In a new paper, Kartik Hegadekatti considers the use of cryptocurrency in space colonies, e.g., a human settlement on Mars. He presupposes that such settlements will, sooner or later, develop economies similar to Earth, and therefore will find a use for “money” in all its varied forms.
So what would be the best approach?
Hegadekatti starts with a rather shallow analysis of the impracticality of shipping physical coins and notes from Earth to the colony. Unless launch costs drop dramatically (which might happen with a space elevator), this is a truly silly idea.
For some reason, he leaps from this fact right to the conclusion that cryptocurrency is the best alternative. He ignores the more conventional notion of a local mint, which could create tokens from local materials. He also skips over the use of other sorts of digital commerce, e.g., systems operated by local banks.
(As Stan Higgins comments in Coindesk, “The paper’s timing is notable, given India’s controversial push away from paper currency and a rise in bitcoin purchase activity in the country.” )
Considering cryptocurrencies, he ponders the effects of the long communication latencies, which would seem to prohibit the use of s single blockchain on, say, Earth and Mars. He believes that the Moon, with a few seconds round trip latency, is close enough to be a “province” of Earth’s economy. Maybe. But Mars and beyond are clearly too far away for a unified system.
He also blithely claims that these blockchain-based executable contracts “will make it possible for rules, regulations and laws to be enforced in space without the need for human supervision or intervention”. My own view is that this sort of DAO will work just about as well in space as on Earth, with the additional fact of gigantic latencies to deal with. (It would be interesting to see some serious simulations of this particular case.)
Hegadekatti speculates on the use of tiny “mining chips” embedded in devices throughout the solar system, similar to Earthbound concepts for using blockchains in IoT and other embedded devices.
Obviously, this is an interesting idea to think about. But I think Hegadekatti takes a rather narrow view of the topic, missing some critical issues.
First of all, he appears to be focused on the vision of s solar system with and integrated economy controlled from Earth. So, he sees the moon as “just another “province” of Earth”. He seems to assume that colonies would want to import banknotes from Earth if that were possible. And so on.
My own view is that such political dependency is unlikely. Such settlements will be difficult to control from Earth, and almost certainly will become politically independent sooner rather than later. They will want their own local economies and currencies. Dr. H. should know this: look to the history of his own country, which was “just another province” of England for many decades, until independence.
Furthermore, as in most economies, the bulk of activity will be local. Most transactions will be within the local settlements, only a small fraction will be “foreign trade” with other settlements and Earth. Technology designed for a large economy such as planet Earth is hardly needed for a small, sparsely populated settlement.
So, there are at least three factors—latency, politics, and locality—that will push toward a patchwork of local economies and polities. These entities will want to trade, for sure, but this will resemble international trade.
Blockchain systems are poorly matched for this scenario, because in these small scale economies the network cannot be very large. There are other ways to run a digital economy which will just as likely to be tried as blockchains.
In this view, trade with other planets and settlements are more like international trade on Earth. In particular, local economies will have their own currencies, and trade will involve exchange rates and relative efficiencies. It will not be tightly integrated like Earth’s current system.
While we are thinking about these things, I’ll refer the reader to the foundational work on the Interplanetary Network (IPN) , which would be the underpinning for the envisioned commerce. This work is exploring protocols that could actually work over interplanetary distances, which are significant extensions of Earthbound protocols. (Actually, the working group is currently only considering the inner solar system. Longer distances and delays are progressively harder to handle.)
It is important to note that the effective round trip latency is much longer than the light speed time, due to overhead and errors. You also need to have really gigantic buffers, to hold messages that are in transit for long times. And lots of things get really crazy, such as the notion of “now”, which is really difficult to define across even relatively small interplanetary distances.
Interplanetary politics and economics have been explored for decades in fiction. (If you want to think about how the Moon will be “province” of Earth, you can start with Robert A. Heinlein’s “The Moon In A Harsh Mistress” (1966) )
These issues have seen limited academic attention, though you might peek at Paul Krugman’s “The theory of interstellar trade”  and references. Solar system trade isn’t as difficult as interstellar, but the same concepts apply. For one thing, you need to pay a lot of attention to clocks and even, as Krugman suggests, inertial frames.
With respect to cryptocurrencies, per se, one might look at Charles Stross’s “Neptune’s Brood”  (which is certainly worth reading for its own sake). The novel’s plot hinges in part on a cryptocurrency transaction across multiple solar systems, and the complications that ensue from transactions at that temporal scale (centuries).
We might also ask what the role of “trust” will be, and whether the use of “trustless” protocols is a plus or a minus. There are two cases that are particularly interesting here.
First, within a space settlement (on a planet, small body, orbital platform, spacecraft, or combination of these) will be small and tightly knit. If everyone doesn’t know everyone, they will surely be only two degrees of separation. This is not only a matter of population size, it is a matter of survival: everyone depends on everyone to stay alive. Think “submarine crew”, for a terrestrial model. The economic system will scarcely need complicated “trustless” systems, because there is a high level of both trust and transparency.
Second, assuming that distant settlements have their own economies and blockchains, trade between them will be trade across the boundaries of separate systems. The internal economy and any blockchain based transactions or contracts will be pretty opaque fro the outside, if only due to the cost and delay of communication. In this situation, you certainly can’t “trust” a contract on someone else’s blockchain, any more than you could trust a contract enforced by their legal system. It will be critical to establish trust, probably in the old fashioned way—though personal reputations.
Over all, this paper is pretty short on detail, and leaves out many of the most difficult questions. But it certainly provoked me to think!
- Kartik Hegadekatti, Extra-Terrestrial Applications of Blockchains and Cryptocurrencies. 2016. https://ssrn.com/abstract=2882763
- Krugman, Paul, The theory of interstellar trade. Economic Inquiry, 48 (4):1119-1123, 2010. http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7295.2009.00225.x/full
- Stross, Charles, Neptune’s Brood, New York, Ace Books, 2013.