#PunkMoney 0.1: Lessons in anarcho-money

“A verbal contract isn’t worth the paper it’s printed on.” – Samuel Goldwyn (misattributed); People will never use #PunkMoney” – Ayn Rand

The alpha version of the #PunkMoney syntax, created in October 2011, was based on a self-issued credit money model. By tweeting a promise such as:

@Jane I promise you three tonnes of fireworks. #PunkMoney - @Mary

@Mary creates a public recorded promise which can be transferred between users. @Jane can transfer the tweet to the next recipient, by replying to it:

@Mary transfer @Jacob #PunkMoney – @Jane

@Jacob is now the recipient, and can transfer or redeem the tweet. To redeem means to publicly declare that the promise has been kept, the three tonnes of fireworks have been delivered or detonated:

@Mary redeemed #PunkMoney – @Jacob

@Mary’s tweet is now spent, and can no longer be transferred, nor redeemed again, according to the rules of #PunkMoney. This syntax enables a simple monetary system, based on a trusted transferable promise.


Following on from this simple proposal, a tracker was set up to record tweets with the #PunkMoney hashtag. The tracker has been running more or less since late 2011. During this period of experimentation, there were 166 promises created. These ranged from the generous (web design help) to the constructive (feedback on projects) to the playful (a knuckle sandwich, a billion dollars.)

From these 166 promises there were 44 redemptions, a roughly 26% redemption rate. However, there were only 6 transfers in total. The reasons why are revealing.

The majority of #PunkMoney statements, if not all of them, were offers of gifts. Promises to take someone out for a beer, cook them a meal or walk their dog were all meant in the spirit of the gift economy, rather than as part of a direct quid-pro-quo exchange. This is a problem for #PunkMoney, as originally defined, because people do not like to transfer gifts.

There are practical and social reasons for this. If you promise to take someone out for dinner, it doesn’t mean you’d be willing to take anyone else who this promise might be transferred to out for dinner as well. More importantly, it is just awkward to transfer gifts, because they have a personal meaning attached to them which makes them inalienable, in most situations.


Mid-way through the experiment, after suggestions by some power-users, a new syntax for thanking people was introduced. It is a simple way to publicly thank someone:

@Frank Thanks for lending me your boots. #PunkMoney – @Paul

The tracker was updated to find and interpret these tweets. Nothing else happens once a user has been thanked; it is simply a way to publicly acknowledge a debt of gratitude. (As David Graeber has suggested, the purpose of such debts is not too be paid, but merely to be acknowledged. The web of unpaid debts between human beings ties us together.)

The thanks protocol proved popular: there were 66 of them created in the life of the experiment. People thanked each other for their advice, chocolates, beer and Bitcoins. Part of the success of this protocol was down to the fact that it is simple to use, and does not create any further obligation for the issuer.

Along the way, I also experimented with need and offer protocols, which worked in a similar way to thanks. The idea was to see if there was interest in using #PunkMoney to make latents needs and offers visible within a community of users. There was some, but it didn’t take off.

Why did people use #PunkMoney?

The main finding from this first experiment with #PunkMoney is that people did not use the syntax for its intended purpose, as a way of creating money on Twitter. They have however used it as a way of publicly promising and thanking each other.

Why do people use #PunkMoney to do those things, when they could just do them in a normal tweet, an e-mail or in person? Part of the reason, at least, has to do with making a public statement. There is something more meaningful about promising and thanking in a standardised, public way.

In the case of promises, it is not hard to see why that is. If a person makes a promise publicly, there are at least two consequences. The first is that a public promise puts a person’s reputation on the line, in a small way in this case. It is harder to go back on a promise made in front of witnesses.

The second, probably more important one, is that making a public promise leaves a permanent record in users’ collective memory. Without it, there is the banal factor of memory loss: you might forget what you promised. Promising in a public way reassures the other party that you won’t, because it’s on the record.

The final reason people have used #PunkMoney, rather than just tweeting promises or thanks in raw form, is that the protocol provides a standard means of expression. By following it, a statement gains more value than it would on its own. It adheres to a specific convention about promising or thanking in public.

It is in this very general sense that it is possible to talk about the currency of #PunkMoney, the collective value of the protocol in people’s minds, due to the way it has been used in the past. You could draw an analogy, for instance, to the currency of the Nobel Peace Prize. It has a certain prestige (or notoriety) because of how it has been awarded up to now.

What’s next

Perhaps #PunkMoney is in fact revealing its true purpose: not to function like old-fashioned money, but as something different. A public statement which cannot be made into something fungible and alienable: the proverbial spanner in the machinery of the market economy… It is #PunkMoney after all.

Maybe Ayn Rand will be proven wrong. Stay tuned.

Find out more

  • #PunkMoney: How to Print Money on Twitter  [Video] A talk I gave in March at MoneyLab 2014 in Amsterdam on #PunkMoney 0.1. It gives some background on the concept and covers some of the same ground as this post.



Coffeehouses as a public sphere in 17th century London

“In my way home I ‘light and to the Coffee-house, where I heard Lt. Coll. Baron tell very good stories of his travels over the high hills in Asia above the clouds…” Samuel Pepys [1]

The first coffeehouses appeared in London in the late 17th century, after the restoration of Charles II in the wake up the English Civil War. By 1675, there were at least 3,000 of them. [2] The coffeehouses were open to anyone who could pay a penny for a cup of coffee, whether rich or poor, noble or common. In that respect they were like Ale Houses, with the difference that people did not consume alcohol in them, but stayed sober. This enabled them to become places for serious critical discussion, where social etiquette made it acceptable to strike up conversations with anyone who happened to be around. They were also places to catch up on the news, and even served as postal addresses for regular clients who would pop in several times a day. Many coffeehouses also issued their own token money.

Coffee in the 17th century tasted foul, but acted as a mental stimulant which facilitated social interaction and the flow of ideas between people. People went to the coffeehouses because they wanted the unique social and intellectual atmosphere they provided. The coffeehouse scene was frequented by common folk and learned men, who related to each other as equals, or tried to. Samuel Pepys makes frequent references to his trips to the Coffee-house, where he would catch up with friends and listen to their stories. [3] Isaac Newton was spurred by his coffeehouse debates to write Principia Mathematica. [4] They were hotbeds of creative and intellectual ferment, accessible for the price of a coffee, colloquially known as the “penny universities.”

The Birth of the Public Sphere

The coffeehouse scene in 17th century London had a counterpart in Paris in the salons, but they worked differently. A salon typically had a hostess, called a salonniere, an aristocratic woman who kept the rabble out, and used her social instincts to facilitate conversation between frequenters, who were exclusively male. [5] People in the salons were more polite and talked over each other less, but London’s coffeehouses were livelier and more egalitarian. However, they too excluded women from any meaningful participation, reflecting the common prejudice of the day that women were less capable of critical debate than men. Despite this, both the coffeehouses and salons were instrumental to the spread of progressive Enlightenment ideas and values, by constituting what Jurgen Habermas called a public sphere: a public place in which people met as private individuals to critically debate matters that concerned them. [6]

In the Age of Enlightenment, it soon became the norm that affairs of state could be discussed by private individuals, who were free to scrutinise and hold their governments to account however they liked. This was helped by a plethora of newspapers and periodicals, whose production was intimately connected to the coffeehouse scene. Papers reported news, gossip and ideas that were circulating, connecting them together in a kind of 17th century form of social media. [7] Coffeehouses became known by the type of conversation you could find there; Will’s coffeehouse gained a reputation, for example, as a favourite haunt for young writers. The Tatler, an English literary and society magazine founded in 1709, used the names of coffeehouses as topic headings.

