Barter on Blockchain
I’ve always been good at math. When I was a child, I often helped someone with their math homework in exchange for half an apple or chocolate. Sometimes the reward was promised for tomorrow. And sometimes it happened, that the reward was forgotten. But that was okay. We were kids and trusted each other.
This system of exchanging our skills for goods or services still works today, but the challenge to remember and track claims and rewards remains. We wouldn’t have grown out of the stoneages if society had not developed a more reliable model of exchanging goods and services. The invention of currency allowed to settle claims immediately in a standardized way.
But the use of currency comes at a cost. When I apply today’s monetary system to the example from my childhood, it appears laughable.
Let’s say my helping with math had earned me 50 cents. I had to fill out paperwork for our teacher Ms Perkins, who took 25 cents as taxes and fees. Then I had to ask someone to sell me half an apple for 25 cents. And that poor kid had to fill another form for Ms Perkins, giving her 13 cents in taxes and fees. Not only would we have wasted a lot of time on administrative tasks, we’d also paid the better part of our earnings for this unnecessary paperwork.
It is inefficient and expensive on small scale, because everything has to be measured, weighed and documented and given a price-tag in a specific currency.
Nonetheless, both methods have their purpose, and we’ve adopted a hybrid model. The simple system of “I give you this and you give me that “ — barter economy — is used in small, close-knit communities with physical proximity, whereas money is used to deal with parties we don’t know or trust or are far away.
Things have become a bit more complex now. The pandemic rules out physical proximity and markets are in turmoil. People are afraid to buy, and without a buyer you can’t sell. If you can’t sell, you don’t have money to be a buyer for someone else. What if there were potential buyers for your products, but they just don’t have money because their products are not sought after at the moment, either? Hence, this scenario we are experiencing today reveals the weaknesses of our monetary system.
What if we tried barter economy? Not only in small communities, but in large ones, where people don’t know each other? This raises some obvious challenges: 1) How to account for claims in a way that leaves no doubt what is owed without trust in the counterparty; 2) How to link buyers and sellers when markets are not functioning; and 3) How to solve problems 1 and 2 on an economic scale.
Some of these challenges are a perfect fit for blockchain technology. It has been made to account for claims in a transparent, honest and reliable manner, to report a transaction almost instantly and without any paperwork. So, the best way to record claims is to tokenize the asset and use the tokens as some kind of coupon to receive the real goods or services. When tokenized, assets don’t have a price tag. They always just represent a claim to the real item.
Accounting for values with tokens is easy. I can tokenize my offer of help with math by the hours. Others can tokenize their apples, cookies or whatever they want. A claim is a claim and remains a claim until settled with a token. The record lives forever, and this is true for large ecosystems and small ones. Therefore, blockchain solves 1) and 3).
Now comes the difficult part. How do you link buyers and sellers when markets are frozen? There is a solution for this, because there is always a market of some sort. Let us use another example.
Even in times of crisis we need help from professionals. For example, I am not very good at plumbing. If my sink is leaking, I need someone to fix it unless I want to make the problem worse. Of course, I’m reluctant to spend money right now, but I can offer help with math. However, I don’t expect the plumber to need help with a math homework. Luckily, I have other assets. I have a garden and grow vegetables. So, I offer my produce by the kilogram in exchange for fixing my sink. The plumber is interested in the job, but he does not need vegetables. He needs someone to look after his kids while his wife is sick. And Mary the babysitter needs help from someone to mow her lawn. Bob just lost his job at the factory and is happy to mow the lawn in exchange for a bunch of fresh greens.
You can easily see the chain, right?
If we do this manually, accounting for all eventualities and conditions would be a nightmare, at best. Luckily, blockchain can help. If all participants record their assets as tokens and offer them in exchange for what they want, we can simply combine the offers and trade all in one single go. This is what a barter economy on blockchain would look like. Mary, Bob and all the others just need the tokens as a coupon for their claim.
It works on any scale, be it local or global. Oil waiting in the harbor with no buyer? Swap it through barter sequences against medical supplies waiting in a warehouse. The exchange can be done in the same way we can trade apples, lawnmowing and babysitting work.
It is time people realize blockchain technology gave us more than just bitcoin. When we are open to the technology, we can use it to better our lives, especially in times like these when markets become unstable, people become fearful and communities need each other.
