Note — February 18th 2024 — This blog was originally posted on my personal website in March 2022, but was taken down because I removed my personal blog.
The global economic system is broken. It ebbs and flows from triumphant rallies to violent crashes. It harms the financial and economic well-being of people all around the world. The 2008 financial crisis was only 14 years ago and already we are facing another crisis in 2022 with global supply chain issues, rising energy prices, and rampant inflation.
Unfortunately, the global economic system is extremely difficult to fix. It is a complex system in constant motion. Global think tanks and G7 economists try to come up with solutions. Yet in reality, there is nothing a small group of people can do to fix a global system. It is too complex!
We need new systems that evolve from bottom-up tinkering and improvement, with little to no intervention from bureaucratic organizations. Local Circular Economies, Startup Cities and Cloud Countries are all systems being experimented with today. They can develop and exist alongside the current global economic system.
All of these systems leverage Community Currencies, which have become easy to create from advances made in blockchain and open-source technology over the last 5 years.
Surprisingly, Community Currencies aren’t often discussed in the blockchain industry. Yet I believe they will be the driving force behind the most impactful changes in local and global economics in the next decade, and everyone will be familiar with them very soon.
They can help solve some of the biggest problems the global economy faces today. For example, a country can have a stable and wealthy upper class, but a struggling middle and lower class. The US has faced this problem and it has been getting increasingly worse over the last 40 years.
Community Currencies can give people an exit from the current system — a life raft. In this post, we’ll dig into what Community Currencies are and how they compare to Network Currencies. Then we’ll go into the new economic systems they enable and how they will change local and global economies.
Community and Network Currencies
To properly describe Community Currencies it helps to describe its opposite, which I refer to in this post as Network Currencies. Some examples of Network Currencies are bitcoin, ether, and fiat. Let’s describe both types below:
- Network Currency — A currency that is used by a large, diverse group of individuals and organizations. It is designed to benefit from network effects and to grow at all costs. It sacrifices stability to obtain growth.
- Community Currency — A currency that is used by a small, well-defined group of individuals and organizations. It is designed with a limit to its size and usage. It sacrifices growth to obtain stability.
In the 20th and 21st centuries, we have been conditioned to trade, barter, and exchange in Network Currencies. Countries took a centralized role in our lives and completely monopolized the economy for themselves. This led to a total dependency on fiat currencies, which then lead to a global economy powered by the USD.
As a result, we have all been forced into economies that fluctuate and whipsaw with volatility. We are going through a particularly unstable time in the 2020s, which was initiated by the COVID crisis, and is continuing with the War in Ukraine.
Luckily, blockchains have given us an escape route from the global economy. In the first decade, Bitcoin paved the path for the adoption of blockchain technology, and now the stage is set for Community Currencies. There will be a renaissance of small, local economies with currencies that are resistant to global economic crashes. There will be thousands of large-scale Community Currencies, and millions of small-scale or temporary ones.
Let’s now dive into real examples of Network and Community Currencies to paint a more in-depth understanding of their differences.
Network Currencies in depth
Let’s now explore some of the benefits and problems of the USD — the world’s most widely adopted Network Currency.
USD benefits
- It is the world reserve currency, which allows it to be the global settlement currency that all countries exchange in.
- It also gives every country a benchmark to compare their own currency to.
- It gives the US the ability to control its money supply.
USD problems
Of course, many of the benefits stated above end up causing some of the major problems of the USD:
- Controlling the money supply allows governments to print money at will. Every fiat currency ever created has faced massive devaluation from inflation.
- Fiscal and monetary intervention is done with a short-term outlook, often due to election cycles. This hides problems under the surface for years, which eventually manifest themselves as bubbles that lead to violent crashes.
- The violent crashes lead to a slow and uneven recovery. The poor suffer the most, while the wealthy can easily get by. In some cases the elite even get rewarded, such as the banker bailouts and bonuses from the 2008 crisis.
- The planning happens behind closed-door meetings at The Federal Reserve. This small group decides everything about the USD. They can inflate the currency extremely fast and cause hardships to business operations and people’s savings. Their decisions directly affect all Americans, and with the USD as the world reserve currency, it expands to affect billions of people around the world.
