We’re entering an age of cat money, and I love it
I’m quite excited about the hybrid forms of money coming out of the latest blockchain initiatives. For reasons that will become obvious, I’m calling these cat money. And yes, it does involve a play on words.
Back in the 19th century, the US was a more financially chilled out place than it was today. Specifically, regulation hadn’t really emerged as much of a Thing and consequently all those people who would otherwise be making a living protecting us from our own folly were busy having shoot-outs at the O.K. Corral, eating grits and wishing they could quit each other.
One of the developments to arise in the mid-19th century was private currencies. For a period of about 30 years, anyone in America could issue their own money. Banks but also rail companies, stores, churches and even individuals would create tokens that would serve as money, backed by the issuer. Of course, if the issuer went bust or disappeared, that was the end of the currency. Anyone who has been in crypto for the last two or three years will immediately see the parallels.
The issuers of these forms of money were often known as wildcat banks, either because one particularly well-known example of the disappearing bank act printed notes with a wildcat on them, or because issuers set up shop in ‘wildcat towns’ — places in the middle of nowhere that were sparsely inhabited. Author Mark Twain writes about being paid in wildcat money in 1853. 10 years later, the National Bank Act ended private money issuance.
Bad money
For reasons that will be clear to anyone familiar with the crypto world, wildcat money isn’t a good thing. Trust is inherent in any form of good money. Wildcat money asks us to trust anyone who says, ‘Trust me’, and for some reason these people tend to be the least trustworthy people. In past times we trusted gold and silver, but that’s no longer practical — especially when you’re dealing with an electronic money system. Nowadays we trust our governments and central banks, mostly because we don’t have much of a choice. If we’re not happy with inflation or QE, it’s not like we have much opportunity to switch to another currency. And, as anyone who holds 500 or 1000 rupee notes has just found out, the problem of discontinued money isn’t confined to wildcat banks. (For those who missed the story, India just banned two notes that accounted for 85% of the cash in circulation, with zero notice. Some people found that inconvenient.)
Wildcat money was only as good as its issuer. Whilst that issuer might be a big company with large cash reserves and a healthy business model, the reality was often it was some, well, cowboy operating out of the 19th century equivalent of his mom’s basement. Some things never really change.
So how do you take the wild out of the wildcat without centralising money around a state?
The answer is by ensuring your currency is not only removed from centralised issuance and control, but by backing it in a manner that is also decentralised or distributed. A blockchain-based currency is the obvious starting point, because these are immune from intervention — whether in terms of supply, or interference in the payments system (i.e. no one gets to print new money or block/reverse payments). This is then used by a network of businesses to transfer value. With many businesses buying and selling the currency, you are insulated from the problems of centralisation whilst still maintaining some kind of store of value. That is, the currency has a real value beyond any speculative value.
Examples
Examples of such cat money (since they’re not so ‘wild’ any more) include Ithaca Hours, which are a time-based currency used in Ithaca, New York. The notes are earned by doing hours of labour and are backed by a wide range of businesses and organisations, from restaurants to loans companies. This idea is being taken up by ChronoBank, which will issue a time-based cryptocurrency token, the Labour Hour (LH) on multiple blockchains. These will trade against bitcoin and other currencies on a decentralised exchange, LaborX, allowing organisations and individuals to buy labour — whether that’s an online freelancer or work in an offline profession such as construction. Key to the success of this initiative is the fact that several large labour-hire companies are backing it, so no single party ends up carrying the can.
The loyalty project Incent, which I’ve mentioned before, is another example. This will be a token of fixed supply that is used by many different merchants. Every time a customer buys something, a small proportion of the transaction is used to purchase Incent to send to them, like a kind of smart cashback. These revenues back a currency of increasing value that can be held or spent with the same merchants. Value doesn’t depend on anyone: it depends on everyone. If customers spend more, the currency will be worth more. If businesses take a larger slice of each transaction, that’s also more buy pressure. If one economy goes into recession and customers spend less, other economies will buffer the effect — and individual merchants can adjust their buying criteria to suit their needs. It’s highly decentralised and flexible.
Gamecredits is a very similar proposition. In this instance, the specific niche is the $100 billion gaming industry. Moving money into and out of virtual game economies is difficult for a variety of reasons. Deposit limits imposed by financial institutions mean many gamers (especially professionals) cannot deposit as much as they want to. It can be slow and expensive to move money across borders. Many gamers don’t want to give out their credit card details online. And, of course, it’s not anonymous. Gamecredits uses a single currency, GAME, to circumvent all of these issues. In December it will be deployed within gaming company Datcroft’s MMO Fragoria, which has around 8 million registered accounts, before being extended first to other Datcroft games and then offered to other companies.
CATs
These tokens aren’t anything special. Incent is a Waves token, and GAME is a simple Litecoin clone. It’s the fact that they each use an open network, and that it’s going to be used by a large volume of customers and businesses that creates the value. The blockchain is a means to an end.
As unpacked in a previous article, Why CATs are the immediate future of crypto adoption, it looks like the ability to create very simple crypto tokens is going to be absolutely vital for any blockchain platform that wants to see mainstream adoption. Appcoins or custom application tokens (CATs) will serve a huge range of purposes in the coming months and years. These will include transferring traditional forms of value, of course — gateways between the existing financial world and the blockchain are one of Waves’ core aims. This will always be important to enable flows of value from one economy into another.
But I’m guessing and hoping that one of the emerging applications on Waves will be domesticated wildcats: private currencies backed by distributed networks and multiple revenue streams. Bitcoin is just too volatile for most people to feel comfortable with, but cat money is a beautiful and logical answer to the problem of storing online value without any kind of centralisation. And that is the point at which decentralised currencies can really enjoy mainstream usage as parallel cash and the revolution really starts.
