Graphcoin: a flow currency for the network economy

Replacing value packages with value flows

Money makes it possible for resources and production capacity to flow towards those economical agents that create the most value in the economy. While this is not the only function of money, you could argue that this should be its primary function from a social perspective. In this post I explain why I believe that graph currencies would be a better fit to fulfil this function.

Currency is a technology that helps us scale value networks

Another way to look at currency is as a tool that enables value networks that are larger than participants can keep in mind. In a small community, people are able to remember who has done what favor for whom. In a large community, this becomes impossible, especially if a value transfer needs to move through several participants before the value reaches its beneficiary. That is why we use money to make value exchanges in discrete transactions (e.g. x number of dollars).

The problem with discrete value transactions

Just like light can be both particle and wave, you can look at value as both stream and discrete chunks of currency. The discrete nature of today’s money causes a number of issues:

  • A seller normally optimises their price for maximum income, by estimating the supply and demand position that will generate the most money. As a result a group of customers will not buy the product, because the price is too high for them.
  • A buyer needs to estimate if a service will have sufficient value for them before making a transaction
  • A seller can cheat its buyers if they can make a service seem more valuable
  • Products and services are optimised for first experience, this has disastrous effects on the longevity of modern products (e.g. devices are built to last 2–3 years, the mandatory warranty period)
  • Money is anonymous, this enables its use for crime
  • Money can be stolen
  • Money can be hoarded, taken out of the market to become a treasure that no longer serves the community

Value behaves more like a flow than a package

Today we primarily think of value as packages of money that are being awarded in transactions. But on closer inspection it is clear that value can also be seen as a flow. In fact value is more like a flow than it is like a package. This is how we normally experience value (e.g. the value of a car is experienced over the years that it is used) so it would be closer to reality to model value as a flow than a package. In the IT world we are seeing a move towards value flows: Software As A Service (SaaS) and computing clouds are growing rapidly at the expense of traditional capital expenditure IT investments.

Paying with graphs

But how do you account for value flows? I think it is possible to do so if we represent value exchanges as vertices (the connection between nodes) in a graph. When a buyer orders a service or product they could be asked to create a connection from their value node to the node of the seller. The thickness of the connection could indicate the relative amount of value that the buyer receives. This way you could follow value streams from a beneficiary to all the market participants that helped to create that value. If for some reason the value increases, the stream could increase. Another way to see this is that a market participant would flow a part of the value they create themselves to all the market participants that they got products or services from.

Graphcoin a graph stored in a blockchain

To make a transaction a market participant could issue a new graphcoin that codes for a new connection from a buyer to a seller’s node. The changes made to the currency graph could be stored in a blockchain, so that no individual agent would hold the power to make transactions disappear. Possibly a buyer would be able to change the thickness of a previously established connection, but to do so they would need to issue a new graphcoin with that change, so that the market would be able to see the history of that connection. Occasionally a buyer would be able to punish a dishonest seller, but a buyer that changes their graphs excessively could be punished by the market.

Value positions in a graph economy

The value position of a market participant would be determined by the wealth position of the nodes that connect to that participant and the “thickness” of the connection to those upstream nodes. To calculate the value position we would need an algorithm similar to the one that Google uses to derive the ranking of a page on the internet, based on the incoming hyperlinks.

Determining price in a graph economy

A graph economy is by definition an abundance economy: market participants are able to create an infinite number of connections. Market participants are not excluded from buying products because they have zero money, they can always create more money when necessary. The value of a graph from that market participant however would be reduced through a sort of personal inflation. Practically this could mean that all participants would always have access to products that are by nature abundant.

Sellers that produce products at near zero cost, like digital goods, would have no incentive to withhold a product from a buyer no matter their wealth position. Scarce goods, such as large physical goods, would be awarded based on the value a participant is creating in the network. A seller could evaluate if a participant is creating a sufficiently large value stream to receive a product, and what fraction of that value stream would be needed to pay for a scarce good. Sellers of fairly abundant products like staple foods, would require their buyers to have produced only a minimum of value in the economy, possibly this could be value awarded by a government or community.

Bootstrapping Graphcoin

Graphcoin can be bootstrapped in parallel with today’s money system. I think it would have already significant value especially for the remuneration of digital services or in the gift economy. I imagine Graphcoin could be used as a clearing house for exchanging value between digital platforms that have developed their own currencies (e.g. the point system on Stackoverflow, contribution credits on, etc.).

Graph currencies could also be used as a price signal in mixed currency markets: people with a stronger value position might be asked to pay a different price than people with a weak value position (e.g. to reward people that have contributed more, or to support people that are worse off).

We are working on a prototype system that could bootstrap Graphcoin, if you would like to be notified when you can try it out, and if you would like to receive a notification when we post another blogpost about graph currencies, sign up here.

Originally published at on October 1, 2016.