Rotting Money and Community Tokens on the Blockchain

To extend the discussion on community currencies and crypto that I started last week, I spoke with Julio Linares, who works as a researcher for one of the hottest projects in crypto-land at the moment, Circles UBI.

Circles UBI is like a personal token in many ways. Once you get into the system (you can only get in if three people already in the Circles system trust you), the network starts issuing you a certain amount of coins per day. This is the “UBI” part — universal basic income. You can only spend those coins with people with whom you’ve created a “trust connection”. But you should choose who to trust in the system carefully, since any Circles tokens you receive from a malicious user would be worthless.

Circles is also super interesting because it draws on deep research on historical community currencies. Julio trained in anthropology and counted the late David Graeber, who had a huge impact on how we think about money, as a mentor.

Julio and I had a wide-ranging discussion about currency design, the idea of “rotting money”, and whether cryptocurrencies are suited to the task of being a community currency. The following conversation is edited for clarity and length.

You mentioned ethnography as your research technique. What does that entail?

Ethnography or participant observation is when you can create theory through the practice of living in a place; to try to understand the social world and universe they are embedded in. The type of ethnography I do is on money; it’s about how people relate to money, how other monies emerge, and how people use them, and the values embedded in them, who comes, who joins, what are people’s expectations and so on.

The Circles launch has generated quite a bit of attention. What sorts of feedback were you getting from the influx of people who joined? What were their expectations for Circles?

There were a lot of people who thought, oh, it’s a bunch of free crypto — crypto meaning commodity money. There’s this idea of commodity money in the crypto space that is something that has inherent value, it’s something that is scarce, so you can only mint 21 million bitcoins or what have you. Circle’s design is made in a way where everybody always issues an equal amount of money. Right now it’s eight tokens a day, so it’s 240 a month. And so it works in a way where people issue their own personal currencies.

I like to think about [Circles] as mutual currencies. They only work when you trust somebody. So you can make trust connections within the network and money flows the opposite way of trust. By that token, you can basically transact with people who you may not know down the line. Say, a baker that you may not know, but your friend knows, you can still exchange with them Circles for bread.

And so it was interesting, because many people were saying, okay, how can I get this into an exchange and start transferring to Ether, and Bitcoin and so on … and so it’s kind of really hard to get people to sort of speculate on the currency, because it’s all based on personal currencies. If you were to do [speculate] you are basically speculating on your own personal currencies and the people who trust you somehow.

So there were people creating trust bots — that was very dystopian— some automated way in which people could get a bot to send them some way in which to hack the system and entering a trusted [relationship] and this only really hurts themselves. Because when you trust a fake account, you’re basically allowing them to swap your coins or tokens

So to be clear, you can’t trade Circles on Uniswap, for example, that’s not possible, right?

No, not that I know of right now. I’m sure there will be capitalists trying to do that, at some point, but if they actually are doing that, that means that in principle, they’re just speculating on the trust that people are giving them directly on their personal currencies, but also other people’s currencies. And so for me, that would be really breaking the promise of the design of Circles, which is embedded in a sort of web of trust.

So there were people creating trust bots, that was very dystopian

So if I trust a fake account, or you know, a bad actor, the way I hurt myself is because I’m swapping my “good” tokens for those “bad” tokens?

Yeah, I mean, the thing is, money is a promise, right? So when you are trusting somebody, like somebody’s fake account, you’re basically saying that you’re accepting their promises as real. But if they’re a malicious actor or something, then those promises don’t really mean anything.

Yeah, it’s a really elegant solution to the problem of identity. I’m wondering if you looked at historical models for designing Circles from the local currency literature?

We are really trying to draw on the history of complementary currencies and other forms of money other than the traditional hegemonic commodity money stuff. So there are many examples: In the Middle Ages, you had all these interesting demurrage currencies, in Europe. You had in Egypt, for example, whereby, let’s say you would give 10 kilos of grain to the storage house and they will give you some sort of a token. They would say, look, this is equivalent of 10 kilos and people could swap those around as a medium of exchange. Then at the end of the year, you went to reclaim back your grain, and you give the 10 pieces back. And they will only give you a nine kilos of grain back. Then you ask, why are you giving less when I gave you 10? And they’re like, well, you know, there’s a tax on the bearing this, I have to take care of it, there’s a guard, or there are rats, and things rot. So this idea of rotting money is an inspiration.

Circles has an embedded inflation rate within it to make it against accumulation or the idea of holding money. So [the inflation] kicks in after a year. Right now it’s 7%. So after let’s say, a given amount of years, 10 years or so, the issuance rate means what everybody gets would double. So that’s a way in which to make a system that is more long-term thinking. What sort of resources do we have to bring in to make that sector mix, like, wealth circulate, and over time, if you have a proper democratic processes embedded to it, so people can sort of start bringing more things in and creating a circuit or commercial circuit of exchange.

This idea of rotting money is an inspiration.

In looking at the local currencies literature, one issue projects historically ran into was that setting up the infrastructure was very labour intensive and required a lot of local coordination and promotion. Is Circles different because it’s primarily digital and on the internet?

Most local currencies often fail because the people who are doing it are doing it for passion or have a sort of a real desire to challenge money and rethink money. But long term, they’re not supported. It’s not like a public policy that’s subsidised by government. And so it’s really grassroots-organising stuff. And so they often end up becoming quite local, they don’t expand beyond their initial domain. What things like blockchains allow is to be able to deploy the systems anywhere on the planet and use this infrastructure. Now, having said that, I think adds also quite a lot of complexity.

