Communities, Currencies and Personal Tokens

One area of monetary history and theory I wanted to look at as part of my research was to dig into some of the findings from the community currency literature and apply them to personal or community tokens. (I’m just going to stick with personal tokens for simplicity’s sake here).

At first glance, it seems like there are plenty of similarities between the two concepts: Both try to create a medium of exchange that doesn’t rely on the dominant money form; both try to empower users with their own forms of money; and both are interested in solving some inequity created by existing intermediaries or platforms.

Here’s an argument for community currencies, or “open money”, from a pioneer in that field, Michael Linton:

Open moneys are virtual, personal and free. Any community, network, business can create their own free money simply by providing a set of accounts through which members can record their trades … Open money is money that must be earned to be respected. When you issue it, you are obliged to redeem it — your money is your word. It’s a matter of your reputation in your community.

Sounds a little like the arguments for Creator Coins, or an Ownership Economy or personal tokens, right?

What are personal tokens backed by, anyway?

But a brief detour into the types of money might be helpful before we get into community currencies. The chart above is from John Maynard Keynes’ Treatise on Money. The main things to pay attention to are the split between ‘commodity money’ and ‘representative money’. The latter is also known as ‘token money’.

Commodity money is the idea that money is valuable because of some intrinsic worth or utility that’s linked to the material that money is made of. A gold coin is an example of commodity money. Representative or token money, by contrast, is valuable because of the social relationships or the social agreements formed around it. A piece of paper guaranteed by a bank is an example of token money.

What’s interesting about these definitions for community currencies or personal tokens is that we can deal with the inevitable question of, what are these coins backed by? They’re not backed by any commodity; in fact, they are a form of token money that’s backed by the social ties — the community — that imbues it with value. And that idea is not a new one.

(For further reading, check out economic historian and Blockchain’s head of research Garrick Hileman’s taxonomy of alternative currencies, breaking them down into tangible and digital currencies.)

Community currency flavours

There have been a huge range of community currencies over the centuries. These range from “time dollars” to various types of scrip. The Schumacher Center has a fantastic summary of these community currency designs and the New Economics Foundation has a comprehensive guide to designing a community currency.

Let’s look at a few community currency flavours to see how they work:

LETS and Open Money A LETS is a Local Exchange Trading System, but apparently, they really were a shortened version of ‘Let’s Do It!’, and the acronym came later, according to Keith Hart’s 2006 overview — which reminds me of the exhortation to HODL among bitcoiners. They were started in the early ’80s by Michael Linton in British Columbia and gained traction globally. With Hart as a guide, here are some design features:

• The unit of account is usually equivalent to the national currency
• People open an account with one or several registers
• Each account starts with a balance of zero, requiring no deposit and earning no interest.
• Transfers and balances are recorded in a registry
• Each individual user issues the currency whenever their balance drops below zero
• This issuance implies a commitment to reciprocate the gift of goods or services they received
• All accounts in the system therefore sum to zero
• They are usually closed economies.

Time banking and Hours The idea behind time banking is that one hour is equivalent to a unit of money. It can be traced back to the 19th century when the industrialist Robert Owen issued tokens to workers that could be redeemed for goods below market price at certain shops, and the “Time Store” notes of Josiah Warren, which let customers buy products in return for a claim on their labour.

In the 1990s, this idea regained popularity, particularly with the Ithaca Hours project in upstate New York. Thousands of participants and hundreds of businesses took part. Some $100,000 in Hours were issued. Here are some features, from the Ithaca Hours website and Ed Collom’s 2005 study:

• Paper notes were printed, denominated in hours of labour
• Participants must fill in a membership and be entered into a database
• Each hour is pegged to $10
• All merchants willing to accept Hours were given four hours in notes to begin with
• Merchants accepting Hours are published in a directory called Hour Town.
• Every eight months, merchants may receive more Hours by sending in a coupon.
• 11% of Hours are issued as grants to community groups; 5% are issued to pay for printing of the notes

Lessons for personal or community tokens

So now we have an idea of what community currencies are and how they work, what does all this have to do with personal tokens?

