Foundations for Associative CryptoEconomics

By Sebastián Bilbao, 2019

Abstract

A series of blockchains¹ are interconnected via compatible smart contract² languages to establish a novel CryptoEconomic Network whose main purpose is to enable an economy that prevents the stagnation of money and derives value exclusively from the needs of the human being.

A novel cryptoeconomic method, termed Proof of Value (PoV), is introduced to overhaul “Mining”, defined as the prevailing cryptographic process by which the up-keep of ledgers is rewarded with the issuance of virtual money; examples of which are, Proof of Work (PoW)³ and Proof of Stake (PoS)⁴. By contrast, the PoV method exclusively grants individuals, whose activities result in new values entering economic circulation, the right to create money for the goods and services they create. This resembles what is known as “tokenization”⁵ of assets. The PoV method captures three pieces of information from the economic transaction; the invoice, the receipt and it’s worth⁶, “minting” them into new unique data-blocks in the Blockchain. Effectively these new data-blocks not only merge the ledger entries, for the value and money, into a single one, but are also embedded with smart contracts to serve as the novel layer of accounting governance, instrumental in realizing the purpose of the CryptoEconomic Network. The PoV method pairs the unique and finite lifespan of each new economic value to its reciprocal new data block. By doing so, the Network reveals a 1:1 ratio between all money and economic values in circulation bound to keep the Network in balance. This measure prevents the introduction of false values resulting from the commodification of Land, Capital and Labor and further profiteering from these in speculative and abstract markets which thwart the economy. Three distinct qualitative objectives are phenomenologically identified sequentially along the lifespan of money. These are: Purchase, Loan and Gift, which the Network is designed to aid orchestrate into a self-sustainable economic loop.

Associative CryptoEconomics is the cooperation of all Network members holding roles in the Division of Labor; mainly Producers, Distributors and Consumers; to unanimously uphold the Network’s main purpose. The Network’s practical functions are to offer its members an instrument of perception through which the ever-changing factors of the Economy can be observed in real-time, and provide the collaborative platform in which the necessary instruments to manage socioeconomic equilibrium can be created and acted upon. Three fundamental socio-economic activities are identified from those roles and constituted into independently operating Economic, Political and Cultural domains which, nevertheless, are organized to overlap in a Trilateral Cooperative to govern the Network; each domain having an unalienable and sovereign equal share in it.

The proposed Network is largely inspired by Rudolf Steiner’s Economic Course⁷ , the economic association outlined in that course, and his description of the Threefold Social Organism⁸.

I. Technology Background

Although this novel Economic Network is proposed as a financial technology (fintech)⁹ product, largely based on blockchain technology embedded with smart contracts¹⁰ across decentralized public and private networks, it is, however, not exclusively dependent on such technologies to be realized. Up to a certain scale, it could be implemented using fiat currencies, conventional legal contracts, double entry bookkeeping and third party trust agents such as financial institutions and governments. Nevertheless, fintech offers the opportunity to remove unnecessary financial friction and the risk for unethical or political interference by these third party agents along with the possibility to break off from inadequate conventions and routines that hinder socio-economic progress. The main reason for proposing fintech as the medium for the proposed Network is its scalability, allowing scales from as small as a single closed community, up to encompassing the entire global economy. Its digital nature would also make it possible to link it to other relevant networks such as the Internet of Things (IoT)¹¹, sensors monitoring natural phenomena, historical databases and other human interfaces, to increase efficiency and transparency in the management of the supply and demand chains of the Division of Labor. This would harness the fourth Industrial Revolution in the most humane possible way, balancing the economic efficiency gained in linking the Network to these other networks, with their inherent loss of privacy of such networks. Fintech also offers a fast iterative design process and model forecasting; all of which are ideal to quickly iterate on its perpetual development as it adapts to the ever-changing socio-economic fluctuations.

II. The Network’s Monetary System

Although the definition of money is still inconclusive in conventional economics, it is collectively understood to be a store of value, while currencies are considered to be the instruments used to circulate and easily exchange that value. It is important to note that this distinction was not incorporated into the invention of the blockchain; which among its aims, it contended that centralized intermediary trust agents are not essential for financial transactions. The differentiation of money and currency in the blockchain was thus overlooked and these became fused into a single instrument, the cryptocurrency. Overtime, these differences have been organically resolving into distinct instruments, nevertheless, there is still systemic ambiguity towards their interpretation in the fintech world and the impinging regulatory bodies¹². In the context of this paper it is important to note that cryptocurrencies that rely on Proof of Work or Proof of Stake are by definition considered to be flawed, as they do not have a truthful link to any legitimate creation of real economic values. The proposed Network attempts to resolve these and other flaws and is not to be associated in any way with blockchains and cryptocurrencies that rely on PoW or PoS. To further differentiate conventional fiat money and cryptocurrencies from those in this paper, the words Money and Currencies are capitalized to indicate the Network’s own and are defined as follows:

Money refers to:

1. A universal financial instrument for economic exchange.
2. It arises from the surpluses of the implementation of the division of labor.
3. Its value is dynamically and adaptably adjusted to the values of a reserve basket of assets (see II.I Reserve Basket). The basket measures the harmonized economic potential comprised in those surpluses.
4. It’s never to be treated as a commodity.
5. Is both perishable and renewable.