Unsurprisingly, the coffeehouses were hated by Charles II, whose father was beheaded in the civil war not long before. He tried in vain to suppress these “places where the disaffected met, and spread scandalous reports concerning the conduct of His Majesty and His Ministers.” [8] In Versailles, the burgeoning salons scene around the palace became a favourite place for disaffected bourgeois to hatch plots and ferment radical ideas, much to the horror of Louis XVI. In 1789, Camille Desmoulins stood on a table at the Café de Foy and is said to have launched the French revolution by screaming “Aux armes, citoyens!” to an angry mob. [9]

Modern day coffeehouses

Today coffee tastes better but cafés are different kinds of places. Strangers do not typically engage in serious conversation with each other, although they sometimes nod, smile or stand aside for each other. These small social graces are perhaps all that is left from a more interesting time. Habermas argued that the public sphere has all but collapsed into an empty spectacle, created through mass media and confining critical debate to a narrow elite whose opinions stay within acceptable bounds. Perhaps this is a little exaggerated, but the old coffeehouses stand as a lively example of what engaged public critical debate can be like, and what kind of large scale social consequences it can have. [10] To the coffeehouse!


[1] Samuel Pepys, Diary, February 1664

[2] Coffeehouses, Wikipedia

[3] See [1]

[4] Tom Standage, Social Networking in the 1600s, The New York Times

[5] Bonnie calhoun, Shaping the Public Sphere: English Coffeehouses and French Salons and the Age of Enlightenment, Colgate Academic Review

[6] Jurgen Habermas, Structural Transformations of the Public Sphere, The MIT Press

[7] See [4]

[8] Fraser Nelson, The Original Coffeehouse, The Spectator

[9] Cafe de Foy, Wikipedia

[10] See [6]


The Dunbar number and the scaling limits of social networks

In 1991, Robin Dunbar, a British anthropologist and evolutionary psychologist, published Neocortex size as a constraint on group size in primates, in which he proposed a correlation between the size of the brain in primates, and the number of meaningful social relationships it was possible for them to have. By comparing the relative size of the neo-cortex in primates to their average group size, Dunbar extrapolated a theoretical limit to the size of communities in the human primate, which he estimated at 150. [1] This limit has since become known as the Dunbar number, and served as a common reference point among the Silicon Valley engineers who built the first digital social networks. [2]

Stable relationships…

The Dunbar number can be taken in two senses, which are often used interchangeably. The first is as a theoretical limit to the number of stable social relationships a person may have, due to cognitive constraints in the brain. The average person does not have enough mental capacity to maintain more than about 150 meaningful relationships in their life. Dunbar characterises these types of relationships as being those involving relations of trust and obligation, and some level of emotional investment. In other words, the types of friends you would not feel embarrassed about inviting yourself to sit with if you found them in a bar. [3]

This does not mean that we cannot know more than 150 people. The Dunbar number represents just one of several layers in relationships, each with a characteristic type of social interaction. The number of people we can have the closest types of relationships with is about 5. While the number of people we can be on nodding terms with – our acquaintances – is about 500. Further up the scale, which increases by a factor of three, we are able to recognise about 1,500 faces. Beyond this, our brains cannot keep track. [4]

These numbers are all ballpark figures, not hard limits, but they are borne out, according to Dunbar, by a wealth of empirical and anecdotal evidence. The size of the average surviving hunter-gatherer tribe, in which everybody knows everybody else, is about 150. The average English household, according to one study by Dunbar, sends out about 150 Christmas cards. The average neolithic settlement contained 150 people. [5]

… and Communities

The second way of interpreting the Dunbar number, often used interchangeably with the first, is a theoretical limit on group size necessary to maintain social cohesion. It is important to distinguish this view of the Dunbar number from the first, because it is not necessary to have relationships with everyone in a community in order for it to be cohesive. It just so happens that in early human communities, such as hunter-gatherer tribes and stone age settlements, a person would have relationships with just about everybody else, because there was no one else around.

However, in modern life, we come into contact with a much larger number of people and in a wide variety of contexts. A person can belong to multiple communities at once, and not know all the people in them, yet those communities maintain a degree of cohesion. The Dunbar number, taken in its second sense, describes a limit to the number of people who can form a cohesive group, which happens to be identical to the number of people we can have stable social relationships with.

The reason social cohesion can be maintained in a large group without being friends with everyone in it probably owes something to the fact that common membership of a community can be a basis for trust and obligation, as well as generalised reciprocity. A person might not know everyone in their graduation class, but they are more likely to trust someone who is a member of it than a complete stranger. The same goes for small villages or military units.

In the same way that the Dunbar number describes just one level in our social networks (the people we can call our friends) it also describes one level in the type of communities we can belong to. Larger and smaller communities exist, but 150 describes the limit to maintain enough social cohesion in the group before relations become impersonal. Dunbar points out that his scale of numbers also roughly corresponds to the organisation of military structure, with 150 being the average size of a company, the basic military unit since Antiquity.

The kinds of communities Dunbar believes hover around 150 are typically closed to outsiders and survival-oriented. Because they are pre-occupied with survival, a high level of social cohesion is necessary. Dunbar is a proponent of the social brain hypothesis: the widely accepted theory that the human brain evolved to its current size in order to solve problems related to survival in groups. Primates have evolved cooperation as a survival strategy, but joining together into groups also creates new challenges: keeping track of other members of the group, their relationships to each other, coordinating survival, dealing with conflicts, hence our bigger brains. [6]

Social networks

The rise of online social networks has perhaps created a tempting illusion, that it is possible to use digital technology to overcome the Dunbar limit, and have many thousands of friends. Facebook, for example, allows its users to add as many as 5,000. In real life, it takes time and effort to maintain social relationships (Dunbar estimates that the average primate spends 25-43% of its time on social grooming alone.) Online social networks, and other digital communication tools, compress the amount of time necessary for social grooming, and also help us to keep track of a larger number of people. We should therefore be able to increase our capacity for friendship beyond Dunbar constraints.

The reality, based on empirical studies of how people actually use social networks, contradicts this hypothesis. A study conducted by Robin Dunbar on Facebook use shows that the maximum number of friends Facebook users interact with is still around 150, irrespective of whether the user has thousands of friends, or just a few hundred. [7] A similar study on Twitter reveals that the maximum number of relationships between Twitter users, defined in terms of replies, is also constrained by the Dunbar number, regardless of the number of followers the user has. [8] Similar insights have been found in studies of guild membership in massively multiplayer online games. [9] So it turns out that, despite the convenience of modern technology, the cognitive limits imposed on us by our brains still constrain how many people we can really be friends with.

In this light, it is interesting to ask what social networks really help us to do. It’s clear that having thousands of friends is not it, despite the status appeal to some. However, what they can help us with is the business of maintaining connections to people we are already friends with over distance, as well as forming new connections. In contrast to the the average hunter-gatherer community or Hutterite tribe, modern individuals have scattered relationships spread out over space, which would probably wither away without any means of keeping in touch at a distance. Social networks simply make it easier to maintain cohesion in a network whose maximum size is still fixed by the facts of life.


[1] Neocortex size as a constraint on group size in primates, Dunbar, R. I. M., 1992.

[2-4] The Dunbar Number, From the Guru of Social Networks, BusinessWeek, January 2013

[5] Dunbar’s Number, Wikipedia

[6] See [1]

[7] Sorry, Facebook friends: Our brains can’t keep up, CNET, January 2010

[8] “Modeling Users’ Activity on Twitter Networks: Validation of Dunbar’s Number”, Gonçalves, B.; Perra, N.; Vespignani, A. (2011).

