Blockchain and Regional Currencies

Local currencies, sometimes called community or regional currencies, can be created for a variety of reasons. Often, it’s because a community of people don’t (or can’t) trust the legal tender of their state. This is a phenomenon which is not new at all, but as old as money itself. Another common reason for using a community currency is the belief that money actually harms the civilized interaction of individuals because everything becomes focused on maximizing profit. A famous example of this social reason can be found in Germany with the Chiemgauer. This local currency from Bavaria encourages employment creation, promotion of various local activities and small businesses, and strengthens community solidarity.

This community aspect is the most important reasons for the existence of local alternative currencies in the West today. But sometimes the raison d’être is just about giving quantifiable value to something that was not originally meant to have a monetary value. Whatever their motivation, over the past 40 years many such local currencies have been created and some have even become quite popular.

Alternative Ways of Measuring Value

One of the most fascinating aspects of local currencies are how they measure value. The Chiemgauer is pegged 1–1 to the Euro, but there are many, many more creative options for assigning and using value. You can, for example, use work time as a currency and measure the value of each persons’ time in exactly the same way. That means there is no distinguishable difference in value between one hour of a lawyer’s time or one hour of a gardener’s. While people outside of this system (like our current Western model) might see the value of an hour of work from a gardener and a lawyer a bit differently due to the discrepancy in time and cost involved to study, train, and enter these professions, there are good arguments to be made in favor of such a system of equality for reasons other than sheer profit-taking.

Practically speaking, creating a unit of account that is denominated in “hours of service” is not too difficult. In fact, because you can just do it on paper, time based currencies have been in use for many years in various locales. This system is also relatively safe, because forgery is not a big issue in small communities. It might potentially become one when the community grows larger, but if it get’s so large that the forgery of their local currency becomes a serious problem, then they probably have bigger fish to fry. One such challenge that could foreseeably cause problems for local currencies if they become popular enough is a legal and regulatory one, as governments are known to be hostile towards parallel currencies. Competition in the monetary system is not appreciated, regardless how the regional currency is denominated.

Blockchain Solutions for Community Currencies

Blockchain technology offers a few solutions to the challenges faced by local currencies. One solution is to automate the currency’s loss of value over time. Normally, a token is worth a fixed amount of an asset (whether that’s something tangible, working hours, etc.). Many regional currencies, however, want their units to slowly lose value over time, so that nobody starts hoarding them. In a paper based system, the only way to do this was to issue new bills every month (or some other fixed period of time) and to take back the old ones at a discount. On the other hand, blockchain, especially when the particular blockchain infrastructure separates documentation from tokenization, allows you to introduce a gradual loss of value natively to the tokens, for example one percent per day or per month. This is a simple technological solution and works perfectly in an all-digital community.

The mechanism of exchanging old and expired tokens at a discount for a new and freshly issued ones is also possible and can be automated through a TokenWARP. The issuer can create supplies every month which, for example, convert the old token into the new one at a ratio of 10:9. With 10 old tokens you get 9 new ones. Because this system is on-chain it’s automated, so there is no way to cheat. A business would normally accept only the new tokens as payment, but with TokenWARP a holder of old tokens can still use them for payment. They are just atomically swapped (by the issuer supply) into the new tokens, and the new tokens are then used to pay the actual invoice.

The Individual’s Currency

Then there’s the potential regulatory issues. One usual attack vector from a regulatory point of view is the versatility of a regional currency and its applicability to bypass fiat money. Blockchain can help here, too. While a single currency can easily be attacked for becoming too “powerful” or ubiquitous, it is much harder if every community member has their own individual currency.

Imagine that Bob has his own “Bob’s work-time tokens,” Alice has “Alice’s work-time tokens,” and Chris has “Chris’ work-time tokens.” Let’s also introduce a standard work-time token to simplify all the conversions. Bob’s Token is convertible against this standard work-time token in both directions, as are Alice’s and Chris’ tokens. Through a TokenWARP, everyone can now pay with their own currency. The standardized work-time token serves only for conversion purposes and is never directly used for payment. Nobody owns this token, and it doesn’t even have to be in circulation. The governance can even be done through a decentralized autonomous organization (DAO).

Welcome to the Neighborhood

Another issue is the restriction of the use of these tokens to community members only. You don’t want someone from outside to hold Bob’s tokens and claim Bob’s work hours under conditions that are perhaps not in the community’s best interest. Blockchain can help with this. Token usage can be restricted by governance smart-contracts, which contain exact rules for who can get, hold, and spend which token. This makes it simple to restrict the token usage to a certain community.

The same mechanism can be used to make sure there is little to no friction with local laws and regulations. Because the community can restrict and limit the use of their currency, it will stay regional and can’t become a standardized currency that competes with legal tender. Finally, as with any other application, blockchain technology also makes double-spending and forgery totally impossible.

Blockchain technology, particularly when delivered via CoreLedger’s Token Economy Operating System (TEOS), is really the perfect tool to implement these regional currencies that promote jobs, support local businesses, and otherwise improve the economy and health of a community. Augmented with the many features of TEOS, these community currencies can stay local but thrive, because all the important, complicated administration and trust mechanisms can be safely delegated to a tool that works on the basis of mathematical and cryptographic principles.

At CoreLedger, we believe that blockchain is a practical technical solution to improve and solve a wide variety of issues across industries and sectors, which is why we try to cut through the hype and focus on real world applications, not just what’s technically possible.

CoreLedger’s mission is to help businesses of all sizes quickly and affordably access the benefits of blockchain technology. From issuing a simple token, to enterprise- grade token economy solutions, we have all the tools you need to quickly and affordably integrate blockchain into your business.

Interested in our results-focused, real-world approach? Then visit our website for more information, or get in touch with us directly to discuss your project.