Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Protocols, Promises & Power _20_11_20


Published on

Financial Technology for a resilient networked services economy. Treasuries, Mints & Exchequers re-invented bottom up for the 21st Century

Published in: Economy & Finance
  • Be the first to comment

Protocols, Promises & Power _20_11_20

  1. 1. Promises, Protocols & Power Strathclyde University Chris Cook Senior Research Fellow, Institute for Strategy, Resilience & Security University College London 20 November 2020
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 11. Fintech 2.0 – Double Entry Bill of Exchange – Assignable Promise
  12. 12. Instruments 2.0 Equity Debt Derivatives Fiat currency All are exchangeable/tradeable objects
  13. 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. 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. 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. 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. 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. 18. Fintech 3.0 – Promises/Credit Obligations
  19. 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. 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. 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. 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. 23. Energy Fintech – Denmark National Grid Natural Grid
  24. 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. 25. Energy Fintech 1778 - James Watt Atmospheric Engine James Watt Steam Engine
  26. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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)