[9] The Dunbar Number as a Limit to Group Sizes, Life with Alacrity, 2004

Reputational contract enforcement

“Reputation, reputation, reputation! Oh, I have lost my reputation! I have lost the immortal part of myself, and what remains is bestial.” Othello

For markets to function correctly, it must be possible for people to enter into contracts with each other, either implicitly or explicitly. Without a mechanism for enforcing contracts, market participants who do not already trust each other have no way to do business with each other. The world of people who we would trust enough without a contract is very small, and by some accounts, inherently limited as a function of cognitive limitations in the brain. [1]

When you sit down in a restaurant to eat a meal, you enter into an implicit contract that you will pay for it. The fact that such an implicit contract exists will be obvious when you try to leave the restaurant after eating without paying: someone (probably a waiter or the restaurant owner) will try to stop you, and might even call the police or local heavies to enforce their rights. The threat that this might happen is what stops dishonest people from breaking their contracts, most of the time.

More complex transactions require explicit encoding of contracts. A transaction involving the transfer of a large amount of value, such as a house, or over a long period of time, are generally explicitly agreed upon. Contracts are written in such a way as to make clear the nature agreement between both parties, which also means to make it clear when such agreements would be broken. A person who believes they have been wronged in a contractual agreement has recourse to civil courts to enforce it.

Legal enforcement

The standard view of contract enforcement, and of the purpose of contracts generally, is that it is possible to use the reach of the law to ensure that the terms of the contract are met by another party, or to extract compensation from them if they are not. In principle, the threat of being sued must ensure that some contracts, particularly of large value, are enforced, but there are many weaknesses to the model, some of which are more evident in cyberspace.

The main problem with legal contract enforcement is that actually doing it takes time and money, and is often very unpleasant for all parties involved. Maintaining the legal apparatus for enforcing contracts is also a cost borne by society generally, which people must pay for in the form of taxes. In specific situations, the cost of enforcing the contract, in terms of professional fees, might outweigh the value of the contract itself, a fact often relied upon by many a crooked shyster.

Transactions on the web can be even harder to legally enforce. The two parties may be in different jurisdictions, adding to the cost and complexity of legal action. Further, it is quite easy to enter into transactions online without revealing your identity at all, making it impossible to sue. In these situations, which are becoming more common as people transact in anonymous digital currencies and online marketplaces, legal contract enforcement is not a realistic option.

Reputational enforcement

An alternative to legal contract enforcement, already found in everyday life, is to rely on reputation instead. This type of enforcement is always at work when the cost of breaking a contract to a person’s own reputation would outweigh the cost of simply honouring it, even where the threat of legal action also exists. A good example is given by David Friedman in his book Future Imperfect: [2] a man returns a jacket he doesn’t like to the department store where his wife originally bought it.

The department store would save money by sending the man away and refusing to refund his jacket. It is not likely that the man would sue over refusing to refund the jacket because it wouldn’t be worth the time or money. [3] However, the store has a very strong incentive to honour its promise: if it didn’t, the damage to its reputation would be greater than the cost of the jacket. The man is likely to be annoyed, stop his wife from shopping there again, and tell all of his friends who would do the same – a price clearly not worth paying.

Reputational enforcement of contracts has the advantage that it is free or very cheap, both for the contractual parties, and for society at large. All that is needed is for people to be able to communicate information about their transactions with each other to interested third parties, and a reputation dynamic is created that discourages bad behaviour and rewards good behaviour, without the need for courts or lawyers. In the example described above, reputational enforcement was implicit. It relied, for instance, on the store’s expectation that the man would tell his friends about the refused refund.

Reputation systems

Reputation feedback can be explicitly encoded, like contracts themselves, and this is a solution the internet has found to creating scaleable online marketplaces between strangers who have no reason to trust each other. It is easy to collect information about people and share it online, in a way which leaves a permanent record. In the case of eBay, for example, people buy and sell things from strangers in time-delayed transactions, with no realistic legal recourse if things go wrong, largely because eBay’s reputation system is effective at enforcing honourable behaviour.

eBay’s reputation system relies on explicit encoding of reputation through feedback. Feedback is simply an evaluation of a transaction by both parties once it has been completed. It can be either positive, negative or neutral and can include a comment on the transaction itself. It becomes possible, at a glance, to see whether a person you might enter into a contract with has been honourable in the past, and in what context. This enables markets to exist which previously couldn’t have, because legal protection alone would not have been sufficient to create them.

Reputation systems merely encode dynamics which have worked in realspace for a long time. The social principle underlying them is elegantly described by political scientist Robert Axelrod as the shadow of the future: the expectation that people will consider each other’s past in future interactions. This is the principle which made it possible for Islamic merchants to secure contracts “with a handshake and a glance at heaven,” without the need for legal coercion, in trade networks that spanned much of the globe for centuries. [4]


[1] The Dunbar number, proposed by British anthropologist Robin Dunbar, describes the theoretical limit to the number of people we can maintain stable social relationships with.

[2] David Friedman, Future Imperfect, Chapter 7, Contracts in Cyberspace.

[3] It is unlikely because most people would not consider the cost worth it. However, it’s still possible that someone might sue the store just to make a point, even though this would lead to a loss.

[4] David Graeber, Debt, Chapter 10, The Middle Ages

English Token Money: A Brief History

English token money is perhaps an old example of peer-to-peer money – money created and circulated without a central authority. The system emerged for the first time around the English civil war, in 1642, and lasted until 1672. The Government stopped producing small change due to political turmoil and problems with counterfeiting, leading to an emergency in the supply of normal money. Merchants in need began to strike their own coins from copper, and other base metals. They were cheaply made, and their metallic content was worth far less than their nominal value, hence the name “token money.”

Tokens were issued by shop-keepers, grocers, coffee houses, inns and apothecaries in London and other major cities, and sometimes by civic corporations and town halls. There were thousands of different coins in circulation, and they were commonly accepted and used by the public. Most had a name and visual representation of the issuing business, and an address where the coin could be redeemed.

Tokens were not intended for general circulation; they were used within a circumscribed area by local people who knew and trusted the business who had issued them. Coffee tokens coincided with the emergence of the first coffee houses in London, new meeting places where artists and intellectuals exchanged news, gossip and debated politics.  The 17th century diarist Samuel Pepys passed his time in one of the first coffee houses in Cornhill, where he “found much pleasure in the diversity of company and discourse.”

Copper trade token from Stonyer’s coffee house, London (17th century)

The first wave of English token money came to an end in 1672, when the restored monarch Charles II took control of the money supply again. Some demonetised coins ended up in the New World, transported by migrant Quakers who resold them at face value.

18th Century Token Money and the Industrial Revolution

… if our Governmt will not make a new copper coinage we shall force them to it by coining for our Selves such copper penys

Matthew Boulton, a Birmingham metal-worker

Around 1790, the industrial revolution saw great numbers of workers moving into cities and wage labour for the first time. Industrial leaders needed small change to pay them with, and struck their own copper coins. The practice spread to smaller businesses, and was common again within a few years.

By the late 1790s, coins were being struck for collectors, as well as to advertise the wares of issuing businesses. Issuing coinage had also become a new kind of vanity project. The English radical Thomas Spence issued his tokens through his book-stall in High Holborn. His unpopular ideas, including abolishing the artistocracy, common ownership of land and children’s rights, landed him in prison for High Treason in 1794.

Token money disappeared once again in 1797, when George III gave a royal coinage monopoly to a single token issuer.