One thing I found interesting was that early personal tokens experiments seemed to gravitate instinctively towards a labour-money model. For instance, in January Reuben Bramanathan issued the $Counsel token that could be redeemed for an hour of his time. Here’s how he framed it:

A personal token involves making a commitment to provide your services as long as the criteria are met … In substance, tokenized time is a prepayment for services, not an investment.

This sounds very similar to an Ithaca Hour, where townsfolk agree to trade time with one another in return for services. Instead of a geographical boundary that might engender trust among users, Reuben operates on the internet and might have to rely on indicators like social media interactions to signal the same amount of trust. I think it’s debatable which scenario is the higher trust one.

The other observation from community currencies is that they tend to be closed circuits, isolated from the wider financial markets. Indeed, that’s the whole point of them. But personal tokens are instantly liquid and redeemable against other crypto-tokens, thanks to automated market-makers like Uniswap. This means always-on trading and liquidity.

When I created a Uniswap pool for my $Joon token, I was stunned to see trades made against it, even though I hadn’t publicised the pool anywhere. It was probably just arbitrage bots skimming through different ETH-denominated pools, but it was a visceral experience for me to see that people (or something) was trading my tokens.

The fact that personal tokens are freely traded greatly detracts from their ability to retain value inside a particular community. This exposes tokenised communities to market forces that they might not be equipped to deal with. After all, why should a fan of a streamer, or musician, have to also know how to hedge their position in those coins just to take part in fandom?

As Keith Hart notes in his 2005 paper Common Wealth, for community currencies:

The money does not drain away, but stays within the circuit as a source of future exchange. It is simply a measure with no independent value and thus cannot be transformed into capital.

Hart’s point about the inability for community currencies to turn into capital is a significant one. Recall the way LETS work: all the accounts sum up to zero. There is no surplus that can be invested. With personal tokens as they stand, the opportunity for speculation and the liquidation of surpluses is always present.

Rotting money

The issue of surpluses in community currencies is also interesting from another historical angle. Money has traditionally been thought of as useful because it is a medium of exchange. But the propensity of people to hoard money, particularly scarce commodity-money, leads to a drop in their circulations. As Nigel Dodd notes in his book, The Social Life of Money, Keynes once asked: “Why should anyone outside a lunatic asylum wish to use money as a store of wealth?”

One solution to money-hoarding was demurrage. This is the idea that the value of a money should be deliberately reduced over time. Or, as the economist Silvio Gessell put it, to age as a commodity would. As Dodds puts it, money could rot. It needed to be “made worse as a commodity if it is to be improved as a medium of exchange.” Demurrage incentivises holders to spend their funds instead of hold them — the opposite of the bitcoin mantra, of course.

According to Dodds, demurrage was used in scrip money — paper notes that needed to be periodically stamped to maintain their value — during the Great Depression in Europe and America. It’s also used in modern community currencies like the Bristol Pound and the Bavarian Chiemgauer.

In thinking of hoarding and demurrage for personal tokens, if a token is hoarded by its community rather than spent, what sort of community has been convened? In practical terms, should a token incentivise crypto whales, or should it reward the exchange of value between fans and creators?

One crypto project that has been optimised for circulation and against hoarding is Circles UBI. An inflationary money supply of Circles tokens means that the tokens are “decaying”, according to the project. “Circles has optimized not for storing value, but for exchanging it” the project’s FAQ states.

In summary, community currencies may offer limited lessons for the burgeoning personal token economy despite their seeming similarities. Like personal tokens, they have focused on creating a way to exchange value among trusted communities. But unlike personal tokens, they have been designed to boost exchange and not storage of wealth. Still, community currencies have grown and foundered over the years. Global, permissionless, personal tokens could offer a new model for experimenting with these age-old ideas.