Currencies are defined as:

1. Instruments arising from within the division of labor to facilitate economic exchanges.
2. They mark the entrance of new tangible values into economic circulation.
3. Their worth fluctuates between their previous conversion to Money and the actual economic conditions in which they are created and exchanged.
4. Currency surpluses are transmuted into Money. (see above, Money: 2)

In this sense, Money has a correlation to Chartalism, as it derives its value from agreements and intangibles and Currencies have a tie to Metallism, as they derive their value from commodities created to satisfy needs. The Network’s paradigm acknowledges the historical tension between Chartalism and Metallism and combines their qualities into a new one in an attempt to balance them.

Conventional cryptocurrency mining¹³ practices — where the safeguarding and up-keeping of the blockchain’s ledgers is rewarded with new cryptocurrency — is banned from this Network altogether because such practices do not bring any new economic value into circulation nor link to the economic potential of the Network’s users. The upkeep of the ledgers in this Network is treated as a non-for-profit public utility service with its operational cost shared across the Network by charging its users a nominal fee, proportional to the size of each transaction. Other current cryptocurrency valuation methods based purely on financial speculation, such as Yield Farming¹⁴ or DeFi¹⁵ (Decentralized Finance) which replicate unhealthy “Wall Street” schemes would also be banned as they also fail to link to real economic activities.

Similarly to how non-fungible tokens (NFT)¹⁶ are created, the Network creates Currencies via a Proof of Value method in which the eventualities of new goods and services entering economic circulation become the principal acceptable deeds warranting the creation of Currencies into the Network. During this process, they also inherit the economic lifespan of those goods or services, that they are correlated to. Needless to say, this would appear to be a highly impractical monetary system since there would be as many Currencies as there are issuers of goods and services, all having different lifespans and valuations. Thus, for convenience’s sake, a standardized instrument is anticipated to which all Currencies could be converted into to eliminate friction and to allow exchanges across wider economic regions and complex production chains. Nevertheless, the Network would also allow the exchange of Currencies within small economic regions or short production chains of trusted members. This standardized instrument is what in this Network is referred to as Money.

II.I Reserve Basket

Backing the value of Money are the Network’s Reserves, which are comprised of a basket of four indices measuring the Fundamental Resources required to create and bring economic values into circulation, namely: needs, nature and the will and intelligence of human beings. These four resources undeniably set the standard by which to gauge the humaneness in economic life, therefore they are ideal to guide the value of the Network’s reserves and Money. The value of Money is pegged to and derived from the harmonized total sum of the Fundamental Resource factors found in all the Currencies being standardized. It is important to note that Money could also be issued from future endeavours, harmonizing the presumed value of surpluses from propitious economic endeavors about to enter circulation (aka Credit). This emphasizes that the creation of value originates from two phenomena: i) applying labor on nature ii) applying intelligence on labor. The value of Money is intended to adapt to an average of the quality of the four Fundamental Resources of the economy. Of the four Fundamental Resources; two, Nature and Will, are rooted in Metallism and the other two, Needs and Intelligence, on Chartalism. This blend allows for a more fluent handling of the tangible and intangible forming factors of the Network’s Economy. In contrast with fiat monetary systems and standard cryptocurrencies, one can readily see that while these Fundamental Resources are not used in their reserves, nature and the human being, unavoidably become secondary economic goals. By comparison, current reserve assets are based on monopolies that control natural resources or conjured abstractions, such as the USD, gold, oil, data or cryptocurrencies and turn their arbitrary supply into the dominant economic pursuit.

As a reference point to harmonize all the possible goods and services, the Network’s Reserve Basket would use a commonly needed and available commodity that could easily be produced around the world, adjusting for the conditions in each region so that they are fairly comparable. For example, the transformation of wheat, to satisfy a nutritional need, consisting in combining seed with the natural elements and the will and intelligence of a human being, resulting in a commodity having a long shelf-life — this would be an ideal economic activity on which to base the adjustment of the Reserve Basket indices. The qualities of the forming factors, not the resulting commodity itself, are what serve as the reference points from which all other new economic values and Currencies, arising in the Network, are to have their intrinsic value and lifespan corroborated to be transmuted into Money. The Network is to host dynamic conversion indices, similar to conventional commodities markets, to harmonize the intrinsic values and lifespans of emerging economic values and their Currencies against the Reserve’s own. Since all conversions are exclusively based on the Reserve Basket’s four resources, a transparent link is established by all data-blocks to these, throughout their lifespan, showing how these were configured in their original state, thwarting the introduction of false values at any time.