19th Century Token Money

The last period of the token money system started for similar reasons in the 19th century – a shortage of low denomination coins. This time coins were not only issued by businesses, but town halls, civic corporations and workhouses, for the relief of the poor. When token money was finally banned by Parliament in 1817, the Bill granted a temporary exception for workhouse tokens from Birmingham and Sheffield. Eliminating them, it recognised,

would be attended wit great Loss to the said Township … and to the Holders thereof, who are for the most part Labourers and Mechanics [factory workers], as with great Inconvenience to the Inhabitants


English merchant tokens

Samuel Pepys Diary December 1660

London Numismatic Club Meeting, 3 October 2006

Seventeenth Century Patent Farthings and Trade Tokens: Introduction

Notes on Digital Money Unconference NY

I was lucky enough to be able to attend the Digital Money Unconference today, held at Google’s office in downtown Manhattan. The event was organised by NYPAY and Consult Hyperion, the latter of which also organise the annual Digital Money Conference (not an unconference) in London. (You can see a 15m presentation on #PunkMoney at that event here.) Here are my notes on the day…


Dave Birch, director of Consult Hyperion and master of ceremonies, began the event with some comments on the coming disruption to payments and money. He drew an interesting historical parallel between now and the mid 17th century in Britain, at the onset of the industrial revolution. At the time, he suggested, most people’s predictions about the future of money would have been wildly off the mark. Instead of better quality coins, a monetary revolution took place: the Bank of England was created in 1694, government debt was monetised, and Bank of England notes began to circulate for the first time as a medium of exchange. In 1696, the Government enacted the Great Recoinage, following Isaac Newton’s advice (the modern day equivalent of putting Stephen Hawking in charge of the Fed.) By 1717 Britain was on a gold standard, and its monetary system was virtually unrecognisable compared to what it had been a few decades earlier. The transition to industrial-era money had been completed.

Dave suggested that we are at a similar juncture in history. Society is transforming itself on a similar scale to what happened in the mid 17th century, and the transformation to money will be profound: “we’re at the beginning of post-industrial revolution using pre-industrial currency.” It was exciting to hear, and seemed to also be a consensus among conference-goers.

Dave went on to explain a bit about the unconference format. Unconferences allow anybody to suggest topics for discussion, and for people to move around between conversations as they wish. This was done by collecting Post-It notes from everybody, and organising them into themes. There were three sessions with three or four conversations taking place in and around the conference room. I’ve tried this before and it works quite well. The point is that everyone goes to what they are interested in, and can get up and leave if they don’t want to stay (“the law of two feet.”) In my experience unconferences are much more exciting and sometimes lead to serendipitous encounters of the third kind.

David Wolman

The second part of the introduction came from author and Wired journalist David Wolman, who I had met briefly before in London. His book entitled The End of Money is now a bestseller, which says something about the growing interest in the topic. He read some passages from it, which contained some nice anecdotes about money and his encounters with some colourful characters.

David’s first excerpt was about Marco Polo, who was one of the first Westerners to witness early fiat money, in 13th Century China. Marco Polo was apparently amazed by the “alchemy” of paper money issued by Government decree. Paper promises, made from Mulberry trees, were redeemable for coinage from the Government; their acceptance was enforced under penalty of death. The availability of a national currency exponentially increased opportunities for trade, and lead to a period of massive wealth and prosperity. The Chinese Emperor boldly decreed the notes valid “for all eternity.”

This contrasted with the view of Mervyn King, Governor of the Bank of England. David related some recent comments by King, in which he said that the perceived value of paper money depended on people’s trust in institutions. It is essentially confidence in institutions which currently keeps money and the economy from collapsing – the acceptance of money depends entirely on the belief that it has value. Once confidence goes, the consequences for society would be calamitous. King’s job is to reassure us that the Emperor still has his clothes on.

Finally, David shared an anecdote about meeting up with an Icelandic coin collector, whose collection included a 1969 10p coin from Ireland, issued by the UVF (Ulster Volunteer Force) – essentially defaced coinage designed to protest Republicanism. Physical money, though it may be becoming obsolete, continues to have an “unusual power,” with its cultural and political resonances.

Audience questions

There were some questions for David Wolman at this point, with Dave Birch joining in for some of the answers.

Before beginning, David said that entering into this topic was like “stepping onto the hornet’s nest,” as he had been the bout of some vitriol online. Dave Birch asked him to explain more about why digital money was seen to be threatening, especially in the US. David’s answer was that physical cash was closely associated with the right to privacy in the US (mistakenly believed to be a right to anonymity, which is never mentioned in the constitution.) Digital money is viewed as possibly paving the road to eliminating the privacy of cash, and allowing the prying eyes of the state into people’s private lives. Another factor are the many conspiracy theories about how the elimination of cash is part of a masterplan to create a single world currency. Dave Birch remarked that given the current problems with the Euro, such a project would likely never work anyway.

Another audience member touched on the fact that her parents had grown up in the depression, and were unlikely to trust anything except physical money as a result. It would be hard to convince many people, particularly from this generation, that digital money was safe. Dave Birch commented that this was a “cruel trick,” as people who hold physical cash pay higher transaction costs, owing to inflation and risk of theft. David Wolman called people who love physical cash a member of the “tactillians,” the same people who prefer physical books to eBooks. The decline of physical money is in fact part of a wider digitisation of objects, and a threat for tactillians in general. While not necessarily a rational prejudice, I also count myself as a bit of a tactillian – there is something reassuring about the physical contact with an object.

A question about government power over the money supply led David to point out that he would have liked to have written a whole chapter on Bitcoin, the peer-to-peer cyrpto-currency which is still around, despite a chorus of predictions that it would fail. Another audience member said that Americans simply had a passion for physical currency, and this was partly based on the possibility of “self reinvention,” as was the case with criminals who went West to create new identities and livelihoods for themselves with their ill-gotten cash. David Wolman however concluded that physical cash was old-fashioned technology, and would eventually become obsolete, regardless of cultural or political attachments to it.

Open Spaces

The open spaces then followed. I attended three sessions, so I can only give a partial account of the rest of the day.


The first session I attended was about Bitcoin (or ‘Bitcoin Bitcoin Bitcoin!’ as someone had written on a Post-It note.) The first thing that was surprising was the number of people sitting at the table: about 10-15 if I remember correctly, including journalists, people working in banks, consultants and other professional people. A couple of years ago this would have been very odd indeed, now Bitcoin seems to be accepted by the mainstream at least as an idea.

The Bitcoin discussion veered in different directions, and wasn’t the most focused. A common objection was made that Bitcoin would never be able to replace the US Dollar (or other political currency) as a “dominant currency.” David Wolman pointed out that Bitcoin could simply be one part of a rainbow of currencies, and didn’t need to become dominant to be successful. This view seems correct to me: it’s an anachronism of Industrial-era thinking that any single currency has to be the “dominant one,” and replace what went before it.

It was noted that Bitcoin is not completely anonymous, because transactions can always be traced in the public block chain. It is however possible to protect your identity by keeping it separate from your Bitcoin address, as well as using various mixing services to scramble payments through multiple nodes in the network.  An interesting discussion followed about privacy, and why it was a desirable feature of Bitcoin. One person said they didn’t care what the government or credit card companies knew about them. Another Bitcoin advocate suggested buying bacon in a community where it was forbidden could be a good use of Bitcoin. Perhaps another example of why privacy matters could be concealing political donations in a politically repressive country. To me, the most important point was that Bitcoin offers a degree of privacy as a feature, and some users think that makes it worth using.

Somebody else noted that it was incredibly hard to produce a fake Bitcoin (you would need more processing power that the fastest supercomputer on the planet.) Would it be possible, they asked, to apply this same counterfeiting technology to the US dollar? Jon Matonis – a libertarian Bitcoin guru – saw this comment on Twitter and amusingly compared it to “copyright offices hosting torrents.” Apart from this, there was some discussion about how to incentivise adoption, with some people thinking it was necessary to push merchant adoption first, and others consumer adoption. Someone mentioned the wildcat era of US Banking, and that counterfeiting had been the reason for its collapse — it seemed that Bitcoin at least solved this problem, and so has a greater chance of sticking around. The case for Bitcoin was also stronger in the developing world, where payment infrastructure is lacking.

The three main issues faced by Bitcoin are likely to be momentum (how to achieve it?,) making it convenient to use (perhaps with solutions like Bitcoin prepaid card BitInstant,) and trust. There have been numerous trust issues since the currency started, including cloud wallet providers running off with people’s money, or getting hacked.

