Banking On An Altcoin For A Free Vermont
As Bill Black former investigator for the Savings Loan scandal in the ’80′s remarked in a recent interview on Ecuador and digital currencies, “If you don’t have your own currency you will lose sovereign powers.” It has become undeniably clear today that history is a testimony to the loss of political independence in one nation after another with the adoption of a single debt currency monopoly. The Euro being the most recent epic failure that has pushed countries to the breaking point through the forced adoption of austerity measures, draining the remaining wealth to satisfy the rapacious demands of the predatory finance sector. And as Friedrich Hayek has stated, “All history contradicts the belief that governments have given us a safer money than we would have had without their claiming an exclusive right to issue it.”
Political autonomy requires a fair medium of exchange . Control of the exchange mechanism gives you the power to derail independence movements, Scotland being the most recent illustration of how they were cowered into believing that without the Pound Sterling they will be back in the dark ages. The European Monetary Union stripped their vassal state members of their sovereign national currencies in much the same manner as they were stripped from the post Colonial States in the U.S. by the legal tender laws in the Constitution. Empires cannot tolerate a multi-polar exchange system, it is after all an anathema.
With 250 years of currency tyranny behind us and the coming demise of dollar hegemony, we are beginning to see some serious push-back here within national governments, most notably Ecuador and also in the private sector with the implementation of national altcoins. This article examines some of the implications of this nascent movement and the role of a Vermont altcoin within this context.
Altcoins are cryptocurrencies other then bitcoin. They utilize blockchain technology that allows for a decentralized exchange system in the form of a public distributed ledger that records transactions, as opposed to a central repository of a bank that stores transactions. The blockchain stores all the transactions that have ever been executed and the blocks can be thought of as individual bank statements. Unlike a bank that acts as a sole repository for the transactions, the blockchain transactions are decentralized across ‘nodes’. This allows for verification of payment within a system that can have very low, or no transaction costs, opening up a number of possibilities here with decentralized banks and exchanges.
Banking has always been associated with a fiat national currency in a given country to ensure a monopolistic control by the exchange system. Until recently the monopoly of the exchange system was guaranteed due to high entry costs to join the club. Competing with the club, not even a remote possibility until the arrival of altcoins.
In much the same manner that the internet drastically affected the entry barriers to controlled media and dozens of other sectors, the blockchain will affect the barriers that have protected the monopolies of currency and exchange systems. And just as it was difficult in the initial stages of internet development to envision what it would look like in 20 years, the same can be said for blockchain as a new platform for exchange. Like the internet it will be a highly disruptive phenomena that will most likely take a least a generation to reach maturity where will will be able to recognize its full impact.
Centralized control of the exchange system with a single currency as the exchange medium has provided a highly efficient means to conduct day to day business for all of us. High efficiency has been traded for low diversity and high instability. Resiliency is perceived to be a phenomena that characterizes ecosystems not financial systems. This results in greater dependence on micro management (Fed interest rate adjustments) that have less and less overall impact as the exponential function of interest nears criticality and the brittle nature of the mono-currency system is finally seen for what it is…unsustainable.
Resiliency is the ability of a of a system to manage stress to adapt to the black swan events, the unforeseen shocks that are a part of the ebb and flow of complex systems. High diversity yields better resiliency, that is if the potato crop fails you can eat beans, corn and squash. If the dollar falters you can only hope that somebody, somewhere has a plan. Sure. Like GMO food sent to starving nations, GMO money gets sent to indebted nations with a lot of strings attached.
Vermont exhibits a fairly high diversity in its food system, but very low diversity in its exchange system and is therefore susceptible to disruption and the migratory black swans. Systemic stress on the dollar due to its loss of global reserve status makes the need for a parallel currency in the form of a altcoin more viable.
Exchange is the basis of society and altcoins may have the potential to increase resiliency, to democratize both the medium of exchange and the underlying system itself. A parallel currency can have many of the characteristics of the dominant money in a given nation or region, including being accepted for taxes and fees as well as the ability to extend credit to private and public projects.
