What is money? Some thoughts on money and Bitcoin


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Presentation from Swedish Bitcoin Conference 2014, April 2014, Stockholm, Sweden

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  • A centralized economyThe “most unusual aspect of the Inca economy was the lack of a market system and money,” writes McEwan, with only a few exceptions there were no traders in the Inca Empire. “Each citizen of the empire was issued the necessities of life out of the state storehouses, including food, tools, raw materials, and clothing, and needed to purchase nothing.”There were no shops or markets, McEwan notes and, as such, “there was no need for a standard currency or money, and there was nowhere to spend money or purchase or trade for necessities.”
  • http://totallycoolpix.com/2011/08/coolest-pix-of-week-33/Medium of exchangeA  3  B = 0Unit of account A B 33 A B A B 3
  • their communities using new money, working in cooperation with national currencies, to strengthen local economies, create work, beautify cities, and provide education—and so much more is possible. These real-world examples are just the tip of the iceberg—over 4,000 cooperative currencies are already in existence.
  • http://koru.or.ke/bangla-pesa-survey-feb-2014
  • *No central clearing house nor are any financial or other institutions involved in the transactions.*There is a limit to Bitcoin supply (21 million bitcoins) to be reached in 2140. According to Bitcoin supporters, this implies in theory that the system will avoid inflation as well as business cycles stemming from excessive money creation. http://p2pfoundation.ning.com/forum/topics/bitcoin-open-source?xg_source=activity
  • Crowdsourced – edited from Wikipedia.com
  • Competition for scarce resources create conditions for large-scale social change through networks
  • http://blog.coinsetter.com/2014/03/10/will-bitcoin-spinoff-auroracoin-save-icelands-financial-system/http://www.independent.co.uk/life-style/gadgets-and-tech/mazacoin-native-american-tribe-adopts-bitcoin-derivative-as-national-currency-9165314.html
  • Liam Dippenaar couldn't catch a ball with both hands. Holding two objects at once was a feat and, though right-handed, the 5-year-old used his left. Born with Ambiotic Band Syndrome, Liam lacks the instrument critical for most tasks: fingers. Thanks to two strangers halfway around the world and the magic of 3D printing, Liam is now able to color and write to his heart's content. Ivan Owen and Richard Van As created Robohand, an open-sourced device built with customized prosthetic fingers. Owen, of Washington state, and Van As, of South Africa, collaborated via the Internet to create the prosthetic. The duo decided to make the design in the public domain to help others who can benefit from the technology.Their journey started in 2011, when Van As came across a video of Owen's costume piece, a robotic hand built for amusement. Van As lost most of the fingers on his right hand in a woodworking accident and cast a net out for those willing to help build a prosthetic. Owen was the only one who agreed. "I had started with the first prototype prior to meeting Ivan. But yes, there were so many obstacles and one of the main ones was contacting people and them just saying, 'No, it can’t be done,'" Van As tells Mashable. Long nights on Skype and a 10-hour time difference took some getting used to, but the two kept the project going through email and file sharing. Owen and Van As initially used a milling machine and spent hours engineering parts until MakerBot donated two Replicator2 Desktop 3D Printers. The donation exponentially cut production time for prototypes. What used to take up to three days to complete can now be done in only 20 minutes. Using OpenSCAD, a free software application, Owen and Van As can exchange files and make changes in minutes. Jenifer Howard, MakerBot's PR director, says the cross-continent collaboration fits perfectly with the company's mission. "We love to see our printers being used for amazing life-changing and life-validating projects like this," Howard says. The two men document their progress on a blog called "Coming up Short Handed." Liam's mother, Yolandi, saw the site and reached out to Van As for help. Liam, who has no fingers on his right hand, received his own Robohand at no cost after several trials and prototypes. "At first it was quite amazing to see the smile on his face when they made the first prototype and he put it on his hand," Yolandi says. "His expression was, 'Oh wow, it’s copying me.'
  • What is money? Some thoughts on money and Bitcoin