What to do in the case of a Tsunami?

I thought this would be a popular open space, but only two people showed up to it. The main question here was: what happens to digital money when some catastrophic event causes a power failure, or an internet outage. In sum, the robustness of digital money seems to be an issue: unlike seashells or bank notes, it needs infrastructure to work.

We looked at MintChip, a Canadian Government project to create a digital wallet container allowing peer-to-peer transfers, as well as a cloud wallet. (See Jon Matonis’s takedown here.) My view of MintChip is that it was quite an interesting attempt at making a digital money solution which could actually be adopted: it supports transactions in Canadian dollars (and other currencies,) integrates with mobile and is platform independent. (There are some apps which have been designed for MintChip viewable here.) If a Tsunami hit where you were living, it would be better to have MintChip than Bitcoin, since transactions can be performed without needing access to the network for verification.

In summary, we found that the ability of a digital money system to work offline was an important feature, and that there were different levels of robustness to consider. We also thought the distinction between an electronic transaction and electronic money is important to maintain: electronic money could still be used offline, if it is contained in a storage device which can be verified, like a Micro SD card.

Path to Cashless Society

The Third open space session I attended was on the likely path to a cashless society. By “cashless,” I assumed the title of the session referred to physical cash. For this session we were asked to produce a narrative summary at the end, rather than a set of bullet points.

One thing we agreed is that the path to a cashless society is likely to be different depending on where you live. In Kenya, where most people are unbanked and there is a risk of being killed while transporting large amounts of cash, the value of mobile payments is obvious (the M-Pesa private mobile currency is huge there.) What’s more, it doesn’t seem to matter if developing countries skip over some intermediary steps (like having ATM machines,) and go straight to the cutting edge of payments.

In a more economically developed country like the UK, the path to cashlessness is likely to be different. Successful innovations will answer consumer needs, while being future-proof and platform independent. A good example of this is the Oyster card, a magnetic card used to pay for journeys on London’s transport network. While Oyster is currently used to pay for journeys, the system has the potential to become an “open loop”, integrating shops and service providers. Since the card already exists, and the behaviour pattern of tapping to pay is already established, this could happen quite easily. It is in fact already the case in Hong Kong, which has the highly useful Octypus card.

The bigger question to me was not finding more convenient ways to pay for things with existing money (although I’m not indifferent to it,) but the possibility that technology might lead to new, more radical forms of money created in peer-to-peer networks, rather than by Governments or banks. This would be a major disruption on the path to a cashless future, and would probably lead to Government attempts to stop it, as they lose control of the money supply (a likely futile exercise described by one person as like playing whack-a-mole with currencies.) In summary, it seemed that if this ever happens, there will be a power struggle with vested interests who won’t like it.


It was a good event, and the unconference format worked well. I got to talk to a variety of people with different backgrounds (bankers, entrepreneurs, teachers) and the general consensus seemed to be that something big and disruptive was coming, and the banks aren’t prepared for it. I think Dave Birch is correct that we are like the 17th century commentators who cannot anticipate the effect technology will have on money, even if it is useful (and fun) to speculate. Thanks to Dave Birch, Consult Hyperion and NYPay for hosting this.

Proposal for a Karmic Currency

Anything which alters its environment to increase production of itself is playing the game of increasing returns. – Kevin Kelly, Out of Control

I’ve been thinking for a while about introducing a currency into #PunkMoney, which would make it possible to account for value created between its users. Such a currency could, in theory, do a lot to help #PunkMoney scale, by encouraging participation through a positive feedback loop. After some weeks of thinking, I came up with a tentative solution which I’d like to develop here.

First of all, some groundwork. I’d like this currency to adhere to certain principles – explored elsewhere on this blog:

  • It must be tied to a social gesture

Like a +1 vote or a retweet, it will be created through a simple and effortless social gesture. In #PunkMoney terms, this is likely to be a thanks tweet created ad hoc, or in reply to a specific promise. [1]

  • It must be asymmetric, and therefore, abundance-based.

There should be no material cost associated with creating and awarding this currency to another user in the network. Its creation will not entail any further obligation or commitment from the issuer. [2]

  • It must be karmic

By ‘karmic’, I mean the principle of increasing returns. Receiving this currency will make it more likely that you will, in turn, receive value back from other users. In this way, the currency will enable effort, attention and resources to flow to the people according to merit, as determined by the network’s users.

  • It must be un-gameable

It should be impossible or impractical for any conspiring group to artificially award each other this currency, and divert the network’s value to themselves as a result.

  • It must support gradients of value

It should be possible to award the currency conveniently in different amounts to different users, based on the perceived value they have delivered.

It might seem like I have defined a wish list for something so perfect it could not exist. Certainly, if this problem were to be approached from a narrow monetary perspective, it would be completely intractable. There is no way money could be created by a user without an obligation or commitment backing it. I am however using ‘currency’ in a broader sense, to describe a trusted symbol in a network which acknowledges and shapes the flow of value through it. [3]

The approach I’ll develop uses some simple secondary school maths. It’s meant to outline the bare structure of a system which could work. No doubt a mathematician with a grasp of network theory could devise a more refined version of what follows. (If you are one, I’d be grateful for some feedback.)

Thanks as social gesture

As mentioned, the basic gesture which we will use to create this currency will be a #PunkMoney thanks tweet. The ‘thank you’ note can be created in two ways: by replying to a promise with

@someone thanks #punkmoney

or by creating a new tweet from scratch, for example

@someone thanks for the beer #punkmoney

This new functionality has already been added to the tracker, so this building block is already in place. In the proposal that follows, thanks basically stands for any gesture from X to Y which constitutes an acknowledgement of value created by Y. We can represent this as an edge between two nodes:

X -> Y

The approach will in fact be agnostic to the type of gesture used, as long as it means the same. All my examples will rely on the #PunkMoney thank you gesture as this is the context the currency is being defined for.


A naive approach would be to simply count the number of thanks a person received over a given time period, and represent this as a karma score. The basic problem with this is that it is trivial to game: just tweet someone a lot of thanks to inflate their score.

The solution is to take a perspectival approach. [4] According to this way of looking at things, no user in the network has an intrinsic score or balance which is the same to all other users. Instead, Y’s karma will look different depending on where you stand in relation to Y in the #PunkMoney network.

Let’s assume the following graph of A’s basic network. We arbitrarily normalise A’s karma to 100, representing the total amount of karma which will be shared out to users as A sends thanks to others.

In this thanks graph, we can calculate a perspectival karma score for every user from A‘s point of view, using some simple maths. Since A has sent two thanks, each of them is worth 50% of his starting balance of 100. As a result, A will see B and C‘s karma as 50 respectively (50% of 100.) Since B has thanked D and E, their karma will be equal to the product of the ratios (times 100) down the branch to either user. We also want karma to decay with distance, so that after a certain number of hops through a branch it fades out, rather than continues indefinitely. To achieve this, we can divide the ratio for each hop by its distance from the origin of the calculation, A.

In this case, D’s karma from A’s perspective can be calculated as follows,

KA->D = (1 x KA->B) x (1/2 x KB->D) x 100

= (1 x 50%) x (1/2 x 50%) x 100

= 12.5

E’s karma from A’s perspective:

KA->E = (1 x KA->B) x (1/2 x KB->E)

= (1 x 50%) x (1/2 x 50%) x 100

= 12.5

Finally, F will have a karma score equivalent to:

KA->F = (1 x KA->B) x (1/2 x KB->F)

= (1 x 50%) x (1/2 x 100%) x 100

= 25

The defence against gaming is the subjectivity of a perspectival score. The karma a user has depends on the person who is looking at them, and their relationship to them. If a group of conspirators decided to award each other a lot of karma, they would form a closed loop. No other users would be connected to them, and hence, each conspirator’s karma would appear as zero to the rest of the network.