One of the more notable examples here is the Guernsey pound in the Channel Islands that moves in tandem with the British pound providing Guernsey with a parallel currency system. It is noteworthy here that Guernsey has no public debt, a very low unemployment rate, a flat tax and a high standard of living. Prior to Guernsey’s initial experiment with a parallel currency in the early 19th century, Vermont had embarked on a similar experiment that ended with statehood. Saddled today with a mono-currency, Vermont has a high property/school tax rate and is rated as one of the top ten most expensive states to live in the country.
Fiat Money, Altcoins And Complementary Currencies
One of the problems that has always accompanied money issuance whether by a king or a commoner is acceptance. The king can rule by Fiat, I declare! Historically the declamatory proclamation was insufficient to kick start the acceptance of money, the exception being gold and silver coins with their intrinsic value. The king soon discovered that all it took to grease the wheels of commerce was to accept the fiat money back for taxes and fees and the trick was done and thin air money reigned supreme. In the U.S. the Constitution assures this divine right of kings as stated in Article I Section X “No state shall….coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts”.
The commoners unlike the king cannot rule by fiat, and if they can be said to rule at all it is by consensus. Altcoins need consensus, they need to be accepted by a given community be it global or local to kick start their circulation. But acceptance here is problematic. Altcoins and alternative currencies are relatively easy to obtain but difficult to spend, whereas fiat money is east to spend but difficult to obtain. How an altcoin becomes accepted, what gives it value and how it is placed into circulation are all important questions that determine its viability.
Altcoins differ from complementary currencies in a number of ways. Complementary currencies have been used primarily for localized exchange, their verification is centralized and they typically use paper as the exchange medium. They have failed to achieve anything beyond a very local reach and so consequently have had a relatively low impact on the overall economy. Their circulation is limited due to the fact that we don’t produce what we consume anymore making spending more difficult in a local economy. Another problem faced by complementary currencies is their inability to extend credit for business start ups and job creation. The exception here is the Swiss WIR, a cooperative currency in existence since the 1930′s, today with its own bank but now with a focus more on the Swiss Franc then the WIR itself.
Both alt coins and complementary currencies are looking to make a social statement, reminding us that we vote every day with our wallets. But just like the illusion of choice we are given in the two party system that ultimately backs a very similar political agenda, no matter how we choose to spend the U.S. dollar we continue to underwrite the larger agenda of war, competition, greed and scarcity.
All prior forms of currency were dependent upon a central exchange to create,verify, and record the exchange medium; not so anymore. Altcoins are not merely a medium of exchange, but can function as a decentralized digital banking system that can be built into the source code allowing the commoners to code their own economic utopia. The block chain technology will prove highly disruptive to the centuries old model of heirarchical institutionalized control where the bloated and self serving structures are morphed into a more democratized distributed information and power sharing network where the top down corporate monopoly is replaced with a few lines of code.
We have a choice, we can now program altcoins as a sovereign currency or we can continue to be programmed by the financial elite who make no bones about what their goals are with bail ins, asset stripping and enforced austerity measures. But where do we start, what do we program and who is to say that my utopia looks anything at all like yours?
Interest Is A Stealth Bomb
Our current system of exchange is characterized by scarcity, greed and competition. It was not designed to meet the needs of the people that use it, rather it was designed as a wealth redistribution mechanism to move capital from the real economy of labor and production to the fake economy of speculation.
This graph illustrates the vast amount of capital that was moved into the speculative sector in a period from 1974 to 2000. As you can see, the real economy indicated by the thin green line at bottom has been crushed by the speculative economy as jobs and industries were shrunk and predatory finance became the accepted way of doing business. Now one percent control over forty percent of the wealth in the U.S. giving rise to the Occupy Movement and the slogan, “banks got bailed out we got sold out”. The ninety nine percent v. one percent became part of public discourse and the uneasy feeling that something is seriously wrong with this picture.
Interest is not benign, it is a stealth bomb. Interest leads to compound interest and highly unstable exponential growth imperative. Take the simple example of a farm purchase for $500,000 on a 30 year note amortized at 5 percent interest that in affect commits the buyer to replace the value of this farm not once but twice over the 30 year period. Here the interest due on the note is approximately equal to the principal due on the same note. Or put another way, you have use of one farm but paid for two, the second ‘farm’ goes to the creditor. And as the Nobel prize winning chemist turned economist Frederick Soddy correctly observed, “The ruling passion of the age is to convert wealth into debt”.
