Ever since I read Ron Paul’s call to competitive currencies, I’ve pondered the role of barter, and then community currencies, in bringing to pass the vision outlined.
Yes, I like Ron Paul’s politics. Yes, I lean libertarian on just about every issue.
Yes, I also think sometimes he comes off as your crazy uncle. I look past that to the message. It’s a great message.
And I think there is a silver lining in his message on competitive currencies for the alternative currencies industry, but not in their current form.
Let’s examine the history of just one segment of alternative currencies – the community currency.
Community currencies exist for much the same reason barter exchanges do, with a little different motivation. They want to utilize unused capacity sitting idle in local businesses, help keep more important currencies in the pockets of local residents, and provide a means of transacting business outside of a quid pro quo barter system. While all of that is true, their main motivation is to strengthen the local economy.
But all currencies generated from the bottom/market like community currencies have specific problems to answer:
What kind of currency do we create? Paper, digital, coinage, or something else?
Do we give it an objective value/back it with a commodity like gold or silver?
How do we get it in to distribution?
How do we encourage local adoption?
How much of the currency do we introduce in to circulation?
How do we discourage counterfeiting?
What kind of organization do you need to manage the currency?
How do we staff the organization?
Do we get volunteers to do the work?
If we issue paper currency, who is going to pay for the printing? Who will design it? Whose image will be on the paper?
If we issue digital currency, what software are we going to have to use to manage transactions? And how much is that software going to cost?
As far as my reading has led me, most community currencies answer many of these questions, but not all of them, and not very well. Some languish because of a lack of adoption, some overwork their volunteers and suffer staffing problems (which seems common among timebanks), some issue too much or too little currency which lead to problems relating to pricing, some can’t come to a consensus about how to get the currency in to circulation.
Which leads me to Bitcoin. Bitcoin is an open source software. Anyone with some programming knowledge can download the core files, make some adjustments and create a new bitcoin-technology-based payment system and currency. The scores of alternative coins based on the bitcoin software, or altcoins as they are called, underline the ease which accompanies this software. Adoption of the currency is as easy as downloading the software, called a wallet, and typing in some letters and numbers, and with a mobile version, scanning a QR code. Transaction fees are whatever the programmer sets up, usually less than 1%, and are paid to volunteer computers who participate in the process of confirming transactions. Anyone with the right computer can volunteer and participate in confirming transactions and get paid for it. All transactions are stored in a ledger called the blockchain, which every wallet/computer connecting to the system stores. Each coin is unique and can be divided in to decimals of varying size, but cannot be counterfeited or double spent. And getting the new currency in to circulation can be done in a variety of ways.
So much for the difficulty of starting a community currency…almost no staff needed (and really the only staff needed is at the very beginning to get the software customized), no counterfeiting, software rules surround the issuance of the currency, no need for a central authority to guide or control the currency, and anyone is free to participate.
I consider them both the new wave of community currency. Both are based on the bitcoin protocol, and both are readily available to anyone in those two communities. Both have unique qualities that make them attractive to people in their respective areas.
We in the barter industry should be watching these kind of developments with rapt attention. Our silver lining is in knowing how to recruit business people to participate in an alternative currency. Any alternative currency will fail without businesses to accept the currency.
I could go create my own altcoin right now and mine millions of it, but if there is no one to spend it with, is it a currency? We in the industry know that it isn’t a currency, a flow of value and goods and services, until it is flowing. And that is where many of the current altcoins in the bitcoin universe get stuck. Adoption is everything. The protocol may be sound, the idea may be worthy, but without user adoption, currencies fail.
Government backed currencies don’t have that problem, most of the time. Notable exceptions occur when governments abuse their duties and print more of the currency than the market demands. But the problem of adoption, in most cases of government backed currency, is nil if the government issuing the currency has the respect of the citizens meant to use the currency. If not, as in the case of the recent fiasco in Zimbabwe, citizens will flock to other currencies. The same applies to any other currency, but at greater difficulty. Alternative currencies don’t start out with the advantage of government backing…
The barrier to entry in to the alternative currency market has been lowering and lowering over the last ten years, but with the bitcoin protocol any barrier to entry is almost non-existent. And community currencies aren’t the only place the bitcoin protocol is going to affect.
I’m not pretending to be amazing at reading the tea leaves and seeing in to the future, but I would expect to see bitcoin and altcoins take over specific niches as time passes. Dogecoin has in short time become one of the most usable tipping currencies on the internet. Bitcoin itself makes international money transfers quick and easy. There are and will continue to be others who fill niches in the money transfer and property exchange space. All this and I haven’t even said anything about the advances that the blockchain technology brings to so many other areas…
One thing is for certain: cryptocurrencies like bitcoin and community currencies are here to stay. They may change, they may take different forms, but they aren’t going anywhere. And community currencies, in my opinion, are benefitted greatly by the invention of bitcoin.