1.
Promises, Protocols & Power
Strathclyde University
Chris Cook
Senior Research Fellow, Institute for Strategy, Resilience & Security
University College London
20 November 2020

2.
About Me – Legal Designer & Developer
Forensic accounting – insolvency & fraud investigation
Regulation – markets & enterprises
Market & enterprise development
Networked market development
Research into resilience – institutions & instruments

3.
Definitions
Fintech
Finance (Law & Accounting) + Technology ( Data
Processing & Communications) = FinTech
Financing
Short/Medium term, medium high risk/reward development
finance for new productive asset or enterprise
Funding
Long term, low risk/reward funding based on completed
asset or mature enterprise
3

4.
Context
Reality-based economy
 Location (3D Space)
 Energy
 Intellect
Market 3.0 - evolution of markets
 Market 1.0 - decentralised & disconnected - People
 Market 2.0 - centralised & connected - Middlemen
 Market 3.0 – decentralised & connected - Networks
Trend to Services
 Energy Intensity
 Capital intensity

5.
Fintech 1.0 – Tally Sticks
Number/Quantity - Notches
Description of value exchange & Counter-party Identities
Encryption - grain of the wood (Nature's hash)

6.
Fintech 1.0 – Proofs & Promises
Tally-as-Proof - receipt for past, not future utility eg energy use
Tally-as-Promise - prepay credit obligation to provide future
utility requires trust in promissor
Single Entry – the instrument is also the accounting record
Authentication – the grain of the wood is nature's encryption!

7.
Instruments 1.0 - Proofs/Receipts for Value
Asset buyers receive a bearer title document eg a Deed
Memorandum tally was proof of past value transfer/receipt
Issued by seller in exchange for value received identifying
buyer and describing value transferred
Receipt has zero objective/intrinsic use value

8.
Instruments 1.0 – Promises/Credit Obligations
Promise/Credit returnable in payment for goods & services
Issued by supplier in exchange for value received
Rate of Return - rate over time at which credit returnable to
issuer in payment for services
Rate not fixed - depends on existence & amount of flow
Promise/Credit is a relationship not an exchangeable object

9.
Institutions 1.0
Unincorporated associations of individuals
Societies - common interest
Companies - common purpose
Colleges – common knowledge
Agreements to share risk, cost and surplus

10.
Institutions 1.0
Treasuries – issue sovereign promises at a discount
returnable in payment for taxes/rentals
Mints – apply standards, coin & issue currency (generally
acceptable credit instruments/objects)
Exchequer – physical ledger

11.
Fintech 2.0 – Double Entry
Bill of Exchange – Assignable Promise

12.
Instruments 2.0
Equity
Debt
Derivatives
Fiat currency
All are exchangeable/tradeable objects

13.
Institutions 2.0
Corporate (“legal person”)
Corporation Sole (eg the Crown)
Collective Corporates
Public - States, Municipalities
Private - Companies limited by shares or guarantee
Issues
Intermediaries which alienate people
Principal/agent problem of management capture
“Tyranny of the Majority” - 51/49% governance

14.
Institutions 2.0
State Treasuries
Central Banks
Private Banks
Derivative Exchanges
Clearing Houses
Stock Exchanges & Trading Networks
Passive investments eg Index funds & ETFs

15.
Fintech 3.0 – Shared “Triple Entry” Accounting
1998 - 2001 “NewClear” Shared Market Transaction Registry
recorded legally binding transactions for any instrument or
jurisdiction however negotiated or performed (Cook)
 Bilateral (P2P) online messaging/agreement
 Shared Database
 Associative/Club Market User Agreement
 Unique registration in time order
1997 -2003 Web-ledgers (Boyle)
2004 Ricardian Contracts (Grigg)

16.
Fintech 3.0 - Blockchain & Coins
Blockchain as agreement between machines & devices
- collective machine protocol for encrypted transaction database
- authenticates electronic transactions – no 'double spend'
- But entire database is encrypted & replicated synchronously for
every new transaction
Coin Instruments
- Proof of past value creation (eg Proof of Work/Stake)
- Subjective exchange value but no objective utility

17.
Fintech 3.0 - Venezuela and El Petro
Petro is based on oil
- acceptability of currency is based on utility
- many different types & qualities of oil
- consumers use gas, oil products, energy services not oil
Petro is a Proof not a Promise
- Proof of payment 'backed' by oil reserves
- No obligation to deliver either oil or money
- Petro cannot be used instead of Dollar to pay for Venezuelan oil

18.
Fintech 3.0 – Promises/Credit Obligations

19.
Institutions 3.0 - Capital Partnership
Capital Partner (Investor) provides money or money's worth
of goods, services, technology, assets
Capital User applies resources to create a productive asset
(Land, Energy, IP) with use value/utility
Capital Partnership does not own anything, do anything or
contract with anyone
Capital Partnership is simply an agreement sharing risk and
flows of use value/utility

20.
Institutions 3.0 – Clearing Union
Investors
Credit Obligations
Community
Asset Users
£ % in £
or Credits
Dividend
In Credits
Manager
Mint
Payment in
£ or Credits
Prepaid
Credits
Shared Ledger
Exchequer
Custodian
Treasury
£
Credits

21.
Clearing Union
Acceptor has no enforceable right to delivery of £ (debt
obligation) or £'s worth (derivative obligation)
Promises may be assigned A>B>C>D & returned by final
acceptor in payment for value supplied by Promissor
Clearing Union does not own anything, do anything, contract
with anyone or employ anyone
Clearing Union is a mutual assurance agreement sharing risk
and cost of non-performance