Multiply this affect over and over again in all sectors of the economy decade after decade and what you get is a speculative economy the size of Mt. Everest that dwarfs everything beneath it. Interest drives the growth imperative that vacuums up vast amounts of labor, goods and materials and consumes these resources like a out of control cancer. It is a bovine growth hormone driven economy where natural production cycles are artificially forced to expand way beyond the ability of producers to supply, and beyond the earth’s ability to sustain this voracious appetite, exhausting finite resources and gang raping one country after the next.
This is the mechanism of wealth extraction that has been hard wired into our current system of exchange. You cannot out run exponential function, and you cannot even begin to talk about a steady state economy until you come to grips with the shadow side of debt based economies and the understanding that nothing is sustainable in this current climate of exchange. It is in this sense that we can begin to see that money is not neutral and that our continued implicit support and participation in this system day after day ensures that wealth will continue to flow toward the speculative sector, jobs will continue to be lost and value will continue to be extracted.
National Alt Coins
Ecuador adopted the US dollar in 2000 as the countries official currency but the days of a single monopolized currency in that country will soon be over. In 2014 the Ecuadorian National Assembly voted to pass a monetary and financial reform law that bans bitcoin and other decentralized currencies in favor of a national digital currency, thereby reducing dependency on the U.S. dollar. This defiant move on Ecuador’s part reflects president Correa’s previous economic policies that repudiated Ecuador’s national debt as odious and succeeded in reducing it by sixty percent.
The introduction of a parallel digital currency into Ecuador’s economy then should come as no big surprise. The benefits of having a internal currency parallel to the dollar (Ecuador is dollarized) may be immense, as well as offer advantages to the unbanked Ecuadorian citizens who do not have checking, savings accounts or credit cards. The primary benefit is a significant reduction Ecuador’s dependency on the US dollar. The Euro strapped countries would do well here to follow Ecuador’s example with a parallel currency maneuver, but it goes without saying this will happen not from the bought and paid for EU governments but from the citizenry that are now subject to one austerity measure after another in those countries.
Ecuador to date is the only country to legislate a stand alone digital currency, but Mexico may not be far behind with Peso Digital. Efforts in other countries Spain (Catalonia), Scotland, Iceland, Ireland and Brazil to name a few are bringing altcoins to market that are being developed in the private sector. It remains to be seen whether any of the long standing problems with debt based economies are addressed as details here with theses altcoins are sketchy and the rush to market appears to override basic planning and developmental issues.
Another significant challenge faced by the nascent national altcoins is speculative volatility. If developers choose to place the currencies on the altcoin exchanges, making them internationally tradeable they run the risk of being pumped and dumped, further marginalizing the developers and their coins and doing little to bolster confidence in the emergent market. However, it can be expected that as the altcoins begin to mature and become built out in their respective regions they will reflect less volatility and will begin to support sustainable jobs and real value creation.
It can be argued that the financial system is the U.S. is a highly efficient web of complicity, counterfeiting and fraud. We are all complicit in the fraud because it is convenient and because the exchange system is monopolized. Credit that the banks extend to borrowers actually belong to the community, but the community itself does not benefit from the credit extension as the interest that is extracted from the borrower goes to the bookkeeper and not the community. That interest must be sourced from the value created by the community as noted in the previous example of having to pay for two farms to have use of one.
Banks function to extend credit, to keep records, store value and to verify counterparty identities. They also create money with the help of the borrower. A blockchain with a crypto-currency can perform all the functions of a bank within a distributed economic ecosystem. The blockchain acts as a public ledger, it can store value and verify counterparty identities. Crypto-currencies also have the potential to create money and can be said to be a new form of digital money that can also be used to extend credit, either at no or very low rates of interest.
Crypto-currencies have the potential to shift the benefits of money creation back to the community as a public good as opposed to private gain, and to right the balance toward value creation, not value extraction. They allow for greater transparency in our agreements around money, credit, interest and debt, and a greater recognition that exchange is the basis of society and therefore must be managed by that society and not by private interests no matter what the scale.
