For the first time* an altcoin, Auroracoin, has designed-in a predistribution (via premining) of currency. This article sets out a draft vision of how an altcoin that is designed to give priority to positive aspects of living neglected by the financialised economy might operate.
Key references and inspirations are Feasta co-founder Richard Douthwaite’s design for The Liquidity Network (LQN) , imperfectly resummarised by the author in Fleeing Vesuvius ; the Auroracoin proposition  for Iceland as it stood at 9 Feb 2014; the concept of a preferenced domain for a currency ; and the many analyses of the inadequacy of GDP as a measure of progress.
The significance of predistribution
Auroracoin is a fork of a fork of Bitcoin – in other words the open source code behind Bitcoin has been taken off into a slightly different direction twice. Whether Auroracoin is a suitable vehicle for the implementation of an Ethical Altcoin is an evaluation outside of the scope of this article. The key fact is that for the first time a predistribution of currency has been built into an Altcoin design. That is what has triggered this article.
Bitcoin takes control of the creation of currency back into the hands of Bitcoin miners – people and organisations that have set up networks of PCs and servers to ‘solve’ a particular complex digital problem and in doing so create a new digital coin. This ‘repossession’ of the creation of currency is attractive to libertarians, but is also welcomed by a wider group who are increasingly aware of the dysfunction of our fiat money system and the unholy alliance of banks and politicians that enable its associated unfairnnesses to persist, and to hold back worldwide ethical and cultural progression.
This mining regime has indeed proferred an opportunity for repossessing currency issuance, but it appears, in the process, to have created a new elite . Perhaps the Bitcoin geek elite and their associated leading-edge entrepreneurs are less immediately sickening than our fascist fiat-protecting banking-government cartel. But they have essentially captured the issuance process. If Bitcoin had any ‘democratic’ pretensions in this direction they are unfulfilled.
Thus most Bitcoins are inactive – stored away to appreciate. At this stage at least, Bitcoin’s store of value function is dominating its undoubted potential as a means of exchange. Whether it becomes a classic Ponzi scheme – collapsing in value with insiders getting their value out into fiat just ahead of the collapse – is irrelevant to us here.
The predistribution envisaged by Auroracoin would give each citizen of Iceland a fixed ‘float’ of altcoins – apparently accounting for 50% of the total possible issue. This factor makes store of value secondary to means of exchange in the following ways:
Firstly, we know that currency issued through benefits creates much more liquidity than tax cuts for the rich or top-down QE. The trickle down effect doesn’t exist. Rich people invest; poor people spend. They may spend on things that the chattering classes disapprove of, but spend they do. So if we want liquidity (and we do) issuing altcoins to a wider set of recipients (like every Icelandic citizen) helps. The challenge here is to develop and articulate the ways in which the coins can be spent within a reasonable time – maybe 12-18 months – to ensure continuity of interest. More on this below.
Secondly the wide distribution makes it more unlikely that manipulation of fiat-price will take place on any exchanges which begin trading the altcoin. Or at least that there will be a longer ‘honeymoon period’ during which this factor does not inhibit the development of the currency.
Thirdly the ability to predistribute (which is assumed here with no real understanding of what this means for the detailed mining algorithms/ process) presumably gives the currency designer the ability to distribute further tranches as rewards/incentives for what LQN defined as Positive Behaviours. This in turn enables the currency to make tangible statements of differentiation, which in a multiple-altcoin universe will be important for attracting and retaining advocates/ users. One set of such Behaviours would encourage liquidity.
The Preferenced Domain
I have written before on the concept of a Preferenced Domain for a currency . In Aurororacoin’s example that domain is the country of Iceland. Identifying individuals within the Domain is facilitated by the Icelandic ID system. At this point the libertarian sigh is audible. But let’s just accept it as it is for now. If we are to identify a Preferenced Domain and by implication an exterior Deprecated Domain we must have some rule for deciding who is in and who is out, and this will be a key practical issue for other potential Ethical Altcoins.
What form might preferencing take?
“Personally I am entirely happy to trust the free market to price the stuff I don’t really need; it’s the important things in life I have least confidence in the market delivering without screwing me over – water, food, energy, shelter.”
A vision for an Ethical Altcoin must feature an unapologetic preference for prosocial and ethical behaviours which are outwith the normal GDP economy; plus ‘stuff-of-life’ transactions concerning food, shelter, energy etc. The old-fashioned idea that economics is value-neutral – unconcerned with the nature of the goods and services traded, has, via market corruption and negative externalities come to be recognised as a central factor in trashing the planet. It’s time we junked that scientistic, disconnected Modernist orthodox economics worldview and allowed a PostModern multi-narrative approach some space to develop diverse alternatives. The particular preferenced behaviours of a given altcoin will be an important differentiating element in its competitive attraction to users.
For example we may see altcoins facilitating:
a) gifts. Simple ‘thank yous’ to other users. One area where the existence of established fiat-exchange value (see below) potentially pollutes the act of giving in the same way that setting a cash value on timebank credits does.
b) agency. Essentially a gift to another user who is in a better position than the giver to utilise the coin in a way the giver approves of.
c) votes. Where the transfer of coins indicates a vote in favour of some proffered outcome – for example in the distribution of further tranches of currency.
d) settlement chains. Where a circular chain of settlements can be identified and then actioned – possibly even to clear debts incurred in fiat.
e) sub networks. Like the Colored Coin development of Bitcoin, the ability to identify certain coins as belonging to a separate altcoin sub-pool with a shared set of characteristics or objectives (for example elder care) or even asset-backing.
Hopefully these suggestions give some idea of the potential scope of Ethical Altcoins.
Placing a fiat currency value on our ethical altcoin is not a priority. We should be most concerned about facilitating its use as a means of exchange, rather than in providing an escape route back to the financialised economy. However, it will be difficult to prevent commercial exchanges from providing this service, and to that extent we should expect the currency itself to be traded.
The more that such trading takes place, the greater the likelihood of speculative activity compromising liquidity via hoarding. It is therefore reasonable for currency designers to consider ways of putting obstacles in the way of fiat exchange. One possibility might be to implement demurrage (as proposed for the Freicoin ) for non-Icelandic holders – so that currency transferred outside the Preferenced Domain devalues unless circulated. Another might be to mimic the controls already placed on FX transactions in Iceland – perhaps taxing such transfers.
The apparent attraction of a preordained-issue currency – a sort of ‘deus ex machina’ – taking away the need for imperfect humans to regulate affairs by means of predefined ‘objective’ algorithms offers a false hope. We cannot escape the fact that the creation and allocation into first use of a currency has an ethical dimension. Always, the issuing and allocation processes have the potential for being captured by old or new elites. As the Altcoin developments multiply and compete, the nature of their issuance and first-use will be a key differentiator. Some will become new purely commercial operations; some will respond to the growing movement for the democratisation of money. Auroracoin’s even-handed predistribution may be a sign of this way of thinking.
and early 2010 vision at:
* As far as the author knows. Apologies if there have been others.