Make Your Own Nanocurrency! DIY Money!
In Nakamoto’s Happy Kingdom, every person can be a central bank!
This summer, Wesley Sheh and Joel Nishimura discuss why this is not just possible, but would be a good thing, particularly for people with limited access to conventional finance [1].
Basically, the idea is to use Nakamotoan technology to implement a digital version of a personal IOU. The technology helps assure authenticity, and can implement details such as expiration date or other conditions. The digital IOUs can also be traded, and in this role they form a “nano-currency”.
The general idea is to use this technology in local exchanges between people who know and trust each other. This would support transactions that are small or irregular; that conventional financial institutions won’t handle them. They also don’t require bank accounts or conventional assets for collateral. I would note that a securely signed IOU can be the foundation of different kinds of informal contracts, so people could do a lot of things, whatever they need.
How well would this work?
Everything depends on the details, of course. But we can think about some general plusses and minuses.
I can see some good points with this idea. This is an end run around red lining and other discrimination and inequality. People can set up their own local exchange networks, including secure records of whatever kinds of debts they want to exchange (not just money). This kind of self help is surely better than dependency on disinterested, profiteering financial service.
And, properly designed, this system could have pro-social features, including good security, reasonable transparency, and equal access. Assuming that the system is easy for everyone to use, and hard for anyone to abuse; this could open the way for lots of people to do things they already do in a slightly better way.
Now, I do see a lot of potential problems. Debt is debt; frictionless debt is…frictionless debt. A system that promotes more efficient loan sharking is hardly a plus. And we can be sure; very, very sure; that this will be used for illegal and questionable activities. If this becomes mainly a tool for exploitation, fraud, and crime, that would not be so great. (One of the main virtues of conventional finance is that it is heavily policed.)
How do you get permission to use the system? If you have to have conventional credentials to get into the system, that defeats much of the purpose. But if you don’t have to have credentials to use the system, then it will be overrun with fraud and abuse.
At a higher level, I would ask, “who really owns the system?” The software has to run somewhere, and the software has to be created and operated by someone. Who owns the servers and networks?
If this is run by some government or company, then why should we trust it? Who benefits and who pays for it, anyway?
And, finally, I’ll note that the primary use of Nakamotoan cryptocurrencies is for digital trading. When there are a zillion nano-currencies, none of them are worth for very much. My personal nano-currency might have a dozen or two transactions active, and yours another dozen, and so on. Absolutely noone will be interested in trading these certificates. So why bother?
- Wesley Sheh and Joel Nishimura, Why You Should Be Able to Make Your Own Individualized, Digital Nano-Currency. Communications of the ACM, 66 (8):35–38, 2023. https://doi.org/10.1145/3583987
Cryptocurrency Thursday
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