<nettime> Zero is the Future of Money

[Brett Scott via Nettime-tmp <nettime-tmp@mail.ljudmila.org>]

Dear Nettime, I normally write about the dynamics and realpolitik of mainstream money, but occasionally I try articulate an idealistic vision of alternatives. I thought I'd share below.

(FYI: If you want the version with links and images, you can find it here https://brettscott.substack.com/p/the-crypto-credit-alliance)

Zero is the Future of Money: Beyond crypto and fiat lies something more exciting than both

If you’ve had your political-economic awakening in the era of crypto-tokens, there’s a chance you may believe that faux-commodity tokens like Bitcoin are the first and only challenge to the monetary system. That, however, is like thinking Keto is the first and only alternative diet. Bitcoin promoters have spent years presenting it as being the antithesis to our normal monetary system, but in this piece I’m going to show you how to broaden your horizons beyond both of these paradigms. To do this we must blend thesis (1) and antithesis (-1) into a synthesis (0). I’ll start with a summary of our standard system and some of the problems within it, after which I’ll explore its supposed nemesis, and conclude by zeroing in on a synthesis.

    1) THESIS
    The dynamic (quasi)centralization of mainstream money
    
    The world’s monetary system is underpinned by nation state
    institutions (central banks and treasuries), whose money forms the
    substrate upon which commercial banks issue out a second - and much
    larger - layer of ‘digital casino chips’ that we also call money,
    and that in turn form the substrate upon which various other players
    like PayPal issue out a third layer of money (to understand this in
    more depth, check out the Casino-Chip Society). There’s actually a
    fourth layer, but let’s keep it simple for now.
    
    One way to visualise this is to think of state institutions - and
    the money they issue - as forming a centre of gravity for the other
    two layers (which you might imagine as being in orbit around this
    centre), anchoring them but not controlling them. This means state
    institutions only influence, rather than determine, the overall
    money supply. There are a large number of players that collectively
    preside over the expansion and contraction of the dynamic monetary
    web that we’re all enmeshed within.
    
    There are two big features of this system we can focus on. Firstly,
    it’s hierarchical, with powerful state institutions anchoring
    powerful banking institutions that allow a whole range of third-tier
    players to plug into them, some of which are dodgier than others. We
    could say that it’s ‘centralized’, in the sense that an oligopoly of
    players oversee it and - to some extent - control it.
    
    Secondly, it’s dynamic, rather than static, and its dynamism is also
    pretty unpredictable, rather than predictable. It pulsates,
    expanding and contracting constantly, and often at the same time,
    with expansions in some areas being neutralized by contractions in
    others. Every day money is being created and destroyed, and this is
    happening in all three layers.
    
    To understand this without freaking out, you have to have a basic
    grasp of credit money, and the easiest way to understand credit
    money is to first focus on the much simpler example of a promise. We
    all have experience giving promises, so you should know that a
    promise only becomes a promise when you issue it to someone. This
    could be the point that it leaves your lips, or when you write it
    down and hand it to the person. In this sense, it’s ‘created from
    nothing’ through the act of issuing it. So, imagine I write out “I
    promise you a massage” and hand it to someone. If they hand it back
    to me the following day, and say “I’m ready for my massage”, they’re
    redeeming the promise, after which it’s taken out of circulation. In
    other words, if someone hands you back a promise you’ve issued, it
    gets retired or destroyed.
    
    Money issuers in Layer 1, 2 and 3 are not handing out massage
    vouchers, but they are issuing out different forms of IOUs (legal
    promises). I’m not going to focus on the nature of these IOUs in
    this piece, but - like any type of promise - they are created when
    they are issued, and destroyed when they are handed back. This is
    why our money supply is dynamic. The nature of the dynamism at each
    layer, however, differs:
    
        Layer 1 money: Central banks and treasuries create new money
    when the government is spending, and destroy it when people, for
    example, pay taxes
    
        Layer 2 money: Commercial banks issue out new ‘digital casino
    chips’ when people deposit cash (Layer 1 money), but also when
    they’re giving out loans, and destroy those chips when people ask
    for cash back, or when loans get repaid (to learn more, see An
    Emotional Guide to ‘Fractional Reserve Banking’)
    
        Layer 3 money: Players like PayPal create new units when someone
    transfers Layer 2 money to them, and destroy those units when the
    person asks for that back into their bank account
    
    We can also identify three separate styles of action that can happen
    in each layer
    
        Issuance: the money issuer issues money (often in exchange for
    something)
    
        Transfer: the money users pass the issued money between
    themselves (often in exchange for something)
    
        Redemption: a money user passes the money back to the issuer
    (often in exchange for something, or to get free of some
    obligation), thereby destroying the money
    
    Many of us will have experienced different versions of all of these.
    Getting a bank loan is an example of being on the receiving end of
    Layer 2 Issuance, while getting a government grant is an example of
    being a beneficiary of Layer 1 Issuance. Handing cash to a
    shopkeeper is Layer 1 Transfer, while making a contactless payment
    for a train ticket is Layer 2 Transfer. Paying taxes is Layer 1
    Redemption, while repaying a loan, or getting cash out of the ATM
    are examples of Layer 2 Redemption (this isn’t always immediately
    apparent, but going to an ATM is the act of redeeming your
    bank-issued digital casino chips for cash, and - similarly -
    repaying a bank loan is the act of returning chips to the bank).
    
    These different layers of money, and the different styles of actions
    within them, are deeply embedded into our everyday lives. In fact,
    we might think of ourselves as being Layer 0. We are beings on a
    planet surrounded by ecological systems that we use for our
    survival, and we’re all interdependent, but we manage our
    interdependence through the monetary system, the dynamism of which
    has a complex multi-directional relationship to the level of
    production and consumption in our Layer 0 existence. Sometimes it’s
    easy to find work (production) and to get people to take what you’ve
    produced (consumption), and at other times it’s not, and much of
    what’s called ‘monetary policy’ is about trying to manipulate all
    that via the money system.
    
    It helps to be able to visualise it in 3D, so here’s an imaginative
    exercise. Imagine the money system as being a kind of nervous system
    embedded in the underlying economy, and then imagine grabbing it and
    pulling it upwards to reveal the hierarchy of players: at the apex
    are state central banks, with commercial banks below that, and
    third-tier players plugged into them, and all of them locked into
    the broader financial sector, which is locked into the corporate
    sector, and then all of us below. Here’s a very rough stylised
    sketch I did to convey the basic idea…
    
    From here we can point to four conceptually separate, but related,
    forms of dynamism in the system:
    
        The increases (issuance) and decreases (redemption) in the
    (3-layered) money supply
    
        The increases or decreases in the velocity with which transfers
    between money users take place
    
        The surges (booms) or contractions (busts) in the underlying
    production in the economy
    
        The increases and decreases in the power of the monetary units
    to command people to produce things or give you stuff (commonly
    called ‘deflation’ and ‘inflation’)
    
    Trying to predict the behaviour of this collective entity, and the
    interrelated forms of dynamism that accompany it, is a dark (pseudo)
    science, but we’re all part of it, and we feel it even if we
    struggle to see the whole structure and its processes. There are
    many problems with the money system, but here are a few basic things
    we can say about it:
    
        There are better and worse versions of it: people often
    generically talk about ‘fiat money’, but our monetary system is
    actually a hybrid hydra and there are better and worse versions of
    it. For example, the version without physical cash (‘cashless
    society’) is definitely worse than the version of it with cash. I
    spend a lot of my time defending cash, because it’s crucial for
    maintaining a balance of power between Layer 1 and 2 money, and for
    preventing a more dystopian version of the system from emerging
    
        Bank power is as important as state power: banks can issue out
    huge numbers of digital casino chips to parts of the economy they
    wish to mobilise, and to pull those away from parts of the economy
    they want to shut down. This means they have a lot of power to
    decide what (and who) lives and dies in the economy, and they’re far
    more likely to choose wealthy property developers than a poor
    project in a poor neighbourhood. The banking sector (and the mega
    institutional investment industry that owns their shares) is often
    in complex alliances with states and the broader financial and
    corporate sector, and also presides (alongside lawyers and
    accounting firms) over a massive system of offshore finance
    obfuscation used by corporations, mafia and oligarchs
    
        Inflation politics: Looking at all the layers at once, we see
    there’s an ongoing dance with inflation, by which we mean the power
    of the monetary units to command real things from real people in the
    underlying economy, and that’s always in a dance with employment
    (the people in Layer 0 trying to find a way to survive by slotting
    themselves into a niche within the interdependent structure). In
    very crude terms, conservative monetary policy ‘hawks’ generally
    like to keep a bunch of people unemployed to try keep inflation low,
    whereas others often want to counter that
    
        Geopolitics: We live in a transnational economy, but the
    transnational money system is a patchwork of national sub-systems
    stitched together, and often that stitching takes place via the US
    dollar system, which gets a lot of power from this ‘reserve
    currency’ status (and a meta battle with China is emerging in this
    regard). The geopolitics increasingly also involves digital payments
    data: as former Ecuadorian central banker Andrés Arauz points out,
    giants like Visa and MasterCard are based in the Global North, and
    their increasing control of the payments systems of people in the
    Global South gives US agencies a whole lot of power to pry into
    their lives

I could go on listing more problems (such as the fact that the money system is largely built to interface with and accelerate the soul-eating expansion of financialised corporate capitalism), but needless to say there are a whole lot of different people who have different gripes about the system and the power held by the oligopoly of players within it. But what kind of alternative do you propose when faced with this amorphous beast?

    -1) ANTITHESIS
    The rigid decentralization of crypto-commodity fetishists
    
    Let’s talk about Bitcoin.
    
    Hmm… actually, no. Let’s not rush into it. Before I start talking
    about crypto-tokens, I want to take a step back, and to talk about a
    mindset that precedes them, which is useful to understand.
    
    If I was to issue you with a written promise for a massage, you’d
    have a strong understanding of its double-sided nature. It might be
    a single object, but it references two sides: Side 1 is me and Side
    2 is you. I issued the promise to you. If any one of those sides is
    removed, it ceases to exist as a promise.
    
    To put it in more technical language, a promise has both an asset
    and a liability side. The asset you hold - the promise - is from my
    perspective a liability: it’s something I owe you (if you turn that
    phrase into an acronym, you get IOU). If you were able to transfer
    this promise to someone else - for example, your brother - they’d
    take ownership of that asset, while my liability remains constant. I
    now owe your brother a massage.
    
    Imagine a far-out scenario in which this promise gets passed around
    so much that the holders forget who issued it, and - moreover - come
    to see it not as a promise for a thing, but as the very thing that
    it promises. So, rather than seeing it as a massage voucher, they
    begin to see it as a kind of congealed abstract embodiment of a
    massage.
    
    Something like this often happens in large-scale credit money
    systems. All the money units we pass between ourselves are
    liabilities issued out by states and banks (and various other
    third-tier players), but we often fixate on the asset side, and are
    very prone to generating crude mythologies of money as an object
    disassociated from an issuer. In this ‘asset only’ imagination of
    money, we picture it as a kind of abstract congealed incarnation of
    generic ‘value’, viewing it metaphorically like a commodity or a
    substance. This is the commodity orientation to money: it’s a way of
    thinking about money as if it were a commodity with use in itself.
    
    There are various reasons for why this happens. One is that our
    money system is so huge and immersive that it’s very easy to go
    through life without seeing what’s happening in the background and
    to have no knowledge of the issuers. You simply learn as a child
    that the units have a mysterious power to command people. Another
    reason is that, unlike a massage voucher, the nature of the
    different promises in the different layers of our monetary system
    are obscure and hard to understand (and, moreover, are often framed
    in confusing circular terms). To go deeper into some of this
    mindset, check out my piece Money through the Eyes of Mowgli, where
    I argue that the existential experience of being in a large-scale
    capitalist system naturally leads your mind to generate crude
    commodity mythology around money by default, providing a folkloric
    way to describe its power over random strangers on the street. This
    is also hard-baked into the mainstream Economics discipline, which
    is built upon a commodity mythology of money (the core of which is
    the myth of barter: see How to Write a Flintstones History of
    Money).
    
    Needless to say, many people end up with a commodity orientation to
    money, which, as mentioned, is actually a metaphorical way of
    thinking about money as if it were - or should be - a commodity.
    This, however, leads to a new problem: if you have that subconscious
    baseline viewpoint, but nevertheless come to have an awareness that
    modern money isn’t actually a commodity, it creates a cognitive
    dissonance that must force you down one of two paths:
    
        Path 1: Modify your concept of what a commodity is to calm the
    cognitive dissonance: Many people are aware that money isn’t
    literally a commodity, but nevertheless must find ways to describe
    it as if it were, and so default to thinking about it as a kind of
    mysterious ‘fictitious commodity’. The most common way to do this is
    to claim that we all just collectively decided - through an act of
    imagination or belief - to imbue it with value. It’s a bit like
    Peter Pan’s view of flying: money will fly as long as we all keep
    believing
    
        Path 2: See it as an imposter or fake commodity: I’ve given
    talks on global finance for over a decade, and I’ve lost count of
    the times when someone in the audience rants about how the real
    problem with finance is that money is ‘backed by nothing’, and that
    there’s no gold in the central bank’s vault, and that the system is
    therefore a giant Ponzi scheme made up of farcical units that are
    pretending to be a commodity, with some deceitful power that tries
    to force you to use them, or to deceive you into believing they are
    valuable 
    
    The latter position is a more angst-ridden response to the cognitive
    dissonance, with the person going around trying to sow moral panic
    about money somehow being ‘not real’. This position also tends to
    come along with (or perhaps generates) a reactionary idea of what
    money should be. For the universe to not be a topsy-turvy deceitful
    place, the fake money must be replaced by a money that is ‘created
    from something’ so that it has ‘real value’, and must not controlled
    by a corrupt authority.
    
    Normally, this generates in the modern mind an imagination of gold.
    Most people have little understanding of how gold actually operated
    in the past, but simply assume that it somehow was a natural money
    system, perhaps imagining medieval fairs with people plonking little
    gold coins in exchange for chickens. I mean, pretty much all
    medieval-themed video games and modern fantasy shows like The
    Witcher have people searching for gold ‘coin’.
    
    ‘Goldbugs’ are people that channel the most politicised version of
    this belief, casting gold as the perfect ‘natural’ money, and
    contrasting it to the unnatural abomination of fiat money ‘created
    from nothing’. Gold certainly is created from something. Well, it
    was created by star explosions, and distributed in rock strata, and
    gold fetishists believe that uncovering this geology offers a better
    monetary policy than humans institutions do (provided we ignore the
    centuries of imperial slavery to obtain it, the 16th century
    conquistadores sent off to massacre indigenous South Americans to
    get it, and my home country of South Africa, where a fascist police
    state coerced poor workers to mine it well into the 1980s, so that
    goldbugs across the world could obtain the famed Krugerrand).
    
    Despite its bloody history, gold is rigged up in the conservative
    imagination like a disapproving puritanical god that you can invoke
    as a protection against the depraved fiat system. Most interesting,
    however, is that its most important modern function is symbolic
    rather than practical. Very few people - including monetary
    conservatives - actually want gold to be money, but it serves an
    important function as an abstract Platonic Ideal to be emulated
    rather than used. The idea is to keep using the normal fiat system,
    but to constrain the minds of those who use it, such that they
    imagine it to be like a commodity with hard limits. Monetary
    conservatives have fought long and hard on numerous fronts to tie
    the fiat system up in commodity-centric mythology, law and language,
    and have succeeded, because many people do use commodity metaphors
    for money and often do believe that it’s inherently constrained
    (incidentally, this is something the MMT movement has slowly tried
    to deprogram, causing consternation among people on both the
    political right and left, who’ve got used to fighting each other
    within the bounds of the commodity framing).
    
    So, with this background context in mind, let’s now move on to
    Bitcoin.
    
    I’m going to assume you have a basic knowledge of what Bitcoin is
    (or at least, what it claims to be), and to focus in on its
    political message. Bitcoin gave new energy and direction to people
    who previously could only hark back to an imagined golden era of
    ‘real’ commodity money. Rather than bleating on about medieval
    Witcher fairs, it allowed the vision to be repackaged in a modern
    digital form, and also added some more radical elements that could
    disorientate and excite a lot of people across the political
    spectrum. Given that most people are unschooled in the political
    dynamics of money, and given that most have a commodity orientation
    pre-programmed into them, Bitcoin was well-positioned to seem like a
    miraculous, cutting-edge and practical cure to the evils of our
    current system.
    
    To promote it, Bitcoin evangelists reduce the multi-layered and
    multi-playered modern monetary system into the single term ‘fiat’,
    and set it in binary opposition to Bitcoin, which is presented as
    the antithesis to its two key features: remember that the fiat
    system is, firstly, underpinned by a (quasi) centralized oligopoly,
    which, secondly, presides over an unpredictable money supply that’s
    ‘created from nothing’ and which expands and contracts. To be the
    binary opposite, you must have a system that’s not controlled by a
    centralized oligopoly, with units that are ‘created from something’,
    and which has a predictable supply that lasts forever, rather than
    expanding and contracting.
    
    The most radical part of the Bitcoin equation is the attack on
    centralization, but ‘decentralization’ in crypto-speak has a very
    particular meaning. In the pre-crypto era, ‘decentralization’ used
    to mean breaking up a large centrally-controlled system into many
    smaller locally-controlled systems (like a bunch of city states
    declaring independence from a nation state, or a small town trying
    to partially detach itself from the national economy by encouraging
    localist economic projects). In the Bitcoin world, by contrast,
    ‘decentralization’ basically means replacing one large system
    governed by people with another large system not governed by people.
    ‘Decentralized’ means ‘a large automated infrastructure controlled
    by nobody’, although if you want to put a more romantic human spin
    on it you can say its ‘run by everyone, but controlled by no-one’.
    
    The second part of the Bitcoin equation is a lot more overtly
    conservative. It’s an attack on the entire concept of an
    expandable-contractable supply of units. The system has a fixed
    supply of tokens that must (sort-of) be ‘produced’. I say ‘sort of’,
    because really they are written-into-existence, but the person - or,
    rather, computer rig - doing that must first exert a very large
    amount of energy. It’s a bit like having to pierce through a
    forcefield around a database before you can write something onto it,
    or having to climb Mount Everest before you can write out the number
    ‘50’ on its summit. This energy expenditure creates the illusion of
    ‘extracting’ Bitcoin tokens out of some kind of cyber-ore with a
    pre-programmed hard limit of how much ‘coin’ can be mined (the
    initial design is somewhat like the digital equivalent of the star
    explosions that arbitrarily decided how much gold crashed into the
    earth). In less metaphorical terms, the shared protocol that brings
    Bitcoin to life simply won’t allow participants in the system to
    write new units into existence after the arbitrary number of 21
    million units is hit.
    
    While credit money systems have that inherent dynamism that comes
    from the constant fluctuations of Issuance, Transfer, and
    Redemption, the Bitcoin system isn’t very dynamic at all. There
    really isn’t a true Issuance process: rather, the system has a
    machinic formula for spitting out ‘asset only’ tokens that have no
    liability side, which means there’s also no Redemption process. The
    most dynamic part of the system lies in Transfer: the units can be
    transferred around, but there’s no leeway to push more out or pull
    more in if there are changes in the level of ‘Layer 0’ production
    going on in the economy. In other words, there’s no such thing as
    discretionary Bitcoin ‘monetary policy’. That, of course, is part of
    the whole point, but it means the system is incredibly rigid, and -
    despite the rhetoric of fairness - also has some pretty horrendous
    problems with inequality. There’s a lot of dark fuckery that goes on
    in the fiat system, but it certainly expands with our population,
    whereas a disproportionate amount of the Bitcoin supply arbitrarily
    lies in the hands of a few thousand random early adopters. Consider
    the fact that there are almost 8 billion people on the earth right
    now - not including future generations - and yet the 21 million
    possible Bitcoin units were being given out in 50 token chunks to
    people who happened to be around in 2009 with the expertise,
    capital, equipment and peer groups to exploit it.
    
    To justify the massively unequal initial distribution, many Bitcoin
    proponents rely upon dubious ideological positions (like claiming
    that the early users are being rewarded for being bold risk-takers)
    and semantic trickery, noting that there’s no problem in running
    short on units because a bitcoin can be split into smaller
    increments like Satoshis. It’s somewhat like noting that a tonne of
    gold can be split into 1,000,000 grams, without asking who owns the
    tonne of gold. So, one day the big holders of Bitcoin (people like
    Michael Saylor and Elon Musk) will be old, and future generations
    will have to wrest small fragments of Satoshis out of their wrinkled
    hands, a process that would presumably give those ‘whales’ an
    ability to extract huge amounts of labour from them in return. Given
    that most of these big holders basically did very little labour to
    get the original distribution, this is extremely problematic.
    
    Even the decentralization claim starts to look a lot more dodgy when
    you notice that the style of decentralization promoted in
    traditional crypto-token systems is also designed to make the
    systems (theoretically) unchangeable. There was - at least initially
    - a rejection of human governance processes, which were seen as
    being corrupt, but that required the crypto-token movement to have
    an alternative account of how change could ever take place. This in
    turn was supplied by a libertarian concept of a market in
    pre-programmed systems (if I was being tongue-in-cheek, I might call
    it a ‘market in pre-programmed star explosions’). In much
    free-market ideology, the political act of voicing your concerns
    (‘voice’) is held in lower esteem that simply exiting a system you
    don’t like (‘exit’) and buying into another system, or starting your
    own system (this latter viewpoint is especially strong among people
    immersed in startup culture). For example, if you complain about
    Google screwing the world, some will tell you to stop whining and
    just go start your own search engine, as if each person had ten
    years, billions in capital, cutting-edge expertise, and massive
    market power to dislodge something that’s become unavoidable
    entrenched infrastructure in our society. This mindset was
    transferred to Bitcoin: rather than offering a governance process
    for changing it, you were told that if you don’t like it you could
    just fork off and start a different one. It superficially sounds
    appealing - and certainly lots of people made windfall profits by
    cloning the system and pushing out new tokens to be sold - but it’s
    politically vacuous, ineffective and unsatisfactory.
    
    I could go into all the other problems of the Bitcoin system, like
    the incredibly energy-inefficient mode by which it’s produced, but
    by far the biggest issue is that it simply fails as money. Fiat
    money can run circles around Bitcoin because of its flexibility and
    dynamism, which means - like gold - Bitcoin tokens have simply
    become another commodity priced in fiat money on a fiat money
    market. This is why many people have become rich in dollars by
    speculating on crypto-tokens.
    
    Furthermore, all the supposedly money-like elements of Bitcoin (for
    example, the fact that it can be exchanged for goods) can be easily
    explained with the concept of countertrade, which is something I
    bang on a lot about. Basically, the tokens have a primary and a
    secondary life. In their primary life, they are collectible objects
    that get a monetary price on the dollar market through speculation.
    That monetary price in turn gives them a secondary life as a
    countertrade object. Countertrade is the act of using something’s
    monetary price as a guide to deciding how much of it to exchange for
    something else that has a monetary price. You can in fact do
    countertrade with any object in a monetary market - including bread
    loaves, headphones, and sheets of plastic wrap - but normally it’s a
    clunky process. What’s unique about limited edition crypto-tokens
    like Bitcoin is that they are highly countertradeable because they
    are digital and easily transferable. Sending bitcoins to someone
    superficially feels like a ‘payment’, especially because the tokens
    have monetary imagery pasted all over them, but when you hand
    bitcoin over for a surf lesson at Bitcoin Beach in El Salvador,
    you’re actually paying with the token’s US dollar resale price.
    
    This is a horrifying thought to many Bitcoiners, who prefer to
    remain in a state of denial about that, but - once you get Zen about
    it - it becomes obvious that Bitcoin doesn’t compete with the
    mainstream system, but rather rides on top of it. Unfortunately, in
    order to market this countertradeable collectible, all the promoters
    have to big it up as a kind of US dollar competitor, and in the
    process trojan horse a lot of conservative monetary ideology into
    the minds of idealistic teenagers (which I view as a pretty bad case
    of collateral damage).
    
    I don’t critique Bitcoin with malice. In fact, there’s an innocence
    in many parts of the crypto scene, with a longing for predictability
    in an unpredictable world. But it’s this very dogmatic insistence on
    a rigid system in a dynamic world that’s the problem. The standard
    monetary system doesn’t run away from Bitcoin. Rather it rushes
    towards it to engulf it, seeing it as just another thing to be
    traded. Bitcoin’s attempt to emulate a commodity is precisely why
    it’s so easy to co-opt. You don’t fight a giant saltwater shark by
    sending a small freshwater crocodile into the ocean after it.
    
    Perhaps that’s an unfair metaphor. From one angle, Bitcoin’s
    co-optability is part of its strength. In getting swallowed by
    standard capitalism, Bitcoin has managed to fuse itself into the
    system, and as it gets metabolised it comes to offer some
    interesting new routes to exchange via digital countertrade. That’s
    a type of success, but it’s far from the vision of replacing the
    monetary system.
    
    Because the general public defaults towards having a commodity
    orientation to money, they are susceptible to believing straw man
    accounts of the actual monetary system, and this gives space to
    opportunists to offer straw man alternatives. Many big influencers
    in the Bitcoin - and broader crypto - scene have taken on this role,
    and have (arguably) channeled talent and public attention away from
    truly positive currency innovation, and into a largely
    counterproductive mosh-pit of speculation. These influencers now
    have large amounts of money and reputation that depend on them
    perpetuating the various forms of contradictory double-think that
    plague their systems, and a priesthood of crypto intellectuals have
    been enrolled to patch up the dissonance. They make almost
    theological arguments to try show why dollar-priced tokens are a
    competitor to the dollar, or why once it reaches a certain monetary
    price Bitcoin will somehow transform into being the monetary system,
    or why really it’s the dollar that’s priced in Bitcoin, not vice
    versa (the monetary equivalent of arguing that it’s actually the
    tornado that flies around the kite).

Many of these issues are also not unique to Bitcoin. They plague the crypto-token sector more generally, so let’s get real: there’s a lot of lovely and bright people here wasting energy and time following dead-end visions of money. This is why it’s imperative to find positive new ways to channel it.

    0) SYNTHESIS
    The dynamic decentralization of the credit commons
    
    If the original crypto-token culture sought to attack two components
    of mainstream fiat, a synthesis might be achieved by attacking only
    one. What if we kept the dynamism of credit money, but combined it
    with a (modified) version of crypto decentralization? The mainstream
    system pulsates, expanding and contracting, but has a stacked
    hierarchy of players. You can imagine them on a vertical plane
    rising above us, but what if we were to pull that down to earth,
    flatten it, and aim for a pulsating system without the hierarchy?
    
    To do this requires a new imaginative leap. One of the hardest
    things for most people to grasp is that we only experience the Asset
    Side of Money, and really only think of that side in terms of
    Transfer. We’re money users, rather than money issuers, and we
    mostly just transfer money units that were created by big
    institutions somewhere far away. We never experience ourselves
    creating money by pushing it out through Issuance, or destroying it
    by pulling it back in through Redemption. Most of us have never
    taken a peek behind the curtain to see the Liability Side of Money,
    and even fewer have experienced what’s it’s like to be active on
    that side.
    
    In fact, some of the only people that have direct experience of that
    come from a small yet ancient tradition of alternative currency that
    pre-dates crypto by a very long time, and which also comes from a
    much older tradition of decentralization. Remember that
    ‘decentralization’ originally meant breaking a large
    distantly-controlled system into many smaller locally-controlled
    systems. This ethos is core to many anarchist, localist, and
    mutualist groups that have historically believed in peoples’ ability
    to locally self-organise in the peripheries, in the shadows of the
    towering central institutions of mainstream capitalism. It’s from
    this tradition that mutual credit systems, and their cousins -
    timebanks and LETS (local exchange trading schemes) - emerge.
    
    Mutual credit is a simple, yet profound, alternative money system.
    Here’s how it works. You get a group of people together, set up a
    database between them, and allow them (or empower them) to pay each
    other by promise. ‘Paying by promise’ means one person can get
    something real from another person by promising to give them
    something real later. Essentially, they issue an IOU. When they do
    this, it’s recorded on the database, which keeps track of who has
    issued promises, and who has accumulated them. Everyone starts on
    zero, and if you issue a promise to someone to get something real,
    you go below zero, while the other goes above zero, their positive
    credits mirroring your negative credits. That’s an Issuance process,
    but the person with the positive credits can come back to claim
    stuff from you, which is a Redemption process that can take you both
    back to zero. To make it more sophisticated, you can allow Transfer,
    so that the IOUs can be moved around between the members, allowing
    people to accumulate IOUs that weren’t originally issued to them.
    Finally, you can set limits on how many promises people can issue,
    to prevent, for example, a person issuing a tonne of IOUs to get a
    tonne of stuff before running away.
    
    If you’ve ever gone below zero on one of these systems, you’re one
    of the few people in this world to have experienced the process of
    being a money issuer. In a mutual credit system, money isn’t
    something that comes from a mysterious source far away, and it’s not
    something you must try grab and hoard like a squirrel grabbing an
    acorn. No, money emanates from you at the point at which you dare to
    issue a promise that will push you onto its liability side. You’ll
    also experience the process of destroying it, as someone with a
    positive balance comes back to demand something from you. Both sides
    are always in a dance with the zero line, fluctuating from the
    positive to the negative as they move in and out of obligation to
    each other by getting real things from each other.
    
    There are two big things we can say about traditional mutual credit
    systems (and their relatives). Firstly, they tend to remain small.
    They are set up against the backdrop of the much more powerful fiat
    system, and they tend to only succeed when they find ways to
    interface with that system, or to not directly compete with it. This
    is why people often refer to these as ‘complementary currency’
    systems. Many are run by volunteer groups who easily become burned
    out, or who see their work as a part-time community project rather
    than a full-time political mission. Some, like Sardex in Sardinia,
    have at times reached impressive scale, but many systems of
    self-issued and locally circulating credits (often denominated in
    all manner of idiosyncratic units) have stagnated or faded away.
    Some, like Eli Gothill’s Punkmoney system for issuing IOUs on
    Twitter, were designed to be short-term experiments. Needless to
    say, there’s been perennial attempts to link these systems into
    federations where they can get strength in numbers: see, for
    example, the Community Exchange System of former South African
    political prisoner and escapee Tim Jenkin (played by Daniel
    Radcliffe in the film Escape from Pretoria).
    
    Secondly, from an intellectual perspective, the people who get
    involved in these systems tend to build a much stronger
    understanding of how the actual monetary system works. This is
    because small-scale mutual credit systems are built from similar
    principles - or primitives - to large-scale credit money systems.
    They also tend to imprint the highly unorthodox, yet incredibly
    useful, credit orientation to money into the minds of their users. A
    credit orientation to money is a mental model that sees money not as
    a commodity (either real or fictitious), but rather as an active
    accounting system powered by IOUs that bind people together into
    inescapable interdependent meshes.
    
    As I discussed in Money Through the Eyes of Mowgli, the commodity
    orientation to money requires you to believe that people need to be
    induced into trade by dangling something of value in front of them.
    Credit thinking, by contrast, recognises that people are tied into
    non-optional interdependent networks, within which they’ll often
    have to ‘go negative’ to get access to the goods they need to
    survive before they can produce anything. Picture your lungs telling
    your heart that before it can oxygenate the blood required by the
    heart’s tissues, it needs energy delivered to its tissues via a pump
    of the heart. At a systemic level, there’s no fundamental separation
    between these interdependent parts in your body, and there’s no need
    for one part to ‘convince’ the other to help through some kind of
    incentive system. You can choose to imagine that your lungs and
    heart are ‘trading’ with each other, but it’s actually an
    inescapable form of cooperation. Once you start to see whole
    economies like this, it lowers the need to generate commodity
    mythologies about money.
    
    Crucially, credit thinking leads to a vision of money as being a
    kind of nervous system, rather than a circulatory system, and the
    key primordial nervous impulse being sent along that system - to
    create its grooves - is the act of ‘paying by promise’. In our
    modern system, the issuance of these impulses is completely
    dominated by mega institutions, but there’s nothing to say that
    alternative versions of the same principle can’t be achieved,
    especially with the advent of new distributed technology
    architectures.
    
    One subtle yet crucial nuance to internalise is that a credit
    orientation to money is a way of thinking about money, rather than a
    specific prescription or specification for its exact form. In
    general, what we call ‘credit money’ is an IOU that’s either printed
    onto physical objects or written down in ledgers, but credit money
    principles can actually be hidden in the background of many supposed
    cases of ‘commodity money’.
    
    Indeed, while most people use a commodity orientation to think about
    credit money systems like fiat, you can also do the opposite and
    apply a credit orientation to think about a commodity system like
    gold. Once you do that, the history of money comes alive. This is
    because commodity thinking leads you to imagine a world of inert
    objects moved by independent people, whereas credit thinking
    requires you to imagine the world as an elaborate mesh of people
    keeping accounts of webs of promises, relations and obligations,
    sometimes using fetishised commodity forms like the Rai stones on
    the island of Yap.
    
    This is where our synthesis really starts to take off. Older
    pre-crypto alternative currency movements carry with them a much
    deeper understanding of money, and also carry the seeds of powerful
    new currency designs, but they’re often too polite. They don’t
    design systems that encourage speculation, and as a result have had
    their voices drowned out by the noise of crypto maximalists who pump
    out pseudo-commodity tokens like machine gun bullets. The crypto
    clamour, though, has drawn in many very talented and idealistic
    people, and there’s a big opportunity to redirect their latent
    creative energy and technical prowess towards new hybrids. What if
    the best of crypto could be fused with the best of credit thinking?
    What if crypto could shed its rigid monetary theory, and what if
    mutual credit systems could shed their small-scale backwater
    feeling?
    
    At the intersection of thesis and antithesis lies something very
    important, but by default this synthesis remains fuzzy because it
    needs to be worked out. Here’s a general direction of travel though.
    Imagine a ‘credit commons’ (a term coined by mutual credit pioneer
    Thomas Greco, and developed further by protocol designer Matthew
    Slater), a world in which horizontal networks of people-powered
    credit money link together to present a dynamic counterbalance to
    hierarchical credit money. In contrast to standard crypto, which is
    historically restricted to rigid transfers of rigid tokens with
    metallic imagery, these ‘paying by promise’ systems require us to
    move seamlessly between the positions of money issuer, money
    redeemer and money transferrer. They strive to be far more organic
    and embedded in actual communities, morphing in resonance with the
    underlying people who use them. New forms like rippling credit (or
    mesh credit) allow IOUs to ripple like dominoes through networks of
    people, perhaps even hopping great distances through six degrees of
    separation.
    
    A growing community of innovators is starting to gather together
    under a vision of forming not only a credit commons, but to build
    what Informal Systems CEO Ethan Buchman likes to call ‘CoFi’ -
    collaborative finance. If you’d like a peek into some examples of
    the new groups that embody this ethos, check out Resource Network,
    Trustlines, Sikoba, Circles, Mutual Credit Services and Grassroots
    Economics. I plan to go into depth on these and other projects in
    future episodes of my Unboxing Alternative Currency series for paid
    subscribers, but if you want to meet people working on this stuff, I
    also recommend a visit to the Crypto Commons Hub. Their events are a
    lot of fun.
    
    Let’s close with two final considerations.
    
    Unfreezing Decentralization
    
    The original style of decentralization in crypto is purposefully
    designed to ‘freeze’ the systems in place. Rather than having human
    governance processes, they rely upon various technologies and
    methodologies (like game theory and crypto-economics) to
    dis-incentivise bad actors from coordinating. They aim for
    large-scale digital systems that default to a pre-programmed set of
    rules that theoretically protect the average user, but often do so
    at the expense of any kind of dynamism or political voice for that
    user. Sometimes they try freeze into place elaborate automated
    methods to artificially replicate dynamism and voice, and that’s an
    authentically interesting technical challenge for engineers, but it
    gets a whole lot more interesting when that mentality gets combined
    with - or offset by - an in-depth appreciation and focus on real
    human communities at a local scale (who really don’t operate like
    algorithms). One of the biggest cultural tasks is to bring the
    wealth of community-focused knowledge possessed by mutual credit
    practitioners into the crypto sector, whilst finding a positive
    outlet for the technical prowess of the techies: if done right, we
    might end up with more dynamic forms of liquid decentralization,
    with local systems riding on global architectures, using
    combinations of different governance systems for different scales of
    decisions.
    
    Learning to love zero, and below
    
    Commodity thinking imagines money as positive units of some
    ‘substance of value’, but credit thinking recognises that the
    substance of value in an economy is other people, and that holding a
    claim on those people is only a reality if they have something to
    give. Your positive unit is an asset to you, but to other people it
    represents a claim upon them. Your 1 is their -1, and, on average, a
    healthy state of interdependence seeks to always fluctuate around 0.
    
    This is a highly stylised account, but one of the most profound
    things that emerges from this is the realisation that if your system
    only consists of a bunch of ‘asset only’ tokens with positive
    numbers - e.g. 21 million units of Bitcoin - there isn’t actually 21
    million units of money in the system. Rather, what you’ve attempted
    to do is to rename 0 - the state of interdependent equilibrium -
    with a positive number.
    
    Here’s a simpler example: If you have a 1000 interdependent people
    and you give them all 1000 units to start with, it’s pretty much the
    same as giving them nothing. Money is only created when one of them
    enters into a state of obligation to another: when 0 is transformed
    into -1 and 1. If you’ve simply renamed the starting point as
    ‘1000’, then it’s only when one person goes to 999 and another goes
    to 1001 that 1 unit of money has been created.
    
    That takes a while for most people to get their heads around, but
    the point is this: the original crypto systems suffer from the fact
    that they were built to push out tokens with positive numbers,
    without any liability side. That may superficially make them look
    like money (after all, most of us normally only see the positive
    number side of money), but if you take a systemic viewpoint and
    imagine a scenario where traditional crypto-tokens actually became a
    money system (rather than countertradable collectibles), our economy
    would have to organically rebase the asset-only tokens to give them
    a liability side. This is an example of using a credit orientation
    to think about a supposed commodity money.
    
    The big challenge for building authentically interesting alternative
    money is this. Because most of us are so used to associating money
    with positive numbers, we remain on the ‘receiving end’ of money.
    It’s only when we learn to love zero, and below, that we take that
    step towards claiming the issuing end.

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