One of [the reasons why blockchains add complexity] is that there is still a big need for labour to maintain the infrastructure. There is a lot of work that is done just to care for the code, so to speak, to make sure that the infrastructure doesn’t go down, to maintain somebody there. It’s not seen, but it’s there. And it’s a lot of work … To build an infrastructure that can be a really sustaining thing, it needs to be supported, by many means and processes, but really a key issue is in terms of values, because we do not want to sell ourselves to some venture capitalist, and then have an extract some portion of people’s transaction fees, you know, or through their data, or so on. We’re really against this model, we see how it works with Google and all of that.

I feel like in the crypto world, there is this sort of idea that the only work that is really worth [anything] is the technological work. So the programming work. Everything else, the communications work, the sort of soft-skills as it’s called, iIt’s not valued in the same way. But [non-programming work] is actually what allows, other parts of the work to function. So yeah, these are our next years, basically trying to make Circles a commons in a way where we can gain enough to cover our cost of reproduction. And that’s it. We don’t need to make a profit. We just need to pay wages for the people that are producing the system and then make it so others can join.

Can we talk about trusted versus trustless money? In the anthropology literature a lot of work has been done on the trust conditions under which people barter or use currency and so on. Is there an inherent tension in this idea that, with cryptocurrencies we want them to be trustless, but actually you might need lots of high-trust conditions for it to work.

Yeah, it’s a great question. I mean, I think, in general, I, I follow Keith Hart’s idea that for money to work in both the personal and impersonal at the same time, so you need to be able to use your, token of value, somewhere down the line, even if somebody doesn’t know you. You don’t have to know everybody to do that. And that’s somehow implicit with state money, with cash, because, you know, we all just believe that, this promise, the state’s promise that [its tokens] will be worth something, and we don’t even think about it, right, we just kind of give that trust to the state somehow.

Now, in the crypto world, this is an interesting paradox. I think Circles is really one of the first attempts to build a system designed with different values, and also the practice of it is, is really trying to follow those values. Yeah, because I mean, I think like, fundamentally you’re gonna go as far as the ethics people embed [the tokens] with, so this whole initial idea of trustlessness is really, it’s a highly ideological claim, right? It’s really fundamentally based on the sort of anarcho-capitalist and anarcho-libertarian ideas of life. Like, this hyper individualism, you know, mostly coming from the U.S. but also other places.

Where, whereby you trust the machine. Like decentralisation, for a lot of the crypto space means, I will delegate authority to some robot or some machine that will automate something away. It doesn’t really mean decentralisation of power, because actually in the crypto world power is highly centralised, in the crypto kings, in the whales, the people who hold all of the tokens, for example. And this also another one of the contradictions within the crypto world like, it claims transparency, because it’s on the blockchain; you can see everything, you can see all the transactions, but in fact, power is hidden, in many ways, in many communication channels in who actually holds the tokens and so on.

So part of the challenge is how do we actually democratise the space a bit? Not democracy as in quadratic voting, democracy… I don’t think that’s really democracy I mean, it’s very sort of aristocratic view of democracy, that you can vote with all these complicated tokens. I really mean, like, you know, how do people come together and make decisions about how to run things and how things work and so on. I feel like there is a an inherent danger a lot of the assumptions within the cryptocurrency space, because it’s really based on this technocratic idea of governance.That’s also why the trustlessness is there, right? You’re not supposed to care, you’re just supposed to delegate to the machine, but in fact, actually, the machine is maintained by somebody down the line that you don’t know.

One of the issues with personal tokens is they can be freely traded. And so they have a market price and people can speculate on them. And with Circles and other local currencies, they aren’t tradable. I wonder if it’s possible to create a community currency that’s freely tradable? It seems like there are inherent tensions between this idea of a local money and a crypto token that acts more like a commodity money.

Yeah. I mean, I think this is really a clash of values and a clash of design systems which create incentives. Like you see it, even with Faircoin, which Faircoin is a great project, run by many great people who want to really create a competitive economy worldwide. But Faircoin was a fork of Bitcoin. So they’re creating a dynamic where people were exchanging this and the value was going up and down. So people couldn’t really use it to buy… tomatoes, you know, or they would, but they would, but it creates this incentive of hoarding, right? So you really need to create different currency designs, like a credit-money system, or a mutual-credit type of system, if you really want to create a viable means of exchange that is an alternative to things like state cash.

Nigel Dodd says in that book (The Social Life of Money) that Bitcoin is a digital gold somehow. And its design is quite regressive, in the sense that it’s kind of going back to the gold standard and sort of very imperialistic ideas, and it’s a very macho culture. But I think right now, we’re at a moment when there’s actually a space for alternatives to emerge where different money forms can, you know, coexist with other forms of money. I’m not saying you can’t have Bitcoin, you can’t use that — of course not— it’s more like, how do you use them together in a complementary way. I’m for a multiplicity of systems, where you separate the money forms from the money uses. So you have one money for a means of exchange, you can have another one for a store of value, and you can have another one as the unit of account. I think that makes more sense. It’s more more resilient somehow.

Any final thoughts on this notion of user-owned communities?

A couple months ago, I started the Community Currency Alliance with some friends, trying to bring together people from many community currencies, from pre-crypto and crypto, to try to make a bridge between these spaces. A lot of the thoughts there were really, how do we make money a commons? How do we make communities own their own money and feel it’s theirs and use it with other communities in some way? Matthew Slater’s work is really good on this and Will Ruddick in Kenya is doing great work, and Sardex in Italy in Sardinia.

There are many interesting projects trying to challenge what money is, and also how it’s managed. How to manage that locally. And managing a commons is really hard, it’s not this ideal romantic thing. It’s a lot of work and it’s a pain in the ass considering we are existing within the broader capitalist economy. if we really make money a commons, we can actually expand it. That’s the challenge right now.