A different gaming strategy would be to first try and earn some thanks from other users in the network, and then to start artificially inflating the karma supply to some co-conspirators. On closer inspection, though, this is impossible because the supply of karma cannot be inflated: the more thanks a user create, the less karma each one confers. A user who wants to game the system could never give away more karma than they have in fact earned. Another way to put this is that total karma received is always equal or greater than karma awarded [5]:

kin <= kout


At the beginning of the post, I defined one of the principles this currency must adhere to as that of increasing returns. Receiving karma should make it more likely (in a non-trivial sense) that other users will want to provide value to them. Perhaps this value provision will take the form of fulfilling specific requests, or sending them new promises for things they might need.

To achieve this, we need the value of a person’s thanks to be proportional to the amount of karma they have. We’ve established that from A‘s perspective, F is the user with the highest karma score (50.) If our currency is karmic, and deserves to be called karma, it must be the case that when F thanks someone, it’s worth more to their karma score than when D or E (with 25 each) do.

This definition presents some issues. First of all, karma is perspectival, rather than an intrinsic property of a user. So a statement such as “F‘s thanks is worth more than E‘s thanks” needs to be qualified accordingly. There is no objective sense in which F‘s and E‘s thanks are worth anything: it’s only from the point of view of users connected to either F or E that those gestures mean something. However, to make sense of this statement we need a neutral way of comparing the value of F and E‘s thanks. We can do this by assuming a neutral observer O, who is connected to both F and E in the same way.

Let’s add O to the graph in relation to F:

In this graph, the theoretical user O (he doesn’t actually need to exist to make this point) can be connected to both F and E in exactly the same way: via a single thanks from either F and E, to him. That is, from A‘s point of view, the only factor which could create a difference in O‘s karma would be F and E‘s relationship to A, not to O.

Clearly, F‘s thanks to O is worth more to O than E‘s, from the perspective of A. Assuming F thanked OO‘s karma from A‘s perspective is calculated as follows:

KA->O = (1 x KA->C) x (1/2 x KC->F) x (1/3 x KF->O) x 100

= (1 x 50%) x (1/2 x 100%) x (1/3 x 100%) x 100

= 8.25

In comparison, if E thanked O instead, his karma from A‘s perspective would be lower:

KA->O = (1 x KA->B) x (1/2 x KB->E) x (1/3 x KE->O) x 100

= (1 x 50%) x (1/2 x 50%) x (1/3 x 100%) x 100

= 4.12

In other words, from the perspective of a neutral observer, it would be better to receive a thanks from F, in order to win favour with A, than it would E. This is significant because it establishes that this currency is karmic: due to F‘s better position than E, his thank you has more value. It’s more likely that O will want to help F, as a result of his relationship to A, all else being equal. Value flows according to merit.

Weighted thanks

The final constraint we defined for this currency was the ability to express gradients of value. I’d like to be able to send a thanks to person A for putting me up in their home for a night worth a hundred times the thanks I’ll send B for retweeting my blog post. This is also no problem given the definition outlined above.

In practical terms, instead of requiring a #PunkMoney user to send a hundred thank you tweets, we’ll allow them to add a number to the thank you note, for example:

“@someone thanks for putting me up +50 #punkmoney”

Now all we have to do is divide up the user’s karma proportionately. A single thanks will be worth 1/50th of this one. The total value will be equal to 100. Assuming two thanks, where one is worth 1/50th of the other, we simply adjust the ratios accordingly:

KA->C = 50 x KA->B
KA->B + KA->C = 100

50 x KA->B + KA->B = 100

KA->B = 100/51 = 1.96
KA->C = 100 – 1.96 = 98.04

Plugging these weighted ratios into the graph will allow us to take into account that A intended his thanks to B to be worth a great deal more, and to cause a greater impact on his karma score.


This defines the basic approach. As I mentioned before, it’s a bare structure which could probably be significantly improved upon, assuming its logic is sound. I’ve deliberately left out factors like time-decay, how to represent a user’s karma back to them, and the computational cost of calculating karma in a large, densely connected network. I’ll hopefully address those in a second post. In the meantime, I’d be grateful for feedback.

To summarise: the basic idea is to introduce a peer-to-peer accounting mechanism which is debt and commitment-free, but which helps to allocate value in a network efficiently, according to merit. If it worked, it might reasonably replace money in some situations. Karma would not have the full force of a monetary claim: having it only makes it more likely that a value will flow back to a user through incentives, but won’t guarantee it. Still, if it works the implications are good enough for #PunkMoney.


[1] See Splitting the Social Currency Atom for my take on social currencies, and a potential ambiguity in the way the term is used.

[2] The term asymmetric accounting was coined by Gregory Rader, to describe “systems that record and track the provision of value rather than the volume of money transacted.”

[3] See A Broader Definition of Currency for a discussion on expanding the concept of currency beyond money.

[4] First explored in a A Perspectival Trust Metric for Ripple. Thanks to Jordan Greenhall for pointing me in this direction.

[5] This is similar to the approach taken by PieTrust for resisting “reputation inflation.”

Ripple, Bitcoin and Peer-to-Peer Money

How could Bitcoin and Ripple complement each other? Until 1971, the international monetary system relied on a combination of gold reserves and paper money issued by governments. The paper notes were convertible to gold on request, although the rates of conversion varied, and were sometimes suspended. Until the post-war Bretton Woods accord, this system emerged without central design or protector institutions, and saw the lowest period of inflation in British history between the 18th and 19th centuries, and a signficant growth in international trade.

The relationship between Bitcoin and Ripple might be similar. Bitcoin is a special type of commodity money, like gold. A limited quantity of Bitcoins will ever exist – 21 million, of which 8.1 million have already been mined. Like gold, Bitcoin involves no counter-party risk: owning it doesn’t require the bearer to trust another person. Bitcoin transactions are also irreversible and don’t depend on a centralised authority to authorise or remember them. Once the thing, or bits have changed owner, it’s permanent. Bitcoin went through a large speculative bubble–perhaps inevitably–garnered by hype and media attention. Its critics dismiss it as flawed, yet it is still around and, at the time of writing, a Bitcoin is worth six dollars.

Ripple is a different kind of system: a proposal to create a peer-to-peer credit network, in which anyone can create their own money as IOUs, subject to other people’s willingness to accept them. The creation of new money as IOUs is made possible by people’s willingness to believe that the issuer will accept them back in exchange for goods and services at a later date. Alternatively, Ripple users can pay people who don’t explicitly trust their IOUs, by routing payments through a chain of intermediary users who do. If Alice wants to pay Paul, who doesn’t know her, she can still send him an IOU via John, who is trusted by both of them. This idea forms the basis of what could potentially be a digital, peer-to-peer credit system. Rather than merely providing us with a new way of lending old money to each other without banks, Ripple would allow its users to create their own.

Current challenges

At the moment, Bitcoin is entering its third year. It has received generous media attention, however its main users are mostly hardcore hackers and libertarians. It hasn’t yet caught on to the mainstream, for a number of reasons, including usability, scarcity, legal ambiguity and the lack of goods and services currently on offer for Bitcoin. It is interesting to see that despite this, Bitcoin has not yet collapsed. The network has stayed true.

Ripple has not yet successfully scaled beyond the level it needs to in order to become useful as a means of payment, rather than just an IOU tracking tool for friends. Part of the reason is that is suffers from unusual bootstrapping difficulties: its network only becomes really useful after reaching a certain size and density. Before that point, the network effects are not that strong. You might have a number of friends on a Ripple system, but it’s unlikely they’re the kind of people you need to do business with. Yet in order to get big enough to enable impersonal transactions to happen, lots of people need to join it.

