Yes, We Created A More Sustainable and Equitable Currency With Denarii
Over the past 6 months, the Digital Reserve team has analyzed various approaches to increasing financial access. We looked into the spectacular work of Nobel Prize Winner Muhammad Yunus and the various theories around financial empowerment. We also started to investigate the various fintech solutions to financial inquities. We were impressed and inspired by the work of Juvo , Insikt, Inc. and Viola Llewellyn of Ovamba , True Accord and Kiva to name a few. As leaders in their respective spaces, we saw the opportunity take the next step in their work with a product owned by its users, global by design and responsive to market conditions.
Therefore, we are thrilled to announce the Digital Reserve’s vision to create a scalable and sustainable solution through leveraging an incentive based cryptocurrency. We can become the decentralized platform of financial services that empowers disenfranchised communities while still maintaining profitability for users within the network.
How did we combine blockchain/cryptocurrency with social impact?
It is all about the balancing of incentives. Cryptocurrencies based on Bitcoin in their simplest form are a series of redundant ledgers with a very rigid monetary system based around an explicit cap. These ledgers are updated based on a few simple rules and underlying assumptions.
- Transactions must be broadcasted to be included
- Transactions are checked against the ledger and validated/invalidated
- Blocks are created from transactions
- Blocks are checked for validity
- A reward is given to block creators who send valid blocks and meets the submission criteria
- The block becomes the foundation for the next block
This fundamental structure is the basis of blockchain. However, it is powered by the desire of users to have their transactions accepted and block creators (miners) to win a reward for facilitating those transaction. This basic incentive system thrives under the deflationary systems which are the status quo within most cryptocurrencies.
The solution was revealed within a lot of the academic and practical work around Proof of Stake. Proof of Stake is a system of validating transactions where the reward is given to those who use their funds as collateral to demonstrate their intent of honesty. Currently, these implementations just have the funds sit in a bonded status. This decision further places deflationary pressure and removes capital from circulation. For all intents and purposes the money is buried.
Within most monetary systems, which tend to be inflationary, buried money is foolish. It is foolish because the value of each unit decreases in purchasing power over time. However, within many cryptocurrencies the value of each unit should increase because new value accrues to the current holder. This is great on the short term, but in the long term it leads to stagnation of the economic system.
Therefore, there is an economic benefit to making the bonded / collateralized funds available for lending without collateral. However, you then have to deal with defaults on those loans, so a reserve system is necessary. Within the Digital Reserve Network, this reserve is created through our cost-based Proof of Stake System. We apply a cost because one of the weaknesses of Proof of Stake(POS) is called nothing at stake. Vitalik Buterin calls out this issue in one of his early blogs on POS systems. Applying a cost within our system allows us to create an incentive for people to minimize their broadcasting of transactions to only the relevant and accurate information instead of risking their funds.
So if you are reading carefully, at this point we have now created a system to provide collateral free lending. To take our work to the next step we also included a borrow centric auction system for underwriting. What this means is that borrowers are able to bid on loans in a way that reflects their financial capabilities.
This empowers the user and also creates a system to develop financial literacy through the process while mitigating predatory lending and interest rates they don’t feel comfortable.
The final piece of this puzzle that really solidifies the balance of incentives and crypto-economic system is that the monetary policy is not a deflationary system like Bitcoin. Through the adoption of machine learning processes and interest feedback rules, we are able to create a controlled monetary supply that reflects market conditions. This is important because it allows investment to accrue to those actively participating in the network.
So yes, through intentional design, we have managed to craft a cryptocurrency that will be accessible to communities around the word and ripe for mass adoption. So while Bitcoin has a date set on its viability, we are building a currency that can grow with its user and change the world for the better, while still being profitable.
If you are interested in being a part of redefining how people interact with money and making the world a little better. Click a link and let’s build together.