An approximate 25 year shelf-life is sought for the candidate commodity to be used in deriving the Reserve Basket indices. This is deliberately done so it can be paired to the approximate employment lifespan of each generation of human beings involved in economic activity. The value of the basket would thus fluctuate at par with the unique virtues of each generation responsible with organizing nature, will and intelligence to satisfy the needs of their time. Thus, the basket’s own indices are characterized by each generation’s own four virtues, which in turn, can be used to gauge the variance in the quality of each generation’s economic deed, as it’s chronologically recorded in the Fundamental Resources indices. A simple commodity, such as wheat, is favorable for establishing a democratically fair watermark for the basket’s indices. Additionally, just as members of each generation are, in due course, expected to die, so are their perishable contributions to the reserve basket. Effectively, each generation “mints” its own reserve basket, imprinting its virtues in it and passing it on as Money for the benefit of the following generation.

The initial data block of a Currency would serve as a unique birth certificate for recording the economic event; place, time, lifespan, creator, the type of economic good or service entering circulation that it is paired to, and the members of the Trilateral Cooperative (see 11. Governance) that ratifies its creation. If a Currency is converted into Money, then a new data block would be issued to amend the previous state, recording it’s new value, lifespan and Trilateral Cooperative endorsing the conversion.

The issuance of Currencies by private individuals is expected to have a significant social impact, especially among entrepreneurs and workers because their vague collective perception that all money originates outside their initiatives and activities is shifted to a new paradigm in which the Network undoubtedly centers on them as the originators of economic values, Currencies and Money. The issuance of Currencies is an unalienable right exclusively granted to those individuals who bring new goods and services into economic circulation.

The surpluses amassed from the goods economy, which allow service providers to be spared from participating in the goods economy, are to be used to valuate the service economy. For instance, currencies created by new services that don’t link directly to nature, such as accounting, are to have their value and lifespan correlated to an equivalent amount of surpluses from the goods economy. This keeps the valuation of the service economy healthily pegged to nature and the will of human beings, and prevents their valuation from sky rocketing out of economic context, into pure abstraction. If the described service valuation procedure depleted or incurred a deficit in the goods economy surpluses, then the Network would serve as the instrument to identify and correct the root cause/s of the deficit. For example, these could range from underemployment in the goods economy, inefficiencies in the production of goods, an overabundance of services, and even a need for more cultural endeavors to revitalize nature, the will and intelligence of human beings, in both, the goods and services, economies. The size of the goods economy surpluses in the Network would also serve measure the number by which service economy workers could be spared from participating in the goods economy.

III. The Network as a collective Balance Sheet

Given that Currencies in the Network are created as the mirror events of new goods and services entering circulation, and that these Currencies also inherit the lifespans of those new goods or services; a 1:1 ratio results between these, where the total sum of all Currencies inevitably equals the total amount of goods and services in circulation and their means of production. The crux of the Network is to safeguard the integrity of this ratio, which is accomplished by tracking all the Currency-to-value relationships in the blockchains and verifying that all data-blocks have an existing counterpart in the form of an economic value in circulation. Entries to the blockchain that fail to prove this 1:1 relationship are rejected, returning all affected distributed ledgers to their previous closing state. The real-time nature of the Network constantly updates the state of accounts across the entire ecosystem, and effectively provides near real-time financial statements portraying a living picture of the perpetual micro and macro fluxes of all the economic factors being tracked by it. By layering this living image with the historical data available within the blockchain, patterns can be audited to visualize the causation or effectuation of the fluxes in the Network. Additionally, the Network allows its users to run Smart Contracts, in simulation mode, to forecast their economic endeavors. It also provides the Trilateral Cooperative with a layer of Smart Contracts to, if necessary, implement temporary macro or micro corrections, in the form of economic policies or accounting rules, to manage unexpected fluxes and preserve the integrity of the Network and its value-to-Currency ratio.