    1. 1. What is Money? ---- Some thoughts on money and Bitcoin April 2014
    2. 2. Do we even need money?  Incan Empire − Across today’s Peru, Colombia, Chile, Bolivia, Ecuador, Argentina − 20 mln people at height  No traders  No shops/marketplaces  No need for money − Reciprocity/shared labor − Self-sufficiency
    3. 3. Some events in the history of money Time Event c 9000 - 6000 BC Cattle and grain as money 640 – 630 BC Crude coins in Lydia 600 – 300 BC Round coins in China 200 to 400 AD Roman Empire established through institutions & gold coins 806 AD First paper money in China (first fiat money) 1600s Several European National banks founded - 1656: Bank of Stockholm established - 1661: Sweden has first chartered bank in Europe to issue fiat money - 1683 – Bank of Amsterdam introduced fiat money 1794 US Mint formed http://projects.exeter.ac.uk/RDavies/arian/amser/chrono1.html
    4. 4. Money is more than medium of exchange The Beer Parable
    5. 5. What is money?  Not just a medium of exchange − Rational view − But why is holding a piece of paper or metal rational?  A social construction − System of social relations based on power relations and social norms − Inter-temporal promise  Store of abstract value linking past, present, and future − Trust that our claim on future goods will be met
    6. 6. Real cash economy in Entropia Universe http://blogs.forbes.com/oliverchiang/2010/11/13/meet-the-man-who- just-made-a-cool-half-million-from-the-sale-of-virtual-property/ •GDP >US$ 440 mln •PEDs <--> USD •Record virtual good: USD 625,000
    7. 7. We are “stuck” in our old mindset … Money=Fiat Currency Fiat Currency  Derives value from government  Fiat money as country’s main currency
    8. 8. Today > 6000 complementary currencies  Many community-based currencies  In cooperation with national currencies  Benefits − Counterbalance banks − Create means of exchange − Promote resilience of local community http://www.lietaer.com/writings/books/rethinking-money-by-bernard-lietaer-and-jacqui-dunne/
    9. 9. WIR in Switzerland - Complementary  Founded 1934 by cooperative of businessmen  IOU system based on personal trust  Secondary mortgages enable additional credit  >60,000 member firms  >CHF 4 bln assets (SEK 29 bln)  Countercyclical impact Top down fiat currency Bottom up mutual credit http://p2pfoundation.net/WIR_Economic_Circle_Cooperative
    10. 10. Bangla-Pesa in Kenya (Voucher) • 140 businesses in Mombasa County • Typical: 35 year old mother with 2-3 children • 7% daily trades in Bangla-Pesa • Founder arrested and charged due to fear of replacing Kenyan shilling • Charges dropped in November 2013 http://koru.or.ke/bangla-pesa-survey-feb-2014
    11. 11. Institutions Emergent Collective vs E.g., Complementary ~ Emergent community developing own bottom up complementary financial instruments Teigland, Yetis, Larsson 2013 E.g., Central Bank ~ Long-standing financial institutions and regulations
    12. 12. Bitcoin = The power of community + open source + internet + CPU • Developed by self-organizing community of thousands of “strangers” across globe • Not one but many motivations (intrinsic, extrinsic) • 91 bln SEK in circulation vs SEK 36 bln of Bitcoin in five years http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263707
    13. 13. Benefits of Bitcoin  Improved transaction security  Trust in cryptography rather than institution(s)  Transparency  Lower transaction costs  Cross-border, faster transactions  No outside intervention  No inflation (although market volatility)
    14. 14. Bitcoin – one of many cryptocurrencies Currency Code Year Est. Founder(s) Active Website PoW PoS Bitcoin BTC or XBT 2009 Satoshi Nakamoto (pseudonym) Yes N/A Yes No Ripple XRP 2013 Chris Larsen & Jed McCaleb Yes ripple.com No No Litecoin LTC 2011 Charles Lee Yes litecoin.org Yes No Peercoin PPC 2012 Sunny King (pseudonym) Yes peercoin.net Yes Yes Dogecoin DOGE 2013 Jackson Palmer & Billy Markus Yes dogecoin.co m Yes No Namecoin NMC 2011 N/A Yes dot-bit.org Yes No Mastercoin MSC 2013 J. R. Willett Yes mastercoin.or g No No Primecoin XPM 2013 Sunny King (pseudonym) Yes primecoin.or g Yes No
    15. 15. Drawbacks of Bitcoin  Tax concerns  Security issues  Consumer uncertainty  Market volatility (commodity or currency?)  Potential for illicit use  High electricity consumption to “mine”  …
    16. 16. Can we put our “trust” in a network?  Social networks follow basic principles − Self-organizing − Self-policing − But the “rich get richer” − “Birds of a feather flock together” − Likelihood of groupthink
    17. 17. Will there be a tipping point? http://coinmap.org/ Depends on…. - Switching costs - Network effects Bitcoin accepted here http://mercatus.org/site s/default/files/Luther_Cr yptocurrenciesNetworkE ffects_v1.pdf
    18. 18. Future scenarios?
    19. 19. Increasing pressure due to variety of new financial instruments Forces for change • Cryptocurrencies • Community currencies • Crowdfunding • Microfinance • P2P lending • Sharing The status quo Forces for stability • Governments • Central banks • Multinational financial actors • Legal system • Mindset
    20. 20. People • “Net generation” • 24x7 “mobile” workforce • Social entrepreneurship Technology • Broadband access • 3D printing • Robotics Open Source • Software • Hardware • Physibles Convergence -> Third Industrial Revolution? Finance • Microlending/microfinance • Crowdfunding/equity • Digital, non-fiat currencies
    21. 21. What’s around the corner? 24x7 Global Internet Collaboration + Open Source + 3D Printing http://mashable.com/2013/02/13/robohand/ $60,000 $150 Available for free download on Where is the firm?
    22. 22. Karinda Rhode aka Robin Teigland robin.teigland@hhs.se www.knowledgenetworking.org www.slideshare.net/eteigland www.nordicworlds.net RobinTeigland Photo: Lindholm, Metro Photo: Nordenskiöld Photo: Lindqvist If you love knowledge, set it free…