In the crypto-currency sphere, bitcoin has been instrumental in beginning a global conversation around the nature of money, and this is a very good thing; change happens when we raise awareness. However, bitcoin is not an instrument that can address the fundamental problems of our current exchange system, but that is not to say that it will not have a significant impact here. Altcoins on the other hand have much potential to address many of the current issues faced by a imploding debt economy if designed around a utilitarian and not speculative function.
Vcoin, Vermont Coin is a altcoin proposal, a regional medium of exchange for the citizens of Vermont. It is a consensus based currency that is fungible, meaning interchangeable with assets of the same type or class. Vcoin then can be seen to function not merely as a system of exchange but more importantly as a means of underwriting an economy driven by local production. It is a fundamental recognition that the real implications behind the Buy Local campaigns are not just what you buy and where it was grown, or where it was built, but what you buy it with. This is the synergy. This is where whole systems start to function in ways not predicted by the sum of their parts. When you gain control of both production and money creation you then have the ability to work toward self determination in ways that were never possible under the Marxist nightmare of a workers paradise or under the Capitalist dream of a speculative utopia.
It is in this sense that crypto-currencies represent a true bottom up approach to democratize the exchange system. When you put money creation back into the hands of the public where it belongs then many things become possible. This is seigniorage (from Old French seigneuriage, right of the lord to mint money), in its simplest form and historically reserved for kings and private bank monopolies, but no more. If you are thinking that this could become a paradigm shifting sea change that will finally level the playing field when it becomes built into a fully distributed monetary ecosystem, then you are right. But there is a catch, and the catch is this. It requires consensus.
The innovators and early adopters in the altcoin start ups want revolutionary change, expecting over night adoption, but to date this has proven to be nothing but a recipe for epic failure. Iceland’s Aurora Coin is a good example here as is Maza Coin from the Lakota Sioux nation both of which tried to leverage a great idea (sovereign money for a sovereign nation) without first building a cohesive community around the coin.
Vermont however may have a advantage in building out a fully distributed altcoin ecosystem due to its small size and the ability to innovate more cohesively. Vermont has made a firm commitment to food security through the Farm To Plate initiative that supports development in the farming/food sectors providing a range of loans and grants to both start ups and established businesses. The real potential of a altcoin in its capacity as a parallel currency here is its ability to work in tandem with fiat money in supporting Vermont’s overall food security programs. Businesses would then have a choice to secure a part or all of their funding with Vcoin that would strengthen the localization movement and insure that the value built by these businesses stays in Vermont.
What this points toward is that money is not value neutral. Money itself is coming to be seen not merely as a means of exchange but as a social statement, a very powerful social statement and Vcoin has the potential to provide the platform that first will allow citizens a spending choice, and second it will allow them a funding choice; a way to build real value within the altcoin ecosystem as it becomes fully distributed in Vermont.
In the new millennium of bail outs, bail ins, and leveraged buyouts of public goods where the economy has been sacrificed to predatory finance, spending a new class of digital money is a revolutionary act. And make no mistake about it, altcoins are a new digital asset class. So it should come as no surprise that one of the most popular titles on Amazon recently is, The Bitcoin Revolution: Ending Tyranny for Fun and Profit.
Usury Free Zones
In 2013 in what is best described as a straight-up Nullification Act, Vermonters passed legislation that allows for the cultivation of industrial hemp without standing around waiting for approval from the Federal hemp Czar. Hemp is the most useful plant in the history of mankind that has been cultivated for thousands of years and when it rolls out in Vermont’s new economy underwritten an altcoin you have the makings of a marriage made in heaven. Hemp is food, fuel, clothing and shelter. Highly assimilable protein from the seed, press the seed and you get a seed oil with a balanced omega 6 to 3 ratio. Take the stalk and make paper, fibers for clothing and hemp plywood composite. Henry Ford built body parts for his cars out of hemp and was one of the most vocal advocates in his day for monetary reform and public credit money.
A developing hemp industry is hundreds of start ups seeking capital, and rather then perpetuate the failed leaky bucket model with fiat money flowing in at the top of the bucket and value extraction via interest tribute continually leaking out the bottom, what would it look like when backed by a Vcoin model with no holes in the bottom of the bucket?