IV. Pricing

The commodification of Land, Capital and Labor distorts the formation of prices. Land and Capital establish their usefulness in economic life through the legal realm of society while Labor’s economic usefulness arises from the social diversity and inspiration instilled into individuals by the Cultural domain. Allowing Land, Capital and Labor to have primary economic roles in price formation, or using them as money reserves, displaces nature and the human being from the central focus of the economy. These observations, which are described in detail in Steiner’s Economic Course¹⁷, establish the ethos to be used in the Network to determine the prices of all goods and services, including their concomitant Currencies. The distortion of prices is identified to arise from the abstract valuation of Land, Capital and Labor, therefore these are to be excluded from price formation, leaving the needs of human beings as the only factors to be taken into consideration. Although this might seem insurmountable, even Utopian in today’s context, it doesn’t diminish that this pricing method is phenomenologically in line with the truthful, yet unrecognized, epistemological reality that, in their own right, Land, Capital, and Labor do not have intrinsic economic value. By definition, in this Network, only goods and services that directly settle the needs of human beings through the division of labor are economic values. Therefore prices are to be formed out of the needs of all those individuals involved in satisfying a need, and transactions are to transpire only when the needs of all those involved are balanced out. This Network will use strict smart contracts to curtail its users from returning to the false premises that Land, Capital and Labor have value of their own, are commodities or stores of value, that could be sold or rented in speculative markets to generate falsified values, prices, needs and Money. To overcome the apparent insurmountability of removing the cost of Land, Capital and Labor from prices, the Network will be first validated in simulation mode where these conditions can be readily made so by assuming that the users of the Network are in-line with these conditions. Then, deployed into closed economic regions capable of meeting these conditions for further validation. Finally, devising local de-funding incentive programs for Land, Capital and Labor, to allow wider implementation of the Network by proving that this price method is, in the long run, healthier and cheaper than those requiring the commoditization of Land, Capital and Labor.

V. The Three Objectives of Money

Since the valuation of Currencies in the Network is kept at par with the depreciating values of the goods or services that warranted their creation, it follows that Currencies are to depreciate at the same rate and along the same finite lifespan as the goods and services they are paired to. The proposed Network identifies three phenomenologically distinct qualitative objectives which all values, including Currencies and Money, sequentially transition through in their lifespans, as stages. Currencies originate in the Purchase stage with the objective of purchasing goods and services to satisfy needs. Given the natural economic tendency to accumulate surpluses, a point is reached in the Purchase stage, where the objective of the surplus Currencies shifts to lending. In this second Loan stage, Currencies seek to fund new or existing economic endeavors poised to improve the Purchase stage. And finally, just as the natural tendency to create surpluses in the Purchase and Loan stages start to compound, approaching stagflation, it’s objective shifts into Gifting. Once in the Gift stage, Money’s objective is to freely fund activities that nurture the intelligence and will of human beings and restore Nature so that the entire economic process can regenerate and, preferably, enter into a sustainable cycle.

Since the lifespans of goods and services also transition through these three stages, it is important to note that Money not only follows the stages via the Currency to Money conversion, but also keeps a link to these goods and services to allow for adjustments that might happen after the conversion. Blockchain introduces complete transparent traceability, which allows a real time and after-the-fact forensic analysis of these three stages. In this respect, Money and Currencies take on some of the characteristics of Non Fungible Tokens (NFT), as they keep a discrete link to an actual unique service or commodity in the economy. Furthermore each stage has an affinity towards one of the three domains of the Trilateral Cooperative; the Purchase stage relates to the Economic domain, the Loan stage to the Political domain and the Gift stage to the Cultural domain. How these links pertain to the formation of prices in the Network will be explored in Section X, Price Factoring.

The three objectives of Money are described in greater detail later in this paper, but to quickly summarize, their gesture is analogous to the stages that a vital substance goes through as it gives away its life supporting substances to an organism that needs it for survival. For instance, when we intake oxygen to support our living process, it first takes a similar objective as described in the Purchase stage, where the immediate and uninterrupted oxygenation of the blood is indispensable, followed by the rest of the organs and tissues bidding to gain access, as in the Loan stage, to the surplus of oxygenated blood, according to the merit of their activities. Finally, resulting in a transmuted substance that is highly valuable to other organisms but toxic to the host of the process, prompting an exhalation, as in the Gift stage.

VI. The Economy as a Perpetual Cycle

At first glance, those values reaching the end of their lifespan in the Gift stage would appear to be bound to expire once used, an event bound to shrink both the Money supply and size of the economy. This possible downturn is addressed by prompting Network users to renew those Gift values instead of expiring them, promoting the much desired effect of setting the Network’s economy on a Perpetual Cycle.

Practically speaking, when a good or service and its paired Money reach the end of their paired lifespan, they both are set to expire upon the execution of a Gift transaction. This constant massive depletion of economic values, in the Gift stage, amounts to an equally constant massive demand for their replacement with new ones in the Purchase Stage. Meeting this constant demand with constant renewal is precisely how the Economy can be properly balanced among all participants and set into a Perpetual Cycle. In the Network, all values, Money and Currencies either expire in due course, or are renewed, and nothing is allowed to stagnate indefinitely. Renewal would occur when Gift Money circumvents its expiration by being used to purchase a newly created value, effectively transmuting Gift Money into new Currency within the Purchase stage. This would reset its age to 0 and link it’s lifespan to that of the newly created economic value that it’s paired to; all the while complying with the 1:1 ratio. As per the previously mentioned price method, it is anticipated that the total needs, including those of dependents, will tend to result in a higher demand for new values than what’s available in the Gift stage. Thus a mix of Gift Money and new Purchase Currency would tend to be needed to settle a transaction. On the other hand, if Gift Money consumes solely an inventory value, without it being replaced with a new one, then both the value and the Gift Money would effectively be expired — taken out of economic circulation and undesirably shrinking the Economy.

