ARCC: Understanding a Non-Disruptive Decentralized Economic Model in Emerging Markets
Bitcoin was a response to the lack of transparency and accountability exerted by the financial markets and institutions in advanced developed nations. While this may have been initiated due to the 2008 financial crisis, it is a message that resounds with many throughout the established/developed world.
In some ways, ‘centralization’ has become a dirty word, something to represent a flawed analog past, a legacy system which will never overcome its limitations nor become sufficiently seamless/transparent/trust-less. This has resulted in a perspective that everything will or should be disrupted by decentralization. This stance ultimately throws the baby out with the bathwater and eliminates the potential cooperative structure between the two systems.
Case in point, the needs and priorities of the emerging market are very different from those of the developed markets. Disruption is a very sexy and powerful term to throw around, but when you’re talking about economic development and real lives at stake, it is a dangerous element to recklessly engage in.
As ARCC is not a theoretical model, we are really going into failing emerging markets to set up a decentralized economic system and we need to be responsible for the consequences of doing so — and not just champion the benefits.
Our proposition is looking at a decentralized economic system as a superstructure on top of the existing centralized system to provide financial inclusion, radical social transparency and currency stability to the existing economy. In this respect, we look to bolster the current system by providing these characteristics as structural rather than add-on functionalities. If done properly, then the relationship between the decentralized and the centralized becomes less like disruption and more like a balance and optimization of the centralized system’s own objectives.
Where economic capitalistic centralized systems tend to fail spectacularly is in financial inclusion. Financial inclusion is not a structural component inherent as part of the system in that it is not tied to the growth or progress of the system. So as the system grows or progresses, there needs to be a separate independent act of redistribution of power and capital. This can be taxes, or welfare systems and charity, but why this act of redistribution is not structural is because these actions have nothing to do with the actual market system that generates the revenue.
Whereas in a decentralized system, it is the growth of the network which is a structural value creation mechanism — as the network grows, so does the value created. But how this decentralized network differs from a centralized network is that the decentralized network is dependent upon each node maintaining its independence and integrity as an essential component for the network’s value. For bitcoin, that independence and integrity created a ledger where the trust is created in the balance/transactions without a central authority. The larger and more diverse the network is, the greater the inherent value of the network’s objective and purpose. Coupled with the incentive mechanism, each participant shares in the growth and maintenance of the network because they are essential to the integrity and operation of the network’s value.
For ARCC, the network is the Social Proof of Work network that is essentially a big data aggregator of the socio-economic realities of the urban working poor. The more participants, and the more data recorded and validated, creates a better real-time accurate picture of the level and state of areas of exploitation and acts as the data reference for action. As the network grows, the ARCC earned as the incentive mechanism will also grow, either in value or utility since ARCC as capital can be deployed in a less corrupt environment (i.e. ARCC will get more bang for its buck in being used for investment). As the network grows, it will continue to empower the urban working poor for greater socio-economic representation in that this is not a one off objective, but an ongoing structure. So in this model the act of creating radical social transparency through the big data aggregation network results in financial inclusion.
The decentralized network here is not replacing the centralized authority but simply making it more accountable while increasing the socio-economic status of the participants who are currently excluded from the current market. Again, this creates value in not only providing continued incentives to maintain the network, but the size and scope of the network increases productivity of the centralized system as well, i.e. financial inclusion is an essential part of making the network work and its sequential value creation.
The other side of this decentralized superstructure is the support of the monetary stability of the local currency. Unlike other more established market economies, many of these emerging markets hedge and protect their own currency with a reserve currency, i.e. other more stable fiat currencies like the USD, CHF, or YEN. The problem again is in acquiring this reserve currency by exchanging it with the local fiat currency or via trade. For the majority of the population, as individuals, they are completely exposed to the volatility of the local fiat currency. Whereas, in ARCC, participants do not need to exchange or trade goods for ARCC, and are ‘on boarded’ by their participation in the network. This not only provides participants with an additional source of capital, but ultimately provides every individual the ability to hedge their own local currency.
As a crypto-reserve currency, we are not expecting ARCC to be used for general transactions until past the 20 year point, as the main function is to provide immediate support to the existing market economies. Even if ARCC is able to achieve independent price stability within the first 20 year time-frame, its main function will always be for use as debt-free capital and entrepreneurial investment. If we can strengthen existing fiat currencies, then the option of acquiring ARCC or other forms of assets now becomes more accessible for the entire market. Ultimately, nations with strong stable fiat currencies are better able to manage their own fiscal and monetary policies. Case in point would be East Asia economies such as China, South Korea, Taiwan and Japan who hold vast sums of foreign reserves used to defend and stabilize their national fiat currencies (lessons learned post 1997 Asia Monetary Crisis/Crash).
ARCC, in the area of economic systems, sees the use of a decentralized system as an overlay or superstructure to that of the existing centralized one. In the case of the emerging markets, our entire objective is to create more stability and provide a structural solution for where the current system is failing. Decentralization through cryptocurrencies is the solution, and does what a centralized system could never do. But this does not mean the correct course of action is simply to start from scratch or replace the old system in its entirety.
This model may receive rightful criticism that it is not a completely independent economic system replacing the current one, but for its objective, this is no less of a decentralized system in its practical approach to providing financial inclusion and stability where it is critically needed. After all, isn’t the whole point of this to solve problems, and solving this problem will show, more than any other project out there, the power of both decentralization and cryptocurrencies for humanity’s progress.
Sinjin David Jung
February 11, 2019