Today, we are experiencing inflation we haven’t seen in 40 years:
Bitcoin benefits
Bitcoin benefits
Bitcoin is a breath of fresh air compared to the USD:
- It is a global currency that any country or person can settle in.
- It can serve as a common benchmark for everyone to measure their own assets against.
- Anyone with an internet connection can buy it.
- It can be self-custodied.
- It has a rigid monetary policy. The total supply is stuck at 21 million, and the inflation is set to half every four years.
- It is the most decentralized cryptocurrency when considering all factors.
Bitcoin problems
But, it has some problems too:
- It is prone to big rallies and bubbles as it is still young technology.
- Early adopters hold a large amount, and due to the rigidity of Bitcoins monetary policy, there is no clear way to distribute BTC to future adopters.
- The network is too slow for a global payments system. This has led to the “bitcoin is a store of wealth” narrative.
Ethereum is also a great example of a Network Currency. It has different benefits and problems than Bitcoin but I won’t dig into them, as this has been debated ad nauseam!
Community Currencies in depth
Community Currencies are less understood by the general population. A great place to begin learning more in-depth is Ethan Buchman’s blog. Specifically the post Local Money and Liquidity Saving. All of his blogs are excellent, as well as his videos. Ethan is one of the founders of Cosmos. If you read deeper into his writing you’ll see how the Cosmos Network is the best tech to build Community Currencies with.
As we stated earlier a Community Currency is used by a group of defined size, used for a variety of purposes. Some examples:
- It can be used to create a circular economy that promotes recycling, reuse, and sharing within the economy.
- It can be used as a complementary currency to allow a local economy to have its own currency, gain more stability, and support local businesses.
- It can be a City Coin used for spending, voting, or services within a city.
- And many more!
To highlight the broad range of possibilities, let’s go through some real examples that exist today.
ETH Denver, SporkDAO, and $SPORK
ETH Denver is an annual conference that started in 2018. They created a community known as SporkDAO, explained below:
SporkDAO has been birthed to complete the evolution of ETHDenver from a wholly owned, centrally controlled entity to a Member-owned digital cooperative. $SPORK is the incentive alignment mechanism that will be used to govern SporkDAO along with being the unit of account for calculating distribution of profits to SporkDAO members should that time come.
$SPORK was rewarded to people who have participated in past ETH Denver events, and there are plans to distribute $SPORK to encourage future membership. It will also be used to govern the DAO.
$SPORK might look pretty small right now. It doesn’t trade with any real volume on decentralized exchanges. But this is just the start! $SPORK has a ton of opportunities to be used in the future. Some ideas:
- Require ETH Denver sponsors to buy $SPORK tokens to become a sponsor. The tokens could be burnt, or staked and locked.
- ETH Denver was oversubscribed and had long lines for non-hackers in 2022. SporkDAO could give people the option to spend $SPORK for fast entry.
- SporkDAO could expand to new cities outside of Denver, and use $SPORK to incentivize the growth.
ETH Denver did something cool with Food Tokens as well! Attendees were given 3 Food Tokens each, which were ERC-20 tokens on the Rinkeby Testnet. Each token was worth about $10 USD. Food Trucks positioned outside the event accepted these tokens as payment. After the event, they exchange the tokens for real money with the ETH Denver organizers.
This is an example of a Temporary Community Currency. It only needed to exist for 4 days and helped circulate money in an easy way. Because of its temporary, low-risk nature it operated on a testnet, which made every transaction free. When people talk of millions of Community Currencies being created in the future, they should have the image of temporary, low-risk currencies in their mind.
Again, this is a super small example. But what is so amazing about it is that we have open-source technology that allows this to be adopted by any community worldwide. If an ETH Denver attendee was inspired by the event, they can take the concept of SporkDAO to their own city.
Grassroots Economics
Grassroots Economics is a non-profit foundation that is empowering marginalized communities to take control of their own economic future. They have been around for over a decade, and have boots on the ground in low-income rural communities. They have been working on Community Currencies for a long time, and they have begun to leverage blockchain and open source technology to their benefit.