The quality of the needs, will, intelligence and natural resources available to the people responsible for answering to such a huge economic demand would determine if the economy can be set into, or kept in, perpetual circulation. This bolsters the importance of having these four virtues as the Fundamental Resources for the reserve basket and highlights the collective benefit that results from nurturing them vigorously so they can set or keep the cycle in motion.

VII. Purchase Stage

The first objective of Currencies entering the Purchase stage is to facilitate the exchange of goods and services that help meet the immediate subsistence needs of people. In doing so, Purchase Currencies monetize those needs, expressed in goods and services. Depending on the complexity and maturity of the Network’s economy, a variety of financial procedures could be implemented for the creation of Currencies. Among these, one would grant those who create new values the right to issue their Currency in exchange for introducing new values. Another, would allow newly created Currencies or Gift Money to be exchanged for new values; and lastly, a mixture of both, existing Currencies and the lawful right to issue Currency could be used to purchase new values.

Allowing for this diversity of Currency creation procedures to coexist turn the Network into a very resilient one, as the Network could be bootstrapped, from the Purchase stage, at any time, in any place, and at any scale; especially without having to rely on fiat currencies or external cryptocurrencies as collateralized reserves for the Network. The exceptions being if energy, financial and land monopolies, and their abstract means of exchange, cannot be circumvented.

The second objective is the direct result of the division of labor’s own tendency to introduce efficiencies in the production and distribution of goods and services, which result in the accumulation of surpluses from the Purchase stage (aka Capital). These surpluses are first to be used to settle all remaining needs incurred by individuals and companies in the production of new values, and secondly, they are to underwrite the valuation of new services. The qualitative characteristics of the remaining net surpluses are evaluated to re-calibrate the Fundamental Reserve indices, and then these indices used to convert these Currencies into Money. Finally, the resulting new Money is transitioned to the Loan stage to incentivize entrepreneurs.

The chronologically encoded time-stamped transactions in the blockchain would serve to identify when new goods and services, and their associated Currencies, become surplus. For example, a frantic market transitioning to a slower “inventory-building” behavior would signal that these are becoming surpluses, and thus, potentially ready to be shifted into the Loan stage to promote growth and prevent stagnation.

VIII. Loan Stage

The objective of Money in the Loan stage is to capitalize the will and intelligence of as many human beings as possible, who are inspired and determined to bring forth innovation or improvements to economic productivity. Thus, loans are issued to innovate or improve the quantity and/or quality of the goods and services that are put in circulation to meet the ever-changing needs of the Network’s community. As previously stated, the Loan stage is funded from the net surpluses of the Purchase stage, this transmutation is governed by the Trilateral Cooperative, which is also tasked with allocating collateral free loans to those auspicious endeavors that prove to be thoroughly planned to mitigate risk, maximize efficiencies and are poised to return, both, high economic value and surpluses for the community.

When Money in the Loan stage is used, it takes a temporary step back into the Purchase stage where it is used to procure the goods and services required to realize the promise of the entrepreneurial endeavor. Successful endeavors trigger a compounding effect on the net surpluses in the Purchase stage, from which the Loan stage then not only draws back enough to recover the totality of the initial Loan but, ideally, also draws abundant surpluses to exponentially grow the funds in the Loan stage, so that more and more auspicious endeavors can be funded.

Outside the Network this pool of Money is known as Capital and due to the inertia of prevailing conventions, it would be diverted at this point from its phenomenological true purpose and either turned into a rental commodity, used to capitalize Land, or disrupt Labor. This Network would ban such diversions and guarantee that the funds in the Loan stage are exclusively used to capitalize entrepreneurs with potentially auspicious endeavors. If there were no sufficient funds in the Loan stage or if it was oversubscribed, then the Trilateral Cooperative would have the flexibility to resupply the Loan stage by designing and implementing the most suitable measure for the circumstances at hand.

For example:

1. If the Network was to be started from scratch, meaning without Money in any of the three stages, then all three could be created as “social credit”, to be returned using the expected surpluses that the Network is posed to return.
2. Incentives could be put in place to redistribute the labor force into the goods economy to produce more surpluses.
3. The value of the Reserve Basket’s indices could be increased by taking into consideration the potential value instilled in the endeavors seeking Loan funds; especially from the Need and Intelligence forming factors of these endeavors.

The endeavours that fail are to be reassessed as cultural experiments from which future entrepreneurs can learn from. These lost loans are then to be tallied into the following Gift stage. Practically speaking, the amount of Money used in a failed loan is set to expire, the reserve basket indices devalued accordingly, and the values coupled to it transitioned for immediate consumption, without replenishment, mainly because the loan did not produce any surpluses, only a deficit. Thus, a failed loan effectively expires both the Money used for the loan and its paired values in order to maintain the 1:1 ratio.

