This document discusses the evolution of markets and fintech. It proposes moving from transaction-based fintech 1.0 to relationship-based fintech 2.0 that links digital currencies to real economic activity. Examples discussed include energy credit obligations that can be used to pre-pay for energy supply, and housing platforms that provide housing as a service using local land use credits. The document proposes a research project to develop community fintech prototypes in four Scottish locations to explore cooperative models of credit clearing, risk sharing, and cost sharing enabled by shared transaction repositories and digital currencies.

1. Fintech 2.0 - Promises, Protocols & Power
University of Strathclyde
Chris Cook
6 November 2018

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

4. Institutions & Instruments
Property & Money as Relationships
Rights & Obligations
Institutions as risk/cost/surplus/data/knowledge sharing
protocols
Instruments as transactable objects

5. Fintech 1.0 - Blockchain & Coins
Blockchain as Agreement
- collective machine protocol for encrypted transaction database
- authenticates electronic transactions – no 'double spend'
- But entire database is encrypted & replicated for every new
transaction
Coins as Instruments
- Proof of past value creation (eg Proof of Work/Stake)
- Subjective exchange value but no objective utility

6. Fintech 1.0
Machine-centric, Transaction-centric & Time-less
Blockchain as Institution: Coin as Instrument
Dissociated from Reality
New protocols aim to link coins to the real economy
Smart contracts: Mattereum, Holochain, ChamaPesa

7. Fintech Case Study - 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

8. Fintech 2.0 - Lessons from the Past
Number/Quantity - Notches
Description of value exchanged & Counter-party Identities
Encryption - grain of the wood (Nature's hash)

9. Fintech 2.0 – Back to the Future
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 the accounting record
Authentication – the grain of the wood is nature's encryption!

10. Prepay Credit Obligations
Taxation

11. Credit Obligation– What it is & How it Works
Credit returnable in payment for goods & services
Issued by supplier in exchange for value received
Issuer obligation is to accept credit if & when presented
in payment for goods & services
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

12. Custodian
%
Platform
Investor
Platform Service
Provider
%
Platform Users
Prepay
Nondominium – Platform Cooperation

13. Nondominium – How it Works
Production shares allocated to users & service providers
Balance of production allocated to Investor returns
No stakeholder has dominant rights, but each has veto
rights over matters which concern them
Custodian has right of final veto

14. 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 investment in renewables, heat, energy efficiency,
transport
Outcome – decentralisation – trend to a Natural Grid

15. National Grid Denmark Natural Grid

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

17. 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 – Intellectual value exchanged for value of
carbon fuel savings at the retail price
Not pumps-as-a-commodity - Pumping-as-a-Service

18. Energy Fintech – Energy Credit Obligation (ECO)
ECO is
- Returnable in payment for energy supply
- Issued energy service provider (not bank) vs value received
ECO is not
- Debt - no right to demand money
- Derivative – no right to demand energy delivery
- Equity – no ownership right in respect of energy assets
ECO issuance, exchanged, cleared within Nondominium

19. Energy Fintech – Energy Loans
Producer
- sells energy forward and locks in price
- interest-free energy loan until credit returned vs supply
Consumer
- prepays for energy and locks in price
Investor
- energy-linked return on investment

20. Energy Fintech - Outcomes
Independent of location/state denominated in energy, not £, $, €
Energy return (no interest/discount rate)
Banks cannot issue ECO, but provide banking-as-a-service eg
risk management & investment banking
Energy economics replaces dollar economics
Natural Grid replaces National Grids

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

22. Housing as a Service - Platform Co-op
InvestorInvestor
Community
(Occupiers)
Community
(Occupiers)
£ % in £
or Credits
Dividend
In Credits
ManagerManager
Payment in
£ or Credits
Credits
Platform Co-opPlatform Co-op

23. Housing as a Service
Occupier/Community Members
- pay for housing as a service in £ or £ denominated credits
- receives any surplus credits (Care/Culture Dividend)
Manager Members (Platform Service Provider)
- receives %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”

24. Housing as a Service - Outcomes
Nondominium - Neutral Governance
- no dominant stakeholder: custodian has right of ultimate veto
Equity Release
- superior outcome to Debt (roll-up mortgage) & Equity (reversion)
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

25. Care for Housing Swap?
Post war intergenerational transfer of wealth due to property bubbles
Older generations are land-rich but care-poor
Younger generations are care-rich but land poor
Community Fintech enables new policies for intergenerational equity

26. 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

27. 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

28. 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 130 years P&I Clubs have been managed by
Thomas Miller as platform service provider

29. Data Sharing
Seller A
Member
Credit
Value
Platform Service
Provider
Shared
Transaction
Repository
Buyer B
Member
Data
Data
Data

30. Risk Sharing
Seller A
Member
Credit
Value
Platform Service
Provider
Shared
Risk
Buyer B
Member
Guarantee Guarantee

31. Cost Sharing
Seller A
Member
Credit
Value
Platform Service
Provider
Shared
Cost
Buyer B
Member
Platform &
Performance
Costs
Platform &
Performance
Costs
Operating Cost &
Performance Share

32. Settlement - Chain or Currency
Seller A
Member
Value
Platform Service
Provider
Shared
Data
Buyer B
Member
Data Data
Data

33. 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

34. Community Credit Clearing – Banking as a Service
Mutually assured bilateral P2P credit
Merchants & Consumers share system costs and non-
performance
Manager allocates guarantee limits, manages platform, ensures
transparency, handles non-performance
£ denominated credit obligations may be settled
- by conventional £ bank credit
- by A>B>C>D>A chains
- by £ denominated land use credits
- by energy credit obligation – ECO
- voluntarily by social credit or donation

35. Community Fintech - Development
Scottish Universities Insight Institute Call for Proposals
Theme “Co-operation & Interdependence”
Exploration, Research & Development of Community Fintech
Four archetype locations
Six months duration – March/August 2019

36. Linlithgow Unlimited – the Vennel
Vennel

37. Dumfries Unlimited – Crichton Care Campus

38. Applecross Unlimited

39. West Whitlawburn Unlimited

40. Community Fintech – Proposal Plan
Initial stakeholder meetings to determine optimal spatial use
Location-specific development teams research & develop
complementary Community Fintech project funding plan
Specification and development of alpha version Fintech with
Stirling University Fintech Masters cohort
Final presentation to communities of developed projects (and
Fintech demonstration)