I love that they don’t treat blockchains as something to speculate and get rich quick with. They simply use it as a tool in their arsenal to help improve the local community’s economic situation.
They have created the Sarafu Network, which leverages blockchain tech to create local currencies. Sarafu ($SRF), is used as a basic income, as well as a common token that local communities can bridge to with their own currencies — known as Community Inclusion Currencies (CICs).
In essence, many small communities can make their own currencies. These then bridge up to $SRF, which allows them to interact with many nearby local economies. As adoption grows, $SRF could bridge to a fiat currency like the Kenyan Shilling. With blockchain protocols like Uniswap, we could have seamless integration of Community Currencies bridging up to Network Currencies, and back down!
Communities get to decide how intertwined they want their currency to be with other currencies. They have economic self-sovereignty. They could bridge up to Kenyan Shillings aggressively, or try to keep their economy more closed-loop and in their control. It’s totally up to them! And that’s what makes it so powerful.
CityDAO and CityCoins
Cities are my favorite example of communities that could have huge success with Community Currencies. For a great primer on the potential for City Coins, checkout @balajis’s tweet thread:
There are a lot of opportunities described in that thread. Next, we will focus on two projects that are working on a few of those opportunities.
CityDAO is a project that is exploring on-chain land ownership. They began by buying a parcel of land in Wyoming and auctioning it off with NFTs. Wyoming was chosen as it created a law in 2021 that recognizes DAOs as legal entities. Citizenship can be bought with Ether, and the DAO is managed by the citizens. This is the “build a city from scratch” strategy. It completely avoids the bureaucracy and resistance an existing city would face. It is an audacious goal, but I 100% believe we will see successful cities created this way within the next generation.
CityCoins is a project that creates a token for an existing city. They have an interesting approach — they get no approval or partnership with the city to start. They aim for a grassroots movement of citizens and/or speculators to mine the token. In order to mine the token, they must send Stacks Tokens ($STX) to the CityCoin smart contract on the Stacks Blockchain. Then the official City Treasury can claim 30% of the total $STX that has been staked by the users to mine the City Coin. The first city to launch a token was Miami. Later on, CityCoin was able to get in contact with the City of Miami, and they ended up claiming over $5,000,000 in $STX for their treasury, as announced by the Mayor of Miami.
It is an interesting model. It has succeeded at getting funds into the City of Miami’s Treasury. We now need to see how that money will be spent, and how the Miami Coin community will rally behind it. I don’t think this is the be-all-end-all solution for City Coins, but it’s a good start
Now let’s look into the future and see where Community Currencies will change global and local economics.
How Community Currencies will positively impact the world
We’ve gone through some existing Community Currencies, but they are all early experiments. In the next decade Community Currencies are going to have exponential growth. Let’s look at 3 systems that have a huge opportunity to change global and local economics, which all leverage Community Currencies.
Circular Economics
A circular economy is _”a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible”_. This is exactly the new kind of system we need. Our global economics are broken in many places.
COVID and The Russia-Ukraine War have contributed to huge supply chain issues and the most inflation we’ve seen in +40 years. But ANY external crisis could have exacerbated inflation and supply chain issues because the global system is broken!
The “Just in Time” delivery of materials makes the global supply chain extremely fragile. Something as simple as a ship getting stuck in the Suez Canal caused global supply chain issues. There are many more fragile attack points in the global supply chain. We usually don’t hear of them until we are in a crisis, then we hear of them all at once.
Global economics has brought us some incredible achievements, and I don’t think we should abolish it. It’s just terrible at some things. Global energy consumption, wealth distribution, and recycling come to mind. Which are all things local circular economies can excel at!
Circular economies that have success in the next decade will be powered by Community Currencies. Particularly in areas where global economics does not work well.
Let’s compare the global recycling system to a local circular recycling system and see how local recycling can excel.
Globalization sucks for recycling
Recycling has many inputs and outputs and is very complex. Many different actors are involved in decisions:
- National, State, and City officials.
- Citizens.
- Collectors that take recycling to a recycling plant. They are usually city employees or private corporations contracted by the city.
