occupations, and licensed occupations. Capital includes: natural capital (land, monetized resources), industrial capital (e.g. tools, plant & equipment), inventoried goods, and financial capital (equity and debt instruments). I'm inclined to treat real estate as a limited natural resource (land) or as natural capital generally. Today it is often treated primarily as a concretized form of financial capital, which leads to speculative bubbles such as the one that produced the present depression. A sustainable economy, in the purely economic sense (ecological sustainability is a different axis of measurement), is one that is largely resilient against manipulation and fraud, and boom and bust cycles. Boom & bust economies are like bulimia: binge & barf, inherently unhealthy and harmful. Ecological sustainability isn't dealt with by conventional economics, which works on a "flat Earth" model: as if the Earth is an infinite flat plane. This is the most important fatal flaw of conventional economics, and it leads to the myth of infinite growth. The most important foundation for a new economic paradigm is the recognition that the Earth is not flat, not an infinite plane, but is a Euclidean solid with a finite surface and therefore with finite resources. From this, the rest follows. economics: the ultimate outcome of an economy is necessarily a steady state, that can be anywhere on a spectrum from the most egregiously exploitative (e.g. a slave economy with a hereditary aristocracy) to the most equalitarian ("from each according to ability, to each according to need"). The most likely outcome of a steady-state economy is the inexorable demand for economic justice or "distributional equity," with its center of gravity in a sustainable middle class, and viable paths to economic sustenance for all. The role of currencies in building economic resilience is: a) to provide negative feedback loops in the economy, that prevent the positive feedbacks that cause booms and busts, b) to minimize the occurrence of fraud and manipulation, and c) to provide isolation or compartmentalization that enables "quarantine" of economic damage: such as preventing a local economic crisis from going global, and preventing a global economic crisis from affecting every locality. Currencies, with those points in mind: A viable economy would include three levels of currency: global, national, and local/regional. The global currency handles transactions between nations. The national currency handles transactions between localities within each nation-state. And the local/regional currency handles transactions that occur wholly within the scope of local/regional economies. The ideal global currency would be denominated in energy, for example in joules as Rabbit pointed out. Ultimately, energy is the foundation of all economic transactions: the global common denominator. National currencies tend to be based on arbitrary measures of value, whether gold or the credit of national governments. But in general they tend to represent the wealth of nations, plus or minus the effects of speculation. If I was setting up a national currency from scratch, I would value it in terms of natural and industrial capital: real capital wealth. There's been much discussion of the proper foundations for local currencies. In the Bay Area there is a group that is working on the premise of a local currency denominated in the food production of local agriculture. But one of the most successful local currencies, "Ithaca Hours," is based on the value of local labor. To my mind this is correct: because labor is the one resource that is reliably available in every local economy. I've studied the Ithaca Hours system in some depth, and I'd suggest anyone who's interested in local currencies do likewise, starting with a keyword search. The major value of a local currency to any local peoples (such as ourselves) is that it enables us to maintain functioning economies when the global or national economies are in crisis. By analogy it's like having rubber tires and shock absorbers on a bus, to insulate the riders from bumps and potholes along the road. All other factors equal, you don't want to ride on a bus where a bad road translates to a bone-crunching ride. Even where many or most of our transactions are not local, the ability of a local currency to insulate certain parts of a local economy from national and global economic crises, translates to the difference between having to tighten your belt vs. not being able to eat, or having less work vs. having no work. Re. the IRS: The question always comes up: what does the IRS have to say about this? As it turns out, the IRS takes a practical attitude toward local currencies. They have two requirements, that are entirely reasonable: One, that the exchange rate between a local currency and the US Dollar must be public, must be arguably reasonable, and must not subject to insider manipulation. Two, that income earned in local currency must be declared for purposes of income tax, translated to US Dollars at the current exchange rate, and the taxes paid in US Dollars. If we do those things, we're good to go. Re. Bitcoin: I'm highly skeptical of Bitcoin, precisely because it has demonstrated a tendency toward bubbles and busts, speculation, and manipulation by questionable actors. These characteristics do not make for a stable holder of wealth or a stable medium of transactions. The primary usefulness of Bitcoins is that they facilitate anonymity of online transactions. This is all well and good, but can also be accomplished by creating online financial institutions that anonymize transactions made in US Dollars or other currencies. By analogy think of Gift Cards, that are issued by Visa and Mastercard, but that aren't tied down to your legal name. Anonymization without speculation & manipulation: In the type of institution I have in mind, account holders would have accounts in their legal names as they do at any bank or credit union. Transactions would occur in two steps: one occurring in your personal or business account, and one occurring in the institution's account. For example you buy something online. A payment goes from your account to the institution's common account, and another payment goes from the institution's common account to the person or company you're paying. The latter payment is anonymized: it is made between the institution and the person being paid, and assigned a transaction number that you and they can use to track it. For example you sell something online. The buyer makes a payment to the institution's common account and obtains a transaction number and gives you that number. You use that transaction number to move the payment from the institution's common account to your personal account. The question has been raised as to whether this could be used for, or seen as, a form of money laundering. I believe the answer is No, because the institution itself would maintain records of every transaction, and these records would (only) be accessible for lawful uses such as investigating crimes or as evidence in civil lawsuits. The important difference is that the transaction records would be private aside from those two exceptions (criminal and civil cases), and not be accessible to Big Data, so your purchases of (for example) consenting adult porn, or your reading habits in general, wouldn't become part of your dossier. As far as Porn-O-Mat or Amazon, Ebay or iTunes, or any of those, are concerned, they are doing business with another business entity (the Cyberia Credit Union or whatever we call it). They have no need or desire for a "person name" for every transaction, any more than Staples.com does when they sell office supplies to a company that's an incorporated entity. They are not going to turn down transactions just because they don't have the legal person-name of the soft squishy human body that sits in the hypothetical office cubicle for which the office supplies (or porn, best-sellers, flea-market goods, songs, etc.) have been bought. In other words, we can get the most important benefit of Bitcoin, without sticking our hands in the shark- and piranha-infested waters of speculation and sabotage that have become Bitcoin's habitat. So: is anyone here interested in creating a labor-based currency, and/or an online credit union for anonymous transactions? -G. ===== On 13-05-05-Sun 12:09 PM, Sonja Trauss wrote: