Freicoin: a P2P digital currency delivering freedom from usury
freico.in
freico.in
A few particularly ridiculous notions from the about page:
- that money-hoarding is the primary cause of wealth disparity
- that the role of money as both a savings instrument and a transactional instrument is problematic and leads to financial crises
- that demurrage would benefit working class people
If governments adopted a currency like this (or if it otherwise became forced upon us), banks or other institutions would issue alternatives and people would flock to them.
- that money-hoarding is the primary cause of wealth disparity
There are many causes of wealth disparity. But consider what factors are leading to wealthy people getting wealthier: technological advances, leveraged financial speculation, high education costs, corporate subsidies. And then consider what factors are leading to working class people not accelerating their wealth at the same rate: high medical costs, skill irrelevancy, overexposure to credit. Money sitting in banks is not causing the disparity. If anything, people using money in the economy in order to invest is causing much of the disparity.
- that the role of money as both a savings instrument and a transactional instrument is problematic and leads to financial crises
The durability and reliability of a particular kind of money is the reason people use it for transactions. This also makes it useful for storing value. Why would this dual use lead to financial crises? Some of the greatest financial crises are actually related to money becoming un-savable (due to inflation).
- that demurrage would benefit working class people
Making money more complex would not happen in a vacum. In terms of storing wealth, who would really be in a position to protecting and growing their wealth in an economy running on a financial complexity like demurrage? Educated elites. By default, the little savings that working class people could set aside would dwindle, and they would begin to place trust in more reliable means of wealth storage like hoarded commodities. Of course, savings instruments could also be made available to working class people, but educated elites would still hold the upper-hand.
[1] Quoting at length from:
http://bionicmosquito.blogspot.co.uk/2012/11/more-on-worgl-v...
"So, would this be sustainable? If not, why not?
I believe the activity would not have been sustainable. I believe that once the taxes in arrears were completely paid and once the people paid in advance to the degree they felt sufficient (one year in advance? Five years in advance? I don’t know, but at some point they would stop), the scrip would lose a key part of its attractiveness.
One way a government can ensure the demand for its currency is to demand (or accept) that taxes are paid in the subject currency. The other way is through monopoly legal tender laws. Wörgl obviously could not legislate or enforce monopoly legal tender, so the demand for the scrip could certainly be attributed to the need to pay taxes.
The demand could certainly not be attributed to the demurrage – not when there was the national schilling available – paying interest, and at a one-for-one exchange (setting aside the conversion fee).
Once this tax need was satisfied, what would happen to the desirability of a depreciating-value scrip vs. currency that did not come with a 1% monthly penalty? The answer to me is clear, not that we have to agree. I suspect the depreciating scrip would begin trading at a discount, and sooner than later would be regularly returned to the bank for the national currency, even with the 2% loss. Two percent might be too big a loss when one owes taxes and can satisfy these taxes with the depreciating scrip at full face value. However, when there is no benefit to holding a depreciating currency to the national one, I suspect many would eat the one-time 2% charge to avoid paying the recurring 1% charge.
In my opinion, this is exactly the situation that was immediately in front of Wörgl when the national government put an end to the experiment. Depending on which estimate of taxes in arrears used (see the discrepancy as pointed out in my first article), within one month, but not more than six, all taxes in arrears would have been paid. At that point, I suspect demand for the scrip would have fallen – resulting in the exchange for national currency that I described above."
I'm too lazy to look it up atm (did it some years ago), but if my memory was wrong, perhaps I'll look it up again. I do remember thinking back then that there were other aspects besides the demurring to consider in Worgl.
Edit: I just read on Wikipedia, so the city didn't have any more money and they printed their own money which they used to pay people. I don't see the conclusive evidence that Freigeld was the important aspect of it.
Present goods really are worth more than future goods, and interest is just a reflection of that difference.
Anybody who really "value[s] present and future holdings equally" is advised to try eating next year's crops this year.
However both inflationary (USD) and deflationary (BTC) currencies force an external influence on our time valuations. With inflation I'd rather buy things now if possible because the price could go up at any time, whereas deflation results in the opposite: exchanges are delayed as you can get a better price in the future.
Demurrage allows interest rates to drop to zero, which eliminates the influence monetary policy has on time preference, allowing me to be free to choose when and how much I buy without penalty.
We did it!
I recommend reading David Graeber's "Debt: The First 5,000 Years". IIRC it has a good chapter on demurrage, as well as covering many historical currencies which by accident of design were similar to modern demurrage currency in operation.
By adding a component of inflation, you increase exchanges.
Let's just get rid of the cap and keep things simple.
edit: Of course from a micro-economic perspective this doesn't make sense unless it was forced onto us by a government as a de facto standard.
If you notice that your money is worth more tomorrow, you are going to save your money and spend it tomorrow. This is true in situations of "deflation".
This sounds good to you, because all you have to do is wait and you'll be better off tomorrow. You don't even have to work to get more stuff.
However, you aren't the only person with this idea. Everyone saves their money in the bank. The people who sell goods and services, sell fewer goods, and maybe go out of business.
The economy slows down.
On the other side, if you design an economy so that inflation exists. People want to spend because in the future their money will be worth (a little bit) less.
Money flows around a lot. People who sells things make money and stay in business. People have jobs and the money is still worth something.
Remember money isn't worth something, trading good fluidly and efficiently is worth something. Money lets us do that. So a currency that lets us do that is good.
If anyone knows more about the situation, please add it. I don't know any economists so this story is probably pretty incomplete.
See
www.slate.com/articles/life/holidays/2004/12/what_i_like_about_scrooge.html
I suspect few rich people keep their riches in cash.
As this hasn't happened, it may be worth considering the effects of time preference in both examples.
(Of course the macroeconomic recession-proof nature of demurrage currency makes it desirable for merchants as well, and the zero-interest loans are a boon for entrepreneurship. I'm just saying even if you're skeptical, that shouldn't be a barrier to acceptance.)
When we say zero-interest, we're talking about basic interest/liquidity premium: the interest which is attached to loans simply because of the opportunity cost of lending, not the risk taken on.
Even if you are correct and the existence of gold is detrimental to the economy, I don't see how you can prevent the effects of an existing devaluating currency/commodity by creating a new inflating one.
5% of all coins disappear per year. (BTW: Gesell's Wörgl had a much much higher demurrage.) I read this would be equal to the block reward which I guess is the asymptotic value and not the truth from day one (constant block reward as opposed to halfing block reward like bitcoin with 5% demurrage will lead to an equilibrium).
Proof of work: Approximately the amount of money goes into mining that newly mined coins are worth. If the client shows me that I have less in my wallet every day, the block reward is simply worth more. The proposed system means that 5% of the freicoin's money reserve is spent on mining per year. Today's banks most likely burn the same order of magnitude of world's money supply. Hmm, might work but it's a waste of resources to burn 5% of the world economy to keep book of transactions.
Proof of stake: As mining might get excessively expensive if the value of Ƀ rises faster than the reward halves, proof of stake is an option to bring this waste of resources to an end. In Freicoin this would directly reverse the demurrage.
I assume the developers of Freicoin picked 5% exactly because of these issues. Else 25% would be much more reasonable. 5% is the average weekly volatility of bitcoin and was the average daily volatility last year. $ vs € have this volatility yearly. Calling this demurrage is a joke.
[My approach was to have - high - demurrage be cashed out evenly to people as a basic income. Only problem is that you would have to qualify as a natural person to get such a cash-out address which would lead to very very schizophrenic scammers or to total control if governments pick up the idea.]
5% of all coins disappear per year. (BTW: Gesell's Wörgl had a much much higher demurrage.) I read this would be equal to the block reward which I guess is the asymptotic value and not the truth from day one (constant block reward as opposed to halfing block reward like bitcoin with 5% demurrage will lead to an equilibrium).
The initial distribution is split 20% to miners and 80% through foundation grants via an open, transparent, competitive selection process. The 20% miner subsidy started at approximately ~255frc per block, and linearly decreases to ~95frc per block over 3 years of block time, at which point it will perpetually sustain a monetary base of 100MM freicoins.
Proof of work: Approximately the amount of money goes into mining that newly mined coins are worth. If the client shows me that I have less in my wallet every day, the block reward is simply worth more. The proposed system means that 5% of the freicoin's money reserve is spent on mining per year. Today's banks most likely burn the same order of magnitude of world's money supply. Hmm, might work but it's a waste of resources to burn 5% of the world economy to keep book of transactions.
It is excessive in the long-run; the 5% value was chosen for other reasons. However we have ideas for fixing this, but would require a hard-fork (and therefore community acceptance).
Proof of stake: As mining might get excessively expensive if the value of Ƀ rises faster than the reward halves, proof of stake is an option to bring this waste of resources to an end. In Freicoin this would directly reverse the demurrage.
And here you get to the meat of the issue, although I'm not sure what you mean by "directly reversing the demurrage". With proof-of-stake along the lines of Meni Rosenfeld's proposal (not PPCoin), proof-of-stake voting could be used by a plurality of stakeholders to mandate that a portion of the perpetual subsidy go to groups other than the miners. On the freicoin.org forums we've put together an outline of a proof-of-stake proposal nicknamed "republicoin" that would resemble parliamentarian system of proxy-voting for parties which enter majority-vote governments giving them to right to claim budgetary control over a portion of the perpetual subsidy, the amount of which would be negotiated with the proof-of-work voters. Government-by-protocol, if you will.
This would obviously represent a hard fork. There are a lot of issues to sort out first, which is why it's been shelved for the moment.
Baby steps :)
I assume the developers of Freicoin picked 5% exactly because of these issues. Else 25% would be much more reasonable. 5% is the average weekly volatility of bitcoin and was the average daily volatility last year. $ vs € have this volatility yearly. Calling this demurrage is a joke.