Loan Money is to remain active in these Loan cycles for as long as the generation that either originated it as Purchase surplus, or took it on its first Loan loop, remains active in the economic domain of society. As stated before, this is socially significant as it implies that each generation responding to the economic challenge creates its own generation’s Money, infusing it with the capacities and characteristics of it’s unique response.

The blockchain is ideal for keeping track of Money in the Loan stage cycles, marking its first Loan cycle, along with every other subsequent loan cycle, and singling it out for transition to the next stage when the generation that parented it starts retiring. This last event would indicate that the time to retire that generation’s Loan Money into Gift money has arrived.

The success or failure of Loan cycles in the Network, measured by the amount of paired surpluses of goods and the size of the funds in the Loan stage, would indicate the rate at which workers would need to transition to or from the goods economy, service economy or cultural activities. Given that the division of labor dispositions the economy towards automation, the majority of the workforce is expected to lean into services and cultural activities. In the long run, these activities have the potential to further develop the will and intelligence of younger generations, who in turn, are bound to circle back to boost the goods and services economies even further, keeping the Perpetual Cycle healthy.

Emphasizing once more, this Network is designed to prevent surpluses from ever commoditizing Land, Capital or Labor markets as such practices would sequester Money from the cyclic economic paradigm that this Network attempts to maintain and cause the types of capital stagnation that we have become accustomed to.

IX. Gift Stage

The previously described Loan cycles are predisposed to compound vast amounts of funds in the Loan stage from the net surpluses of the successful loans. It is thus naturally expected that a way to devalue the accumulation of Money in the Loan stage will be needed to prevent stagflation from creeping into the perpetual economic cycle that this Network seeks. To do this the oldest Money in the Loan funds is to be devalued at par with both, the depreciating quality of the commodity chosen for deriving the reserve basket value and the aging generation that either parented it as Currency or took it on its first Loan cycle. Eventually a point in time is reached when all three, the aging generation, the matured Loan funds and the perishing goods and services, all become counterproductive to the economy and need to be retired from economic activity. This point is constantly triggered as workers enter into retirement and the Money, in the Loan stage, linked to those people, is taken out of the Loan cycles. At this point Loan Money’s objective is transmuted into nurturing society in the Gift stage, where it will either expire or be renewed.

The principal objective of the Gift stage is to nourish the intelligence and will of the Network’s community by developing the capacities of individuals. This is to be done mainly through cultural activities which, in the long run, aggregate the inspiration, intuition and imagination of the collective, growing the overall capacity of the Network’s economy. Another key objective of the Gift stage is to support the needs of those people who do not directly participate in the Purchase or Loan stages of the economy, namely, those active in Cultural and Political activities such as; teachers, judges, researchers, children & their care takers, artists, incapacitated, the elderly, retirees, police, politicians, etc. All these non-producers, who tend to amass the majority of the population, are to be funded with Gift Money. Their needs are capitalized creating a massive demand for goods and services in the Purchase stage with the potential to fuel the desired Perpetual Cycle (see section VI).

The Trilateral Cooperative is also tasked with both, overseeing the retirement of Money from Loan into Gift, and with granting it to Cultural and Political activities. The recipients of these Gift grants are to use them in the Purchase stage to satisfy their needs for goods and services. In doing so, they play the potential vital role of closing the circuit of the Perpetual Cycle by renewing Gift Money into Purchase Currency.

The transparency allowed by the Network’s blockchains would immediately point out anomalies, such as cultural decline, poor governance, natural degradation, etc. and use these indicators as additional criteria to take corrective action by either advancing or delaying the promotion of Loan Money, and its paired goods and services, into the Gift stage. Furthermore, this data analysis method can effectively identify building imbalances that would lead to bubbles, price distortion, recession, and address these before they become serious threats to the Network’s entire economy. In this way, the Network will deliver more stable prices and consistent purchasing power to Network members so that they can meet their needs and live a more stable life with greater economic certainty and stability.

Fig 1. The three stages of Money along a 25 year lifespan.

X. Price Factoring

In order to preserve the described Perpetual Cycle, it is essential that both Currencies and Money freely flow through the corresponding stages, without getting stuck in, or skipping any of them. With this in mind, it becomes evident that needs, and thus their prices too, are formed out of a wide range combination of cultural, political and economic sub-components, and thus it becomes logical to dissect their prices into these forming factors to avoid the potential to mismatch the type of Money with the type of need at hand. This is to be prevented through the Network’s bookkeeping, which is designed to deconstruct needs down to their price forming factors, and then tally these up into three accounts; each corresponding to the three stages. Cultural needs are to be tallied in the Gift ledger, entrepreneurial needs in the Loan ledger, and subsistence needs factored into the Purchase ledger. To facilitate this procedure, all Currencies and Money have their current stage encoded in the blockchain and can be transparently audited by those using them to guarantee that the correct stage of Money is being used to settle the corresponding price factor of each transaction. This entails operating with a three-manifold form of bookkeeping where each of the three stages have their own distinct accounts and all prices get deconstructed into these. The 1:1 ratio would be confirmed by reconciling all three ledgers into a single account, making public trial balance available at near real time .

As an example of this price deconstruction process; three Price Accounts would be set up representing the three fundamental social domains and correlating each to their Money stage — Cultural with Gift, Political with Loan and Economic with Purchase. Then, the forming factors of the need are to be decomposed and allocated to the proper Price Account, so its balance can be settled with the corresponding type of Money. For instance, the price of a grand piano needed by a young musical prodigy would primarily be settled with Gift Money granted under the auspices of the Trilateral Cooperative, confirming the child’s talent. This gift money would be transformed into Purchase Currency to monetize the productivity of the piano builders, expressed in the cost of their own needs. All innovations and efficiencies incurred in the making of the piano by the piano builders, would be settled with Loan Money allocated by the Trilateral Cooperative, and finally, Purchase Money, if needed, would be created by the piano builders, to settle raw materials, distribution, warehousing and other production needs.

This brings about a significant social benefit over our current paradigm, where if the child’s family was unable to afford the piano, everyone would be left without a pianist. Instead, the proposed paradigm focuses on the social benefit regardless of the child’s family financial means. But, let us consider a scenario where the child’s family would had diverted all their Purchase Currencies available for acquiring the piano, in which case, they would not only have bypassed their Currencies’ Loan stage, which would have helped expand their family economy, but it would have also deprive the family of other needs that should have been met with that Purchase Money. In the long run these types of mismatches and missed-steps, big or small, are detrimental to the Perpetual Cycle that this Network strives for, because it deprives funding to both entrepreneurs and those active in the cultural domain, who are essential in the Perpetual Cycle. It also ignores that, in this case, the child’s musical gift, a pure cultural activity, is the source of the economic activities and the resulting new values.

XI. Governance

The Threefold Social Organism put forth by Rudolf Steiner provides the guidelines for the governance model intended for this Network. In short, a Trilateral Cooperative assembled from the Cultural, Political and Economic domains of Society, each taking on an unalienable equal-share stake in the Trilateral Cooperative to, among other things, prevent bi-partisan stalemates or totalitarian rule. Each domain, while remaining independent of the rest, equitably overlaps with the others to form a unified governance body to govern the Network by consensus. This trilateral arrangement is the phenomenological foundation on which all healthy conscious living forms thrive on and thus identified as the most favorable social structure for the Network. The infrastructure of the Trilateral Cooperative consists of micro, mezzo and macro guilds. Guilds of Consumers, Distributors and Producers; large and small, local or international; respectively representing the Cultural, Political and Economic domains, are established freely throughout the Network, by its members, to advocate for the intrinsic characteristics of each independent guild across the micro, mezzo and macro governance layers of the Network. Above this infrastructure, the guilds come together under their respective three social domains to form Trilateral Cooperatives, also operating at micro and macro levels. These cooperatives arbitrate and police the integrity of the Network, upholding that all resolutions are reached via trinary consensus. Associative Economics is what the Trilateral Cooperatives practice at all levels. Among other things, these Trilateral Cooperatives would be responsible and accountable for:

1. Transmuting Currencies and Money along the three described stages.
2. Validating the inception of all Currencies.
3. Validating the expiration events of Money and their associated goods.
4. Issuing Loan Money to entrepreneurs.
5. Granting Gift Money to non-producers.
6. Adjusting the Reserve Basket’s indices to current economic circumstances.
7. Keeping the 1:1 value-to-Currency ratio stable.

From a technological standpoint, the governance technology known as a DAO¹⁸ (Decentralized Autonomous Organization), is to be used by the Network to form guilds and enable the micro, mezzo and macro Trilateral Cooperatives perform the tasks listed above. The unhealthy phenomena known as “code is law”, where software could overrule the judgment of human beings, or the incontestable “terms and conditions” dilema, where opting out leads to social exclusion; are examples of serious threats to the Network’s integrity. Thus, all decision-making tasks required from the members of the Trilateral Cooperatives, are categorically banned from becoming automatic static routine conventions, which could eventually take hold in Network’s governance as indisputable policies. In the Network’s DAOs, decision making becomes the perpetual direct responsibility of human beings congregated in Trilateral Cooperatives.

XII. Conclusion

Building a new economic Network capable of having money exclusively created to represent the entrance of economic values into circulation, and having this money instilled with the same lifespan of said values; and having these lifespans elapse along three distinct purposes, on linked blockchains, programmed to abolish Land, Capital and Labor from being commoditized and from entering price formation, while preventing money to stagnate at any point, is now possible. Providing such a Network to the public would provide the fertile soil in which the new cooperative spirit required to run such a paradigm could unfold in its users, bringing with it the possibility to advance the stagnant social question.

The proposed Network also stands as a wholesome answer to other ones under development, such as Facebook’s Diem project, or those of many Central Banks, such as the Chinese Central Bank’s e-RMB, all of which are on a race to capture the unclaimed monopoly over the global peer-to-peer payment system required for the 4th Industrial Revolution. Whether a private or a state run network ends up capturing this space, it is most certain that either would further perpetuate the current practices and conventions that lead to the stagnation of Capital and falsification of prices and money, all having negative impacts on the Social Organism. Although the described Network could be deployed as a stand-alone paradigm, it is nevertheless fathomable that it could also be built on top of whatever unit of account is devised by these private or state run global p2p financial networks.

As it is implied throughout this document, the proposed Network is revealed as a real-time fintech ecosystem requiring, innovation in accounting, economic and political transparency, moral accountability and a social maturity, with the goal to remove ambiguity, egotism and speculation from the demand and supply chains of the division of labor, with the benefit of advancing the social condition.

Endnotes

1 Blockchain Technology, a growing list records represented by data blocks linked by cryptographic means on an open distributed ledger which verifies the authenticity of each data block permanently. (https://www.ibm.com/blockchain/what-is-blockchain)

2 Smart Contract, a programming language embedded in a blockchain that allows designing how data blocks perform and are registered in the distributed ledger. (https://www.ethereum.org/beginners/ )

3 PoW, a blockchain consensus mechanism involving solving of computationally intensive puzzles to validate transactions and create new blocks. (https://coinmarketcap.com/glossary/#proof-of- work )

4 PoS, a blockchain consensus mechanism involving choosing the creator of the next block via various combinations of random selection and wealth or age of staked coins or tokens. (https://coinmarketcap.com/glossary/#proof-of-stake )

5 Tokenization, the process by which real-world assets are turned into something of digital value called a token, often subsequently able to offer ownership of parts of this asset to different owners. (https://coinmarketcap.com/glossary/#tokenize)

6 Invoice, receipt and worth could be correlated to Paccioli’s Memorandum, Journal and Ledger (11th Treatise of Section Nine of the :Summa de Arithmetica, Geometria, Proportioni et Proportionalita” Pacioli, 1494)

7 Fourteen lectures on economics given in Dornach, CH, 24th July to 6th August, 1922 by Rudolf Steiner (aka, World Economy Course) (https://wn.rsarchive.org/Lectures/GA340/English/RSP1972/WldEco_index.html)

8 The Threefold Social Organism, Rudolf Steiner 1919 (https://wn.rsarchive.org/Books/GA023/English/AP1972/GA023_index.html )

9 Fintech, aka Financial Technology. (https://www.uschamber.com/co/run/business-financing/what-is-fintech)

10 Smart Contract, a programming language embedded in a blockchain that allows designing how data blocks perform and are registered in the distributed ledger. (https://www.ethereum.org/beginners/)

11 IoT, connecting devices to the internet to report data on their usage (https://www.ibm.com/blogs/internet-of-things/what-is-the-iot/)

12 For example: Bitcoin was originally both money and currency, evolving to become a “reserve” and ceasing to be used as a tender for transactions as per its original design. Upcoming Diem, is backed by a basket of fiat currencies while also being tender for transactions.

13 Mining rewards the upkeep of blockchains with cryptocurrency to the fastest bidder in the process (https://bitcoin.org/en/faq#mining)

14 Yield Farming refers to the commoditization and renting of stagnated virtual money to facilitate financial operations with the aim of providing return. (https://blog.zerion.io/what-is- yield-farming-d28bbdd2c724)

15 DeFi (Decentralized Finance) attempts to democratizes access to finance by recreating conventional finance practices regularly available only via third party institutions. (http://crypto.marketswiki.com/index.php?title=DeFi_(Decentralized_Finance)

16 Non Fungible Token, a non-fungible token (NFT) is a type of cryptographic token that represents a unique asset. NFTs are tokenized versions of digital or real-world assets. They function as verifiable proofs of authenticity and ownership within a blockchain network. (https://academy.binance.com/glossary/non-fungible-token-nft)

17 True Price Theorem: “A ‘true price’ is forthcoming when a man receives, as counter-value for the product he has made, sufficient to enable him to satisfy the whole of his needs, including of course the needs of his dependants, until he will again have completed a like product.” Rudolf Steiner, World Economy Course, Lecture VI,(https://wn.rsarchive.org/SocialIssues/GA340/English/RSP1972/19220729p01.html )

18 DAO, a Decentralized Autonomous Organization is a digital decentralized forum for governing organizations. (https://ethereum.org/en/dao/)