22.
Community Treasury
Treasury as Custodian issues assignable promises/credit
obligations in exchange for value received from Acceptors
Service provider (Mint) manages issuance & maintains
shared ledger (Exchequer) & secure messaging
Performance of Promissor is mutually assured by Protection
& Indemnity (P&I) agreement - Clearing Union

23.
Energy Fintech – Denmark
National Grid Natural Grid

24.
Energy Fintech - Resource Resilience
Since 1973 Denmark's GDP has doubled, energy use has been
stable and carbon fuel use declined
How?
Mandate - minimum carbon fuel input for a given output of
electricity, heat or power (Energy as Service)
Least energy cost policy; not Least DK (or €, $, £) Cost
Massive public investment in renewables, heat, energy
efficiency, transport
Outcome – decentralisation – trend to a Natural Grid

25.
Energy Fintech 1778 - James Watt
Atmospheric Engine James Watt Steam Engine

26.
Energy Fintech - Pumping as a Service
James Watt steam engine much more efficient at pumping
water than Newcomen Atmospheric Engine
In exchange for use of the pump, miners agreed a share of
one third of coal savings
Smart Swap/Capital Partnership – Intellectual value
exchanged for value of carbon fuel savings at retail price
Not pumps-as-a-commodity - Pumping-as-a-Service

27.
Energy Fintech – Energy Credit Obligation (ECO)
ECO is
- Returnable in payment for energy services (heat/cooling,
power, mobility)
- Issued by Energy Treasury managed by energy service
provider (Mint) vs value received
- Accounted in energy in a shared energy ledger/exchequer
ECO issued, assigned, returned subject to mutual assurance
of performance (Energy Clearing Union)

28.
Energy Loans – prepaid Production or Savings
Producer
- sells energy forward and locks in price
- interest-free energy loan until credit returned vs supply
Consumer
- prepays energy & locks price or repays out of savings
Investor
- energy-linked return on investment

29.
Energy Treasury - Outcomes
Independent of location/state denominated in energy, not £, $, €
Energy return (no interest/discount rate)
Energy Treasury issues ECO - banks may provide Mint services
or introduce energy investors to energy investments
Energy economics replaces dollar economics
Natural Grid replaces National Grids

30.
Community Energy Treasury - Scenario
Point & Sandwick Community Development Trust - Lewis
3x3 MW private wind turbines generate £54k pa for community
3x3 MW Point & Sandwick turbines generate £500k pa and up
to £2m pa when debt is repaid
Income funds expenditure benefiting community
Wind as a service partnership with turbine manufacturers and
ECO funding would drastically cut funding costs.

31.
Community Fintech
Mobilising capacity - people & place
People – Peer2Peer (P2P) £ credit obligations based on
capacity to provide goods & services
Place – Land use credits - Peer2Here £ credit obligations based
on productive capacity of land/location
Social Credit – community 'loyalty point' tokens voluntarily
accepted in payment

32.
Housing as a Service
Occupier/Community Members
- pay for housing as a service in £ or £ denominated credits
- share surplus via credits (Care/Culture Dividend)
Manager Members (Service Provider)
- receive %age share of £
Investor Members
- sale of discounted £ land use (rental) credits funds housing
- £ credits may be used to pay rent or sold to other occupiers
- Capital & surplus from discount realised as £ credits are
returned against rent - “Rate of Return”

33.
Housing as a Service - Outcomes
Treasury - Neutral Governance
– no stakeholder member dominates - community custodian has
right of ultimate veto
Cooperative & Interdependent
Associative agreement between independent people
Capital Lite
– services relationship not transaction-based
Sustainable
- interests aligned to maximise benefit & minimise cost
Peer2Here
Land Use Credits enable credit/currency local by definition

34.
P2P Credit - a Traveller's Tale
Hotel A
Lady D
Butcher B
Baker C
€20
€20 €20
€20
Traveller€20
Open/Unsettled
Promises/Credits
A €20 to B
B €20 to C
C €20 to D
D €20 to A

35.
P2P Credit - Chain Settlement A>B>C>D>A
Hotel A
Lady D
Butcher B
Baker C
€20
€20 €20
€20
Shared
Transaction
Repository
STR settlement bot
identifies €20 chain
settlement pathway
A< B<C<D<A

36.
Mutual Assurance – Risk Sharing by P&I Clubs
For 150 years, Protection & Indemnity (P&I) Clubs have
mutually guaranteed shipping risk Lloyds won't cover
For 140 years P&I Clubs have been managed by
Thomas Miller as platform service provider

37.
Service Provider sets guarantee limits, handles
disputes/non-performance & manages system
Seller A
Member
Credit
Value
Platform Service
Provider
Shared
Transaction
Repository
Buyer B
Member
Data
Data
Data

38.
Community Treasuries
Merchants & Consumers share system & non-performance costs
Service Provider (Mint) manages mutual assurance limits,
standards, secure communications, transparency, performance
P2P credit obligations recorded in shared ledger/Exchequer
- Mutually assured chains A>B>C>D>A (cf Ripple)
- Conventional currency: Treasury/Bank of England £ credits
- £ denominated land use credits (currency local by definition)
- ECO - energy credit obligation
- Voluntary social credit (cf loyalty points)