- The corporation that owns the recycling plant and does the recycling.
Recycling requires citizens to make millions of daily decisions to sort the recycling. The guidelines of how to recycle come from a top-down government organization. Although the spirit of the guidelines are good, it’s really hard to make sure 100’s of millions of people follow these guidelines. In reality we end up with lots of recycling and garbage mixed together, due to citizens not understanding what items can be recycled, or being too lazy to separate it themselves.
The system then fails further down the pipeline with some pretty bizarre behavior. Modern countries end up shipping their unorganized recycling to foreign countries. It’s a ludicrous idea, we are burning oil to ship recycling 1000’s of miles away, and the global system basically encourages it to happen. On paper, the modern country is allowed to write off the material as recycled. The material becomes an output for the modern country, and an input to the foreign country.
The foreign country is a black box to the modern country. It is left up to the corporation in the foreign country to decide if and how to recycle the material. Sometimes the Modern country does such a poor job of separating recycling from garbage, that the foreign company decides it is too costly to separate it, and they just dump it in a landfill.
Recycling is just an example of many processes that don’t work well on a global scale. Textiles, construction, and the automobile industries are bad too. The global economic machine is a complex system with many different actors. There is no solution that a top down government organization or think tank can create that will work in practice. Therefore, our best bet is to create new systems.
Recycling with Circular Economics
A community could try to get everyone to adopt recyclable packaging for takeaway food and drinks. It’s a nice idea, but I’ve never heard of any real success stories for it. Community Currencies can be used to drive incentivization and make it easy to implement at scale.
Let’s use a neighborhood in a large city as an example. First, get some businesses to adopt the usage of recyclable containers by rewarding them some of the City Coins. Then, give the citizens the reusable containers for free. As the citizens and the businesses use the recycling program, they each get small rewards. The early adopters will drive the initial change, and with success, it will drive other businesses and citizens to join the system. The early adopters should be rewarded for their pioneering efforts with more City Coins, or free benefits or services.
The coin could also be used to reward citizens and businesses that buy and use food and materials within a 50km radius. This saves food transportation costs and reduces packaging. Or it could be used to encourage biodegradable materials or proper use of compost.
Using the community currency as incentivization is the key. Recycling programs like this have not had success because they face a chicken and egg problem. It’s obvious everyone wants to help by recycling, but no business wants to be the first to try to push it. It will eat into their bottom line to change their system. And they are likely to fail to convince all their customers and other local businesses to join them.
Local economics enables circular economies to form and be tested at a small scale. The feedback loop within a community is small enough to make quick adjustments and to improve the process. What is so powerful is that 100’s of communities around the world can be working on similar concepts. Building on top of open source technology means that a city like Miami might lay a lot of groundwork for decentralized applications that run with Community Currencies. Then Minneapolis could come along and fork their idea and code and adjust it as they see fit. Slowly, and then all at once, we will see Community Currencies adopted in this way.
Startup Cities
Startup Cities are a concept Balaji Srinivasan has discussed in depth. Small cities and towns now have an incredible opportunity to compete with major cities like New York or London. Community Currencies will enable fast capital allocation to grow these startup cities. There are a lot of different ways a startup city can come to life. CityDAO in Wyoming is one way to go about it.
Historically, the real estate market of a city has acted as a proxy for a city’s growth and success. With a City Coin, there is an opportunity for speculators to invest in the City Coin, rather than the real estate market. You can then make the argument that the real estate market will become more affordable. This is especially useful for cities like Toronto, Vancouver, and San Francisco, where it has become unaffordable for most residents to own property.
A successful Startup City will use open source technology to clearly display the allocation of city funds, measure growth, help attract new citizens and appease existing citizens.
The City Coin could be staked in return for services such as parking or garbage collection. The city could inflate the token annually to reward long-standing citizens or incentivize new people to move to the city. There is a lot of room to innovate here!
The success of startup cities will also drive much-needed innovation in traditional cities. Big cities stop innovating due to problems like NIMBYism. As startup cities become successful, older cities will have to react. It is too easy to work remotely. A lot of people will realize that the benefit to live in some of these older cities does not justify the cost. Eventually, older cities will have to start treating their citizens as customers.