Perhaps Bitcoin and Ripple can help each other, much like paper and gold complemented each other in the gold standard arrangements before they collapsed in 1971. However, this time, the technologies can be fundamentally peer-to-peer. A synthesis of Ripple and Bitcoin would create a sophisticated monetary system fully outside the control of any government or corporation. Such a system could provide a stable source of liquidity to people and businesses around the world, without having to rely on the monetary policy of governments, or lending habits of banks.

How exactly might this work?

Bitcoin as reserve currency

The most obvious starting point is to create a peer-to-peer credit network based on genuinely decentralised technology. Much like Bitcoin, such a network would process and record transactions in a totally peer-to-peer manner, without the need for a central book-keeper. However, in the case of Ripple, individuals would be creating their own money as IOUs, rather than mining it. A decentralised design would mean that each node in the network would know about every node it was connected to through a trust relationship. The software would work as a protocol, like email, rather than as a hosted service.

This proposal already exists as the theoretical latter stage of Ripple’s development. However, it’s possible to imagine something further still. It would be interesting if Ripple’s international unit of account became Bitcoin. Self-issued credit currencies in the Middle Ages were often denominated in gold or silver bullion. Most of the time, notes were redeemed in an equivalent amount of goods or services, as gold and silver were hoarded in temples and monasteries. The metals were used to periodically settle accounts, particularly large ones. The gold standard which followed later allowed international trade to take place thanks to a similar principle: currencies were pegged to a quantity of gold, but were often redeemed in goods and services. Gold only changed hands when deficits needed to be settled between countries. This, in turn, imposed discipline to keep control of their balance of payments, lest they run out of gold.

A similar option might be available to a decentralised Ripple network. Users could hold bitcoins in ‘reserve’ accounts, with the ratio of credit issued to bitcoins held exposed to other users of the network. Such transparency would allow everyone to see how leveraged any given user was. People would accept credit from other members who didn’t necessarily produce anything they wanted, because they would be able to convert credit into Bitcoin on request. Bitcoin would provide a level of security and confidence in the credit system. Such a set up seems to have worked for gold and paper for centuries.

There is nothing wrong with users extending credit in excess of their Bitcoin reserves: credit is denominated in Bitcoin, but redeemable in all kinds of goods and services, as well as Bitcoin, if necessary. What matters is that users have confidence in each other’s credit, whether they intend to redeem it for Bitcoin or not. With the ability to create credit denominated and backed by Bitcoin, users are no longer artificially limited by its supply. Credit can expand and contract according to confidence, but still stay within credible limits.

Transparent reputation

The last ingredient to this hybrid model is a trust metric, which would allow users to share information about their confidence in users with their neighbours. In the informal gift economy, the checks and balances of reputation accounting ensure that free-riders are eventually outed, while people who do their fair share (or more) win trust and respect. Similarly, a good trust metric will make credit-worthy users well regarded, further extending their ability to create money. People who don’t honour their promises should see their trust ratings drop, discouraging others in the network from accepting their credit.

In principle, this is how many trust measurement systems work: on eBay, judgements of individuals about a person’s trustworthiness are aggregated into points. This rating system makes eBay work: it gives people who don’t know each other sufficient reason to engage in time-delayed transactions, where fraud would otherwise be easy to get away with. Reputation currencies create confidence.

However, an eBay-ratings model would almost certainly be gamed in a monetary system (and already is to an extent on eBay). How do you design a trust measurement system that can’t be? It sounds like an unlikely task, but ideas about how it can be achieved exist.

With a Bayesian approach, trust can be measured perspectivally. If Alice trusts Bob, and Bob trusts Jane, Alice is more likely to trust Jane as well, though perhaps not as much. This dynamic is already at work informally in social networks. Jane has no intrinsic trust score floating above her head; rather, different people will trust her to different degrees, depending on their relationship to her. A Ripple trust metric can work in the same way.

When people connect on Ripple, they declare a trust relationship which is quantifiable, because it is expressed in terms of credit limits. If Jane trusts Bob with 50 BTC and Adam with 25 BTC, it’s possible to infer that she trusts Bob’s credit twice as much as Adam, and so on. These decision can then be used to weight calculations about who Jane can trust, based on who Bob or Adam trusts. A perspectival trust metric, as I’ve argued in this post, might be the missing ingredient which helps Ripple to scale beyond personal trust relationships, as it needs to.

Could it happen?

Perhaps the way money has worked in the past–as a combination of commodity and promise–is the key to creating a successful monetary system. A Bitcoin-Ripple mash-up would combine the scarcity of Bitcoin with the power of credit creation. All the technology to build such a hybrid model already exists, after all, so it is perhaps only a matter of time until someone creates it.

Related posts


Philip Coggan, Paper Promises (2011), ch.3 “Going for Gold”

Self-Issued Credit in the Middle Ages

In the Middle Ages, Roman bullion money ended up hoarded inside churches and monasteries, leading to a shortage of money in circulation. This led to the creation of new, improvised forms of paper money, issued by the people rather than their rulers. Esoteric types of credit money, such as ‘tea checks, noodle checks, bamboo tallies, wine tallies’ emerged China [1]. In England, money was issued by ‘shopkeepers, tradesmen and even widows who did odd jobs.’ [2] All over the world, money took on unprecedented forms as credit tokens issued by peers in relationships of trust, or ‘self-issued credit.’ In Europe, such forms of money were often denominated in Carolingian money, but did not rely on it as a basis for issuance.

Self-issued credit may have been widespread in the Middle Ages, but the history of money seems to be denominated by bullion. This is partly because objects like paper notes and tally sticks don’t survive as well as coins do, even though they may have been used a lot more at a given time in history. Traditionally, money is conceived of as something created by monarchs, or their central banks, and not by people. However, today we face cash problems which are similar to those at the onset of the Middle Ages in Europe: money is becoming scarce again, as banks are contracting, leaving people who are able and willing to earn a living without the means to pay for it. Perhaps we can learn some lessons from the abundant self-issued credit of the medieval era.

What is self-issued credit?

First of all, what is self-issued credit precisely? It could be defined as a recorded promise to deliver an equivalent amount of goods or services to the bearer of the note. Such a promise would usually come with an expiry date, which limits the issuer liability in case of non-redemption over an extended period. Here’s an example: a “labour note” issued in the 19th Century: [3]

Notes would typically be denominated in a unit of account: in this example, three hours’ labour “in Carpenter’s Work” from Joseph Peters. This particular note is non-transferable, however most notes would be. Usually, the community of people who are willing to trust the issuer to make good on their promise defines the boundaries of circulation. A typical medieval market would involve trading with notes issued by bakers, butchers and farmers. Promises issued from one source could circulate through many pairs of hands before returning to their issuer for redemption, providing a supply of money even for people who didn’t intend to redeem them. As confidence begets confidence, self-issued credit becomes money.

From this description, it’s obvious that money like this is heavily dependent on trust between individuals. The credibility of a given producer literally determines their access to money. This creates a virtuous feedback loop in the system: people who don’t redeem their promises loose credibility, and their money starts to trade at a discount, or not at all, as other people factor in the risk of accepting it. On the other hand, issuers who are honourable benefit from the fact that people who don’t necessarily want to buy their produce will accept their cash, because it is highly trusted. It’s these dynamics which regulate the supply of self-issued credit – the amount of money a person can create depends on people’s faith in their promises, and vice versa. [4]

The advantages

From the above description, self-issued credit might sound like a risky idea. This is true, insofar as relying on promises – even State-backed ones – always involves an element of risk. What is interesting about this particular type of money is that the risks are transparent and distributed: people issue their own money, which they’re responsible for redeeming. The bearer would probably not have legal recourse if something went wrong. In fact, in the medieval Islamic trade routes, disputes over self-issued credit notes could only be referred to voluntary courts mediated by merchant guilds or civic associations. The courts’ ability to impact a merchant’s credibility, and hence their access to credit, was their main source of power. [5]

The greater risk transparency means that there is less moral hazard in the monetary system: people who accept self-issued credit are aware of the risks that they are taking in doing so, and bear the consequences if something goes wrong. In the case of a national money supply, bad debts lead to monetary crises which affect everybody who uses the currency. Similarly, in a mutual credit system, money issued by people who don’t keep their promises creates problems for everybody else using the system, as it exists as a collective liability, rather than a personal one. Self-issued credit systems, by contrast, create resilience through diversity.