To be pedantic, it's closer to 4.89% per annum (1-20 per block), but 4-5% was the design goal. The reason has to do with interest rates, specifically what Gesell calls "basic interest" and what modern economists call the "liquidity premium." The reasons why demurrage should equal the liquidity premium of money is outlined on our about page and covered in detail in Gesell's manuscript, Natural Economic Order (http://www.ces.org.za/docs/Gesell/en/neo/index.htm).
(I am not sure if I could make a sustainable business out of it, or even a fundable business, but a chaumian blinded digital token system (software and then multiple hosting options) where people got to then run their own arbitrary currencies, with a lot of them choosing to do commodity or equity/debt currencies, would be a pretty awesome thing. It would probably cost $2-5mm to do, though, and while I think you could avoid most legal challenges by separating out the software dev vs. hosting mints vs. hosting exchange vs. currency underwriting vs. marketing vs. wallets vs. merchant services vs. end users, I'm not sure how you could realistically make money doing it.)
I'd bet Vangaurd or another major IB has a product similar to what you're looking for.
Commodities futures are far more liquid than bitcoin, freicoin, etc. USD has far less inflationary risk than bitcoin, etc.
Economies don't run on math, they run on confidence, there is little confidence in bitcoin/freicoin. That's the quintessential problem, like it or not, far more people have confidence in the $5 wrench (fiat) than computational complexity (cryptography).
The exchange itself doesn't need to be particularly trusted; you could do a transaction either instantaneous and of low value, or some more complex protocol. There's also no inherent monopoly for the exchange, although there's a natural monopoly for any given pair of currencies.
Assuming everything is automated and low friction, you could be in and out of a given currency to make a transaction pretty fast, so arbitrarily short risk. You could split transactions up into smaller transactions so arbitrarily low financial risk per transaction.
In your described system, the issuers still face the fundamental problem of having to have a good reputation, but being unable to obtain this reputation in the standard way (real-world identity in a powerful "rule of law" jurisdiction), lest the delegator 'discourage' them from facilitating anonymous transactions. Multiple competing issuers do not help the situation due to the catastrophic failure mode of each - bank run and worthless currency.
Creating a widespread reputation that isn't derived from real-world identity is the problem that bitcoin is attempting to solve, which is why the novel part of it is solving a coordination problem and not a problem from cryptography.
I realize that would be harder to design but isnt a fixed depreciation just a hacky band aid solution compared to a properly designed "control system"?
The ideal target variable might be: what % of existing money that was transacted per month perhaps? Make 50% the target and adjust the depreciation to track this target. Then we get into a debate about that 50% number, but at least we are getting closer to measuring the effect we want.
> Freicoin's parameters are carefully chosen to eliminate the basic interest component of investments, called the liquidity premium by economists
Liquidity is a real thing, not a product of currency "parameters" (whatever that means). I prefer to hold dollars over gold because I can go to McDonalds and buy a cheeseburger with dollars, but I cant do that with gold. Thus, if someone was like, would you rather have a dollar bill, or $1.01 worth of a gold bar, most people would probably say the dollar bill. If you wanted to eliminate the liquidity premium of a currency, you would have make the currency super illiquid. (Ironically, they've already achieved this because nobody accepts Freicoin right now)
> Usurious non-zero basic interest distorts the free market, incentivises poisonous greed, excess, and short-term thinking, and perpetuates a vicious cycle of boom/bust recessions
No they don't. Maybe if this "argument" had some reasons behind it, I could refute it.
> When business is conducted in Freicoin, participants value present and future holdings equally, and favor sustainable processes.
This sounds pretty magical. Do YOU value present and future holdings equally? Would you rather that I give you a iPhone now, or in 1 year? Okay, now let's say that iPhone is denominated in Freicoin, what now?
> Separation of money's roles as store-of-value and medium-of-exchange allows money to flow when it is needed, in good times and bad
Is money flow an issue? In the modern era, has the quantity of cash available ever deterred anyone from spending money?
In fact, it is possible to make a hosted bitcoin wallet, which can be integrated with an exchange, and users can pay in any cryptocurrency the merchant requests.
So I believe that the more different cryptocurrencies, the better.
If your incentive is to just get rid of your money because of the inherent penalty, aren't you tempted to, say, buy overpriced houses, to use a recent example ?
With Freicoin we're talking about counter-balancing that liquidity premium (which, historically, has always been around 5%), thereby eliminating basic interest and keeping price levels stable.
There's a small chance that you might have connected to a bad peer and therefore have a limited view of the network. Try restarting the client if the block chain doesn't start downloading within 30 seconds.
if you want i can file a bug report? if not, no problem (i was just curious, don't have any plans to use it, particularly since it doesn't contain a miner so i'd need to buy something just to play around).
There's a couple of faucets popping up where you can get some free starter coins: Here's one: http://endlessfreico.in