Interest has the affect of penalizing new money when it comes into circulation, and in a debt money system we take these affects for granted where they are simply written off a part of the cost of doing business. But in truth, credit is ultimately extended by a given community be it region or nation. They hold the value not the banks, but it is they who are penalized whenever new money is created as the interest must be sourced from the pool of value within that community because it is never created. The net affect here is perpetual debt.
One way of bringing balance, of righting a significant wrong in the equation here is to think about incentivizing, not penalizing new money creation. When a start up or existing business that is looking to expand opts in to Vcoin there is a fundamental reorientation that occurs about how money is created, who benefits and what happens to the holes in the bottom of the leaky bucket. If we can plug the holes in the bucket then we can begin to talk about sustainable value creation, even if only on a small scale. In affect, what you are doing is creating usury free zones, a micro-economic climate favorable to the growth of people, plants and cohesive communities. Where Berkeley was ground zero for a nuclear free zone in the 1980′s, Vermont will become ground zero for usury free zones in the new millennium.
The primary early stage goal of any regional altcoin is to get it into circulation and the role of early adopters here is critical. Early stage business adopters would play a pivotal role in building out a fully distributed network. In exchange for access to capital, businesses would engage in the active development of the network. And how might they do that? Here are a few examples. There are dozens more. Bottom line is that money creation becomes an incentivizing mobius strip of exchange potential rather then a self reinforcing negative feedback loop of wealth extraction. In a word, empowering.
- Employees will receive part of their pay in Vcoin.
- Business will source materials, goods and labor from other businesses that support Vcoin
- A percentage of the business income will fund marketing and advertising for Vcoin
- Businesses will donate to the charitable/community causes of their choice with Vcoin
- A percentage of business income will fund research/development in a Vermont incubator/idea lab to include alt energy, health, farming and transportation
- Businesses will support the transition toward open source government protocols and the adoption of Vcoin for payment of taxes
Crowdfunding Model For The Green Mountain State
Vcoin as an altcoin is much more then just a medium of exchange, it is also a decentralized crowdfunding platform that works to bring together a entirely new program for funding start ups and business expansion. Kickstarter and Indiegogo have done much to democratize the funding process for small start ups and the creative genius behind them by leveraging funding across the globe and providing a streamlined connectivity hub for investors and businesses. Bank To The Future in the UK through its crowdfunding model is targeting small business startups and job creation, start ups that the big London banks will not finance. More importantly these platforms provide not just a way to connect capital to a project but to a way to connect people to projects who are looking for more the just a ROI and would like to support these businesses because they believe in them and the social capital created by them as well.
Crowdfunding has been around for a very long time. Mozart launched a crowdfunding campaign to fund the production of his concertos by offering the underwriters copies of his manuscripts. Altcoins however, represent a whole new take on the idea of crowdfunding. Here we are no longer dealing with the Viennese florins in Mozart’s day, or US dollars on a Kickstarter platform but with cryptocurrency tokens that act as shares of equity representing a stake in the larger project of building back a value based economy in Vermont. This model of Peer to Peer funding utilizes a parallel currency platform where both Vcoin and US dollar provide a way for citizens to directly connect their money to the funding of local projects that they deem worthwhile.
This transition into a post dollar world requires a rethinking of our basic assumptions about money and exchange. Holding and spending fiat dollars makes you a stakeholder in the vast enterprise of globalization, whereas holding and spending Vcoin makes you a stakeholder in a regional enterprise where wealth is built back into the economy from the ground up rather then extracted from the top down. Here your money is not only working for you in supporting regional businesses but you have a choice in what types of business ventures you can elect to support. Here we are moving into an era of monetary activism where the power of currency choice outweighs the power to vote in determining what your future will look like. It is also a recognition that what centralized regulation of fiat money failed to achieve in the past 100 years, decentralized software designed crypto-currencies will. Money as code will level the playing field.
An alt coin built exchange system enables us to design a currency commons where the money power is returned to the commoner working to provide a value based economy with a parallel currency. The fatal trend from colonial states in America to contemporary states in Europe and elsewhere to adopt single currency systems has reached its predicted conclusion and collapse state is the result. National altcoins are a gut level response to the crisis at hand may represent a way toward a decentralized and far more transparent system of exchange in the millennium ahead.