Another benefit of accepting greater risk is liquidity. Unlike forms of money which originate from hierarchical institutions like commercial banks, or government mints, self-issued credit is never in short supply relative to need. As long as people are able to produce things, and convince other people to accept their promises to deliver them as payment, money can be created. The ability to produce, and trust within a community, are the determinants of the money supply, rather than the other way around. Douglas Rushkoff recently coined the phrase “radical abundance” to describe this tendency in medieval monetary systems. [6]

As well as risk transparency, and abundant liquidity, we could also add to the list that self-issued credit is not debt-based, like other proposals to replace the financial system are. Specifically, transactions do not necessarily create debts, they create potential liabilities. The difference might appear semantic, but isn’t. Debts are exchanges which aren’t yet brought to completion, and which linger on when not completed. We are naturally averse to going into debt to people we have close relationships to for good reasons: they change the balance of power within relationships, and potentially undermine them. In a centralised financial system, the banks act as mediators between borrowers and lenders, absorbing the bad Karma of debt-ridden relationships. In mutual credit, debt can also be a problem if it is left hanging, without possibility of escape, because nobody wants to buy anything from the debtor.

A self-issued credit note creates a different type of relationship. A note issued is a potential liability, because a promise to deliver something only has to be redeemed if the bearer wants it to be. If they don’t, there is no feeling of an incomplete transaction hanging over the relationship, as there would be in an accounting system. Expiry dates also allow issuers to limit the extent of their exposure, creating a safety against accumulating potential debts. Another significant factor is the narrative associated with self-issued credit. Issuers feel like they are creating a unit of money, rather than accumulating debts. This, in turn, encourages participation among producers.

What is to be done?

Recent research has led me to the conclusion that self-issued credit is a really powerful invention, which seems particularly well suited to a networked era. It’s money that arises from relationships between peers, and which depends on trust, rather than state coercion of fear of destitution. It transcends the corrosive logic of debt, and it also works particularly well for communities. Another appealing aspect is the simplicity of such systems: ancient technologies like paper, seals and ink were sufficient to create credit notes, and should be again today. What has worked well in the past might prove very useful now, particularly with the help of modern technology. [7] Something to explore in more depth in a future post.

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[1] David Graeber, Debt, p. 270. During the Song Dynasty (960-1279 AD,) in periods of financial collapse, people resorted to ‘tea checks, noodle checks, bamboo tallies, wine tallies, etc.’ Graeber also notes these forms of popular money resembled the ‘token’ money seen in Europe in the Middle Ages.

[2] David Graeber, Note worthy: what is the meaning of money?, Guardian

[3] The example labour note is from Wikedia’s article on barter. Self-issued credit as well as mutual credit can sometimes be referred to as barter, in the sense that the goods promised are being bartered in the future for goods received now. This is also called ‘virtual barter.’

[4] Paul Grignon’s animated video The Essence of Money: A Medieval Tale gives a good account of the mechanics of self-issued credit in medieval European market fairs.

[5] David Graeber, Debt, p. 276.

[6] This phrase comes from a talk called Radical Abundance given by Douglas Rushkoff in 2009, in which he describes the abundance-based grain-backed currencies of the European Middle Ages.

[7] Mark Frazier has written several interesting proposals for how personal currencies might be implemented using modern technology.

GiftPunk: A Twitter Tool for Giftcasting

Recently I’ve been thinking about communities, and how to build them. Communities are in some sense defined by the flow of gifts, rather than market-based transactions. Perhaps the kinds of behaviour encouraged by the market is one of the reasons communities have been in decline in recent history. As one person put it to me recently, “community building is a truly 21st century problem.”

If gifts define community, it might be because they encourage feelings of generosity and gratitude, and hence bonds of kinship. It may also have something to do with the fact that the informal gift economy presupposes an ongoing relationship. If I give you a sack of potatoes, I have a vested interest in our continued relationship, while I wait for you to reciprocate. According to anthropologist David Graeber, this explains why, historically, many communities deliberately avoid reciprocating with gifts of precisely equal value. [1]

After experimenting with #PunkMoney, a promise currency based on Twitter, I’ve been exploring how Twitter can be adapted and repurposed to do new, unexpected things. Recently the two ideas of community building through gifts, and the simplicity of defining conventions on top of the Twitter API, came together in the shape of GiftPunk – a simple tool for communities to broadcast needs and offers.

How it works

A community sets up a central account, for example @OccupyLondonGifts. The account can be private or public. Whoever follows it has the right to post needs and offers to it, which then appear in the main stream of the account.

For example, if Alice wanted to offer legal advice, she could tweet:

@OccupyLondonGifts I offer an hour of legal advice.

– Alice

GiftPunk can find Alice’s tweet, interpret it and tweet through the community account:

[Offer] @Alice offers one hour of legal advice

– @OccupyLondonGifts

Everyone who follows @OccupyLondonGifts can see Alice’s offer, and take advantage of it if they want to. In the same way, you could tweet your needs. Say Bob needs some help:

@OccupyLondonGifts I need help cleaning the kitchen tent.

– Bob

GiftPunk then finds and re tweets this as:

[Need] @Bob needs help cleaning the kitchen tent.

– @OccupyLondonGifts

You can also easily take down offers and needs from the community stream, by replying to the tweet with “@OccupyLondonGifts close.” Otherwise, they expire on their own within a week.

The nice thing about using Twitter to do this is that it’s very accessible and simple to use. You can use Twitter from a mobile phone. Since it’s easy to add and remove messages, GiftPunk becomes a live stream of your communities needs and offers. This makes it easier to identify where gifts can flow, and to make it happen.

Gratitude currency

The next step for GiftPunk is to add in a gratitude currency, which can be used to help people build a reputation around their capacities. If you are a good legal counsellor, or a good baker, it would be useful if others could record their gratitude to you for those things in a way which helped you to build lasting social capital within and beyond the community.

Twitter makes doing this very easy. Like many other Twitter based gratitude currencies [2], we can easily define a ‘thanks’ syntax, like this:

@OccupyLondonGifts thanks @Harry for the marmalade

– @Sally

GiftPunk will find and record the thank you messages, and the action they relate to if one is given. This data can be aggregated, so I can see how many times different members have been thanked, by whom and for what. It would be useful for all members of the community, as well as the people it describes. If I want to find someone who is good at legal counselling, it will tell me that Alice is probably a safer bet than Harry, even though he makes good marmalade.

The data collected in this way could in turn be displayed on a web page for the community to see, or be made available through an API so that other services can use it. Alternatively, I’ve been pondering how it might be possible to automatically spawn Twitter lists with different ranks, and move users through them as they accumulate gratitude, subject to some kind of time decay.

Try it out

I’ve set up a version of GiftPunk under the Twitter name @GiftPunk. It uses all the conventions described in this post. There have already been a few offers (programming lessons, beta testing and guitar lessons.) To try it out first follow the account and then tweet. It takes on average 30 seconds for your tweet to be found and processed.

If you’re curious, the code is also on GitHub, here.

[1] “The Myth of Barter” in Debt: The First 5000 Years by David Graeber

[2] See Twollars as an example of a Twitter-based gratitude currency

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