Vitalik’s “Crypto Cities” blog also gives a wonderful breakdown of how blockchains can enable cities to modernize. He elaborates on how blockchains can simplify and streamline how cities operate, such as:
- Land ownership.
- Business registration.
- Voting and governance.
- Identity.
A City Coin can be used to tie into all of the above. We’ll also see cities leverage NFTs to represent land ownership and identity.
Network States / Cloud Countries
Network States (aka Cloud Countries) are another idea of Balaji’s. It is even more ambitious and futuristic than Startup Cities. But as with most things Balaji writes about, it’s incredibly well thought out and has a good chance to become reality. He has a book coming out this summer which I will definitely be ordering.
I’ll provide a short description of how a Network State could come to be:
- Create and grow a community in the digital realm first. It’s low cost, and there are billions of people you can meet online to join your community.
- With cryptocurrency, we have internet native money. The community can raise funds very easily. We’ve seen DAOs raise 10’s of millions in under a week.
- The community can grow to be large, diverse, and have a ton of capital. This can all be done online and at a low cost.
- Eventually, when the community is big enough and rich enough, they can start buying physical property.
- The Cloud Country can purchase land in different cities and countries. It can provide its citizens with housing, food, and security all over the world.
- The Cloud County could also try to incentivize specific citizens or businesses to join. Someone with a cattle ranch might be able to shop around between different Cloud Countries and decide which one to join.
- The capital will always be in the cloud, with the ownership and the governance on-chain as well.
We are still far away from seeing a Cloud Country come to fruition. But as we get more value represented on chain — such as real estate, energy, and supply chains, people will get more familiar with securing everything on blockchains. As this becomes more commonplace, and more communities experiment with currencies, we will see Cloud Countries form in a bottom-up, decentralized fashion.
“Shopifying” Community Currencies
The key point to take away from this blog is that the open-source tools and technology we are building are the catalysts that will make real bottom-up economic change possible. We are moving at incredible speeds for innovation, as we are all building in the open, incentivized by tokens.
Creating and managing a community will become a simple plug-and-play process. It will be a Shopify-like experience for Communities to run on. We can build distributed and connected local economies, and save countless hours of human productivity. Every time a community builds a new plugin, it can be reused by any other community. Let’s list some categories of “plugins” that already exist as open source code.
Governance
- Basic voting contracts.
- Quadratic voting and other novel voting contracts.
- Multisig wallets.
- DAO Infrastructure.
Public registries
- Business Registries.
- Citizen registries.
Individuals
- Decentralized Identities (DIDs).
- Privacy enabled transactions from native privacy coins like ZCash or smart contract privacy like Tornado Cash.
Tokens, NFTs, and DeFi primitives
- ERC-20 tokens.
- NFTs.
- Bonding Curves.
- Algorithmic borrowing and lending rates.
- Staking contracts.
Bridging
- The Cosmos Network has shown rapid growth in its concept of “The Internet of Blockchains”. It allows any blockchain to connect through a standard messaging protocol, IBC (The Interblockchain Communication Protocol).
- I believe IBC, or something very close to it, will become the standard for blockchain communication. We have seen too many custom bridge implementations get hacked in the last 18 months. We need a standard bridge interface.
Conclusion
Local Circular Economies, Startup Cities and Cloud Countries are bottom-up economic systems that have a massive opportunity to change how we do business and think about economics. Although there are a lot of problems with the global economic system and fiat currencies, I do not think we should abolish these systems. If we are being realistic, we are stuck with them for many more decades to come.
These new local economic systems need to grow exponentially and then operate in tandem with the global system. Having both systems provides resilience, as the two systems complement each other and offer some redundancy.
The exponential growth of local economic systems will be enabled by open-source blockchain technology, particularly Community Currencies. We have open-source tools that allow anyone with software development skills to launch communities as small as 10 people to as large as 1 million. Soon enough it’ll be as easy to start a community as it is to build an e-commerce business with Shopify. This will lead to a proliferation of local economic systems that change the way we do business and economics in the next decade.
